Economics:

Concepts, Methodologies, Tools,

and Applications
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Editor-in-Chief
Mehdi Khosrow-Pour, DBA
Contemporary Research in Information Science and Technology, Book Series

Associate Editors
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Annie Becker, Florida Institute of Technology, USA
Ari-Veikko Anttiroiko, University of Tampere, Finland

Editorial Advisory Board

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In Lee, Western Illinois University, USA
Jerzy Kisielnicki, Warsaw University, Poland
Keng Siau, University of Nebraska-Lincoln, USA
Amar Gupta, Arizona University, USA
Craig van Slyke, University of Central Florida, USA
John Wang, Montclair State University, USA
Vishanth Weerakkody, Brunel University, UK


List of Contributors

Abou-Warda, Sherein H. / Kafrelsheikh University, Egypt............................................................. 1201

Achtenhagen, Leona / Jönköping International Business School, Sweden................................. 34,1442
Adei, Timothy W. Y. A. / Pentecost University College, Ghana........................................................ 894
Affholter, Joseph A. / Saginaw Valley State University, USA............................................................ 846
Ahrens, Andreas / Wismar University of Applied Sciences: Technology, Business, and Design,
Germany........................................................................................................................................ 994
Akansel, Ilkben / Artvin Coruh University, Turkey.............................................................................. 82
Alakavuklar, Ozan Nadir / Dokuz Eylul University Tınaztepe Yerleskesi, Turkey.......................... 1234
Albesher, Abdulrhman / Brunel University, UK............................................................................... 344
Almeida, Fernando / University of Porto & INESC TEC, Portugal................................................ 1608
América Castiblanco, Luz / Associação Wylinka, Brazil.................................................................... 93
Andoh-Quainoo, Lydia / Pentecost University College, Ghana................................................. 806,825
Antonis, Ramfos / INTRASOFT International S.A., Luxembourg..................................................... 703
Appiah-Kubi, Seth / Pentecost University College, Ghana........................................................ 864,881
Arias-Oliva, Mario / Universitat Rovira i Virgili, Spain.................................................................. 1294
Ariza-Montes, J. Antonio / ETEA-University of Cordoba, Spain..................................................... 189
Arslan, Ahmet / Selcuk University, Turkey....................................................................................... 1167
Avnimelech, Gil / Ono Academic College, Israel............................................................................... 981
Bamford-Wade, Anita / Gold Coast University Hospital, Queensland, Australia............................ 579
Bandyopadhyay, Tridib / Kennesaw State University, USA............................................................ 1664
Banerjee, Preeta M. / Brandeis University, USA............................................................................... 494
Baporikar, Neeta / University of Pune, India................................................................... 599,1014,1251
Barba-Sánchez, Virginia / University of Castilla-La Mancha, Spain............................................... 629
Barbe, David F. / University of Maryland, USA............................................................................... 1129
Bassus, Olaf / Wismar University of Applied Sciences: Technology, Business, and Design,
Germany........................................................................................................................................ 994
Behboudi, Mehdi / Islamic Azad University, Qazvin Branch, Iran.................................................. 1025
Bellantuono, Nicola / Politecnico di Bari, Italy................................................................................. 562
Bermejo, Paulo Henrique de Souza / Universidade Federal de Lavras, Brazil............................... 361
Bernardino, Jorge / Institute Polytechnic of Coimbra, Portugal....................................................... 611
Blesa, Andreu / Universitat Jaume I, Spain........................................................................................ 759
Bonazzi, Riccardo / University of Lausanne, Switzerland................................................................. 652
Borges, Ana Pinto / Universidade do Porto, & NIDISAG, Portugal................................................ 1382
Bright, Jim / Australian Catholic University, Australia..................................................................... 667
Bunno, Teruyuki / Kinki University, Japan....................................................................................... 381





Burston, Mary A. / La Trobe University, Australia............................................................................ 211

Cakar, Ulas / Dokuz Eylul University Tınaztepe Yerleskesi, Turkey................................................. 1234
Cantaragiu, Ramona / Bucharest University of Economic Studies, Romania................................. 1055
Chen, Jin / Tsinghua University, China............................................................................................ 1154
Chen, Yufen / Zhejiang Gongshang University, China.................................................................... 1154
Cheng, Ranis / University of Sheffield, UK....................................................................................... 1347
Chipembele, Matuka / Copperbelt University, Zambia................................................................... 1596
Chowdhury, Solaiman / University of Rajshahi, Bangladesh............................................................ 747
Christos, Georgousopoulos / INTRASOFT International S.A., Luxembourg.................................... 703
Coelho, Manuel Francisco Pacheco / SOCIUS/ISEG-UTL, Portugal............................................. 1221
Colapinto, Cinzia / Ca’ Foscari University of Venice, Italy............................................................. 1682
Coraş, Eliza Laura / University of Economic Studies, Romania....................................................... 957
De Coster, Rebecca / Brunel University, UK...................................................................................... 344
Del Vecchio, Pasquale / University of Salento, Italy........................................................................ 1564
Denktas-Sakar, Gul / Dokuz Eylul University, Turkey..................................................................... 1088
Deshpande, Mukund / University of Pune, India............................................................................ 1460
Dossena, Claudia / University of Pavia, Italy..................................................................................... 652
Ebenezer, Eva Esther Shalin / Pentecost University College, Ghana............................................... 894
Ebner, Martin / Graz University of Technology, Austria..................................................................... 20
Ezenwanne, Dorothy Nkem / Nwafor Orizu College of Education, Nigeria................................... 1431
Fernandes, Cristina I. / NECE - Research Unit in Business Sciences, UBI, Portugal...................... 145
Ferreira, João J. / University of Beira Interior (UBI), Portugal & NECE - Research Unit in
Business Sciences, Portugal.......................................................................................................... 145
Ferreira, Manuel Alberto Martins / Instituto Universitário de Lisboa (ISCTE-IUL), BRU-
UNIDE, Portugal......................................................................................................................... 1221
Filipe, José António Candeias Bonito / Instituto Universitário de Lisboa (ISCTE-IUL), BRU-
UNIDE, Portugal......................................................................................................................... 1221
Følstad, Asbjørn / SINTEF ICT, Norway........................................................................................... 426
Francesconi, Alberto / University of Pavia, Italy............................................................................... 652
Gangadharan, G. R. / IBM, India...................................................................................................... 703
Ganzerla, Luca / Ca’ Foscari University of Venice, Italy................................................................ 1682
Gobbo Jr., José Alcides / São Paulo State University, Brazil............................................................ 536
Gouvea, Raul / The University of New Mexico, USA......................................................................... 228
Green, James V. / University of Maryland, USA.............................................................................. 1129
Green, Kimberly M. / University of West Georgia, USA................................................................... 126
Grünwald, Stefan / University of Applied Science CAMPUS 02, Austria............................................ 20
Güney, Semra / Hacettepe University, Turkey.................................................................................... 114
Hausberg, J. Piet / LUISS Guido Carli, Italy & University of Hamburg, Germany.......................... 297
Henoch, Bengt / Jönköping International Business School, Sweden................................................ 1442
Idota, Hiroki / Kinki University, Japan.............................................................................................. 381
Jain, Anshu / IBM, India.................................................................................................................... 703
Jalili, Nazanin / Islamic Azad University, Qazvin Branch, Iran....................................................... 1025
Joensuu, Sanna / Seinäjoki University of Applied Sciences, Finland................................................ 759
Johannisson, Bengt / Linnaeus University, Sweden & Jönköping International Business School,
Sweden............................................................................................................................................. 34
Juárez, Fernando / Universidad del Rosario, Colombia................................................................. 1399
 

Kamel, Sherif / The American University in Cairo, Egypt................................................................. 169

Karahasanović, Amela / SINTEF ICT, Norway & University of Oslo, Norway................................ 426
Karatas-Cetin, Cimen / Dokuz Eylul University, Turkey................................................................. 1088
Karnaukhova, Oxana / Southern Federal University, Russia.......................................................... 1275
Kemppainen-Koivisto, Riitta / University of Lapland, Finland...................................................... 1035
Kolarov, Kostadin / University of National and World Economy, Sofia, Bulgaria.......................... 1499
Köse, Utku / Usak University, Turkey............................................................................................... 1167
Küçüktamer, Tuğba / Near East University, Turkey........................................................................ 1340
Kutz, Matthew R. / Bowling Green State University, USA................................................................ 579
Kwami, Janet D. / Furman University, USA...................................................................................... 776
Lacerda, Elimar Pires Vasconcellos Renato da Silva / Associação Wylinka, Brazil........................ 93
Lane, Kenneth E. / Southeastern Louisiana University, USA.......................................................... 1650
Laranjeira, Erika / Universidade do Porto, Portugal...................................................................... 1382
Lei, Weng Si / Institute for Tourism Studies, Macao, China............................................................. 1347
Leminen, Seppo / Laurea University of Applied Sciences, Finland & Aalto University,
Finland.......................................................................................................................................... 445
Lemoine, Pamela / Columbus State University, USA....................................................................... 1650
Lewandowski, Mateusz / Institute of Public Affairs, Jagiellonian University, Poland........................ 53
Lourenço, Fernando / Institute for Tourism Studies, Macao, China & Manchester Metropolitan
University Business School, UK.................................................................................................. 1347
Luong, Quang / Jönköping International Business School, Sweden................................................ 1442
Martins, Ana Carolina Calçado Lopes / Associação Wylinka, Brazil............................................... 93
Martins, Teresa Cristina Monteiro / Universidade Federal de Lavras, Brazil................................ 361
Mazini, Sergio Ricardo / São Paulo State University, Brazil................................................... 536,1541
Misra, Kaustav / Saginaw Valley State University, USA.................................................................... 908
Mizuno, Yutaka / Nagoya Institute of Technology, Japan................................................................. 406
Molina-Ramírez, Ericka / National Polytechnic Institute, Mexico................................................... 629
Monclús-Guitart, Ricard / Universitat Rovira i Virgili, Spain........................................................ 1294
Monteiro, José / Instituto Nacional de Engenharia e Computadores do Porto, Portugal................ 1608
Morales-Gutiérrez, Alfonso C. / ETEA-University of Cordoba, Spain............................................. 189
Mostert, Andre / University of East London, UK............................................................................... 938
Muniz, Noel M. / ETEA-University of Cordoba, Spain...................................................................... 189
Najafi, Kobra / Islamic Azad University, Qazvin Branch, Iran........................................................ 1025
Narwal, Karam Pal / Guru Jambheshwar University of Science and Technology, India.................. 728
Ndou, Valentina / University of Salento, Italy.................................................................................. 1564
Nwabunwanne, Chinyere / Federal College of Education (Technical), Nigeria............................. 1431
Odake, Nobutaka / Nagoya Institute of Technology, Japan............................................................... 406
Ojo, Sanya / RDBS, University of East London, UK........................................................................ 1519
Öktem, M. Kemal / Hacettepe University, Turkey............................................................................. 114
Olibie, Eyiuche Ifeoma / Nnamdi Azikiwe University, Nigeria........................................................ 1431
O’Neal, Thomas / University of Central Florid, USA & Florida Economic Gardening Institute/
GrowFL Program, USA............................................................................................................... 1311
Panagiotis, Kokkinakos / National Technical University of Athens, Greece..................................... 703
Pankowska, Malgorzata / University of Economics in Katowice, Poland....................................... 1577
Passiante, Giuseppina / University of Salento, Italy........................................................................ 1564
Patra, Swapan Kumar / Jawaharlal Nehru University, India........................................................... 321


Păunescu, Carmen / Bucharest University of Economic Studies, Romania..................................... 1055

Pedro, Maria Isabel / CEGIST/IST, Portugal.................................................................................. 1221
Pellegrino de Souza, Patrícia / Associação Wylinka, Brazil............................................................... 93
Pesakovic, Gordana / King University, USA.................................................................................... 1367
Pires, Danilo Cançado Peixoto / Associação Wylinka, Brazil............................................................. 93
Pontrandolfo, Pierpaolo / Politecnico di Bari, Italy.......................................................................... 562
Porath, Amiram / College for Academic Studies, Israel.................................................................... 258
Potts, Mark D. / Saginaw Valley State University, USA..................................................................... 846
Pryor, Robert / Australian Catholic University, Australia................................................................. 667
Puia, George M. / Saginaw Valley State University, USA.................................................................. 846
Rabbani, Golam / University of Rajshahi, Bangladesh...................................................................... 747
Rahman, Hakikur / University of Minho, Portugal........................................................................... 258
Ramos, Isabel / University of Minho, Portugal.................................................................................. 258
Raposo, Mário L. / University of Beira Interior (UBI), Portugal & NECE - Research Unit in
Business Sciences, Portugal.......................................................................................................... 145
Richardson, Michael D. / Columbus State University, USA............................................................ 1650
Ripolles, Maria / Universitat Jaume I, Spain..................................................................................... 759
Ristimäki, Kari / Seinäjoki University of Applied Sciences, Finland................................................ 759
Rizk, Nagla / The American University in Cairo, Egypt..................................................................... 169
Rocco, Elena / Ca’ Foscari University of Venice, Italy..................................................................... 1682
Rock T., Juan / Universidad de Talca, Chile.................................................................................... 1367
Rodrigues de Macedo, Renato Ferreira / Associação Wylinka, Brazil.............................................. 93
Rusko, Rauno / University of Lapland, Finland........................................................................ 284,1035
Saad, Rana / University of Babylon, Iraq........................................................................................... 460
Saatcioglu, Omur Yasar / Dokuz Eylul University, Turkey............................................................. 1088
Sabini, Luca / LUISS Guido Carli, Italy............................................................................................. 297
Sadkhan Al Maliky, Sattar B. / University of Babylon, Iraq............................................................ 460
Santos, José Duarte / Polytechnic Institute of Porto, School of Accounting and Administration,
Portugal....................................................................................................................................... 1608
Sappleton, Natalie / Manchester Metropolitan University Business School, UK............................. 1347
Särkkä, Seppo / University of Lapland, Finland.............................................................................. 1035
Scheiding, Thomas / St. Norbert College, USA...................................................................................... 1
Schina, Laura / University of Salento, Italy..................................................................................... 1564
Schoen, Henriette / University of Central Florida, USA & Florida Business Incubation
Association, USA......................................................................................................................... 1311
Schweighofer, Patrick / University of Applied Science CAMPUS 02, Austria.................................... 20
Scozzi, Barbara / Politecnico di Bari, Italy........................................................................................ 562
Shaikh, Abdulbasit / Institute of Business Administration, Karachi, Pakistan.................................. 938
Shin, Henry / Saginaw Valley State University, USA......................................................................... 921
Siltavirta, Katta / University of Lapland, Finland........................................................................... 1035
Simonette, Marcel Jacques / Universidade de São Paulo, Brazil...................................................... 248
Singh, Parul / Indian Institute of Foreign Trade, India...................................................................... 270
Soriya, Sushila / Central University of Rajasthan, India.................................................................... 728
Spina, Edison / Universidade de São Paulo, Brazil............................................................................ 248
Stutzman, Tina / ECOVEC, Brazil....................................................................................................... 93
Tamoschus, David / Bayer Vital GmbH2, Germany........................................................................ 1626
 

Tanţãu, Adrian Dumitru / University of Economic Studies, Romania.............................................. 957

Tezcan, Mediha / Anadolu University, Turkey.................................................................................. 1073
Tinney, Tina M. / Northshore Technical Community College, USA................................................ 1650
Todorov, Kiril / University of National and World Economy, Bulgaria............................................. 510
Tornikoski, Erno / Grenoble Ecole de Management, France............................................................ 759
Torres-Coronas, Teresa / Universitat Rovira i Virgili, Spain.......................................................... 1294
Tsuji, Masatsugu / University of Hyogo, Japan................................................................................. 381
Tulunay, Leyla / Hacettepe University, Turkey................................................................................... 114
Valentino, Alfredo / LUISS Guido Carli, Italy................................................................................... 297
Varamäki, Elina / Seinäjoki University of Applied Sciences, Finland............................................... 759
Vidal-Blasco, Maria-Arántzazu / Universitat Rovira i Virgili, Spain............................................. 1294
Westerlund, Mika / Carleton University, Canada............................................................................. 445
Xenia, Ziouvelou / Athens Information Technology, Greece.............................................................. 703
Yehia, Taher / Tilburg University, The Netherlands........................................................................... 703
Zadeh, Bahman / Kennesaw State University, USA......................................................................... 1664
Zaščerinska, Jeļena / Centre for Education and Innovation Research, Latvia.................................. 994
Zelekha, Yaron / Ono Academic College, Israel................................................................................ 981
Zhang, Sonya / Cal Poly Pomona, USA.............................................................................................. 687
Table of Contents

Preface................................................................................................................................................. xxii

Volume I
Section 1
Fundamental Concepts and Theories
This section serves as a foundation for this exhaustive reference tool by addressing underlying principles essential
to the understanding of Economics. Chapters found within these pages provide an excellent framework in which to
position Economics within the field of information science and technology. Insight regarding the critical incorporation
of global measures into Economics is addressed, while crucial stumbling blocks of this field are explored. With
13 chapters comprising this foundational section, the reader can learn and chose from a compendium of expert
research on the elemental theories underscoring the Economics discipline.

Chapter 1
Online Delivery of Introductory Economics Content in the United States............................................. 1
Thomas Scheiding, St. Norbert College, USA

Chapter 2
Technology Enhanced Learning and the Digital Economy: A Literature Review................................ 20
Patrick Schweighofer, University of Applied Science CAMPUS 02, Austria
Stefan Grünwald, University of Applied Science CAMPUS 02, Austria
Martin Ebner, Graz University of Technology, Austria

Chapter 3
Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset........... 34
Leona Achtenhagen, Jönköping International Business School, Sweden
Bengt Johannisson, Linnaeus University, Sweden & Jönköping International Business
School, Sweden

Chapter 4
Introduction to Academic Entrepreneurship.......................................................................................... 53
Mateusz Lewandowski, Institute of Public Affairs, Jagiellonian University, Poland


 

Chapter 5
Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision............ 82
Ilkben Akansel, Artvin Coruh University, Turkey

Chapter 6
How Knowledge, Technology, and Project Management Processes in Brazilian Universities Help
Innovation in Industry............................................................................................................................ 93
Patrícia Pellegrino de Souza, Associação Wylinka, Brazil
Ana Carolina Calçado Lopes Martins, Associação Wylinka, Brazil
Tina Stutzman, ECOVEC, Brazil
Danilo Cançado Peixoto Pires, Associação Wylinka, Brazil
Elimar Pires Vasconcellos Renato da Silva Lacerda, Associação Wylinka, Brazil
Renato Ferreira Rodrigues de Macedo, Associação Wylinka, Brazil
Luz América Castiblanco, Associação Wylinka, Brazil

Chapter 7
Entrepreneurship Readiness in Turkey: Profiles from Istanbul-Kayseri-Van Provinces...................... 114
Leyla Tulunay, Hacettepe University, Turkey
Semra Güney, Hacettepe University, Turkey
M. Kemal Öktem, Hacettepe University, Turkey

Chapter 8
Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship...................... 126
Kimberly M. Green, University of West Georgia, USA

Chapter 9
Strategic Entrepreneurial Orientation and Small Business Growth..................................................... 145
João J. Ferreira, University of Beira Interior (UBI), Portugal & NECE - Research Unit in
Business Sciences, Portugal
Mário L. Raposo, University of Beira Interior (UBI), Portugal & NECE - Research Unit in
Business Sciences, Portugal
Cristina I. Fernandes, NECE - Research Unit in Business Sciences, UBI, Portugal

Chapter 10
ICT and Building a Knowledge-Based Society in Egypt..................................................................... 169
Nagla Rizk, The American University in Cairo, Egypt
Sherif Kamel, The American University in Cairo, Egypt

Chapter 11
Social Entrepreneurial e-Empowerment.............................................................................................. 189
Alfonso C. Morales-Gutiérrez, ETEA-University of Cordoba, Spain
J. Antonio Ariza-Montes, ETEA-University of Cordoba, Spain
Noel M. Muniz, ETEA-University of Cordoba, Spain


Chapter 12
Properties of Knowledge Matter: A Re-Examination of the Glitz of Entrepreneurialism as a
Change Paradigm for Higher Education.............................................................................................. 211
Mary A. Burston, La Trobe University, Australia

Chapter 13
Sustainability and Entrepreneurship: Fostering Indigenous Entrepreneurship in the Brazilian
Amazon Region................................................................................................................................... 228
Raul Gouvea, The University of New Mexico, USA

Section 2
Tools and Technologies
This section presents an extensive coverage of various tools and technologies available in the field of Economics that
practitioners and academicians alike can utilize to develop different techniques. These chapters enlighten readers
about fundamental research on the many tools facilitating the burgeoning field of Economics. It is through these
rigorously researched chapters that the reader is provided with countless examples of the up-and-coming tools
and technologies emerging from the field of Economics. With 14 chapters, this section offers a broad treatment of
some of the many tools and technologies within the Economics field.

Chapter 14
Enabling IT Innovation through Soft Systems Engineering................................................................ 248
Marcel Jacques Simonette, Universidade de São Paulo, Brazil
Edison Spina, Universidade de São Paulo, Brazil

Chapter 15
Collaborative Research (CR): To Reduce Transaction Cost in Open Innovation................................ 258
Amiram Porath, College for Academic Studies, Israel
Hakikur Rahman, University of Minho, Portugal
Isabel Ramos, University of Minho, Portugal

Chapter 16
Social Media Crowdsourcing: Supporting User-Driven Innovation by Generating Ideas................... 270
Parul Singh, Indian Institute of Foreign Trade, India

Chapter 17
Crowdsourcing for Transcultural Marketing and Innovation............................................................... 284
Rauno Rusko, University of Lapland, Finland

Chapter 18
Environmental Turbulence and Complexity and the Optimal Degree of Internal Open Innovation
for MNCs............................................................................................................................................. 297
J. Piet Hausberg, LUISS Guido Carli, Italy & University of Hamburg, Germany
Alfredo Valentino, LUISS Guido Carli, Italy
Luca Sabini, LUISS Guido Carli, Italy
 

Chapter 19
Innovation Network in IT Sector: A Study of Collaboration Patterns Among Selected Foreign IT
Firms in India and China..................................................................................................................... 321
Swapan Kumar Patra, Jawaharlal Nehru University, India

Chapter 20
The Development of Mobile Service Applications for Consumers and Intelligent Networks............ 344
Rebecca De Coster, Brunel University, UK
Abdulrhman Albesher, Brunel University, UK

Chapter 21
Open Social Innovation........................................................................................................................ 361
Teresa Cristina Monteiro Martins, Universidade Federal de Lavras, Brazil
Paulo Henrique de Souza Bermejo, Universidade Federal de Lavras, Brazil

Chapter 22
An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms................ 381
Hiroki Idota, Kinki University, Japan
Teruyuki Bunno, Kinki University, Japan
Masatsugu Tsuji, University of Hyogo, Japan

Chapter 23
A Case Study of Progressive Formation of Accounting Cloud Services in Japan.............................. 406
Yutaka Mizuno, Nagoya Institute of Technology, Japan
Nobutaka Odake, Nagoya Institute of Technology, Japan

Chapter 24
A Guide to Online Applications for User Involvement in Living Lab Innovation.............................. 426
Asbjørn Følstad, SINTEF ICT, Norway
Amela Karahasanović, SINTEF ICT, Norway & University of Oslo, Norway

Chapter 25
Incremental and Radical Service Innovation in Living Labs............................................................... 445
Seppo Leminen, Laurea University of Applied Sciences, Finland & Aalto University, Finland
Mika Westerlund, Carleton University, Canada

Chapter 26
Chaos-Based Cryptography for Voice Secure Wireless Communication............................................ 460
Sattar B. Sadkhan Al Maliky, University of Babylon, Iraq
Rana Saad, University of Babylon, Iraq

Chapter 27
ICT: A Resource for Bricolage in Social Entrepreneurship................................................................. 494
Preeta M. Banerjee, Brandeis University, USA


Section 3
Frameworks and Methodologies
This section provides in-depth coverage of conceptual architecture frameworks to provide the reader with a
comprehensive understanding of the emerging developments within the field of Economics. Research fundamentals
imperative to the understanding of developmental processes within Economics are offered. From broad examinations
to specific discussions on methodology, the research found within this section spans the discipline while offering
detailed, specific discussions. From basic designs to abstract development, these chapters serve to expand the reaches
of development and design technologies within the Economics community. This section includes 10 contributions
from researchers throughout the world on the topic of Economics.

Chapter 28
The Entrepreneur as Strategist and Improviser: Subject of Activity and Object of 
Understanding...................................................................................................................................... 510
Kiril Todorov, University of National and World Economy, Bulgaria

Chapter 29
Users’ Involvement in the Innovation Process through Web 2.0: A Framework for Involvement
Analysis in a Brazilian Automotive Company..................................................................................... 536
Sergio Ricardo Mazini, São Paulo State University, Brazil
José Alcides Gobbo Jr., São Paulo State University, Brazil

Volume II
Chapter 30
Mapping the Knowledge Supply Chain to Foster Innovation.............................................................. 562
Nicola Bellantuono, Politecnico di Bari, Italy
Pierpaolo Pontrandolfo, Politecnico di Bari, Italy
Barbara Scozzi, Politecnico di Bari, Italy

Chapter 31
Contextual Intelligence: A Critical Competency for Leading in Complex Environments.................. 579
Matthew R. Kutz, Bowling Green State University, USA
Anita Bamford-Wade, Gold Coast University Hospital, Queensland, Australia

Chapter 32
Information Strategy as Enabler of Competitive Advantage............................................................... 599
Neeta Baporikar, University of Pune, India

Chapter 33
Open Business Intelligence for Better Decision-Making..................................................................... 611
Jorge Bernardino, Institute Polytechnic of Coimbra, Portugal
 

Chapter 34
Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities: The Case of
Indigenous Ecotourism SMEs in Mexico............................................................................................ 629
Virginia Barba-Sánchez, University of Castilla-La Mancha, Spain
Ericka Molina-Ramírez, National Polytechnic Institute, Mexico

Chapter 35
Online Communities and Open Innovation: The Solar System Metaphor.......................................... 652
Alberto Francesconi, University of Pavia, Italy
Riccardo Bonazzi, University of Lausanne, Switzerland
Claudia Dossena, University of Pavia, Italy

Chapter 36
Fostering Creative Transformations in Organizations with Chaos...................................................... 667
Robert Pryor, Australian Catholic University, Australia
Jim Bright, Australian Catholic University, Australia

Chapter 37
Successful Internet Entrepreneurs Don’t Have To Be College Dropouts: A Model for Nurturing
College Students to Become Successful Internet Entrepreneurs......................................................... 687
Sonya Zhang, Cal Poly Pomona, USA

Section 4
Cases and Applications
This section discusses a variety of applications and opportunities available that can be considered by practitioners
in developing viable and effective Economics programs and processes. This section includes 21 chapters that
review topics from case studies, to best practices, and ongoing research around the globe. Further chapters discuss
Economics in a variety of settings. Contributions included in this section provide excellent coverage of today’s
IT community and how research into Economics is impacting the social fabric of our present-day global village.

Chapter 38
Applying Open Innovation Strategies to eGovernment for Better Public Services............................. 703
Georgousopoulos Christos, INTRASOFT International S.A., Luxembourg
Ziouvelou Xenia, Athens Information Technology, Greece
Ramfos Antonis, INTRASOFT International S.A., Luxembourg
Kokkinakos Panagiotis, National Technical University of Athens, Greece
Anshu Jain, IBM, India
G. R. Gangadharan, IBM, India
Taher Yehia, Tilburg University, The Netherlands

Chapter 39
Relationship between Company’s Intellectual Capital and Performance: A Study of Indian IT
Industry................................................................................................................................................ 728
Karam Pal Narwal, Guru Jambheshwar University of Science and Technology, India
Sushila Soriya, Central University of Rajasthan, India


Chapter 40
Women’s Entrepreneurship Development in Bangladesh.................................................................... 747
Golam Rabbani, University of Rajshahi, Bangladesh
Solaiman Chowdhury, University of Rajshahi, Bangladesh

Chapter 41
Entrepreneurial Intentions among Higher Education Students in Finland and Spain: Developing
and Piloting a Survey Instrument......................................................................................................... 759
Elina Varamäki, Seinäjoki University of Applied Sciences, Finland
Erno Tornikoski, Grenoble Ecole de Management, France
Sanna Joensuu, Seinäjoki University of Applied Sciences, Finland
Kari Ristimäki, Seinäjoki University of Applied Sciences, Finland
Andreu Blesa, Universitat Jaume I, Spain
Maria Ripolles, Universitat Jaume I, Spain

Chapter 42
Gender, Entrepreneurship, and Informal Markets in Africa: Understanding How Ghanaian
Women Traders Self-Organize with Digital Tools.............................................................................. 776
Janet D. Kwami, Furman University, USA

Chapter 43
Kama Group Limited........................................................................................................................... 806
Lydia Andoh-Quainoo, Pentecost University College, Ghana

Chapter 44
Global Lighting Centre Ltd.................................................................................................................. 825
Lydia Andoh-Quainoo, Pentecost University College, Ghana

Chapter 45
Factors Stimulating Entrepreneurship: A Comparison of Developed (U.S. and Europe) and
Developing (West African) Countries................................................................................................. 846
George M. Puia, Saginaw Valley State University, USA
Joseph A. Affholter, Saginaw Valley State University, USA
Mark D. Potts, Saginaw Valley State University, USA

Chapter 46
Holy Trinity Medical Centre................................................................................................................ 864
Seth Appiah-Kubi, Pentecost University College, Ghana

Chapter 47
Anointed Electrical Engineering Services Limited............................................................................. 881
Seth Appiah-Kubi, Pentecost University College, Ghana
 

Chapter 48
Entrepreneurship Factor in Institutional Development: A Case Study of Ghana Institute of
Management and Public Administration (GIMPA)............................................................................. 894
Eva Esther Shalin Ebenezer, Pentecost University College, Ghana
Timothy W. Y. A. Adei, Pentecost University College, Ghana

Chapter 49
Improving Lives through Mobility: A Case Study of Amigo Mobility International......................... 908
Kaustav Misra, Saginaw Valley State University, USA

Chapter 50
The Relationship between the Arab Spring Revolutions and Entrepreneurial Inhibitors, Enablers,
and Activity in North Africa................................................................................................................ 921
Henry Shin, Saginaw Valley State University, USA

Chapter 51
Enterprise as a Career Choice: A Multi-National Study...................................................................... 938
Andre Mostert, University of East London, UK
Abdulbasit Shaikh, Institute of Business Administration, Karachi, Pakistan

Chapter 52
Towards Convergence in European Higher Education through Open Innovation............................... 957
Eliza Laura Coraş, University of Economic Studies, Romania
Adrian Dumitru Tanţãu, University of Economic Studies, Romania

Chapter 53
The Impact of Corruption on Entrepreneurship................................................................................... 981
Gil Avnimelech, Ono Academic College, Israel
Yaron Zelekha, Ono Academic College, Israel

Chapter 54
A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application in
Entrepreneurship.................................................................................................................................. 994
Andreas Ahrens, Wismar University of Applied Sciences: Technology, Business, and Design,
Germany
Olaf Bassus, Wismar University of Applied Sciences: Technology, Business, and Design,
Germany
Jeļena Zaščerinska, Centre for Education and Innovation Research, Latvia

Chapter 55
Youth Entrepreneurship in Indian Scenario....................................................................................... 1014
Neeta Baporikar, University of Pune, India


Chapter 56
Internet Entrepreneurship Education and its Role in Online Business: A Case from Iran................ 1025
Mehdi Behboudi, Islamic Azad University, Qazvin Branch, Iran
Nazanin Jalili, Islamic Azad University, Qazvin Branch, Iran
Kobra Najafi, Islamic Azad University, Qazvin Branch, Iran

Chapter 57
Creativity with Institutionalization: Cooperatives as an Alternative Way of Starting a Creative
Business – Cases from Finland.......................................................................................................... 1035
Riitta Kemppainen-Koivisto, University of Lapland, Finland
Katta Siltavirta, University of Lapland, Finland
Rauno Rusko, University of Lapland, Finland
Seppo Särkkä, University of Lapland, Finland

Chapter 58
The Social Role of University Entrepreneurship............................................................................... 1055
Carmen Păunescu, Bucharest University of Economic Studies, Romania
Ramona Cantaragiu, Bucharest University of Economic Studies, Romania

Section 5
Issues and Challenges
This section contains 21 chapters, giving a wide variety of perspectives on Economics and its implications. The
section also discusses new ethical considerations within transparency and accountability. Within the chapters, the
reader is presented with an in-depth analysis of the most current and relevant issues within this growing field of
study. Crucial questions are addressed and alternatives offered.

Chapter 59
Social e-Entrepreneurship, Employment, and e-Learning................................................................. 1073
Mediha Tezcan, Anadolu University, Turkey

Chapter 60
Discovering the Nexus between Market Orientation and Open Innovation: A Grounded Theory
Approach............................................................................................................................................ 1088
Gul Denktas-Sakar, Dokuz Eylul University, Turkey
Cimen Karatas-Cetin, Dokuz Eylul University, Turkey
Omur Yasar Saatcioglu, Dokuz Eylul University, Turkey

Volume III
Chapter 61
Entrepreneurship Education at Mtech, University of Maryland........................................................ 1129
James V. Green, University of Maryland, USA
David F. Barbe, University of Maryland, USA
 

Chapter 62
The Practice of Open Innovation in Chinese Enterprises.................................................................. 1154
Jin Chen, Tsinghua University, China
Yufen Chen, Zhejiang Gongshang University, China

Chapter 63
Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems.................. 1167
Utku Köse, Usak University, Turkey
Ahmet Arslan, Selcuk University, Turkey

Chapter 64
A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt.......................... 1201
Sherein H. Abou-Warda, Kafrelsheikh University, Egypt

Chapter 65
Managing Fisheries in Light of Complexity and Chaos Theories..................................................... 1221
Manuel Alberto Martins Ferreira, Instituto Universitário de Lisboa (ISCTE-IUL), BRU-
UNIDE, Portugal
José António Candeias Bonito Filipe, Instituto Universitário de Lisboa (ISCTE-IUL), BRU-
UNIDE, Portugal
Manuel Francisco Pacheco Coelho, SOCIUS/ISEG-UTL, Portugal
Maria Isabel Pedro, CEGIST/IST, Portugal

Chapter 66
Chaotic Essence inside the Organizational Reality............................................................................ 1234
Ulas Cakar, Dokuz Eylul University Tınaztepe Yerleskesi, Turkey
Ozan Nadir Alakavuklar, Dokuz Eylul University Tınaztepe Yerleskesi, Turkey

Chapter 67
Critical Review of Academic Entrepreneurship in India................................................................... 1251
Neeta Baporikar, Ministry of Higher Education CAS-Salalah, Sultanate of Oman

Chapter 68
Culture-Based Creativity in the Regional Strategy of Development: Is Russia in Game?................ 1275
Oxana Karnaukhova, Southern Federal University, Russia

Chapter 69
Employability, E-Entrepreneurship, and Economic Recovery.......................................................... 1294
Teresa Torres-Coronas, Universitat Rovira i Virgili, Spain
Maria-Arántzazu Vidal-Blasco, Universitat Rovira i Virgili, Spain
Mario Arias-Oliva, Universitat Rovira i Virgili, Spain
Ricard Monclús-Guitart, Universitat Rovira i Virgili, Spain


Chapter 70
Universities’ Role as Catalysts for Venture Creation......................................................................... 1311
Thomas O’Neal, University of Central Florid, USA & Florida Economic Gardening
Institute/GrowFL Program, USA
Henriette Schoen, University of Central Florida, USA & Florida Business Incubation
Association, USA

Chapter 71
Mobbing and Chaotic Reflections in International Politics Documents............................................ 1340
Tuğba Küçüktamer, Near East University, Turkey

Chapter 72
Sustainable Development in Business Education: The Role of Entrepreneurship as Pedagogy....... 1347
Fernando Lourenço, Institute for Tourism Studies, Macao, China & Manchester
Metropolitan University Business School, UK
Natalie Sappleton, Manchester Metropolitan University Business School, UK
Weng Si Lei, Institute for Tourism Studies, Macao, China
Ranis Cheng, University of Sheffield, UK

Chapter 73
Lessons Learned from Chilean Model of Innovation and Development........................................... 1367
Juan Rock T., Universidad de Talca, Chile
Gordana Pesakovic, King University, USA

Chapter 74
Why and How Did Health Economics Appear? Who Were the Main Authors? What is the Role of
ITCs in its Development?.................................................................................................................. 1382
Ana Pinto Borges, Universidade do Porto, & NIDISAG, Portugal
Erika Laranjeira, Universidade do Porto, Portugal

Chapter 75
Chaos and Complexity in Financial Statements................................................................................ 1399
Fernando Juárez, Universidad del Rosario, Colombia

Chapter 76
Teachers’ Improvisation of Instructional Materials for Nigerian Home Economics Curriculum
Delivery: Challenges and Strategies.................................................................................................. 1431
Eyiuche Ifeoma Olibie, Nnamdi Azikiwe University, Nigeria
Chinyere Nwabunwanne, Federal College of Education (Technical), Nigeria
Dorothy Nkem Ezenwanne, Nwafor Orizu College of Education, Nigeria

Chapter 77
The Role of ICT in Supporting Transnational Diaspora Entrepreneurship....................................... 1442
Leona Achtenhagen, Jönköping International Business School, Sweden
Bengt Henoch, Jönköping International Business School, Sweden
Quang Luong, Jönköping International Business School, Sweden
 

Chapter 78
Entrepreneurship Approach to Higher Education Policy Aspects..................................................... 1460
Mukund Deshpande, University of Pune, India

Chapter 79
The Entrepreneurial Manager: Challenges in Forming Key Competencies...................................... 1499
Kostadin Kolarov, University of National and World Economy, Sofia, Bulgaria

Section 6
Emerging Trends
This section highlights research potential within the field of Economics while exploring uncharted areas of study
for the advancement of the discipline. Introducing this section are chapters that set the stage for future research
directions and topical suggestions for continued debate, centering on the new venues and forums for discussion.
A pair of chapters on the usability and effectiveness research makes up the middle of the section of the final 10
chapters, and the book concludes with a look ahead into the future of the Economics field. In all, this text will
serve as a vital resource to practitioners and academics interested in the best practices and applications of the
burgeoning field of Economics.

Chapter 80
Diaspora Entrepreneurship: New Directions in Enterprise Development......................................... 1519
Sanya Ojo, RDBS, University of East London, UK

Chapter 81
Software Engineering and New Emerging Technologies: The Involvement of Users for
Development Applications for Tablets............................................................................................... 1541
Sergio Ricardo Mazini, University Center Toledo Araçatuba (UNITOLEDO), Brazil

Chapter 82
Web-Based Services and Future Business Models............................................................................ 1564
Valentina Ndou, University of Salento, Italy
Pasquale Del Vecchio, University of Salento, Italy
Giuseppina Passiante, University of Salento, Italy
Laura Schina, University of Salento, Italy

Chapter 83
Government 2.0: Innovation for E-Democracy.................................................................................. 1577
Malgorzata Pankowska, University of Economics in Katowice, Poland

Chapter 84
The Future of Library Services in the Digital Economy: A Case Study of the Copperbelt
University Library.............................................................................................................................. 1596
Matuka Chipembele, Copperbelt University, Zambia


Chapter 85
The Involvement of New Ideas in Products and Services Innovation: A Technological 
Approach............................................................................................................................................ 1608
José Monteiro, Instituto Nacional de Engenharia e Computadores do Porto, Portugal
José Duarte Santos, Polytechnic Institute of Porto, School of Accounting and Administration,
Portugal
Fernando Almeida, University of Porto & INESC TEC, Portugal

Chapter 86
A New Space for Biotechnology Innovation? Comparison of Physical and Virtual Collaboration
in Early Drug Discovery1.................................................................................................................. 1626
David Tamoschus, Bayer Vital GmbH2, Germany

Chapter 87
Modify and Adapt: Global Higher Education in a Changing Economy............................................ 1650
Kenneth E. Lane, Southeastern Louisiana University, USA
Pamela Lemoine, Columbus State University, USA
Tina M. Tinney, Northshore Technical Community College, USA
Michael D. Richardson, Columbus State University, USA

Chapter 88
Mobile Health Technology in the US: Current Status and Unrealized Scope................................... 1664
Tridib Bandyopadhyay, Kennesaw State University, USA
Bahman Zadeh, Kennesaw State University, USA

Chapter 89
The Open Innovation Paradigm: Can Digital Storytelling Generate Value for the Educational
Field?.................................................................................................................................................. 1682
Luca Ganzerla, Ca’ Foscari University of Venice, Italy
Cinzia Colapinto, Ca’ Foscari University of Venice, Italy
Elena Rocco, Ca’ Foscari University of Venice, Italy

Index.................................................................................................................................................... xxv
xxii

Preface

The constantly changing landscape of Economics makes it challenging for experts and practitioners to
stay informed of the field’s most up-to-date research. That is why Business Science Reference is pleased
to offer this three-volume reference collection that will empower students, researchers, and academicians
with a strong understanding of critical issues within Economics by providing both broad and detailed
perspectives on cutting-edge theories and developments. This reference is designed to act as a single
reference source on conceptual, methodological, technical, and managerial issues, as well as provide
insight into emerging trends and future opportunities within the discipline.
Economics: Concepts, Methodologies, Tools and Applications is organized into six distinct sections
that provide comprehensive coverage of important topics. The sections are: (1) Fundamental Concepts
and Theories, (2) Tools and Technologies, (3) Frameworks and Methodologies, (4) Cases and Applica-
tions, (5) Issues and Challenges, and (6) Emerging Trends. The following paragraphs provide a summary
of what to expect from this invaluable reference tool.
Section 1, Fundamental Concepts and Theories, serves as a foundation for this extensive reference
tool by addressing crucial theories essential to the understanding of Economics. Introducing the book
is “Online Delivery of Introductory Economics Content in the United States,” written by Thomas
Scheiding, a great foundation laying the groundwork for the basic concepts and theories that will be
discussed throughout the rest of the book. Another chapter of note in Section 1 is titled “Perceptions and
Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship” by Kimberly M. Green. Section
1 concludes, and leads into the following portion of the book with a nice segue chapter, “Sustainability
and Entrepreneurship: Fostering Indigenous Entrepreneurship in the Brazilian Amazon Region” by Raul
Gouvea. Where Section 1 leaves off with fundamental concepts, Section 2 discusses tools and technolo-
gies in place for Economics.
Section 2, Tools and Technologies, presents extensive coverage of the various tools and technologies
used in the implementation of Economics. Section 2 begins where Section 1 left off, though this section
describes more concrete tools at place in the modeling, planning, and applications of Economics. The
first chapter, “Enabling IT Innovation through Soft Systems Engineering” by Marcel Jacques Simonette
and Edison Spina, lays a framework for the types of works that can be found in this section, a perfect
resource for practitioners looking for the types of technologies currently in practice in Economics. Sec-
tion 2 is full of excellent chapters like this one, including such titles as “Crowdsourcing for Transcultural
Marketing and Innovation” by Rauno Rusko, and “Incremental and Radical Service Innovation in Living



Preface

Labs” by Seppo Leminen and Mika Westerlund, to name a couple. Where Section 2 described specific
tools and technologies at the disposal of practitioners, Section 3 describes frameworks and methodolo-
gies within the field.
Section 3, Frameworks and Methodologies, presents in-depth coverage of the conceptual design
and architecture of Economics. Opening the section is “The Entrepreneur as Strategist and Improviser:
Subject of Activity and Object of Understanding” by Kiril Todorov. This section is vital for developers
and practitioners who want to measure and track the progress of Economics through the multiple lens of
parametric design. Through case studies, this section lays excellent groundwork for later sections that will
get into present and future applications for Economics, including, of note: “Open Business Intelligence
for Better Decision-Making” by Jorge Bernardino. The section concludes with another excellent work on
sequence design, titled “Successful Internet Entrepreneurs Don’t Have To Be College Dropouts: A Model
for Nurturing College Students to Become Successful Internet Entrepreneurs” written by Sonya Zhang.
Section 4, Cases and Applications, describes how the broad range of Economics efforts has been
utilized and offers insight on and important lessons for their applications and impact. The first chapter
in the section is titled “Applying Open Innovation Strategies to eGovernment for Better Public Services”
by Georgousopoulos Christos, Ziouvelou Xenia, Ramfos Antonis, Kokkinakos Panagiotis, Anshu Jain,
G. R. Gangadharan, and Taher Yehia. Section 4 includes the widest range of topics because it describes
case studies, research, architectures, theory, analysis, and guides for implementation. Other chapters
to note are “Gender, Entrepreneurship, and Informal Markets in Africa: Understanding How Ghanaian
Women Traders Self-Organize with Digital Tools” by Janet D. Kwami; “Entrepreneurship Factor in
Institutional Development: A Case Study of Ghana Institute of Management and Public Administration
(GIMPA)” by Eva Esther Shalin Ebenezer and Timothy W. Y. A. Adei; and “The Impact of Corruption
on Entrepreneurship” by Gil Avnimelech and Yaron Zelekha. The breadth of topics covered in the chapter
is also reflected in the diversity of its authors, from countries all over the globe. Section 4 concludes with
an excellent view of a case study in a new program, “The Social Role of University Entrepreneurship”
by Carmen Paunescu and Ramona Cantaragiu.
Section 5, Issues and Challenges, presents coverage of academic and research perspectives on Eco-
nomics tools and applications. The section begins with “Social e-Entrepreneurship, Employment, and
e-Learning” by Mediha Tezcan. The section concludes with “The Entrepreneurial Manager: Challenges
in Forming Key Competencies” by Kostadin Kolarov, a great transitional chapter between Sections 5
and 6 because it examines an important trend going into the future of the field.
Section 6, Emerging Trends, highlights areas for future research within the field of Economics, opening
with “Diaspora Entrepreneurship: New Directions in Enterprise Development” by Sanya Ojo. Section 6
contains chapters that look at what might happen in the coming years that can extend the already staggering
amount of applications for Economics. The final chapter of the book looks at an emerging field within
Economics, in the excellent contribution written by Luca Ganzerla, Cinzia Colapinto, and Elena Rocco,
“The Open Innovation Paradigm: Can Digital Storytelling Generate Value for the Educational Field?”
Although the primary organization of the contents in this multi-volume work is based on its six sec-
tions, offering a progression of coverage of the important concepts, methodologies, technologies, appli-
cations, social issues, and emerging trends, the reader can also identify specific contents by utilizing the

xxiii
 Preface

extensive indexing system listed at the end of each volume. As a comprehensive collection of research
on the latest findings related to using technology to providing various services, Economics: Concepts,
Methodologies, Tools and Applications, provides researchers, administrators, and all audiences with a
complete understanding of the development of applications and concepts in Economics. Given the vast
number of issues concerning usage, failure, success, policies, strategies, and applications of Economics
in countries around the world, Economics: Concepts, Methodologies, Tools and Applications addresses
the demand for a resource that encompasses the most pertinent research in technologies being employed
to globally bolster the knowledge and applications of Economics.

xxiv
 Section 1
Fundamental Concepts and
Theories
This section serves as a foundation for this exhaustive reference tool by addressing underlying principles essential
to the understanding of Economics. Chapters found within these pages provide an excellent framework in which to
position Economics within the field of information science and technology. Insight regarding the critical incorpo-
ration of global measures into Economics is addressed, while crucial stumbling blocks of this field are explored.
With 13 chapters comprising this foundational section, the reader can learn and chose from a compendium of
expert research on the elemental theories underscoring the Economics discipline.
 1

Chapter 1
Online Delivery of Introductory
Economics Content in
the United States
Thomas Scheiding
St. Norbert College, USA

ABSTRACT
Introductory economics courses for undergraduates have increasingly been delivered online. This chapter
documents not only the number of economics courses taught online and the types of institutions where
they are offered, but it also highlights how the online environment changes how students learn and fac-
ulty members teach. As for how students perform in an online classroom and whether learning online
is superior or inferior to learning face-to-face, the evidence is mixed. The overall finding with regard
to student learning, however, is that there is no statistically significant difference in student learning in
either the face-to-face or online environment. Finally, certain kinds of technology can enhance student
learning in an online environment such as video lectures, blogs, and frequent homework assignments
that guide students. This chapter concludes with a discussion of instructional design and how to make
informed technology and assessment choices in the economics classroom that enhance student learning.

INTRODUCTION who took one introductory economics course would

The popularity of undergraduate economics courses
has increased over time as not only students increas-
ingly choose economics as a major, but also as
economics courses become part of interdisciplinary
majors, a college’s core requirements, and part of the
increasingly popular business major. In 1998 it was
estimated by Siegfried (2000) that about 40% of all
undergraduates in the United States would take at
least one economics course and that 52% of students
enroll in the second introductory economics course
(the discipline of economics is typically introduced
over a two-course sequence consisting of the courses
of Principles of Microeconomics and Principles of
Macroeconomics) (p. 202). Siegfried (2000) esti-
mated annual enrollment in economics classes at
the time as 1.4 million students (p. 202). Although
the data is over a decade old, the popularity of the
discipline’s courses has not waned since then.

DOI: 10.4018/978-1-4666-8468-3.ch001

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Online Delivery of Introductory Economics Content in the United States
Over the past fifteen years more and more
economics courses have had an online component.
At the same time as there has been an increase
in the number of economics courses delivered
online, there has been a similar increase in the
conversations about how to properly instruct and
learn economics in an online environment. With
the vast majority of online economics courses
designed for undergraduate students in the United
States, this paper focuses on the past, present,
and future trajectory of the online medium in
introductory economics courses. After review-
ing research around four key areas (whether
online students learn as well, why some student
self-select to learn online, what factors predict
academic performance, and what kind of technol-
ogy should be used in the online classroom), this
chapter concludes with a discussion of the online
learning medium in general and the permanency
of the medium.
BACKGROUND
The academy is well known for being slow to
adapt. Having said that, many colleges and uni-
versities have, over the past 15 years, digitized and
delivered course material online. This is a move
that is not without controversy. For some such
as Taborrok (2012), when educational content is
digitized and deployed online it is delivered in a
consistent fashion without geographic restrictions
and in so doing, the transition to an online medium
can be seen as improving learning and increasing
access (para. 6). For others such as Noble (1998),
higher education delivered electronically is seen
as coercive and a power struggle between profes-
sors and students who have the goal of learning
on the one side and administrators and corporate
interests who have the goals of boosting enroll-
ments, controlling costs, and increasing revenue
on the other side (para. 1).
The deployment of online education is being
accelerated by a university system that is facing
2

pressure to deliver more tuition income without
significant increases in expenditures. At the same
time, the economic and social value of higher
education is being questioned as individuals bear
a larger share of the economic burden without
receiving an enhanced prospect of economic
security after graduation. This has led to a grow-
ing backlash against the common advice given
to pursue higher education with Ellsberg (2011)
declaring that ambitious entrepreneurs who pursue
their business interests above getting a college
degree will create the jobs and innovation that
are part of today’s economy (p. SR5). Finally,
the traditional university system and its practices
have been challenged by the rapid rise of for-profit
institutions that compete aggressively for students
who previously would have either not pursued
an education or pursued an education at a public
institution that has scaled back its operations in
the face of declining public support. When we
say that course material is delivered online, it is
delivered oftentimes delivered in one of three ways:
• Completely online version of an existing
face-to-face course with students having
the online offering of the class substitute
for the face-to-face offering of the class
• A face-to-face class that has a significant
online component so as to improve engage-
ment and student learning (more common-
ly known as a hybrid course, technology-
mediated instruction, or blended learning)
• A completely online class that is offered
to a large number of students and may or
may not provide academic credit and the
student may or may not earn a grade (more
commonly known as a massive open on-
line course or a MOOC)
Thus, the understanding we have of online
education is complicated by the fact that it occurs
in several forms. In perhaps its simplest form, the
online class delivers content to students in a way
that substitutes for the equivalent face-to-face

Online Delivery of Introductory Economics Content in the United States
class. The college or university often offers both
the face-to-face and online course simultaneously
and staffs the course with similarly qualified and
experienced faculty members. The initial offer-
ing of an online delivery medium often sparks
debate among faculty members with students and
administrators often the driving force behind the
institution offering online classes. Once the online
classes are offered alongside face-to-face classes,
students and faculty then avoid, are attracted to,
or indifferent to online delivered content with a
greater likelihood the course won’t be offered
online than the course not being offered face-to-
face. This tension can be seen in Bennis (2012)
and Brooks (2012).
When discussing online delivered content,
administrators of a college are inclined to cite
their significant investments in technology and
the numerous workshop sessions that are held for
faculty members on how to use the technology as
seen in DeSantis (2012) and Devine (2013). Crit-
ics such as Samuels (2013) however note that a
reasoned assessment of the learning advantages
to using a certain technology are not discussed
nearly enough and that there is an alarming and
unfortunate irony in the fact that members of
a university community debate, research, and
analyze ideas and issues yet when it comes to
how students learn about these ideas and issues
that there is a tendency to act first and invest in a
technology and only later ascertain whether the
technology aids student learning (para. 2).
Once the technology investment is made and
faculty training occurs, faculty and administrators
begin to make decisions about how to deliver
course material online and which of the above
variations are most appropriate. Again, these
decisions may be driven as much by the tech-
nology already purchased than a desire to have
more student learning. From the perspective of
the university as a whole, the revenue impact to
delivering content online is at worst zero and at
best positive as additional students could enroll in
a course free of time and geographic constraints
that would have otherwise prevented their enroll-
ment. As for expenditures at the university, at best
the impact is zero and at worst negative as faculty
are retrained for digital instruction and technol-
ogy is purchased and deployed. The technology
choices made, the campus environment and atti-
tudes towards student learning, and financial and
enrollment motivations, and relations between
administrators and faculty members dictate the
type of online education that occurs.
In the beginning, the delivery of education
online was controlled and managed by the college
or university that awarded the credits and grades
with the students and the faculty. More recently
the delivery of online education has been more
complicated as it has shifted to the third variation
of online education. In 2011 the MOOC emerged.
The MOOC often represents a joint venture be-
tween the university and a for-profit company. A
MOOC, an online class that is free to students
(sometimes up to 80,000 at one time) and offers
no academic credit, in its most common form, is
offered by the for-profit company Coursera in a
partnership arrangement the company has with
107 schools. The courses generate revenue for
Coursera and the university as premium services
are offered to students such as certification fees
and tutoring (the university typically receives
a small percentage of revenue and 20% of then
profits). MOOCs make it possible to extend
education to those who because of financial and
geographical restrictions would have otherwise
been denied education. As described by Fowler
(2013), the University of Pennsylvania found
that 80% of the students taking the university’s
MOOC already had a degree of some kind (para.
7). At San Jose State University the students in
MOOCs were provided online mentors in an at-
tempt to increase the completion rate. Despite the
presence of the mentors and the small size of the
classes of 100 students, the students did worse
than those who took the class on campus and as
reported by Kolowich (2013), the university de-
cided not to offer MOOC courses until that type
3

Online Delivery of Introductory Economics Content in the United States
of course was better understood (para. 2). Fuel-
ing distrust about the MOOC as well as faculty
distrust of a for-profit corporate partner is noted
by Levin (2013). According to the global direc-
tory of MOOCs (MOOCs.com), the number of
MOOC courses offered in March 2014 was 2,138
with the global distribution being 28.5% of the
courses offered from colleges and universities in
the United States, 16.5% offered from India, and
16.2% offered from China (MOOCs.com).
EduCase (2014), a not for profit organiza-
tion that serves as a forum and research center
for those who manage and use technology in an
academic setting, has collected much of statistics
and research on MOOCs. EduCase (2014) has
found that most MOOC courses are offered and
will be offered in the future at large enrollment
and doctoral institutions (para. 1). As to why
these institutions have embraced MOOCs, most
(over 80%) indicated it was due to a willingness
to explore a new method or an attempt to build
the overall reputation of the institution. Less
cited reasons for using MOOCs were attracting
students (60%), appealing to leadership interests,
and investing in technology that could result in an
alternative flow of revenue. Less than half of the
institutions indicated that they were using MOOCs
to appeal to faculty interest in the delivery model.
As to why institutions do not use MOOCs, the
majority of respondents indicated it was because
MOOCs have an unclear business model, there is
no student demand for MOOCs, there is no interest
in MOOCs by administrators, and/or they lack the
financial resources for running a MOOC. Distress-
ingly lacking as a motivation for using a MOOC
and for not using a MOOC was any discussion of
whether or not students learned more. Students
have indicated little interest in MOOCs given the
lack of academic credit that is often associated with
the experience. More than half of the institutions
that offer MOOCs award students a digital badge
or certificate upon completion of a MOOC but less
than 20% of students indicated they would indicate
in a job application having received such a badge.
4

A MOOC looks similar to a face-to-face course
in the sense that there is a syllabus, readings, and
assignments. Instead of lengthy lectures, MOOCs
often contain ‘microlectures’ that are about ten
minutes in length. The students are asked to par-
ticipate in online discussions as well as complete
homeworks, quizzes, and exams. Despite having a
structure that at first glance doesn’t deviate much
from an online class, the retention rate in a MOOC
in 2012 was 5% as noted by Koller, Ng, Do, and
Chen (2013) (para. 1).
Koller, Ng, Do, and Chen (2013) noted that
in 2012 the typical MOOC had 40,000 to 60,000
enrollees with about 50-60% of the students
returning after the first lecture, 15-20% of those
students completing the required assessments,
and 45% of those students completing the course
(para. 1). The low retention rate in a MOOC is
identified as a topic of concern when compari-
sons are made to traditional courses. Keller, Ng,
Do, and Chen (2013) however highlight that a
student’s motivation for enrolling in a MOOC
is different than a traditional course (para. 5).
Whereas in a traditional course the students are
seeking academic credit and pay tuition, in a
MOOC students enroll free and while some are
seeking a certificate of completion, many more
enroll out of curiosity about the topic or out of a
desire to simply learn more. As stated by Koller,
Ng, Do, and Chen (2013):
The goal of education is to provide students with
the skills they need to achieve their own life goals,
not to retain individuals in the classroom. Given
the broad range of motivations in the population
of students who participate in MOOCs, the true
challenge of online education will be to identify
what students want to get from their virtual class-
room experience and help them achieve those
goals. (para. 26)
While Koller, Ng, Do, and Chen (2013) linked
the low retention to the motivation behind students
enrolling in a MOOC, others such as Glance,

Online Delivery of Introductory Economics Content in the United States
Forsey, and Riley (2013) have highlighted the fact
that low retention is not due to an inferior learning
experience. Glance, Forsey, and Riley (2013), in
reviewing course structures that promote retrieval
and effective testing for learning, find that many of
the features of the MOOCs such as microlectures
and frequent short assessments after learning
provide a learning advantage in MOOCs (para. 1).
The discussion above illustrates the compli-
cated nature of the online learning environment.
These complications can be overlooked or glossed
over in a discipline where a large number of
students enroll in the courses and the instructors
are themselves still sorting out how best to pro-
vide instruction. In the discipline of economics,
discipline-wide investigations of teaching are
generally conducted by the American Economic
Association’s (AEA) Committee on Economic
Education. The AEA has typically refrained
from recommending that economics be taught in
a particular way. The latest conversation on how
best to improve economics education was financed
by the Teagle Foundation and carried out by the
AEA’s Committee on Economic Education and
summarized in Colander and McGoldrick (2009).
The goal of the report was to investigate the role
the discipline of economics (and five other disci-
plines) have on promoting undergraduate liberal
education. While the report revealed a number of
disagreements and agreements between econo-
mists about how to improve economics education,
the report was silent on the role of online delivery
of economics content. In fact, there has been no
official AEA stance on how to teach economics
online. In the next section we review the disjointed
conversations economists have had about online
delivery of content.
Online Delivery of Economic Content
The discussion of economics delivered in an online
format began approximately a decade and a half
ago with Sosin (1997) and Agarwal and Edward
(1998) among the most prominent of the earliest
discussions. The initial discussion by Sosin (1997)
and Agarwal and Edward (1998) was centered
around whether there was a difference in learning
between those receiving it in an online or face-
to-face environment. The majority of researchers
since then have found that while online students
do underperform face-to-face students as mea-
sured by scores on Test of Understanding College
Economics (TUCE), after adjusting for student
characteristics and the self-selection of students
into the delivery model the performance differen-
tial approaches zero. As reviewed in Harmon and
Lambrinos (2008), across all disciplines there has
been no statistically significant measured differ-
ence in student learning in 131 different studies
with only 44 studies reporting improved learning
online and only 3 studies reporting improved
learning in face-to-face classes (para. 4).
Despite the overwhelming finding of there
being no statistically significant difference in
learning, the studies that reveal differences illus-
trate the relative strengths of the two mediums.
For example, in Brown and Liedholm (2004)
and Coates et al (2004) the face-to-face format
in economics was found to be more effective in
having students satisfy learning outcomes with
value seen in the face-to-face contact and online
students struggling to self-direct their learning and
devoted less time to learning the material. Face-
to-face students in economics are also more likely
to perform better due to imposed attendance poli-
cies and the relationship between attendance and
class performance. Coates et al (2004) suggested
that measuring student performance online is also
complicated by the fact that exams are often not
proctored with cheating (and thus flawed measures
of student learning) perhaps more present than in
the face-to-face class (p. 533).
Anecdotally, when we investigate the number
of institutions offering economics in an online
environment, it generally is the case that the
growth rate on online economics courses has
followed that of the number of institutions offer-
ing online education. The only collected data we
5

Online Delivery of Introductory Economics Content in the United States
have is from 2000 where Coates and Humphreys
(2003) found 120 institutions offering econom-
ics courses. This was an increase from the 50-75
institutions in 1997 found by Sosin (1997) and
Navarro (2000). Most of the institutions, 83%,
were public institutions and about half of the
institutions were four-year institutions. Coats and
Humphreys (2003), in their exhaustive review of
economics classes offered online, found that the
classes were overwhelmingly offered by institu-
tions without a research mission. This finding was
explained by the fact that given the significant
time costs to develop online classes in 2000,
research-mission focused institutions were devot-
ing their scarce time to research than to alternative
delivery methods for courses. Most institutions
in 2000 offered 1-2 economics classes and given
the fact that half of the institutions were 2-year
(associate and technical degree) institutions, the
motivation behind offering a class online was to
reach non-traditional students. While initially there
were remarks made that online economics classes
were valuable because they expanded an institu-
tion’s geographical reach, Coats and Humphreys
(2003) found that most of the institutions were in
mid-size cities leading them to conclude that the
online delivery of economics serves as a form of
non-price competition with other universities. The
university that offers more convenient forms of
delivery is more likely to enroll a student.
In terms of the classes themselves, in 2000 the
majority of classes in economics delivered online
were found to contain active learning techniques
with a very small number replicating the face-to-
face lecture-based class by providing streamed au-
dio or video presentations. Coats and Humphreys
(2003), after taking note of the growing number
of economics courses delivered online, created a
metric to determine the level of active learning (p.
200). Instead of just asking questions to discern
the level of interaction between students and the
instructor, Coats and Humphreys asked open-
ended questions that would discern whether the
6

‘cybereconomics’ course duplicates a typical face-
to-face course or attempts to actively engage the
students with the material. Coats and Humphreys
begin their investigation of pedagogy in online
economics courses with a belief that the Internet
is a poor medium for duplicating the face-to-face
lecture because of technology constraints (which
we may believe have today been overcome) and
the inflexible nature of the web-based lecture.
Coats and Humphreys asked four questions to
determine the level of active learning in the class
with the first two questions asking about the use
of streamed audio and video and the second two
questions asking about the use of active learning
techniques. The use of streamed video and audio
was interpreted as an attempt to use a pedagogy
similar to a face-to-face lecture. Active learning
techniques involve students performing tasks that
reinforce theories learned.
With these four questions, Coats and Hum-
phreys (2003) found at the time that classes in
economics offered online fell into two categories
with slightly over 75% using active learning tech-
niques and less than 20% using streamed audio and
video. The notable conclusion made by Coats and
Humphreys was a lack of relationship between the
use of streaming video/audio and active learning
techniques. The authors conclude:
It would seem that face-to-face classes would
exhibit a negative correlation between lecture/
chalkboard time and active learning methods of
instruction. In other words, lecture instruction and
active learning instruction are substitutes in the
face-to-face classroom. On the other hand, our
result that there is no correlation between streamed
video and audio, the electronic equivalent of ‘chalk
and talk,’ and active learning suggests that the two
methods are neither complements nor substitutes
in the online classroom. Compared to face to face,
then, the two methods are much more complemen-
tary modes of instruction online. (p. 207)

Online Delivery of Introductory Economics Content in the United States
From this, Coats and Humphreys (2003) find
that active learning occurs in the majority of online
economics courses and that the prevalence of ac-
tive learning in an online economics course may
be due to the fact that the same instructors who
in the face-to-face classroom who were willing to
experiment with innovative learning techniques
are the same instructors who are willing to experi-
ment with online instruction which was near its
infancy in 2000.
In 2000, when online education was just start-
ing, there remained many questions about its qual-
ity and uncertainty about whether the method of
delivery was just a fad. The initial resistance to
online delivery of content is evidenced in Sosin
(1997) who found 77% of surveyed institutions
did not offer online classes and did not plan to
in the future (p. 1). In the years since 2000, an
institution offering online classes has become
the norm with economics, given the discipline’s
popularity, almost always part of the course offer-
ings. Although lacking data, it is more reasonable
than not that more institutions deliver economics
content online. There are a number of MOOCs
in economics with courses in introductory and
intermediate theory, econometrics, mathematics
for economists, history of economic development,
economics of the media, managerial economics,
economic development, and money and banking.
As the number of economics classes offered
online increased, so has the research on online
delivery of economics content. Much of the re-
search agenda dealing with an online pedagogy
for economics was shaped, both directly and
indirectly, by Navarro and Shoemaker (2000).
Narvarro and Shoemaker, taking lessons from
the more extensive literature on distance learning,
identified four key research areas. The research
questions they identified were:
1. Can students learn economics online as well
as they can face-to-face?
2. Why do some students self-select to learn
economics online?
3. What factors predict academic performance
in an online classroom?
4. What kinds of technologies improve student
performance in an online environment?
These questions and the responses to them
organized many of the issues, controversies, and
persistent problems in the online delivery of
economics content.
The Four Research Questions
In today’s online delivery economics environment,
the general consensus is that students in economics
in an online environment at best perform similar
to face-to-face students as found by Harmon and
Labrinos (2006) and Gratton-Lavoie and Stanley
(2009). The student that self-selects into online
classes are those students who are either less
motivated (and seeking a learning environment
without an attendance policy or without proctored
exams) or more motivated (seek to direct their
own learning process) than face-to-face students.
Academic performance in the online classroom
is positively influenced by a student having more
time to devote to learning with fewer distractions
as well as by a student having previous economics
knowledge and experience learning in the under-
graduate classroom. The technologies that improve
the online environment the most are the ones that
provide students with immediate feedback and
encourage active learning.
Question #1: Do Online Students
Learn Economics Better?
As indicated earlier, the majority of research efforts
are centered on identifying whether the medium
of instruction matters. The focus on this research
question is natural for if the answer is no, then the
transition to an online medium is unnecessary and
destructive. In Harmon and Labrinos (2006), an
extensive review of the literature reveals that the
dominant finding is that there is no statistically
7

Online Delivery of Introductory Economics Content in the United States
significant difference in student learning across
the online and face-to-face mediums (p. 117). The
typical study consists of an institution offering the
same class in an online and face-to-face medium
and then looking for different performance levels
on exams. If a statistically significant difference
is found, controlling for gender, age, major, and
GPA is usually enough to suggest relatively equal
student performance across the two mediums. In
Harmon and Labrinos (2006) the comparison of
sections of principles of macroeconomics revealed
initially that final exam test scores were 4% higher
for online students than face-to-face students after
correcting for the self-selection bias (the fact that
learning styles and scheduling constraints translate
into older students and perhaps females being more
likely to select an online class) (p. 123). Harmon
and Labrinos decomposed the 4% difference in
assessed learning and found that 25% of the dif-
ference is due to human capital differences (online
students had a higher GPA and had accumulated
more credits) (p. 123). The remaining 75% of the
difference is explained by differences in returns to
human capital and other unobserved factors (such
as different student learning styles and the level
of distractions in face-to-face classes) (p. 123).
These differences come from students relying
on different learning styles and instructors either
appealing to and structuring their classes to meet
as many learning styles as possible or relying on
a single learning method that appeals to only a
select group of students.
Due to the quantitative nature of economics
and the heavy emphasis most instructors place on
graphical analysis, some such as Farinella (2007)
have argued that disciplines like economics and
finance cannot be taught effectively online (p.
45). The challenges unique to learning econom-
ics online highlights for critics the limits of the
medium in certain disciplines and the need to
reassess what is taught online and what kind of
student is permitted to learn online.
8

Question #2: Why Do Some Students
Self-Select to Learn Economics Online?
When an undergraduate course is offered online
alongside a face-to-face offering, the question is
why do some students select one type of offering
over another. Gratton-Lavoie and Stanley (2009),
on a theme related to student performance in
the online versus face to face classroom, looked
at relative levels of student performance in the
economics classroom, what student characteristics
were in each type of classroom, and why students
choose one format over another (p. 3). First, like
many others, they found no statistically significant
difference in the performance of students across
the mediums. Second, Gratton-Lavioe and Stan-
ley (2009) found that older working women,
advanced students with a strong GPA, and those
who had previously taken economics opted for
the online medium and that for these students,
they performed better in that medium than would
have been predicted in a face-to-face medium (p.
25). As to why students would choose one format
over another, the draw of the online medium was
freedom from geographical and time restrictions
that would have otherwise prevented enrollment
in the face-to-face offering of the course. Interest-
ingly, Gratton-Lavoie and Stanley (2009) found
that most students would have performed best in a
hybrid course where students would have received
interaction and guidance in the face-to-face class-
room as well as some freedom from distractions
and constraints in the online classroom (p. 25).
Question #3: What Factors
Predict Academic Performance
in an Online Classroom?
Although different students enroll in the online
class compared to the face-to-face course, it is
important to determine whether certain charac-
teristics of the online classroom play up to the

Online Delivery of Introductory Economics Content in the United States
characteristics of students and to what extent
academic performance can be predicted. Harmon
and Lambrinos (2008) investigate this by asking
whether an online student in economics would have
done better if they had taken the same class face-
to-face (p. 120). Their model and data suggested
that online students would have performed the
same in both formats because the online students
possessed more human capital and experienced
higher rates of return for their human capital. The
findings of Harmon and Lambrinos (2008) were
reiterated in later studies such as Gratton-Lavoie
and Stanley (2009) and Carter and Emerson (2012)
who similarly found that the online medium does
not represent an inferior learning environment in
the discipline of economics. What these studies
suggest is that there is nothing unique about the
online delivery of economics content that neces-
sarily prioritizes some student characteristics over
others. The student who lacks certain skills in
the online classroom in economics such as how
to read a graph, how to write, how to make infer-
ences from data, and using logic to solve programs
would have been equally disadvantaged in the
face-to-face classroom. Moreover the student in
the online classroom needs to have confidence in
their effective use of technology.
When looking at economics classes specifi-
cally, the issues are how best to create and use
assignments for student learning, how to structure
exams in an online class, and to what extent student
time spent with online course materials translates
into improved student performance. In Califiore
and Damianov (2011), using online tracking data
from the Blackboard learning management system,
found that time spent online and prior grade point
average were both significant determinants of the
final grade in the online economics classroom.
Calafiore and Damianov investigated the time
spent in economics and finance classes across
multiple semesters. While finding that students
spending more time on the course site (on Black-
board) did perform better, the authors were careful
to note that the time variable did not cover student
engagement with the material offline and also
was not a measure of time spent on the material
above and beyond the time that would have been
spent on the material in the face to face classroom.
Califiore and Damianov suggest that class policies
that motivate students to spent more time online
will enhance student success. This suggestion
reiterates the finding that there is nothing unique
about the online classroom that makes student
success more or less likely than the face-to-face
classroom. But again, using the variable of time
logged into the course site is of questionable value
for measuring student engagement or reflection
with the course material.
Question #4: What kinds
of Technologies Improve
Student Performance in an
Online Environment?
Although the general finding is that the method of
delivery does not itself limit or enhance student
performance, certain kinds of technology can im-
prove student learning and retention of economics
whether the class is offered online or face-to-face.
Chen and Lin (2012) look at the availability of
online lectures and whether they could supple-
ment or substitute for attending class. While the
online lectures could substitute for going to class,
the technology could enhance student learning if
the difficult material can be consumed as many
times as needed for retention. Using a sample of
Taiwanese students, Chen and Lin found that those
who skip class are more likely to make use of the
online recorded lectures and that access to online
recorded lectures improved student performance
by 4% (p. 13). Similar to Chen and Lin’s finding,
Flores and Savage (2007) found a positive cor-
relation between student use of streamed video
lectures and exam grades for face-to-face students
(p. 57). Savage (2009) found that students who
could download lectures performed better on
exams (p. 337).
9

Online Delivery of Introductory Economics Content in the United States
A notable deficiency in each of these studies
on online lectures is how they are being used in
the classroom, the types of students that are more
inclined to watch or download the lectures, and the
way in which the videos enhance achievement of
learning outcomes. As discussed earlier in Coats
and Humphreys (2001), an online class that heavily
relies on videos is trying to mirror the experience in
the face-to-face class but in so doing, limits active
learning. Traphagan, Kucsera, and Kishi (2010)
believe that videos of lectures negatively impact
attendance in a face-to-face class, that this negative
impact is less than that when PowerPoint lecture
slides are posted, that watching the videos results
in greater student performance, and that students
reported a more positive learning experience (p.
21). Traphagan, Kucsera, and Kishi conclude that
lecture videos have a positive impact on student
learning despite the drop in attendance. Davis,
Connolly, and Linfield (2009) look at the moti-
vations behind faculty making videos available
and the reasons for student interest in watching
the videos (p. 5). Davis, Connolly, and Linfield
(2009) track the student experience with videos
and found contributions to active learning through:
• Guided completion of problems
• Support completion of assessments
• Review the face-to-face lecture
The Davis, Connolly, and Linfield (2009) study
discusses how to integrate captures lectures into
an effective instructional design. They highlight
that the captured lectures need to focus on students
reifnrocing what they learned and supporting
independent active learning. And when the cap-
tured lectures are used in an effective instructional
design, Davis, Connolly, and Linfield (2009)
found no notable decline in student attendance
(p. 6). This finding highlights the importance
of instructional design when it comes to online
learning and the technology choices made. The
instructional design needs to have student moti-
10

vated around using resources that aid in students
achieving student learning outcomes.
In Cameron (2012), Goffe and Sosin (2005),
Quiggin (2006), Ferdig and Tranmel (2004), and
Oravec (2002) there is an investigation of blogs
as a teaching, learning, and assessment tool.
A blog acts as an online personal journal and
serves as an interactive medium for discussion
and providing commentary. Blogs are described
by these researchers as making the learning
environment more student-centered, makes the
knowledge creation process cooperative, and
encourages students to engage in critical think-
ing, and enhances academic integrity as students
justify their thoughts. Blogs also enhance the
assessment process as the learning and develop-
ment of understanding is more apparent. Finally,
blogs enable student participation for those who
might not have otherwise participate.
To highlight further the importance instruc-
tional design has on the technology choices made,
Goodyear (2005) believes that the technology
needs to promote connections. These would be
connections between students, between students
and the resources, and between students and the
instructor. It becomes apparent that the instructor’s
choice of having a blog in their online classroom
must be designed around encouraging student
motivation, strengthening interactions, and aiding
in the satisfaction of student learning outcomes.
In economics where there is heavy emphasis
on applications and asking students to compare
and contrast policy responses and the manner in
which economic concepts inform them, globs
hold out the potential for both the instructor and
student to engage with the material, interact with
the material, debate the merits of a policy, and
demonstrate achievement of learning outcomes in
critical thinking and communication. Prominent
economists, many of whom author principles of
economics textbooks, such as Greg Mankiw and
Paul Krugman have active blogs that students can
read, model, and react to in their own individual
or course blog.

Online Delivery of Introductory Economics Content in the United States
The research in these four areas generally relies
on exam scores to measure student learning. This
isn’t surprising given the importance of exams as a
means of assessment in the economics classroom.
For assignments, the bulk of students in economics
use a platform called Aplia and this platform is
extensively used in both the online and face-to-face
classroom. Aplia was developed in 2000 by Paul
Romer, an economist, and since then Aplia has
been used by over 1.2 million students. While the
initial focus was economics, the platform is now
used in accounting, business law, finance, statis-
tics, and philosophy. The homework assignments
in economics contain problem sets, news article
analyses, and interactive market experiments.
The problem sets are based on each textbook’s
chapters and students have their assignments
automatically graded and explanations provided.
A faculty member can choose whether or not to
release the grade immediately to students and
whether or not to give students multiple attempts
at correctly answering a question with the scores
averaged across the attempts. Aplia also allows an
instructor to assign a news article with students
asked with follow up questions. Finally, Aplia
provides an ability to electronically simulate a
market where students can then act like market
participants. Classroom experiments in economics
have grown in popularity as a pedagogy technique
due to the fact it encourages active learning. Not
only has Aplia become the dominant platform for
homework assignments and classroom experi-
ments, it also guides the student learning experi-
ence because it contains the digital edition of the
textbook. The heavy use of the Aplia platform in
the online economics classroom also reflects the
dominance of problem solving and the lack of
attention that many economists devote to instruc-
tional design. With Aplia, the publisher provides
a universal instructional design and the economics
instructor who devotes little time to design can
at least have something. While many economics
instructors who teach in an online environment
but lack training in instructional design rely heav-
ily on Aplia, the students certainly take note of
Aplia’s universal design and that Aplia is only as
effective as a learning tool as the instructor who
makes use of it to achieve learning goals.
Collins, Deck, and McCrickard (2008) found
that students who completed their assignments
via Aplia performed better on their exam. They
found that a 1% point increase on Aplia assignment
performance was associated with a.6% increase
on the final exam (p. 54). Collins, Deck and Mc-
Crickard however didn’t control for differences in
student ability nor whether the use of Aplia specifi-
cally improved student performance. As for the
important role served by completing homework,
Emerson and Mencken (2011) found that students
in economics classes in which completion of online
homework assignments is mandatory score higher
on final exams than where the assignments are
optional (p. 1). In Trost and Salehi-Isfahani (2012)
the similar research question is taken up of whether
homework assignments have an impact on exam
performance (p. 224). Trost and Salehi-Isfahani
see Aplia as being able to assign homework in a
large classroom where it wouldn’t have been able
to otherwise. Trost and Salehi-Isfanani find that
homework completion is positively associated
with improved exam performance on individual
exams for a topic but that there was no impact on
the comprehensive final exam score. The authors
also found that while women perform better than
men on homework assignments, men perform bet-
ter on exams and in the course as a whole. This
corresponds to the general notion that women put
forth more effort in a course.
O’Dea and Ring (2008) looked at use of Aplia in
an intermediate microeconomics course and found
that after controlling for ability and performance
in prerequisite courses that the percentage of Aplia
questions attempted actually had a negative impact
on student performance. O’Dea and Ring explain
this finding as possible given the low grade weight
assigned to Aplia questions and the fact that Aplia
questions were multiple choice but the exams
consisted of problems and essays. Lee, Courtney,
11

Online Delivery of Introductory Economics Content in the United States
and Balassi (2010) compared student performance
on the TUCE over three semesters with students
in the fall of 2007 doing their homework with
a paper-based system and in Spring and Fall of
2008 with Aplia. The authors found overall that
student performance was not determined by the
type of homework system used. Interestingly, the
authors did find that when you look at just those
students who earned an A or B that those students
who used Aplia improved their score on the TUCE
by 1.6 points over those who used a paper-based
homework. Kennelly, Considine, and Flannery
(2011) also found that student performance on an
exam is not influenced by whether the homework
is done via Aplia or is paper-based (p. 31). Ken-
nelly, Considine, and Flannery (2011) did find
that the completion rates for Aplia assignments
were higher and suggests that student performance
may be positively affected by the enhanced student
engagement (p. 31). After creating an assign-
ment completion dummy variable however the
authors found only some evidence to suggest that
homework completion actually improved student
performance (p. 40). Kennelly, Considine, and
Flannery (2011) conclude that although student
performance isn’t higher when using Aplia, it also
isn’t lower and that the cost savings associated
with online learning doesn’t come at the expense
of less learning (p. 41).
Research on the use of the online medium in
economics reveals that conversations and tech-
nologies are evolving and leading to improvements
in student learning. While faculty and students are
slowly adapting their teaching and learning to the
new medium, the technology and perceptions of
the role of higher education in society are chang-
ing more rapidly. In the next section we discuss
possible positive changes to the online medium.
Instructional Design for the
Online Economics Course:
Any discussion of effective instructional design
in economics courses delivered online requires
12

first a discussion of student learning goals in the
course. In an economics program at the under-
graduate level the learning goals typically include
enhancing critical thinking skills, quantitative
reasoning skills, problem-solving skills, applica-
tion of specialized knowledge, and communication
skills. The introductory courses in economics,
which are the kind of courses most likely to be
taught online, focus on students almost exclusively
developing their critical thinking skills with sec-
ondary importance placed on problem solving and
communication skills. Students demonstrate their
critical thinking skills by applying economics to
everyday problems, using economics to evalu-
ate policy proposals, comparing and contrasting
different viewpoints, and being aware of the as-
sumptions used.
As discussed by Biggs and Tang (2007), the
increased attention devoted to student learning
outcomes and program goals leads to rethinking
how instructors design their classroom. This re-
thinking process they have defined as constructive
alignment. Constructive alignment exists as a form
of outcomes-based teaching and learning where
the teaching is designed around the outcome. It is
constructive alignment because students construct
meaning through the learning activities and there
is alignment between the teaching and learning
activities, the assessment, and the learning out-
comes. An online class however requires more
attention be placed on instructional design. A
clear and captivating instructional design comes
from providing support for learners, providing
numerous points of assessment and evaluation of
student learning, making appropriate and effective
use of technology, and use of student feedback
by faculty members. The instructional design
needs to reflect changed student expectations in
an online class such as a need for more feedback,
more immediate communication, the supply of
resources to learn, and active support of student
learning. This greater attention to instructional
design is evident in the recent proliferation of
degrees in instructional design and the creation

Online Delivery of Introductory Economics Content in the United States
of peer-reviewed and open access journal titled
Journal of Online Learning and Teaching.
In the economics classroom the instructional
design needs to be organized around the empha-
sized student learning outcomes of critical thinking
skills, needs to facilitate active and experiential
learning, and needs to incorporate technology
choices that permit this all to be achieved. What
we see in the preceding discussion of whether or
not to record lectures, whether or not to require
assignments, and how much material and what
kind of material to place online is a distressing
lack of discussion of instructional design. Instead,
the tendency in the discipline of economics (and
admittedly other disciplines as well) is that the
instructor makes technology choices first when
instead they should be made last. In an effective
economics online classroom, the outline of this
instructional design would be as follows:
• Student Learning Outcome: Critical
thinking skills.
• Learning Techniques: Application, expe-
riential, rote memorization.
• Assessment: Frequent homework assign-
ments, exams.
• Technology Challenge: Delivery of lec-
tures that contain key concepts, instructors
need to be able to draw and explain graphs
and solve simple mathematical problems
and students will need to demonstrate their
ability to do the same, students need to ap-
ply the concepts learned to scenarios and
proposed policies, and students may need
to record and analyze data collected during
experimental sessions.
Even with this briefest of outlined instructional
designs for the online economics classroom, it is
evident that online delivery of economics content
consists of more than just taping lectures and
having an online discussion board.
SOLUTIONS AND
RECOMMENDATIONS
When we consider the online delivery model in
economics, it is more or less established that the
educational value of the medium is on par with
that offered via the face-to-face medium. There
are improvements however that are needed to
both the online and face-to-face medium and the
transition to an online medium can be the fuel to
the discussion of pedagogical improvements in
economics. The convenience and flexibility pres-
ent in the online medium can be used to improve
the face-to-face medium. The online medium can
be improved as new technologies replicate the
engagement found in the face-to-face classroom.
With the idea that the face-to-face economics
classroom lacks flexibility and convenience a
number of faculty members have created a blended
delivery method. Typically the classroom is used
to deliver lectures and the online medium is used
for homework assignments, discussions, and
virtual experiments. The belief is that the lecture
delivered in the classroom is effective because the
instructor can alter their comments to respond to
student concerns and questions and the instruc-
tor can alter the class as needed based on student
performance. The homework assignments, discus-
sions, and virtual experiments allow for a degree
of student engagement that would have otherwise
not occurred in a large classroom.
So when we consider the challenges in the
online delivery of economics, a number of them
have been overcome with focus now being directed
to refining it. It is largely established at this point
that the online delivery of economics at worst
provides no improvement in student performance
and at best provides some improvements in stu-
dent performance for women and working adults.
While these online classes in economics may have
been originally touted as expanding educational
opportunities as geographical restrictions are re-
13

Online Delivery of Introductory Economics Content in the United States
moved, for the most part institutions are offering
an online delivery method in the hope that costs
are reduced, revenues enhanced, or a competitive
advantage gained in enrolling students. While a
number of the online classes replicate the face-
to-face classroom that relies on lectures and lacks
interactive learning techniques, a growing number
of instructors are being drawn to the online medium
because of the possibilities for enhanced interac-
tions. The online classroom has created changed
expectations for students and faculty members and
this requires changes in assessments, the syllabus,
and in how the class is taught.
The refinements to the online delivery of
economics needs to be guided by the principle
that the technology adopted needs to improve
student learning. This might not necessarily be
technology that is cheaper or require less student
or faculty member time or effort. Online learn-
ing cannot be about just reducing the amount of
faculty preparation time or student learning time.
Faculty members and students, before participat-
ing in an online environment, need an opportunity
to discuss and share their motivation for initiating
involvement with online learning and be informed
about the best practices in online learning. While
certainly some of the discussions needs to revolve
around how to use the technology, there also needs
to be some discussion of how online learning and
teaching differs form the face-to-face environment.
In the discipline of economics the threat right
now is the dominance of the Aplia learning sys-
tem (although alternatives to Aplia exist such as
MyEconLab, Sapling Learning, and publisher-
specific technology). This dominance has the
potential to stifle innovation and threatens the
ability to teach economics online in an innovative
fashion that permits departures from the face-to-
face learning environment when it is necessary.
As an example of this need for more flexibility in
technology, the problem sets can stand to allow
for students to receive more interactive feedback
on problem sets, video lectures provided on topics
14

of particular difficulty, hints provided for students
who need a little additional information in order
to work through the problem on their own, and
an enhanced ability for students to manipulate
graphs. While the problem sets are populated
with questions from the publisher, the learning
system needs to provide an enhanced ability for
instructors to create their own questions, create
their own video lectures, and provide and promote
faculty-student interactions and engagement.
Finally, there needs to be a greater appreciation
of the fact that while online learning does provide
new opportunities for enhanced learning and it
does beneficially disrupt the education delivery
model, it isn’t completely revolutionary. It has
altered the educational landscape and does so in
a more lasting way than has been the case with
other technologies of the past such as correspon-
dence classes and television. Online education
is here to stay and integrating it into the existing
academy requires more than minor revisions to
an institution’s educational philosophy, orienta-
tion meetings, or standards of performance. It
requires a change in focus and an appreciation
of changed expectations by faculty and students.
In economics, where the discussion of pedagogy
has been secondary to other research pursuits for
most faculty members, the transition to online
learning has beneficially fueled discussions and
research about pedagogy.
In terms of what we then see in terms of
improvement of courses in economics delivered
online is that substantially more time and resources
need to be devoted to instructional design. This
design needs to reflect the heavy emphasis on
introductory courses, the focus placed on students
acquiring critical thinking skills, and the ability
to use technology to encourage active learning.
Some may see the lack of attention devoted by
economists to instructional design as part of a
rocky transition to online learning where many
of the instructors have not taken an online class
and where the level of comfort with technology

Online Delivery of Introductory Economics Content in the United States
is lacking. However that point of view presumes
that challenges faced today will naturally be re-
solved. As seen above in the discussion of learn-
ing outcomes, learning technology, assessment,
and technology challenges, the design choices
are complicated and require in many cases that
the instructor be aware of learning theories. The
online classroom is dramatically different than
the face-to-face classroom.
A faculty member going into instructional
design in economics needs to account for the
conceptual difficulty of the material, the number
and types of students enrolled in the class, and the
technology available to instructors and students.
In economics, the content can be delivered via
real-life scenarios. These scenarios organize the
material and provide student stimulus for learn-
ing. Through these scenarios where students learn
individually and in groups, students refine their
critical thinking and problem solving skills. The
students have their skills assessed in varied and
continuous ways. The focus should be placed on
developing meaningful relationships between
concepts through guided student and instructor
communications.
FUTURE RESEARCH DIRECTIONS
Future research in online education in economics
needs to continue to investigate whether student
performance differences exist depending on the
medium used. This is a central and ever-present
research question. The studies previously con-
ducted have all been limited in scope and improve-
ments are needed in controlling for differences in
student ability and in how student performance is
measured. Significant research is needed on how
student and faculty expectations and workload
change in an online learning environment. This is
research that could be conducted by economists
as well as learning specialists.
Economists need to design the optimal online
learning environment first and work their way
backwards to develop the technology, the textbook
and the ancillary materials. The online learning
environment in economics has suffered because
the technology was developed to be universally
used across disciplines with the textbooks and
ancillary materials merely carried over from the
face-to-face medium.
More discussion is also needed on how online
delivery of economics will expand the ability of
the discipline’s best instructors to reach many more
students. Additionally, more discussion is needed
about one advantage created by online educa-
tion – an ability to diversify the methodological
viewpoints delivered to students. With almost all
economists trained in the neoclassical paradigm
yet students not all convinced of the validity of that
perspective, the online medium has the potential
to allow the best-trained economists in the various
paradigms to reach students. All of this research
needs a more recent survey of the number of online
economics courses. This survey would count the
number of institutions offering the courses, the
types of courses offered, the characteristics of the
institutions, the characteristics of the students, the
types of technology used, the intensity and patterns
of student usage of the online course materials,
and faculty and student impression of the online
learning environment.
CONCLUSION
Instead of thinking about education as being de-
livered via face-to-face or online, there needs to be
more research about the blended class where the
strengths of both mediums are blended. Research
in online delivery of economics, to have the most
impact, needs to be devoid of an overly philan-
thropic motivation. While certainly extending
education to the masses is admirable, that should
cloud the direction of the technology, the priorities
of the stakeholders, or the content of the course.
15

Online Delivery of Introductory Economics Content in the United States
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KEY TERMS AND DEFINITIONS
Active Learning: A learning technique that
involves repeated engagement with the course
material by both the faculty member and students.
Blog: A personal journal that serves to record
and promote discussion and commentary. In the
classroom, blogs make the learning process more
student-centered and the knowledge creation
process more communal.
Hybrid Course: A course that contains both
the face-to-face and online mediums. All of the
aspects of the course such as the lecture, the dis-
cussions, and the assessments can be delivered
in either medium.
Massive Open Online Course (MOOC):
Course content that is delivered wholly online
at little to no cost to the student and earning the
student perhaps no academic credit. These courses
typically have many thousands of students with
no classroom policies regarding attendance or
engagement with the material.
19
20

Chapter 2
Technology Enhanced Learning
and the Digital Economy:
A Literature Review

Patrick Schweighofer
University of Applied Science CAMPUS 02, Austria

Stefan Grünwald
University of Applied Science CAMPUS 02, Austria

Martin Ebner
Graz University of Technology, Austria

ABSTRACT
Throughout history, the ongoing technological progress has caused the economy to change in many
aspects; furthermore, at times it triggered the dawn of a new era. In the 1980s, this happened for the
last time and the digital economy has emerged over the last decades. Since then, the significance of ap-
proaches to technology enhanced learning (TEL) has increased rapidly. However, the relations between
the digital economy and technology enhanced learning are hardly investigated. Therefore this study points
out the known relations between technology enhanced learning and the digital economy by reviewing
1089 publications. Thereby one could recognize that the relations between the regularities of the digital
economy and the field of technology enhanced learning have not been thoroughly researched yet.

1. INTRODUCTION 1960s and in 1972. The result was a change in

Through the history technological progress has
influenced the economy. For instance, the Kondra-
tiev waves show how decisive innovations changed
different aspects of the economy. According to
Freeman and Louçã (2002) the last wave started
with IBM computers and Intel processors in the
many perspectives of the economy. For example,
new carrier branches with computers, software
and telecommunication equipment have become
important, and a new infrastructure, the Internet,
has enabled companies to act on a global scale.
(Freeman & Louçã, 2002)

DOI: 10.4018/978-1-4666-8468-3.ch002

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Technology Enhanced Learning and the Digital Economy
This period of time, which started in the 1990s
with the growing usage of the World Wide Web,
is called the digital (network) economy. The digi-
tal economy is based on drivers such as network
effects, critical mass of users, standardization,
interoperability and globalization, and is enabled
by the innovation of technology (see Shapiro &
Varian, 1999; Stähler, 2002; Tapscott, 1996).
Since we have been living in this digital world,
methods in education have changed rapidly and
the significance of online learning increased. For
instance, in the United States during the fall term
of 2007 the growth rate for online enrollments of
12.9 percent was substantially higher than the 1.2
percent growth of the overall higher education
student population. In total 3.9 million students
were taking an online course during this term.
(Allen & Seaman, 2008)
Ebner, Schön and Nagler (2011) characterize
the term online learning as a description for a
learning situation in which a computer and the
Internet is used. Therefore the term online learn-
ing is only a minor term of technology enhanced
learning (TEL). This term includes all kind of
learning situation in which technology is used
(Dror, 2008). Showing a movie during the lesson
or even calling a schoolmate for help with the
homework could also be characterized as TEL
(Ebner, Schön, & Nagler, 2011) as could learn-
ing whereby devices like smart phones or tablets
are used in the learning process, categorized as
mobile learning (Ally, 2009). Another approach
to the field of technology enhanced learning,
which especially supports cooperative learning,
are learning situations in which the technologies
of Web 2.0 are used (Ebner, 2007).
As previously said before, TEL has become
more and more significant, since we live in a
digital economy. This aspect led to the following
research question of this publication:
If since the era of a digital economy had begun,
the relevance of technology enhanced learning has
increased, which connections between technology
enhanced learning and the digital economy and
world do currently exist?
By answering this question, a better under-
standing how changes in the digital economy might
affect the area of technology enhanced learning
should be possible.
2. RESEARCH METHODOLOGY
The main work of this study is an extensive search
in two major bibliographic databases for the search
terms “digital economy,” “digital economics,”
“internet economy,” “internet economics,” “net
economy,” “net economics,” “new economy,”
“new economics,” “digital world” and its Ger-
man analogues, in documents published between
January 2000 and August 2013. This broad search
strategy is necessary to ensure that important litera-
ture, which is connected to the research question of
this publication, is not ignored. The two databases
used are SCOPUS and Web of Knowledge. The
initial search lists 3353 hits in SCOPUS and 4085
hits in Web of Knowledge. Out of these, for the
literature review only downloadable full texts in
English or German are analysed. In this way, in
total 1089 articles are part of this study.
The analysis purpose is to find publications
which mention connections between technology
enhanced learning and the digital economy or
world. In order to find these connections in the
investigated documents in a first step a definition
of the term digital economy and the regularities in
this world is necessary. This enabled the authors
to understand the relevant coherences.
21

Technology Enhanced Learning and the Digital Economy
The chosen methodology for selecting rel-
evant literature covers a broad area. However, the
methodology has limitations too; hence relevant
publications not found by the two databases are
excluded from this study, as are publications in
which other terms for “digital economy” are used.
3. DIGITAL ECONOMY
Tapscott (1996) characterizes the digital economy
as global knowledge economy, which is based on
brief cycles of innovations and digital informa-
tion stored in networks. The term digital network
economy tries to describe the microeconomic
processes of the transition from the industrial
society to the information society. The structures
of economic and social systems are constantly
changing, but there are temporary phases with
increased transformation. This can be caused,
among other basic technical innovations that draw
the further developments in technical, economic
and social level by itself. Very often these basic
innovations are made exclusively responsible
for these phases. However, the changes are only
possible due to the adaptation of behaviour in
society (Stähler, 2002). Some authors use the term
Internet economy to describe the transformation
in the 1990s. This change is based on the perfor-
mance boost of information and communication
technologies and the resulting digital network
(Zerdick, et al., 2001).
However, the digital economy is a network
economy as well as a technology driven (Internet)
economy. The basics for increasing network ef-
fects are brief innovation cycles of technologies
and applications or business models to link users
and to generate a critical mass of participants in a
net of collective interests. Furthermore, vendors,
whose products reach the critical mass of users
can get an advantage against their competitors and
continue to expand, while other market participants
lose importance. (Arthur, 1996)
22

The basic principles of those economical (or
social) networks are some laws and drivers. For
instance, direct network effects are generated by
interoperability and standardization. The value
of those networks (social networks, business
networks) for users depends primarily on the
value of the utilization of the applications or
products. Metcalfe postulates therefore the relation
between the number of participants and the value
of the network (Metcalfe’s law) (Zerdick, et al.,
2001). Moreover, network effects and switching
costs produce lock-in effects (Shapiro & Varian,
1999; Williamson, 1975; Katz & Shapiro, 1985).
Thereby switching costs are not only material,
immaterial “switching costs” (e.g. trust) have to
be considered too.
These direct and indirect network effects cause
continuously increasing returns (Arthur, 1996).
They increase the attractiveness of a network and
thus its size. As a result, more users are encour-
aged to participate in this network, and it will in
turn generate direct and indirect network effects.
These relationships form the core of the positive
feedbacks. (Zerdick, et al., 2001)
However, finally technology is the foundation
of new applications, business models and social
behaviour transformation. Furthermore, the rules
of the digital economy are the background of
strategic management in these markets or busi-
ness models.
4. LITERATURE REVIEW
Out of the 1089 analysed documents, 34 publica-
tions are identified which mention connections
between technology enhanced learning and the
digital economy or world. The encountered rela-
tions described in these articles can be categorized
in two main groups. The first category contains all
publications which describe changes in the area of
technology enhanced learning caused by the attri-
butes or changes in the digital economy or world.

Technology Enhanced Learning and the Digital Economy
The second group consists of publications which
mention the necessity of technology enhanced
learning hence we live in a digital economy.
The next sections show a short overview of
the relevant articles of these two categories. Each
category is additionally divided into publications,
whereby
1. The connection between technology en-
hanced learning and the digital economy or
world is just a short statement (one or two
sentences) in the publication.
2. The connection between technology en-
hanced learning and the digital economy or
world is a major part in the publication.
3. The connection between technology en-
hanced learning and the digital economy or
world is reasoned by a case study.
4. Finally, at the end of the literature review, a
summary of general statistics of the review
results will be pointed out.
4.1. Changes in the Area of
Technology Enhanced Learning
Changes in the area of technology enhanced
learning which are retraceable to the attributes or
changes in the digital economy are mentioned in
20 articles. In more detail, in five of these articles
this thesis makes up a major part. Additionally, in
further 12 a case study reasons these connections,
and in the remaining three arguments showing
such connections are simply short statements.
In the following sections a short overview of the
arguments in the identified articles will be given.
4.1.1. Major Part in the Publication
In this category, five publications with different
arguments related to changes in the area of tech-
nology enhanced learning which are retraceable
to the attributes or changes in the digital economy
are identified. For instance, Lally, Sharples, Tracy,
Bertram and Masters (2012) claim in their article
that through technologies of the digital world new
possibilities in the area of technology enhanced
learning emerge. However, in their study they
mainly investigate the ethical dimensions and chal-
lenges which result out of these new possibilities
(Lally, Sharples, Tracy, Bertram, & Masters, 2012).
Chu, Hwang and Tseng (2010) show how
technologies can be used to connect the real world
and the digital world during the learning situation
with context-aware ubiquitous learning. Further-
more, Zhang (2012) discusses the effects of the
technological concept Internet of Things to the
field of technology enhanced learning. He claims
that with this concept the real and the digital world
becomes increasingly connected and therefore new
TEL approaches will rise (Zhang, 2012).
Rather different problems concerning TEL,
which are known in the digital economy as well,
are argued by Borcea, Donker, Franz, Pfitzmann
and Wahrig (2006). Their publication discusses
the importance of security topics in technology
enhanced learning environments (Borcea, Donker,
Franz, Pfitzmann, & Wahrig, 2006).
Steinkuehler and Squire (2009) describe seven
principles which should be addressed in TEL based
on behaviours in the digital world. In short, these
principles are ubiquitous access to information,
overlapping copresences, collective intelligence,
learners as information producers and not just
consumers, authentic participation, learners as
designers of messages, and student autonomy
(Steinkuehler & Squire, 2009).
4.1.2. Reasoned by Case Studies
Overall 12 publications are identified in the lit-
erature review, in which changes in the area of
technology enhanced learning, that are retrace-
able to the attributes or changes in the digital
economy, are based on case studies. All of them
show how technologies of the digital economy
could be used in the area of technology enhanced
learning. For instance, Llamas-Nistal, Fernández-
Iglesias, González-Tato and Mikic-Fonte (2013)
23

Technology Enhanced Learning and the Digital Economy
suggest a combination of real and digital world
tools. They suggest that testing should be done the
traditional way, but grading, reporting of results
and statistical analysis should be done with tools
of the digital world (Llamas-Nistal, Fernández-
Iglesias, González-Tato, & Mikic-Fonte, 2013).
Lavik, Nordeng, Meløy, Jarle and Hoel (2007)
describe the usage of remote topic maps in learn-
ing, a learning service which was development
hence the digital world in their point of view
changes more and more to a service oriented reality.
In another study Offir, Barth, Lev and Shtein-
bok (2003) investigate long distance learning, a
learning scenario which is only possible due to
the mechanism of the digital world.
Moreover, Shaohua and Peilin (2008) inves-
tigate in their study two questions concerning
Web 2.0, an important technology in the digital
economy. On the one hand they address the ques-
tion whether Web 2.0 technologies are appropriate
to support learning or not. On the other hand the
second question addressed is, how Web 2.0 tech-
nologies can support learning scenarios.
In the remaining eight documents (see Chen &
Huang, 2012; Chu & Hwang, 2010; Chu, Hwang,
& Tsai, 2010; Chu, Hwang, Tsai, & Tseng, 2010;
Hsieh, Jang, Hwang, & Chen, 2011; Hwang, Chen,
Chu, & Cheng, 2012; Nelaturu, Kambham, Karna,
Parupalli, & Mandula, 2010; Song, Guimbretiere,
Ambrose, & Lostritto, 2007) it is pointed out
how a more extensive connection between the
real and the digital world could be achieved by
using distinct technologies in learning scenarios.
However, Chen and Huang (2012), Chu, Hwang,
Tsai and Tseng (2010) and Chu and Hwang (2010)
claim that students might feel excited about such
learning scenarios, but their learning success could
still be disappointing.
4.1.3. Short Statements
In three articles arguments related to changes in
the area of technology enhanced learning which
are retraceable to the attributes or changes in the
24

digital economy are identified in this study (see
Hwang, Chu, Lin, & Tsai, 2011; Hwang, Kuo,
Yin, & Chuang, 2010; Hwang, Wu, & Ke, 2011).
Basically the arguments in these statements can
be reduced to claiming that in learning scenarios
a connection between the real and the digital
world can be seen with increased regularity, and
that through technologies of the digital economy
new approaches to technology enhanced learning
are possible.
However, in addition Hwang, Wu, and Ke
(2011) also see problems with those new possi-
bilities which could lead to unsatisfying learning
performances.
4.2. Necessity of Technology
Enhanced Learning
The necessity of TEL since we live in a digital
economy is mentioned in 14 publications. In 10
the necessity builds a major part of the article.
One publication reasons the necessity in a case
study and the remaining three identified documents
mention this necessity in a short statement. In the
following three sections a short overview of the
arguments in these 14 publications will be given.
4.2.1. Major Part in the Publication
The necessity of TEL since we live in a digital
economy is a major part in 10 documents. For ex-
ample, in four publications (see Agostini, di Biase,
& Loregian, 2010; Clifton & Mann, 2011; Nehdi,
2002; Watson, 2006) the authors explain how
people are used to use technologies of the digital
economy in their daily life and therefore demand
learning scenarios which use those technologies.
Especially young people, who are born in this
digital era, ask for technology enhanced learning.
Watson (2006) claims that in a digital world the
people know how to use common technologies.
Therefore, according to Watson, they do not need
to learn about those technologies but rather use
them for the learning process (Watson, 2006).

Technology Enhanced Learning and the Digital Economy
Moreover, in five articles (see Acampora,
Cadenas, Loia, & Ballester, 2011; Beard & Dale,
2010; Calabrese, 2012; Fernandez-Villavicencio,
2010; Quinn & Shurville, 2009) it is added that
TEL approaches are required for living and work-
ing in our digital economy. Besides that, Beard
and Dale (2010) demand methodologies to tech-
nology enhanced learning not only in class but
in libraries too.
Another reason for the necessity of technology
enhanced learning is pointed out by de Castell and
Jenson (2004). They claim that TEL is needed
because the possibilities of the digital economy
could be a permanent distraction to the learning
progress if not used. Therefore they suggest using
those possibilities in the learning environment in
order to make learning more attractive. (de Castell
& Jenson, 2004)
4.2.2. Reasoned by Case Studies
Only one case study is identified, which reasons
the necessity of technology enhanced learning
as we live in a digital economy. Rondon, Sassi
and Furquim de Andrade (2013) claim in their
study that students are used to use technologies
of the digital economy and therefore expect those
technologies to be integrated in their learning
process too.
4.2.3. Short Statements
Altogether, three publications mention the neces-
sity of technology enhanced learning because we
live in a digital economy in a short statement. All
of them (see Acampora, Gaeta, & Loia, 2008;
Acampora, Gaeta, Loia, Ritrovato, & Salerno,
2008; Bai, 2010) mention that technology en-
hanced learning is important, as the usage of
technologies is important for the life in a digital
world and should therefore be part of the learn-
ing scenario.
4.3. Summary and General Statistics
In the literature review, in total 34 out of 1089
documents are identified, which mention con-
nections between technology enhanced learning
and the digital economy or world. These publi-
cations are classified in two main categories. In
the first category the effects on TEL caused by
the attributes or changes in the digital economy
are listed. The second category contains all those
which mention the necessity of TEL hence we live
in a digital economy. In Table 1 there are shown
the most frequently mentioned assertions out of
both categories.
Additionally, during the literature review in
most of the investigated documents some major
technologies are identified. In the following two
tables (see Table 2 and Table 3) it is pointed out
which technologies were assignable to which
publication. Furthermore, in these tables the
publications are categorized in year of publica-
tion and nationality of the authors. Moreover, it is
shown whether the article mentions the necessity
(2), or changes in the area of technology enhanced
learning (1).
The term “Semantic” in the tables was chosen
as hypernym for semantic technologies, intelligent
agents and also context-awareness technologies.
“IoT/WSN” is the abbreviation for Internet of
Things and Wireless Sensor Networks, as is “TUI”
the abbreviation for Tangible User Interfaces. The
category “miscellaneous technologies” (“Misc.”)
contains all technologies which are not covered
with the other seven categories. For instance,
technologies like QR Codes, RFID or just learning
programs are classified in this group.
In addition, it is to mention, that some publica-
tions are assignable to more than just one tech-
nology. Therefore these are found more often in
the two tables. It is also possible, that one article
is written by authors with different nationalities.
Thus these can be found more often in the two
tables as well.
25
 
Technology Enhanced Learning and the Digital Economy

Table 1. Most frequently mentioned assertions

Category Assertion Publication Count

Changes in the area of In learning scenarios, with distinct
technology enhanced technologies a more extensive
learning connection between the real and the
digital world could be achieved.
Changes in the area of Through technologies of the digital
technology enhanced economy, new learning approaches
learning are possible.
Necessity of Technology enhanced learning
technology enhanced approaches are required for living
learning and working in our digital economy.
Necessity of People are used to use technologies
technology enhanced of the digital economy in their daily
learning life and therefore demand learning
scenarios which apply those
technologies
(Chen & Huang, 2012) 12
(Chu & Hwang, 2010)
(Chu, Hwang, & Tsai, 2010)
(Chu, Hwang, Tsai, & Tseng, 2010)
(Chu, Hwang, & Tseng, 2010)
(Hsieh, Jang, Hwang, & Chen, 2011)
(Hwang, Chen, Chu, & Cheng, 2012)
(Hwang, Kuo, Yin, & Chuang, 2010)
(Hwang, Wu, & Ke, 2011)
(Nelaturu, Kambham, Karna, Parupalli, & Mandula, 2010)
(Song, Guimbretiere, Ambrose, & Lostritto, 2007)
(Zhang, 2012)
(Hwang, Chu, Lin, & Tsai, 2011) 2
(Lally, Sharples, Tracy, Bertram, & Masters, 2012)
(Acampora, Cadenas, Loia, & Ballester, 2011) 8
(Acampora, Gaeta, & Loia, 2008)
(Acampora, Gaeta, Loia, Ritrovato, & Salerno, 2008)
(Bai, 2010)
(Beard & Dale, 2010)
(Calabrese, 2012)
(Fernandez-Villavicencio, 2010)
(Quinn & Shurville, 2009)
(Agostini, di Biase, & Loregian, 2010) 5
(Clifton & Mann, 2011)
(Nehdi, 2002)
(Rondon, Sassi, & Furquim de Andrade, 2013)
(Watson, 2006)

Table 2. Years of publication per mentioned technologies (1) … changes in the area of TEL; (2) …
necessity of TEL

Technologies Mobile Web Virtual Semantics Ubiquitous IoT/ TUI Misc. Count
Publications 2.0 Worlds Computing WSN
(sorted by year)
(Nehdi, 2002) (2) (2) 1
(Watson, 2006) (2) (2) 1
(Lavik, Nordeng, Meloy, & Hoel, (1) (1) 2
2007)
(Song, Guimbretiere, Ambrose, & (1)
Lostritto, 2007)
(Acampora, Gaeta, & Loia, 2008) (2) (2) (1) 1
(2) 3
(Acampora, Gaeta, Loia, Ritrovato, (2)
& Salerno, 2008)
(Shaohua & Peilin, 2008) (1)
(Quinn & Shurville, 2009) (2) (1) 3
(2) 1
(Steinkuehler & Squire, 2009) (1) (1) (1)

continued on following page

26

Technology Enhanced Learning and the Digital Economy

Table 2. Continued

Technologies Mobile Web Virtual Semantics Ubiquitous IoT/ TUI Misc. Count
Publications 2.0 Worlds Computing WSN
(sorted by year)
(Agostini, di Biase, & Loregian, (2) (2) (1) 22
2010) (2) 7
(Bai, 2010) (2) (2)
(Beard & Dale, 2010) (2) (2)
(Chu & Hwang, 2010) (1) (1) (1) (1)
(Chu, Hwang, & Tsai, 2010) (1) (1) (1)
(Chu, Hwang, Tsai, & Tseng, 2010) (1) (1) (1) (1)
(Chu, Hwang, & Tseng, 2010) (1) (1)
(Fernandez-Villavicencio, 2010) (2)
(Hwang, Kuo, Yin, & Chuang, 2010) (1) (1) (1) (1)
(Nelaturu, Kambham, Karna, (1) (1) (1) (1) (1)
Parupalli, & Mandula, 2010)
(Acampora, Cadenas, Loia, & (2) (2) (1) 9
Ballester, 2011) (2) 3
(Clifton & Mann, 2011) (2)
(Hsieh, Jang, Hwang, & Chen, 2011) (1) (1)
(Hwang, Chu, Lin, & Tsai, 2011) (1) (1) (1) (1) (1)
(Hwang, Wu, & Ke, 2011) (1) (1)
(Calabrese, 2012) (2) (1) 15
(2) 1
(Chen & Huang, 2012) (1) (1) (1)
(Hwang, Chen, Chu, & Cheng, 2012) (1) (1) (1) (1) (1)
(Lally, Sharples, Tracy, Bertram, & (1) (1) (1)
Masters, 2012)
(Zhang, 2012) (1) (1) (1) (1)
(Llamas-Nistal, Fernández-Iglesias, (1) (1) 1
González-Tato, & Mikic-Fonte, (2) 1
2013)
(Rondon, Sassi, & Furquim de (2)
Andrade, 2013)
Count (1) 13 (1) 3 (1) 2 (1) 8 (1) 12 (1) 5 (1) 1 (1) 9
(2) 3 (2) 7 (2) 1 (2) 3 (2) 1 (2) 3

Finally, it has to be pointed out, that not all
identified publications are included in the two
tables, since some are not assignable to any spe-
cific technology. These publications are listed in
Table 4.
The tables show that various types of technol-
ogy are used in the area of technology enhanced
learning. In detail, mobile technologies, ubiqui-
tous computing and semantic technologies, also
meaning intelligent agents and context-awareness
technologies, are mentioned most during the review.
Moreover, Table 2 shows an increasing amount of
publications mentioning these technologies in the
year 2010. Concerning mobile technologies and
ubiquitous computing this might be due to the fact
that in the year 2010 the first iPad was released and

27
 
Technology Enhanced Learning and the Digital Economy

Table 3. Nationalities of authors per mentioned technologies (1) … changes in the area of TEL; (2) …
necessity of TEL

Technologies Mobile Web Virtual Semantics Ubiquitous IoT/ TUI Misc. Count
Publications 2.0 Worlds Computing WSN
(sorted by nationalities
of authors)
AU (Quinn & Shurville, 2009) (2) (2) 1
BR (Rondon, Sassi, & Furquim de (2) (2) 1
Andrade, 2013)
CA (Nehdi, 2002) (2) (2) 1
CN (Shaohua & Peilin, 2008) (1) (1) 5
(Zhang, 2012) (1) (1) (1) (1)
ES (Acampora, Cadenas, Loia, & (2) (2) (1) 1
Ballester, 2011) (2) 3
(Fernandez-Villavicencio, 2010) (2)
(Llamas-Nistal, Fernández- (1)
Iglesias, González-Tato, & Mikic-
Fonte, 2013)
IN (Nelaturu, Kambham, Karna, (1) (1) (1) (1) (1) (1) 5
Parupalli, & Mandula, 2010)
IT (Acampora, Cadenas, Loia, & (2) (2) (2) 7
Ballester, 2011)
(Acampora, Gaeta, & Loia, 2008) (2) (2)
(Acampora, Gaeta, Loia, (2)
Ritrovato, & Salerno, 2008)
(Agostini, di Biase, & Loregian, (2) (2)
2010)
NO (Lavik, Nordeng, Meloy, & Hoel, (1) (1) 1
2007)
TW (Chen & Huang, 2012) (1) (1) (1) (1) 34
(Chu & Hwang, 2010) (1) (1) (1) (1)
(Chu, Hwang, & Tsai, 2010) (1) (1) (1)
(Chu, Hwang, & Tseng, 2010) (1) (1)
(Chu, Hwang, Tsai, & Tseng, (1) (1) (1) (1)
2010)
(Hsieh, Jang, Hwang, & Chen, (1) (1)
2011)
(Hwang, Chen, Chu, & Cheng, (1) (1) (1) (1) (1)
2012)
(Hwang, Chu, Lin, & Tsai, 2011) (1) (1) (1) (1) (1)
(Hwang, Kuo, Yin, & Chuang, (1) (1) (1) (1)
2010)
(Hwang, Wu, & Ke, 2011) (1) (1)

continued on following page

28

Technology Enhanced Learning and the Digital Economy

Table 3. Continued

Technologies Mobile Web Virtual Semantics Ubiquitous IoT/ TUI Misc. Count
Publications 2.0 Worlds Computing WSN
(sorted by nationalities
of authors)
UK (Beard & Dale, 2010) (2) (2) (1) 3
(2) 4
(Clifton & Mann, 2011) (2)
(Lally, Sharples, Tracy, Bertram, (1) (1) (1)
& Masters, 2012)
(Watson, 2006) (2)
US (Bai, 2010) (2) (2) (1) 4
(2) 3
(Calabrese, 2012) (2)
(Song, Guimbretiere, Ambrose, & (1)
Lostritto, 2007)
(Steinkuehler & Squire, 2009) (1) (1) (1)
Count (1) 13 (1) 3 (1) 2 (1) 8 (1) 12 (1) 5 (1) (1) 9
(2) 3 (2) (2) 1 (2) 4 (2) 1 1 (2) 3
8

Table 4. Publications which are not assignable to any specific technology (1) … changes in the area of
TEL; (2) … necessity of TEL

Nationalities of authors CA DE IL Count

Publications
(sorted by year)
(Offir, Barth, Lev, & Shteinbok, 2003) (1) (1) 1
(de Castell & Jenson, 2004) (2) (2) 1
(Borcea, Donker, Franz, Pfitzmann, & Wahrig, 2006) (1) (1) 1
Count (2) 1 (1) 1 (1) 1

the significance of tablet computers has increased.
However, five of the identified nine publications
mentioning mobile technologies, ubiquitous com-
puting or semantic technologies in the year 2010
are written by one group of Taiwanese. Therefore
the increasing amount of publications mentioning
these technologies has to be scrutinized.
5. CONCLUSION
The research question of this study addressed con-
nections between technology enhanced learning
and the digital economy and world. To a great
extend the results show that aspects of our digital
economy are relevant to the field of technology
enhanced learning.
On the one hand, many authors claim that
through technologies of the digital economy new
approaches to technology enhanced learning are
possible and a more extensive connection between
the real and the digital world in learning scenarios
could be achieved. So it could be concluded, that
trends in our digital world influence the area of
technology enhanced learning too. For instance,
the findings of this publication (see Table 2 and
Table 3) show that since 2010 technologies like
mobile technologies, ubiquitous computing and

29

Technology Enhanced Learning and the Digital Economy
semantic technologies, also meaning intelligent
agents and context-awareness technologies, as well
as technologies for the Internet of Things have
become more important in the field of technology
enhanced learning. The same trend can be seen
in our society too.
On the other hand it is confirmed by many au-
thors, how important TEL is in our digital world.
Mainly there are two arguments for that. Firstly,
we have gotten used to technological support
in our daily life. That is why, especially young
people, demand technological support in their
learning process. Secondly, the exact opposite is
also the case. We need technological support in our
learning environment, since we have to learn how
to handle such technologies in our daily life and
work. Both arguments emphasize the importance
of research in the field of technology enhanced
learning and the usage of technology enhanced
learning approaches.
However, with the described search strategy
none of the identified publications mention rela-
tions between the field of technology enhanced
learning and the regularities of the digital economy.
We however firmly believe that such relations
exist in two ways.
First, mostly the rules of the digital economy
determine which technologies are used in our
digital world. So, in our point of view, through
that it is also determined which technologies are
interesting for the field of technology enhanced
learning. For example, using a technology that
nobody is used to would raise problems like inef-
ficient and false usage and will definitely lead to
resistance by the users.
Second, we also believe that the principles of
the digital economy weigh in the field of technol-
ogy enhanced learning too. Massive open online
courses (MOOCs – see (Khali & Ebner, 2013))
are an appropriate example for this assertion.
Imagine a platform which provides MOOCs, but
an additional non-standard software is needed to
30

participate in a course. Hence non-standard soft-
ware tools and protocols are used; this platform
would not be interesting for many users, since most
do not want to install another software package.
Therefore the platform would not be interesting
for most of the providers of MOOCs as well,
because if there are only a few users, offering
MOOCs is not reasonable. This again would make
the platform less interesting for users, since there
are only a few MOOCs. This cycle will continue
till the end of the platform. A similar cycle can
also take effect on learning management systems.
If students do not use the learning management
system, teachers will stop using it as well. As a
result, less learning content will be provided on
the system and fewer students will use it.
Another example for the importance of the
principles of the digital economy in the field of
TEL can be given regarding the usage of smart
boards in class. The usage of smart boards by
itself does not lead to more benefits. However,
with additional functionality, like direct export
or interaction possibilities for students, indirect
positive net effects are used and the value of the
usage of smart boards in class will increase.
Of course these are only short examples, but
we firmly recommend further investigating the
effects of regularities of the digital economy on
the field of technology enhanced learning in or-
der to use the rules of the digital economy as an
advantage to build successful learning scenarios
in the future.
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34

Chapter 3
Games in Entrepreneurship
Education to Support
the Crafting of an
Entrepreneurial Mindset
Leona Achtenhagen
Jönköping International Business School, Sweden

Bengt Johannisson
Linnaeus University, Sweden & Jönköping International Business School, Sweden

ABSTRACT
An increasing number of education institutions, including many universities and colleges, are offering
entrepreneurship education. This development is driven by the hope that more entrepreneurs could
be “created” through such efforts, and that these entrepreneurs through their newly founded ventures
will contribute to economic growth and job creation. At higher education institutions, the majority of
entrepreneurship courses rely on writing business plans as a main pedagogical tool for enhancing the
students’ entrepreneurial capabilities. In this chapter, the authors argue instead for the need for a peda-
gogy that focuses on supporting students in crafting an entrepreneurial mindset as the basis for ventur-
ing activities. They discuss the potential role of games in such entrepreneurship education and present
the example of an entrepreneurship game from the Swedish context, which was developed by a group of
young female entrepreneurs. The authors describe the game and discuss their experiences of playing it
with a group of novice entrepreneurship and management students at the master’s level, and they review
the effectiveness of the game in terms of how it supports students in crafting an entrepreneurial mindset.
The authors conclude the chapter by outlining how entrepreneurship games could be integrated into a
university curriculum and suggest some directions for future research.

DOI: 10.4018/978-1-4666-8468-3.ch003

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
INTRODUCTION
Since the 1990s, many universities worldwide
have initiated entrepreneurship education, which
mainly aims at increasing the number of potential
entrepreneurs (Kuratko, 2005). This development
follows the commonly shared understanding that
new ventures play a crucial role in achieving
economic growth and value creation, as well as
that young growth firms create the majority of
new jobs (e.g. Kirchhoff & Phillips, 1988). As
pointed out by Katz (2003), homogeneity as to
what is considered to be appropriate content for
entrepreneurship education has increased over the
past years, and today there exists a widely shared
agreement that such education should:
1. Increase the understanding of what entre-
preneurship is about (leading to a concern
for economic wealth creation);
2. Focus on the entrepreneurship process, which
entails learning to become entrepreneurial;
and
3. Prepare individuals for careers as
entrepreneurs.
Here, business plan assignments are typically
used to imitate ‘action learning’–although the ‘ac-
tion’ is largely restricted to the linguistic exercise
of developing a business plan document without
much ‘real’ action related to it.
Our point of departure is the need for a peda-
gogical approach that centres on the crafting of
an entrepreneurial mindset, and enforces this
process through different types of pedagogical
tools. Following the American Heritage Dic-
tionary definition, we associate mindset with
“[a] fixed mental attitude that determines one’s
responses to and interpretations of situations.”
An entrepreneurial mindset is not only relevant
when taking on a narrow definition of entrepre-
neurship as a new venture creation, but is equally
(if not more) important when recognizing the
potential of entrepreneurial activities for all
types of creative organizing in public as well as
in private life. Nevertheless, we argue that having
an entrepreneurial mindset does not mean that
the individual immerses into an entrepreneurial
identity that directs all existential choices. Rather,
students can craft their entrepreneurial mindsets
without directly becoming entrepreneurially ac-
tive in venture creation, i.e. without enacting their
entrepreneurial identities at this point in time. We
argue that such a mindset is the prerequisite for
the later crafting of an entrepreneurial identity
which takes place when immersing ‘in’ entrepre-
neuring (rather than learning ‘about’ or training
‘for’ entrepreneurship). For the context of formal
educational settings, such as university, we think
that influencing attitudes towards crafting an
entrepreneurial mindset, supported by tools such
as games, is a realistic ambition.
In many entrepreneurship courses, students are
asked to write business plans for real, rudimentary
or fictitious venture ideas, hoping that this exercise
would simulate the real world of entrepreneurship
as a practice. The predominance of this approach
was confirmed by Honig (2004), who found that
78 out of the top 100 US universities offered
courses that specifically referred to business plan
education. The proposed experiential learning
is assumed to inspire students to start their own
(business) ventures after the program. There are,
though, some fundamental flaws in the underlying
assumptions of such a programme design when it
comes to helping students to (re-)discover their
talents as entrepreneurs.
First, it is taken for granted that all students are
already interested in entrepreneurship as a career
choice, since they are already equipped with an
entrepreneurial mindset. However, this is typically
not the case. Through socialization and formal
education they have most probably ‘unlearned’
their entrepreneurial mindset and the playfulness
that they once had as children (Johannisson, 2010).
Thus, for this (usually large) group of students,
35

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
entrepreneurship education needs to provide an
arena which supports students in crafting (or
rediscovering) their entrepreneurial mindsets.
Second, for the effectiveness of entrepreneur-
ship education (in the sense of leading to a higher
number of successful start-ups), it is probably
fundamental whether students consider entre-
preneurial activities to be simply a part of their
educational journey, an element in their emerging
careers or associated with those existential issues
that subsequently build an entrepreneurial identity.
For students who already know that they want to
become entrepreneurs, business plan assignments
can be a helpful learning tool for important aspects
of entrepreneurial life. However, many students
enrolled in entrepreneurship courses have in fact
not yet had the chance to craft an entrepreneurial
mindset and associated action orientation.
Third, business planning is a crucial component
in a management logic that in many respects con-
trasts with that of entrepreneurship (e.g. Hjorth,
Johannisson & Steyaert, 2003). Formal planning
only makes sense when the future is foreseeable
and thus can be controlled. From, for example,
chaos theory we know that that is not the case
(Stacey, 1996). A generic assumption in entrepre-
neurship is instead that the (future) environment
can be enacted, meaning that it is possible to co-
construct it together with other actors. This calls
for experimenting and intense interaction, which
are activities that are certainly different from busi-
ness planning as an analytical exercise. Even in
education programmes which include internships
in entrepreneurial firms, such practical experi-
ences are usually not enough to turn students into
entrepreneurs. Rather, this experience might train
students to become administrators who know how
to help business leaders to remain entrepreneurs
(Johannisson, 1991).
Fourth, an entrepreneurial mindset can be
applied to a much broader context than that rep-
resented by the common, narrow view on entre-
preneurship as a profit-oriented activity, which
is typically in focus in business plan exercises.
36

While an entrepreneurial mindset is applicable
to most spheres of life, it is also important that
entrepreneurship education embraces other highly
relevant types of entrepreneurial endeavours, such
as those taking place in the social, cultural or public
sphere (e.g. Berglund, Johannisson, & Schwarz,
2013; Fayolle & Matley, 2010; Klamer, 2011).
Elsewhere we have presented our view on how
the academic setting may be turned into a learn-
ing context for entrepreneurship (Achtenhagen &
Johannisson, 2011, 2013b). This view includes,
among other aspects, the need for a learning context
that offers diversity and variety and recognizes
that the boundaries between the university and
society must be permeable, inviting dialogues with
different stakeholders. In internationally diverse
student groups (as is common in many study
programmes today), such variety with respect to
(cultural) outlook, family backgrounds and aca-
demic profile is provided by the student cohort
itself, but can be amplified by different modes of
organizing (for example, in group assignments
conducted by mixed student groups). To make
the university’s boundaries more permeable, in-
teraction with different external stakeholders can
be nurtured. For example, students’ experiential
learning will increase if they conduct company
projects addressing challenges identified either
by the companies (or mediating organizations) or
by the students. Such collaboration will help the
students to gain an insight into how companies
work and will make them realize how theory relates
to practice. Participating organizations can not
only get ideas for their own development, while
connecting firms and students, but also access to
a group of potential recruits.
The discussion so far has underlined that sets
of experientially oriented pedagogical tools ap-
pear to be well suited to guiding students on their
journey of crafting an entrepreneurial mindset.
Games can be one useful pedagogical tool to
facilitate this process.
To avoid misunderstanding, it is important to
point out that an entrepreneurial mindset does not

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
include the assumption that entrepreneurs have a
tendency or like to act as ‘gamblers.’ Despite the
fact that entrepreneurs certainly thrive on chaos,
this does not mean that entrepreneurs typically tend
to take risks that cannot be calculated, something
that in economic theories, such as game theory,
is associated with uncertainty. We rather ascribe
to entrepreneurs the ability to cope with ambigu-
ity. The difference between risk-taking, dealing
with uncertainty and managing ambiguity was
explained very well by Sarasvathy (2001). De-
scribing the logic that experienced entrepreneurs
tend to apply in their decision-making, she very
pedagogically uses the example of an urn that
cannot be looked into and that contains balls of
different colours. If the colour of the balls and
their proportions are known, risk refers to the
probability of picking a ball with a certain colour
out of that urn (i.e. the probability can be calcu-
lated). A situation characterized by uncertainty,
such as that of gambling, means that the colours
of the balls are known, but their proportions are
not. This means that the probability of picking
a ball of a specific colour cannot be calculated.
An example of an uncertain situation is the com-
mercialization of a radical innovation where what
to do is known but not the outcome of the action.
Sarasvathy (2001) argues that while human be-
ings in general, including managers, prefer the
‘risky or known distribution’ over the ‘uncertain
or unknown distribution’ urn, entrepreneurs might
have a preference for a third situation, namely
that of ambiguity. Then the colours of the balls
in the urn are not at all known, but by keeping to
add own balls of a certain colour, over time that
colour will dominate that of the balls originally
in the urn. Thereby the whole situation is changed
in a mode that is partially controlled by the actor.
Entrepreneurial activities often call for creativity
and innovativeness, and no probabilities on their
outcome can be calculated before embarking on
them. Coping with ambiguity demands, among
other things, experimenting and interacting in
order to influence and ‘enact’ the context of the
venturing activity. Playing games in entrepreneur-
ship education can help students to experience such
experimentation and interaction in a ‘safe’ setting.
This chapter is structured as follows. First,
we present our view on entrepreneurship and
the current state of the art of entrepreneurship
education in the contemporary university-level
business school setting (in Sweden) and review
the mainstream pedagogical paradigm underly-
ing much of that teaching, and we position the
entrepreneurship game approach as one tool in an
alternative approach to entrepreneurship educa-
tion. Then we tell the story of a game developed
by young Swedish entrepreneurs, arguing that
despite formalized rules, a game can contribute
to rediscovering the creativity typical of play. Fol-
lowing the presentation of the game, we reflect on
the role that this game can play in entrepreneurship
education. We evaluate the impact the game has
had on our current student cohort in a master’s-
level class on entrepreneurship, by assessing the
course evaluation as well as reflective blog entries
(for elaborations on this pedagogical setting, see
Achtenhagen & Johannisson, 2011), in which the
students discuss their experience and learning
from playing the game. We conclude with lessons
learned and reflections targeted at entrepreneur-
ship educators about in which contexts and related
to which contents this entrepreneurship game
might be beneficial to use.
ENTREPRENEURSHIP:
AN INSTRUMENT OR AN
APPROACH TO LIFE?
In the search for legitimacy as an academic field
in its own right (rather than continuing to be
viewed as a subsection of strategic management,
small business management or similar areas),
entrepreneurship scholars have created a rather
high level of institutionalization of the field, for
example with regard to the number of teaching
programmes, professorships, conferences and
37

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
scientific journals and that institutionalization
has also contributed to a standardization of peda-
gogical approaches, as has been confirmed for the
United States by Katz (2003) and Honig (2004),
and more generally by Kuratko (2005).
However, for example in Europe alternative
images of entrepreneurship have emerged that,
for example, widen the common perspective in
the entrepreneurship field to focus on different
learning approaches (e.g. Hjorth & Johannisson,
2007). Taking such a perspective decouples entre-
preneurship from the stereotype of entrepreneurs
as white, male heroes with superior personal at-
tributes (Ogbor, 2000), and also liberates it from
the focus on for-profit business ventures (Berglund
& Johansson, 2013). Instead, such a perspective
allows us to view entrepreneurship as generically
associated with the creative organizing of people
and resources according to opportunity, which
stretches into the mundane settings of everyday life
(e.g. Steyaert, 2004). Thus, we acknowledge that
entrepreneurship is intimately associated with hu-
man activity, complementing the questions of who
the entrepreneur is, what happens when entrepre-
neurship is carried out, and how entrepreneurship
is enacted. As much as entrepreneurship brings
commercial and social innovations to the market
and society, it also expresses intrinsic human
characteristics that are deeply embedded in our
existence. Thereby, we complement the common
instrumental dimension of entrepreneurship with
an expressive one. This activity-centred perspec-
tive on entrepreneurship can more accurately be
labelled ‘entrepreneuring.’
Elaborating upon the expressive dimension
of entrepreneurship, we can recall what we as
human beings all were before we were social-
ized into society (not least by institutions like the
school system). We were born as entrepreneurs
(Johannisson, 2010). As children we all practise
entrepreneurship, or rather entrepreneuring (be-
cause it is an ongoing activity, see above), in our
play. Typical dimensions of our play as children
are being creative, imaginative, and courageous,
38

and taking initiative and responsibility, while col-
laborating with others. The role of the context, in
particular family members, but also (pre-)school
teachers, then, is to provide a feeling of security
that allows us to immerse ourselves in the practice
of entrepreneuring (Winnicott, 1971). As pointed
out by the Swedish author and mathematician Hel-
ena Granström, children’s play does not need any
language but is genuinely embodied (Granström,
2010, p. 43). Just as the young child is literally
illiterate, the grown-up is bodily illiterate (p. 49).
This means that children are able to spontaneously
practise entrepreneurship. While grown-ups asso-
ciate play with relaxation, children seem to see it
both as a voluntary and as an existential necessity.
Yet, adults play for instrumental reasons–in order
to have fun (or, in some cases, for money)–while
children play for expressive reasons, for its own
sake.
Huizinga (1938), with his seminal work Homo
Ludens, puts the spotlight on play as a generic
feature in human life. Although the brief title
signals play as the core feature of human self-
identity, adults’ play is very much reduced to an
activity that makes grown-ups temporarily break
away from everyday life and behave foolishly on
special occasions, such as carnivals, or in special
places, such as clubs. But such limits in time and
space represent a kind of regulation. Huizinga
thus associates play with a ‘game’ that signals a
planned (inter)activity. Rules are stated above the
head of the players involved before the exercise
starts and the designed activities are demarcated
in time and space, play being explicitly a game
of make-believe, usually representing established
cultures. As with any other human activity, play
and game are thus enforced and/or restricted by
their institutional setting, which also defines what
type of entrepreneurship is appropriate (Baumol,
1990). Institutions provide ‘the rules of the game’
(sic!) (North, 1990) which offer a basic order as
a platform for the spontaneity and improvisation
that characterize entrepreneuring. In contrast to
this understanding of the ‘playful’ (adult) hu-

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
man being, for children, play is the core of their
existential being. Play makes childhood unique.
When children play, rules may be established, but
usually by the children themselves and then only
for occasional and local use. Besides, children’s
play often takes off spontaneously. Children play
at any time in any place, and what is considered
to be fact or fiction in children’s play remains am-
biguous in the potential spaces that the presence
of a caring and trusted adult provides. While play
is exciting to adults it is self-evident to and, as
indicated above, embodied by children. In many
societies, parents play parlour games with their
children, which often have aims beyond having fun
together–namely, during these games parents try
to familiarize their children with institutionalized
‘rules of the societal game’ through restricting the
parlour game by following its established rules.
The discourse above has at least three impli-
cations for what we will discuss in more detail
below. First, the rules that accompany a game as
a tool in entrepreneurship education should not
control or streamline the activities concerned,
but rather communicate a feeling of comfort that
invites entrepreneuring. Second, in an academic
setting, entrepreneuring could fruitfully be taught
by focusing on helping students recognize and
craft the entrepreneurial mindset they all once
had as children. As indicated above, if such a
foundation is not firmly built, activities such as
writing business plans may rather put students
off entrepreneurship–as they often at this stage
have not yet crafted their entrepreneurial selves.
Thus, we propose that for students with unclear
entrepreneurial aspirations (as well as for students
with clear entrepreneurial aspirations but a lack
of confidence to put these into practice), focus
might be put on guiding students in crafting an
entrepreneurial mindset. Then it is important to
experience entrepreneuring through a variety of
exercises and tasks. An important aspect of en-
trepreneuring is reflexivity as a mode of building
actionable knowledge (Jarzabkowski & Wilson,
2006). We argue that despite their rules, games
can contribute to rediscovering the creativity
typical of play (for elaborations on a pedagogical
setting which fosters reflexivity, see Achtenhagen
& Johannisson, 2011), in which the students dis-
cuss their experience and learning from playing
the game. This is a kind of self-reflection that we
would like to associate with all education for and
in entrepreneurship.
If successful, the game activity has to be
contextualized into the social setting of the stu-
dents. This has to be done both in a systematic
way jointly by the course organizers and by the
students themselves in the interface between
their public and private life spheres. In Table 1,
we position the game in relation to alternative
approaches to enforcing entrepreneurial learning
and the crafting of an entrepreneurial mindset.
Five such pedagogical approaches are presented
in order of declining control over the process by
the programme management and, accordingly,
increased student self-control (but also increased
difficulties of evaluating learning outcomes in
established ways).
The teaching of ‘business planning’ has,
despite the criticism we present above regarding
the overreliance on this approach in settings that
invite entrepreneurship, some strengths also in the
context of venturing. One is that it helps develop
analytical skills and holistic perspectives. Another
advantage is that its causal logic makes it easy
to communicate and points out the importance
of not just the uniqueness of a venture concept
but also the significance of building legitimacy
among different stakeholders (Honig & Karlsson,
2004). The cognitive normative bias of business
planning, however, means that practical skills,
needed to move from decision to concrete action,
are devalued. As pointed out by Sarasvathy (2001),
entrepreneurial venturing is guided by a logic of
effectuation that is by ‘making do’ whatever the
means are.
‘Games’ can be appropriate for developing
specific skills, which have been demonstrated to
be important in feeding entrepreneurial processes,
39
 
Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset

Table 1. Positioning the game as a mode of enforcing entrepreneurial capabilities

Approach Strengths Weaknesses Contributions to Crafting of

Business plan Systematic analysis including
stakeholders
Game Develops creativity,
encourages teamwork, coping
with time pressure
Internship Combines action and
reflection, bridges academia
and community
Enacting an own venture idea Develops personal
responsibility and social
skills
Everyday practising of Ongoing identity building,
entrepreneuring networked reflexivity
Cognitive/normative bias denies
role of hands-on experience
Decontextualized laboratory
setting, little concern for timing
Partner organization may not be
role model; time- and resource-
consuming
Practicalities absorb most of the
time, no space for reflection
Some parts of the private sphere
remain closed
Entrepreneurial Mindset
Points out the importance of
legitimacy
Reveals a hidden creativity
potential, builds self-confidence
Develops responsibility and
social skills
Enforces social learning and
commitment
Integrates public and private
life spheres

such as creativity, decisiveness and social skills.
Entrepreneurial processes of ‘becoming’ often
call for instant action, and time pressure can be
integrated into games. However, entrepreneur-
ing even calls for timing (kairos) (Johannisson,
2011), a capability that is difficult to encourage
considering that games are arranged in a laboratory
setting, which by definition is decontextualized
from all the coincidences that invite alert action
to turn coincidences into opportunities. Having
said this, the ability of games to enforce hidden
capabilities such as creativity and decisiveness
feeds self-confidence, which is a basic require-
ment when crafting an entrepreneurial mindset
and subsequently activating it in real situations.
‘Internships,’ where students spend part of
their time in a partner firm, have been practised
in Sweden in academic programmes in small
business management and entrepreneurship since
the 1970s (Johannisson, 1991). Internships, of
course, invite experiential learning, where theo-
retical frameworks are challenged by industry and
organizational practices. However, not all (small)
organizations are entrepreneurial, and to contribute
to entrepreneurial learning, the approach requires
a guided reflection about practice (Cunliffe, 2004;
Gray, 2007). Internships also trigger students’
own networking, crucial for future venturing
(e.g. Johannisson, 2000; Sarasvathy, 2001). How-
ever, internships are challenging to organize and
administer, and they need to be combined with
academic contents in order to qualify students to
receive credit points.
Some programmes in entrepreneurship may
invite students to ‘enact an own venture,’ that is
to take control over their own creative organizing
of resources according to an opportunity they have
imagined. In order to be able to state the business
or social value of that emerging venture, of course,
students have to interact with actors outside the
university and create practices beyond existing
routines. Students have to take responsibility for
the development of both the venture itself and the
social skills that are needed to build a context that
supports the emerging organization. However,
while the business plan approach runs the risk
of remaining an intellectual exercise, enacting an
own venture may imply that practicalities absorb
most of the available time at the expense of the
reflexivity that is needed to build a sustainable
venture. Nevertheless, the very attempt provides
relevant lessons with regards to social learning
and the importance of building commitment,
both personally and among different stakeholders.
As indicated, entrepreneuring as a verb reflects
an existential approach to life, ‘an everyday prac-

40

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
tice,’ where ongoing change is considered to be a
natural state. This attitude is generic and should
frame even the other approaches mentioned above,
as long as it is not restricted to different roles, for
example that of a student or a project leader, but
concerns building an entrepreneurial mindset that
guides the student when s/he crafts her/his identity.
Learning and entrepreneuring then become inter-
changeable with each other. Although some part
of what energizes the ongoing identity-crafting
process may be subconscious, hidden also to the
student her-/himself, this approach means that
the boundaries between public and private lives
dissolve. Of course, it is difficult to teach such
existential challenges, even though this practice
was once, when we were children, natural to all of
us. Our experience tells us that the teacher her-/
himself has to adopt such an approach to life in
order to be trustworthy and accordingly listened to.
Keeping this positioning of the game approach
in mind, we now turn to the presentation of a
Swedish game that, properly managed, can serve
as a facilitator to support students in crafting their
entrepreneurial mindsets.
THE ENTREPRENEURSHIP GAME
Here, we present an entrepreneurship game, in
Swedish ‘Entreprenörsspelet 1.0,’ and its inte-
gration in a master’s programme at Jönköping
International Business School, internationally
recognized for its entrepreneurship research and
education. This tool was developed by a group
of young (female) entrepreneurs in Sweden, with
their venture ‘Go Enterprise!’. The game is played
in seminar groups of around 25 people, divided
into five teams. Based on a real company case,
the teams have to complete a number of tasks to
develop solutions for that case under high time
pressure. The tasks trigger a number of key en-
trepreneurial competences, such as being analyti-
cal, reflective, creative, courageous, strategically
realistic, communicative, and daring. After each
task, the groups present their solutions (again
within strict time limits) and then the groups and
the facilitator jointly vote for the best solution. At
the end of the game, the team with the best overall
ranking wins. Below, we will first introduce the
company and its business model, before describ-
ing the game in more detail.
In order to evaluate the feasibility of the aca-
demic teaching about/for/in entrepreneurship we
think that it is important to be informed about the
societal context in which the educational activi-
ties take place. In 2009, the Swedish Government
gave the National Agency for Education, as the
central administrative authority for the public
school system, the publicly organized preschool-
ing, school-age childcare and adult education, the
task to develop means to stimulate the work with
entrepreneurship in the school system. With the
clearly expressed aim that schools should pay more
attention to supporting pupils in crafting their en-
trepreneurial mindsets, the game developed by Go
Enterprise! had a good starting position, offering
a tool aimed at pupils and students at high school
and in higher education. However, despite the lip
service paid by the government and many schools
to foster entrepreneurship through focusing on
entrepreneurship in education, in practice rather
little change has happened–not least because the
teacher education programmes were, and still are,
not adjusted to prepare future teachers to handle
entrepreneurship or enterprising contents.
The Company: Go Enterprise!
The founders of the company Go Enterprise! tell
the story of how they came up with the idea for
the entrepreneurship game as follows on their
home page:
Three entrepreneurs went on a combined travel
trailer holiday and parlour game tour. With around
40 different games in our cupboards, we parked
in front of our friends’ houses and invited them to
spend the evenings playing games with us. These
41

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
evenings were a great success, and the competi-
tions, laughter and companionship made the
windows foggy and the time fly by. It was during
one of those evenings that the idea was born–to
produce our own parlour game. Partly, we enjoyed
playing, and partly we were fascinated by parlour
game as a tool and the emotional involvement it
creates.
As dedicated entrepreneurs, for many years we
have wanted to stimulate other people to make
use of their entrepreneurial skills. In our business,
we work with inspirational concepts and presen-
tations. (…) With this background, identifying
the opportunities of games became a business
idea. Just imagine if we could develop a parlour
game that inspired people to entrepreneurship.
Now we have developed the idea further, and in
summer 2009 we launched the Go Enterprise!
entrepreneurship game (http://goenterprise.se/
historien-bakom-spelet; our translation).
The founding team successfully participated
in the Swedish version of the TV programme
Dragons’ Den (in which entrepreneurs pitch their
ideas to a group of risk capitalists for financing)
and received venture capital. This success for the
young, female entrepreneurs created much media
attention, which facilitated the marketing process,
and especially brand building. In order to refine
the concept and gain further legitimacy, the female
entrepreneurs invited a number of experts–includ-
ing one of the authors of this chapter–to a process
evaluation of a prototype of the game (implying
participating in a game session).
The Business Model
The entrepreneurship game is based on a twofold
revenue model. First, licences to play the game
(including a game case with materials) are sold
to schools and higher education institutions.
However, this revenue model alone would be very
difficult to scale up, as market saturation would
42

be quickly reached. Also, cases to play need to be
continuously updated and renewed. Therefore, Go
Enterprise! offers companies and other types of
public and private organizations the opportunity
to have cases on their organizations. They pay
a fee to Go Enterprise!–receiving in return not
only higher visibility among Swedish pupils and
students, but also solutions developed by teams
playing the game, uploaded on the enterprise’s
home page. In other words, entrepreneurship
educators who purchase the licence for playing
the game receive a code which can be used to
enter an online community (at http://community.
goenterprise.se/). Here, pupils and students have
the opportunity to upload their solutions and
receive feedback on them from the companies
and other participants. However, the decreasing
activity on this site demonstrates the challenge of
maintaining such an interactive community site,
which is highly time-consuming for the moderator
and of limited interest to participants in the game.
Based on the underlying concept of the entrepre-
neurship game, the company Go Enterprise! also
offers consulting, training and coaching services
around entrepreneurship and innovation to private
and public organizations, as well as competence
development sessions for schoolteachers.
The Rules of the Game
At the beginning of the game session, the game
leader presents a case, which the teams of ‘en-
trepreneurs’ will work with and solve during the
session by drawing on their creativity, communi-
cation skills and courage. During the game, eight
‘activity cards’ challenge the ‘entrepreneurs’ to
make use of their skills to solve the case. Their
achievements are evaluated by the group and the
teacher who give points for the best presentation
after each activity. These points are tracked by the
teacher on an ‘entrepreneur barometer’ through-
out the game, and the team with most points on
the barometer wins. An Internet community is
linked to the game, where the teams could upload

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
their case solutions, receive comments on them
and compete with other players (at community.
goenterprise.se; however, this site shows very
little traffic, see above). The number of players
can vary between 7 and 30 in one session, which
can take one to two hours of playing time.
The game proceeds as follows. The game
leader is the person in charge of ensuring that the
game is played according to the rules (usually the
entrepreneurship teacher). Four to five teams of
two to six ‘entrepreneurs’ (a more ‘ideal’ number
is three to four players) are formed and spread
out in the room. The game outline is fastened to
a whiteboard in front of the class, displaying the
‘start’, phases 1, 2, 3, and 4, and the ‘finish.’ Each
phase focuses on one area (i.e. research, idea,
concept or action), and ‘plays with’ two different
entrepreneurial skills associated with each phase
respectively.
Phase 1: Research
At the beginning of this phase, the game leader
instructs the ‘entrepreneurs’ to get familiar with the
written case (which is about one page long). The
participants are told that the two entrepreneurial
skills ‘played on’ in this phase are being analyti-
cal, i.e. analysing the case in a mature, reflective
manner and seeing it in its context, and being
reflective of the environment, making smart use of
available information. The first activity card asks
the players to be analytical by summarizing the
case in one sentence, focusing on what the case
company wants to get help with. Each team gets
four minutes to jointly write down the sentence,
with the game leader strictly keeping time. When
the time is up, each team gets to read its sentence
to the entire session group, without providing any
further explanations. Then each team, as well as
the game leader, must vote for which presentation
they liked best. The votes are written down and
held up at the same time. One or a few teams are
asked to explain the reasons behind their vote (and/
or the game leader provides her/his explanation).
The second activity card asks the teams to be
reflective by identifying which target group the
case company wants to address. Again, the teams
are given a short time (three minutes) to write
down a sentence, which they read for the entire
group without further explanations, followed by
the voting procedure described above.
Phase 2: Idea
Moving on to the second phase of the game, the
game leader announces to the participants that the
focus will now be on developing several solutions
to the case’s challenge. The key skills to make
use of in this phase are being creative, thinking
outside of given frames and generating ideas,
and courageous, daring to take charge of one’s
and others’ ideas. The first activity card in this
phase asks the players to be creative and develop
three different solutions to the case’s challenge.
The teams are asked to write down one key word
for each solution, which should be creative and
presented after only two minutes of working with
this task. Again, each team votes for the best solu-
tion. The second activity card in this phase asks
teams to be courageous and develop a solution,
assuming that no resource restrictions exist, within
two minutes. With the support of a maximum of
three words written down, each team then presents
the solution. Again, the best solution is voted for.
Phase 3: Concept
In this phase, an idea is chosen to be further de-
veloped towards feasibility. The focus is on how
the idea could be implemented. The two entrepre-
neurial skills to ‘play with’ in this phase are being
realistic, i.e. developing ideas which are feasible,
and strategic, i.e. planning implementation and
preparing for different kinds of situations. The
43

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
first activity card for this phase asks the teams to
choose one of the ideas presented (by themselves or
another team) in the previous phase and to further
develop that to make it realistically feasible. They
have four minutes to fulfil this task and present
their solution, based on the three words written
down. After the usual voting for the best solution,
the second activity card asks the teams to develop,
within two minutes, a five-step strategy for its
implementation, again followed by presentations
and the voting procedure.
Phase 4: Action
This phase is introduced by pointing out the focus
on developing a storyline around the solution
before the final pitch. Thus, in this phase teams
work with justifying why their own solution is
best. The two entrepreneurial skills to draw on
in this phase are being self-confident and being
communicative in a pedagogical and concrete
manner. The first activity in this phase asks the
teams of ‘entrepreneurs’ to write down, in two
minutes, one selling sentence about why the team’s
solution is outstanding. When each team has read
their sentence to the group, the best solution is
once again voted for. The last task for each team
in this phase is to draw an easily understandable
picture representing their solution within two
minutes, supported by three keywords.
After the voting, following the presentation and
explanation of the pictures, all teams have three
minutes to prepare their final pitch. This 45-sec-
ond pitch will present each team’s own solution
to the challenge that the case company is facing.
These pitches are evaluated through two rounds
of voting, one for the best presentation and one
for the best solution.
The game leader has updated the ‘barometer’,
which keeps track of the points of each team,
throughout the game, and can announce the win-
ner. The case solutions can then be uploaded onto
Go Enterprise!’s home page, where even the other
case solutions can be read.
44

Experiences with Playing the Game
We have experimented with playing the entre-
preneurship game in different entrepreneurship
courses at Jönköping International Business
School (JIBS) in Sweden. It is JIBS’ strategy to
focus on entrepreneurship and business renewal
in its activities. The game is now included in
the curriculum of an introductory course to the
master’s programmes on entrepreneurship and
management. This course is called ‘Introduction
to Business Creation’, and its main focus is on
crafting an entrepreneurial mindset. (For more
information about the pedagogical approaches
to this course and the entrepreneurship master’s
programme, see Achtenhagen & Johannisson,
2013a, 2013b).
Here, we report students’ experiences from
playing the game. According to the course evalua-
tions and meetings with students acting as course
developers, the entrepreneurship game was highly
appreciated. The following quotes from blogs
which students wrote during the course illustrate
their own reflections on the game:
I particularly liked the game where we had to
practise creativity. It is amazing how quickly a
group of people can come up with ideas, however
it is also important to remember to further anal-
yse and evaluate how feasible the idea really is
(Swedish student, female).
After having the seminar where we played the
entrepreneurial game and the one by Science
Park, many new aspects came to my mind that
got my brain working. Combining these inputs
with the articles from de Bono (1995) and Ko and
Butler (2007) widened my knowledge of how to act
creatively. (…) To be creative you must practise
being creative (Austrian student, male).
Being creative and innovative is probably the
hardest and most challenging part (as experienced
in the game) in a new business set-up. After the

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
mentioned game and the guest lecture from the guys
from the Science Park I realized how important
it is to think out of the box and go unusual ways
in order to create unexpected ideas, which in the
end are the basis for entrepreneurial success.
(…) In the end, my awareness towards creativity
sharpened regarding its various facets and I think
it will be helpful in any kind of solution finding
in everyday life, not just business ideas (German
student, female).
During the entrepreneurship game (…), I came to
the conclusion that creativity can often be found
(and tested) when you ask people, under time
pressure, to think and come up with different ideas
and ways to go about things. For some, thinking
of something on the spot wasn’t difficult, but for
others, it proved to be a bit of a struggle (Dutch
student, male).
The entrepreneurship game we played in class
actually gives one the feel of being an entrepreneur,
trying to provide solutions to business problems
taking into consideration the challenging factors
that restrict the process of achieving your business
objectives. This kind of activity helps to develop
one’s creative ability (Ghanaian student, male).
I do understand your point, however what I meant
by ‘teaching and trying to encourage’ people in
order for them to be more entrepreneurial and
more interested in entrepreneurship is that the
method of teaching should be more like the one
we used in yesterday’s seminar–The Entrepre-
neurship Game. So, I would like teachers to use
a more practical and fun way of encouraging
people, instead of having boring theoretical lec-
tures. Personally, I had lots of fun in yesterday’s
seminar and I actually got more interested in this
subject and entrepreneurship overall than I was
before (Turkish student, male).
However, during the Science Park lecture and the
entrepreneurship game we certainly must have
used creativity, since we all came up with some
pretty good ideas. Perhaps in order to be creative
we just need a hint, a different environment, or a
game like in the seminar. I’m starting to believe
that people possess more skills than they actually
know about (Swedish student, male).
The entrepreneurship game really trained the brain
in being creative and to think fast. [I believe …]
that we are all born creative. But it is like a car or
physical health, you need maintenance. You need
to keep the creativity going or it will slow down.
And just like physical well-being I think you can
get better at it (Swedish student, female)
Thus, when the students reflect on their own
learning from the entrepreneurship game, they
bring up a number of aspects which we consider
to be important for, and fully in line with, craft-
ing an entrepreneurial mindset. These include the
positive experience of practising creativity, which
leads to surprising solutions, reflecting on which
skills one already feels comfortable with and which
skills might deserve more practice, and developing
trust in one’s own skills. The experience of playing
the game provides input into further reflection on
entrepreneurship, creativity and the link between
theory and practice. The increased understanding
of the usefulness of an entrepreneurial mindset,
even for everyday life, is also important.
A relevant aspect of how the game enhances
the crafting of an entrepreneurial mindset is that
playing the game is considered to be fun, while
recognizing that it reflects the ‘feel’ of entrepre-
neurial activity to some degree. ‘Experiencing’
entrepreneurship in this way as a practical activity
(rather than in theoretical exercises only) is viewed
as valuable, triggering further interest in the topic
of entrepreneurship.
45

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
CONCLUDING DISCUSSION
AND FUTURE RESEARCH
The report from and evaluation of the game
presented above confirm the usefulness of play-
ing it as one activity (among others) to help
students develop an interest in entrepreneurship
and rediscover their entrepreneurial selves. More
precisely, playing this game (or similar ones)
has the potential to arouse interest in the topic
of entrepreneurship for novices, thereby facili-
tating their learning journey towards becoming
an established (social) entrepreneur or business
person (Dreyfus & Dreyfus, 1986; Markowska,
2011). Thus, in a university setting, this game
can be fruitfully used in introductory courses to
entrepreneurship or corporate entrepreneurship
(i.e. focusing on entrepreneurship in existing
organizations). Due to the need of companies to
strive for constant innovation of products and/
or processes, it becomes increasingly important
that employees have an entrepreneurial mindset.
Therefore, this game can also be used as a peda-
gogical tool in management classes to support
students in crafting such a mindset. While in entre-
preneurship classes, the imitated entrepreneurial
setting reflects the entrepreneurial process, from
developing a venture idea to making it feasible
to be enacted, in management classes the same
process can be linked to mirroring improvement
processes in existing organizations. In any case,
the explicit rules of the game serve as a safety
structure which lets students experience entrepre-
neurial skills in a setting with clearly stated goals.
While playing the game in collaboration with fel-
low students, the students become aware of their
unique capabilities, which in turn will increase
their self-confidence–certainly an asset that will
inspire and help with enacting an entrepreneurial
career or acting on their entrepreneurial mindset
to improve existing organizations.
Considering the very diverse backgrounds of
the students, culturally, socially, as well as with
respect to (lacking) prior education concerning en-
46

trepreneurship, we find such a controlled approach
to help the students to craft their entrepreneurial
mindsets appropriate. In many countries, academic
teaching is still dominated by hierarchical mod-
els, far away from the bottom-up approach that
entrepreneurial training calls for. In addition to
facilitating self-reflection regarding the own set
of entrepreneurial competences and identity, the
game also invites the student on the laborious
but necessary journey where learning by trial/
experiencing and learning by reflection must be
combined (see the seminal work by Schön, 1983).
In an entrepreneurial context, creativity, so often
alluded to by the students when commenting on
the learning experiences from the game, first has to
be turned into ‘creactivity,’ that is integrated with
different hands-on measures to become new ‘ac-
tionable’ knowledge, feasible for entrepreneurial
projecting. Once instigated, such venturing must
be reviewed, in the case of students reflecting with
the help of appropriate course literature.
Reconsidering the lessons with respect to their
implication for the curriculum, that is the content
of educational programmes, and processes such
as pedagogy and teacher-student relationships,
the game implies a different kind of critical and
reflective conduct that is usually argued for in
the management and entrepreneurship literature
(e.g. Reynolds, 1999). At least when it comes to
the use of games for training in entrepreneurship,
the student’s ability to imagine new openings and
enact new opportunities becomes more important
than revealing hidden assumptions and dominant
power relationships. Accordingly, ‘process’ is
more important than ‘content’, which, for example,
means that course literature should be used to re-
flect, individually or in a group, upon the ‘gaming’
and how it evolved rather than for preparation of
the game activities. As regards the importance of
socio-cultural considerations, we think that the fact
that the game was constructed by young women,
that its content is recreated in collaboration with
real corporations, and that its playing takes place
in a very heterogeneous setting with respect to

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
students’ cultural and educational backgrounds,
continuously feeds reflection. We also think that
the close relationship between students and com-
mitted teachers stimulates reflexivity that is not
just intellectual but existential as well – although
we, as indicated, do not elaborate further on this
aspect here.
The role of the game approach in the suc-
cessive crafting of an entrepreneurial mindset
among the students as presented in Table 1 can
be reconsidered in view of the lessons learned
from our experiences at Jönköping International
Business School. Most master’s students have
previously experienced, with different subject
foci, education that has been dominated by a linear
management logic (i.e. belief in decision-making
rationality, systematic planning and quantitative
analysis). When continuing with such logic, it
seems feasible to introduce students to the field of
entrepreneurship by giving them the opportunity
to write plans for the enactment of a new venture,
as done at many business schools. Being able to
use the management tools that students are used
to can construct a bridge between the contrast-
ing logics of management and entrepreneurship.
However, business plan writing then represents
more of the same type of educational logic that
these students have already been exposed to. And
while such an exercise can provide legitimacy,
which can indirectly add to self-confidence,
crafting an entrepreneurial mindset provides a
different approach to entrepreneurship as well as
management education.
Introducing the game approach, even in a set-
ting dominated by a more critical management
logic (e.g. Alvesson & Willmott, 1996), will still
cause a rupture as regards the understanding of how
controllable the environment is. Since this learn-
ing experience, as outlined above, is embedded
in different measures which communicate safety,
reflexivity rather than anxiety will be enforced.
This in turn helps the students to meet the real
world of (social) enterprise, for example by getting
involved in internships. Then they will encounter
a reality where their conceptually dominated
training will become challenged by the everyday
life of organizing people and resources. What has
been learned in the game setting, such as the need
for alertness, immediacy and decisiveness, will
then be expanded into insights as regards the need
for coping with ambiguity and practising timing.
The students will also get the opportunity to train
their entrepreneurial skills, which are indispens-
able when they move on to take responsibility for
their own venture. This, however, does not have
to be the beginning of an irreversible career as a
business or social entrepreneur. Rather, testing
one’s capabilities and potential by launching a
venture may ‘just’ be the final step in the creation
of an entrepreneurial mindset–namely building an
identity that makes the individual approach (even
everyday) life as an adventure, with the responsi-
bility and the opportunity to make a difference.
The game as designed and played in the course
above can easily be elaborated with respect to both
content and process. As regards the former, the
inclusion of cases that cover social and cultural
entrepreneurship will not only broaden the scope
of the game as a means for professional train-
ing, it will also give students more opportunities
to integrate private interests in their academic
education and invite students outside the busi-
ness school context to practise and reflect upon
entrepreneurship. Obviously, the game as a peda-
gogical tool is able to mobilize not only cognitive
but also other human powers, such as passion, and
then takes the learning experience beyond that of
training certain attitudes. With respect to goals
other than that of enhancing skills, the game as
practised in our education also gives the students
an opportunity to take responsibility for their own
evaluation. This in turn challenges the norm in
47

Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset
both formal and informal learning settings–that
the more experienced (teacher) should take the
lead (e.g. Dreyfus & Dreyfus, 1986). Here, the
students are invited to bring in their own criteria
related to assessing the specific task solutions
in relation to the practised ‘skill’ when making
collective choices about the vote.
Future research could attempt to operationalize
and measure the learning outcome of playing such
games at different educational levels from high
school to university, with the aim of statistically
validating our claim that it contributes to enhanc-
ing pupils’ and students’ entrepreneurial mindset.
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KEY TERMS AND DEFINITIONS
Entrepreneurial Mindset: An individual’s
attitude to identify and act on opportunities for
entrepreneuring in everyday situations.
51
 
Games in Entrepreneurship Education to Support the Crafting of an Entrepreneurial Mindset

Entrepreneuring: Activity-centered perspec-
tive on entrepreneurship, which acknowledges the
existential dimension of everyday entrepreneurial
practices as ongoing processes.
Entrepreneurship: The creative organizing
of people and resources according to opportunity,
not only related to the founding of for-profit
start-ups, but also in all different types of existing
organizations and societal settings as well as the
personal life-sphere.
Mindset: A fixed mental attitude that deter-
mines one’s responses to and interpretations of
situations.

This work was previously published in New Pedagogical Approaches in Game Enhanced Learning edited by Sara de Freitas,
Michela Ott, Maria Magdalena Popescu, and Ioana Stanescu, pages 20-37, copyright year 2013 by Information Science Refer-
ence (an imprint of IGI Global).

52
 53

Chapter 4
Introduction to Academic
Entrepreneurship
Mateusz Lewandowski
Institute of Public Affairs, Jagiellonian University, Poland

ABSTRACT
The aim of the chapter is to provide practitioners and researchers, who wish to investigate academic
entrepreneurship in details, with the basic characteristics of the phenomenon as an introduction to fur-
ther exploration. As university entrepreneurship is rooted in the broader entrepreneurship theory, the
investigation encompassed a set of definitions, types, and processes pertaining to both industrial and
academic context. It also provides an examination into the effectiveness of the policy-driven approach
in enhancing academic entrepreneurship. This study has been conducted on the basis of the literature
review and inductive argumentation, leading to the formulation of a conceptual framework for university
entrepreneurship. The key finding is that although the classic forms of academic entrepreneurship, such
as organizational creation, renewal, and innovation fit to the academic context, they are not sufficient to
reflect the variety of all the forms. In turn, a new definition of university entrepreneurship is provided.

INTRODUCTION 2010). In turn, academic entrepreneurship has an

According to the 3 stage model of growth proposed
in The Global Competitiveness Report 2008–2009
the most developed countries depend on innova-
tion and business sophistication as the key factors
of economic competitiveness (Porter & Schwab,
2008). Because of the role of knowledge in the
contemporary innovation-driven economies, uni-
versities become more like regional engines of in-
novation. Therefore, it is increasingly expected that
they should perform other tasks besides teaching
and research (Laukkanen, 2003, p.372; Goldstein,
increasing importance in the context of economic
development or, better, sustainable development,
and becomes a crucial issue to explore.
The purpose of this chapter is to examine the
leadership role of academic entrepreneurship in
the process of creating economic value. Especially,
the issue pertaining to the key elements linking
academic entrepreneurship with economic growth
which should be resolved. Thus, what are the
forms of academic entrepreneurship? What are
the components of the comprehensive framework
of the phenomenon? What are the outcomes of

DOI: 10.4018/978-1-4666-8468-3.ch004

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

university entrepreneurship? What factors are
influencing it? Which of them are facilitators,
and which are impediments?
In order to answer those questions, and to
provide practitioners and researchers, who wish
to explore academic entrepreneurship in details,
with the basic characteristic of the phenomenon,
the investigation encompassed a set of definitions,
types, factors and processes, pertaining to both
industrial and academic context, as university
entrepreneurship is rooted in the broader entre-
preneurship theory. Also, the effectiveness of a
policy-driven approach in enhancing academic
entrepreneurship has been examined. The study
has been conducted on the basis of the literature
review and inductive argumentation.
BACKGROUND
The exploration of the basic issues characteriz-
ing academic entrepreneurship, in particular the
definition, evolution and research fields, forms the
background for detailed analysis of the phenom-
enon, and helps to understand the contemporary
relations between academia and business.
Since the term entrepreneur was used probably
for the first time about two centuries ago, many
definitions of entrepreneurs and entrepreneurship
appeared in the discourse, causing confusion and
concern (Drucker, 2007, p.19; Storey & Greene,
2010, p. 15-29; Kuratko & Hodgetts 1992, p.3-27;
Sharma & Chrisman, 1999). It is appropriate to
recall at least a few of them in order to define and
understand academic entrepreneurship.
Entrepreneur is a word derived from French
entreprendre and means “to undertake.” In the
classic form entrepreneur is an individual who
founds a new company, which is not necessarily
based on innovation or a new idea (Sundbo, 2003,
p. 22). In contrast, for Schumpeter (1982) it was
an innovation that was essential in entrepreneurial
activity. Today this approach has changed. There
54

Introduction to Academic Entrepreneurship
are two necessary (but not sufficient) conditions
for entrepreneurship to appear (Storey & Greene,
2010, p. 15-29):
• Uncertainty: A situation when knowl-
edge or information about the future is
imperfect,
• Arbitrage: A situation in which it is pos-
sible to take advantage of a price difference
(a) between markets (spatial arbitrage), or
(b) in periods of time (temporal arbitrage).
Those suggestions fit well to the definition
given by Kuratko and Hodgetts, for whom the
entrepreneur is:
…a catalyst for economic change who uses pur-
poseful searching, careful planning, and sound
judgment in carrying out the entrepreneurial pro-
cess. Uniquely optimistic and committed (…) works
creatively to establish new resources or endow old
ones with a new capacity, all for the purpose of
creating wealth. (Kuratko & Hodgetts,1992, p. 27)
According to Bercovitz and Feldman (2006,
p.175) the phrase “entrepreneurial university” has
been coined by Etzkowitz (1983) to describe the
changes in relations between universities and busi-
ness organizations. However, in order to state what
is academic entrepreneurship Brennan et al. (2005,
p.307) refer to the definitions of entrepreneurship
and entrepreneurs given by Sharma and Chrisman
(1999), who claim that entrepreneurship is formed
by the “acts of organizational creation, renewal, or
innovation that occur within or outside an existing
organization,” and entrepreneurs are “individuals
or groups of individuals, acting independently
or as a part of corporate system, who create new
organizations, or instigate renewal or innovation
within an existing organization” (p.18). The wider
recognition of this definition by the research
community (Meyer et al., 2002; Storey &Greene,
2010) acknowledges legitimacy of applying it to

Introduction to Academic Entrepreneurship
the academic context. It fits into the three mean-
ings of academic entrepreneurship presented by
Laukkanen (2003), which are: “a general proac-
tive disposition, a trait syndrome of a person, or
a wealth-creating business activity, manifested in
starting, owning and managing firms” (p.374).
It also incorporates the form of corporate entre-
preneurship or intrapreneurship (Sundbo, 2003,
p.122-124; Kuratko & Hodgetts, 1992, p. 94-120),
and the Schumpeterian innovation requirement
but not necessarily as an essential component.
On the other hand, sometimes the understanding
of academic entrepreneurship is being narrowed
to a certain type of created organization, which
is mainly a spinoff (Shane, 2004; Birley, 2002).
Although the definitions explain what aca-
demic entrepreneurship is, they say nothing of
its origins, evolution and research field which
are necessary to capture the core idea of the phe-
nomenon. This should be explained on the basis
of two major concepts - professional science and
entrepreneurship as such, because a combina-
tion of these concepts stands behind the phrase
“entrepreneurial university.”
Professional science and entrepreneurship
appeared in the period which Tofler (1989) calls
the Second Wave. Professional science, in its
beginning, was more like a “gentlemanly activity
undertaken by disinterested amateurs” before it
turned into “a profession devoted to the discovery
of scientific truths” (Etzkowitz, 1983, p.204). This
shift started in the seventeenth century and refers
to the modern understanding of science. How-
ever, the very roots of the phenomenon could be
found in ancient Greece, where the Sophists were
maybe the first “scientists” teaching for money
(Tatarkiewicz, 2009, p.72-73).
The concept of entrepreneur was discovered
by the French economist J.B. Say around 1800
(Drucker, 2007, p. 19). By the end of the XIX
century it was developed into a first theory of
innovation and entrepreneurship by the French
sociologist G. Tarde, who wanted to explain all
social change with the innovation concept. Later,
in the beginning of XX century, it was used in
the economic theory of the Austrian-American
economist J. Schumpeter. This was the moment
when innovation and entrepreneurship became
widely recognized (Sundbo, 2003, p. 48-56).
The evolution of the mutual relations that uni-
versities and scientists had with enterprises is in
fact partly depicted by their forms. The following
examples, in which factual order of appearance
is not well documented and certain, support this
conclusion (Etzkowitz, 1983; Sundbo, 2003, p.
60-62):
• Few scientists have individual contacts
with entrepreneurs or government support-
ing their research,
• The idea of a research laboratory is cop-
ied by other universities, government sup-
ports research in such laboratories and
helps with contacts between scientists and
entrepreneurs,
• Financial support of research from sourc-
es external to the university becomes a
standard,
• Many scientists have individual contacts
with entrepreneurs or government support-
ing their particular research projects,
• Applied research is conducted by groups of
scientists, the research is financed or co-fi-
nanced by business organizations, govern-
ment or foundations,
• Contracts and grants from the government,
administrated by universities as institu-
tions and by professors through academic
research institutes,
• Scientists are hired by enterprises to con-
duct industrial research,
• Scientists start up their own scientific firms
to conduct research and commercialize re-
search results outside of the university or
the former firm.
Brennan et. al (2005) indicated seven compo-
nents of academic entrepreneurship, based mainly
55

on three distinct but interrelated fields of research,
such as technology-based firms, the role of the
universities in society, and the commercializa-
tion of discipline knowledge. Regrouping these
components (Table 1) shows, that on the one hand
the line between them is blurred, but on the other
that all together they create a coherent picture of
academic entrepreneurship evolution stages with
its initial (I), interim (II) and mature (III) forms.
The more general and recently updated research
streams concerning academic entrepreneurship,
which emerged in the literature between 1980
and 2005, encompass entrepreneurial research
universities, productivity of technology transfer
offices (TTOs, or industrial liaison office – ILO
as in Jonas-Evans, 1998), new firm creation and
environmental contexts including networks of
innovation (Rothaermel et al. 2007).
A glance at definitions, evolution and re-
search streams concerning entrepreneurship in
the university context pointed out several fields
to be explored in details, in order to capture the
leadership role of academic entrepreneurship in the
process of creating economic value. Those com-
ponents of entrepreneurship cover organizational
Table 1. Academic entrepreneurship components and research fields
Stages Components of Academic Entrepreneurship
I A competence of technology-based firms is based on specialist
knowledge
Academic credibility concerning innovation is determined by the
discipline context
Organizational knowledge capital and individual capital are being
increasingly recognized by universities
II Universities create, support or own science, engineering and
technology-based firms
Universities commercialize organizational knowledge
Engagement of academics with technology-based firms
independent of the host universities
III Balance between scientific research in a discipline and the
transfer of technology and exploitation of intellectual capital
through technology-based firms;
Source: adapted from Brennan et. al. 2005, p. 310-311.
56

Introduction to Academic Entrepreneurship
creation, renewal and innovation. Exploration of
those fields will lead to the extension of charac-
teristics of in university research and technology
commercialization.
CLASSIC FORMS OF
ENTREPRENEURSHIP AND
THEIR ACADEMIC CONTEXT
There are three main processes of entrepreneur-
ship, related to the acts constituting this phenom-
enon, which apply to academic context (Brennan
et. al, 2005, p.312):
• Opportunity Seeking: Based on the acts
of organizational creation and venturing.
• Advantage Seeking: Focused on organi-
zational renewal.
• Novelty Seeking: Directed at innovation
implementation.
Each of them has been researched in a twofold
manner. One has been based on the corporate set-
ting studies, the other in turn, on the university
Research Stream
A) Technology-based firms;
B) Role of the universities in society;
C) Commercialization of discipline knowledge;
A) Technology-based firms;
B) Role of the universities in society;
B) Role of the universities in society;
C) Commercialization of discipline knowledge;
A) Technology-based firms;
C) Commercialization of discipline knowledge;
A) Technology-based firms;
B) Role of the universities in society;
C) Commercialization of discipline knowledge;

Introduction to Academic Entrepreneurship
setting. A comprehensive research overview of
both streams exceeds the capacity and purpose
of this chapter and book. Due to the abundance
of research on organizational creation, renewal
and innovation pertaining to the first manner, and
modest literature devoted to the second area, only
chosen issues have been presented. The intention
was to provide the reader with basic knowledge
and signalize the fields for further exploration.
Organizational Creation
and Venturing
Gartner (1985, p. 697) defines new venture cre-
ation as the organizing of new organizations, but
refers to Weickian understanding of organizing
which is “to assemble ongoing interdependent ac-
tions into sensible sequences that generate sensible
outcomes” (Weick, 1979, p. 3). For Van de Ven
et al. (1984) it is “a collective, network-building
achievement that centers on the inception, diffu-
sion, and adoption of a set of ideas among a group
of people who become sufficiently committed to
these ideas and transform them into a social institu-
tion” (p. 95). The first one emphasizes that it is a
process, while the second one states that creating
an organization involves the development of both,
ideas and relationships. Alternatively, it may be
perceived as an effort by a group of people, who
are pursuing common goals, to harmonize their
cooperation and assets, in a standardized, formal-
ized and/or institutionalized form.
Several types of new ventures creation were
identified in the literature. One of the basic clas-
sifications suggests the division to (Gartner, 1985,
p. 698):
• An independent entity,
• A new profit center within a company
which has other established businesses, or
• A joint venture, if the following criteria
have been met: (a) its founders acquired
expertise in products, process, market and/
or technology, (b) expected period of re-
sults to appear exceeds a year, (c) competi-
tors consider it as a new market entrant,
and (d) potential customers regard it as a
new source of supply.
However, Zajac et al. (1991) distinguish several
types of joint ventures, such as traditional joint
ventures, internal corporate venturing, and internal
corporate joint ventures.
Also, some more comprehensive frameworks
can be found in the literature. Gartner (1985)
claims, that creation of a new venture is a mul-
tidimensional phenomenon, thus describing the
phenomenon cannot embrace a single dimension
only. Rather, it should encompass four interrelated
dimensions, such as: individual(s), organization,
environment and new venture process. Each of
them is characterized by several variables (Table
2).
The last dimension pertains to the process
of new venture creation, which in turn has been
deeply explored by Bartunek and Betters-Reed
(1987). They proposed a model of the process of
organizational creation, consisting of three stages
- first ideas, commitment and early planning, and
implementation (Table 3).
Presented frameworks are complementary,
rather than contrasting. Together they give a basic
picture of the phenomenon.
Supplemental issues, important especially
from the managers’ perspective, are the strategies
applied in the organizational creation process,
especially adequateness of applying traditional
strategy typologies in the new ventures has been
questioned (Williams & Lee, 2009; Carter, et al.
1994). For instance Carter et al. (1994) revealed
six generic strategy archetypes, such as:
• Quality Proponents: Focused on products
in narrow product segments, in particular
consumer services,
• Niche Purveyors: Pursuit marketing in
narrow industry segments, like retail and
construction,
57
 
Introduction to Academic Entrepreneurship

Table 2. Gartner’s dimensions of organizational venturing

Dimensions Characteristic
Individual(s) • Psychological characteristics (the need for achievement; locus of control; risk taking propensity),
• Background, experience, and attitudes (job satisfaction; previous work experience; entrepreneurial parents; age;
education),
Organization • Competitive strategies (overall cost leadership, differentiation or focus),
• Competitive entry wedges (the new product or service; parallel competition; franchise entry; geographical
transfer; supply shortage; tapping unutilized resources; customer contract; becoming a second source; joint
ventures; licensing; market relinquishment; sell off of division; favored purchasing by government; governmental
rule changes),
Environment • Factors stimulating entrepreneurship (venture capital availability; presence of experienced entrepreneurs;
technically skilled labor force; accessibility of suppliers; accessibility of customers or new markets; governmental
influences; proximity of universities; availability of land or facilities; accessibility of transportation; attitude of
the area population; availability of supporting services; living conditions),
• Characteristics of the area (high occupational and industrial differentiation; high percentages of recent
immigrants in the population; a large industrial base; larger size urban areas; and availability of financial
resources) and
• Porter’s Five Forces (barriers to entry, rivalry among existing competitors, pressure from substitute products,
bargaining power of buyers, and bargaining power of suppliers),
New venture • Locating a business opportunity,
process • Accumulating resources,
• Marketing products and services,
• Producing the product,
• Building an organization,
• Responding to government and society,
Source: Adapted from Gartner (1985).

Table 3. Stages of organizational creation

Stage/ I. First Ideas II. Commitment and Early III. Implementation

Characteristic
Characteristic • Perceiving a not adequately
tasks addressed problem,
• Thinking of organizational
arrangements concerning the
problem,
• Designing a mission,
• Testing and revision of the ideas
(tentative and informal),
Common • Discomfort (about the problem),
experiences and • Excitement (about First Ideas),
feelings • Perceiving the First Ideas as better
than other approaches,
Critical issues • Creativity and thoroughness
related with formulating the First
Ideas;
• Relationship that originator has
with the ideas
Source: Adapted from Bartunek &Betters-Reed (1987).
Planning
• Developing first ideas into an
organization,
• Developing the plan for the
organization,
• Establishing relationships among
parties, such as originator,
planners, and environmental
groups,
• Originator and planners negotiate
the “ownership” of the created
organization,
• Environmental problems appear,
• Planner uncertainty and
appearance of conflict concerning
the form the organization,
• Creativity and thoroughness
related with planning;
• Originator and planners
commitment to the organization;
• Relationships between originator
and planners;
• Planners’ relationship with the
environment
• Selecting new members,
(including the new leader),
• Choosing and preparing the
physical setting,
• Excitement (about closure),
• Discovery that resources are
inadequate for the plans,
• Difficulties in relationship
between planners and new
organizational members,
• Resources adequacy,
• Correspondence between use of
resources and mission,
• How the first ideas and plan are
transmitted to new members and
the new leader,
• Relationship between “first” leader
and new members,

58

Introduction to Academic Entrepreneurship
• Technology Valuers: Focused on broad
market and product differentiation, ap-
plied mainly in consumer services and
manufacturing,
• Price Competitors: Directed at broad seg-
ments and marketing orientation, common
in business services and manufacturing,
• Equivocators: With lack of cohesive strat-
egy and modest resources, preferences
skewed mostly towards newness, popular
in manufacturing,
• Super Achievers: With more opulent re-
sources, focused on numerous strategic
foci, preferences skewed mostly towards
adolescence, common in distributive ser-
vices and business services.
Not only are they more appropriate to the
organizational creation of the context but also
clearly show that new ventures strategies vary
according to industry segment.
Moving to the academic context of venturing, it
is noteworthy that the entrepreneurial form which
best fits to organizational creation is a university
spinoff. Moreover, it is also the most impactful and
mature form of academic entrepreneurship (Shane,
2004; Wright et al., 2008). Shane (2004) defines a
university spinoff as a “new company founded to
exploit a piece of intellectual property created in
an academic institution” (p.4). Similarly Wright
et al. (2008) understand the phenomenon – as
“new ventures that are dependent upon licensing
or assignment of an institution’s IP [intellectual
property] for initiation,” which is also consistent
with the definition of Association of University
Technology Managers (AUTM) (p.4). Some more
definitions can be found in O’Shea et al. (2008).
Provided one explains the phenomenon well,
although there is a critical issue which Shane
(2004) and Wright et al. (2008) emphasize – not
always the IP is owned by the university, and not
that it seldom happens, that companies build upon
informal and not codified knowledge. On the one
hand it is much easier to track down the effects
according to the narrow definition of a spinoff,
and on the other it misses an important part of the
reality (Shane, 2004; Wright et al., 2008).
Various types of spin-outs have been explored
in the literature. Bathelt et al. (2010) distinguished
sponsored and unsponsored university spinoffs.
Rothaermel et al. (2007, p. 749) recall typologies
based on such criterion, as:
• Transferee: Spin-offs are classified into
“technology only,” “technology and per-
sonnel,” and “personnel only”
• Business Activities and Resource
Requirements: Spin-offs are categorized
as “consultancy,” “intellectual property
licensing,” “software,” “product,” and “in-
frastructure creation.”
Shane (2004, p. 166-175) identified several
steps in the process in which university technol-
ogy developments lead to the formation of spin
off: (1) Use of funded research, (2) Creation and
disclosure of innovation, (3) Decision to seek intel-
lectual property (IP) protection, (4) Marketing the
technology, (5) Licensing decision, (6) Decision
to spin off. In the process of spinoff creation at
least three issues appear emergent to notice. First,
that creation and development phases should be
distinguished. Second, that the presented ven-
turing framework applies to university spinoffs
only to some extent, thus there are also important
differences, in particular those concerning the
forms of intellectual property protection and the
role of technology transfer offices. Third, that
in comparison with typical start-up companies,
university spinoffs are in the worst position from
the beginning, due to the lack of “reducing to
practice,” business plan, management, and capital
to create a firm (Mustar et al., 2006; Shane, 2004).
The most important areas, in which the numer-
ous factors impact spinoff creation, are: university
policy; faculty; technology transfer offices; un-
derlying technology; investors; founding teams;
networks in which a firm is embedded; external
59

conditions; to affect the creation of new firms
(Rothearmel et al., 2007, p. 749). Rasmussen
et al. (2011) proposed another approach, focus-
ing on academic founders competencies. They
noticed that opportunity refinement, leverag-
ing, and championing significantly increase the
chances of venture to gain credibility, and that the
competences need to be developed or acquired
(Rasmussen et al. 2011), which corroborates
the prior findings, that the role of an individual
is crucial (O’Shea et al., 2008), and the training
in entrepreneurship is necessary (Bercovitz &
Feldman, 2006; Evans-Jonas, 1998, p. 40). The
number of university spinoffs depends also on the
condition, if the faculty members are allowed to
work in spinoffs, and to take leave of absence to
run their firms (Giacon, 2009, p.482).
Also the strategies identified for corporate
spinoffs may play a signpost role in managing
academic ventures, however some university spi-
noff directed ones were identified. Clarysse et al.
(2005) proposed three strategies: Low Selective,
Supportive and Incubator models. In this context,
the crucial conclusion is that universities and
regions must formulate and implement coherent
and feasible technology transfer/commercializa-
tion strategies (Siegel et al., 2007a).
As organizational creation is only one of the
acts constituting entrepreneurship, and thus uni-
versity entrepreneurship, the others require basic
exploration.
Organizational Renewal
Pöyhönen (2004a) defined organizational renewal
ability as “the collective capacity of an organiza-
tion to maintain, replicate, develop and innovate
knowledge assets in a manner consistent with
its strategy and business environment.” She also
identified the main tendencies in perceiving or-
ganizational renewal (Pöyhönen, 2004b, p.127)
based on:
60

Introduction to Academic Entrepreneurship
• Knowledge Management Approach: Which
considers renewal as a process of using,
developing and creating knowledge,
• Strategic Management Approach: Which
considers renewal as a capability that pro-
duces a competitive advantage,
• Intellectual Capital Approach: Which
considers renewal as a static asset to be
measured.
Hitt (1995) in turn, associates organizational
renewal with the concept of learning organization,
which strives for excellence through organizational
renewal understood as “continually expanding its
capacity to create its future” (p. 17). For Santos
and Garcia (2007, p. 336) organizational renewal
means internal reorganization conducted as a
response to environmental evolution.
The main types of renewal are maintenance,
incremental development and radical innovation
(Pöyhönen, 2004b, p.54), similar to renewal
strategies - institutional, revolutional, and evolu-
tional (Mezias & Glynn, 1993, p.78). Although,
Lester and Parnell (2001, p.60) recall two paths
of renewal – turnaround and revitalization, the
purpose is to avoid projected demise.
Hitt (1995 p. 24) discerned several critical suc-
cess indicators of organizational renewal, such as:
cross-functional teaming, new networks, teaming
with customers, suppliers and other organizations,
staff development, investment in R&D, process
redesign, re-engineering and continuous improve-
ment. The more complex explanation of the factors
facilitating organizational renewal was given by
Lester and Parnell (2001, p.60), who identified
four areas, such as:
• Decision-Making Style: Embracing par-
ticipation and level of decentralization;
• Structure: Encompassing information
processing procedures, decentralization of
authority and departmental differentiation,

Introduction to Academic Entrepreneurship
• Strategy: Including for instance such
strategies as: (a) prospectors, focused on
innovation to strive in new markets, (b)
analyzers, directed at assuring cost-effec-
tiveness but also maintaining pro-innova-
tive approach, (c) defenders, concentrated
on narrow markets and cost reduction, and
(d) reactors striving to maintain the proper
balance and change according to external
factors,
• Situation: Which broadly speaking refers
to the state of organizational affairs, in-
cluding both internal and external factors
influencing the organization.
These areas indicate that organizational renew-
al depends heavily on the role of top management,
what has been corroborated (Santos &Garcia,
2007). In contrast Sparrow and Ringland (2010)
claim that “renewal seldom comes from grand
central initiatives, but from many repeated small
steps which collectively add up to purposeful,
directed change” (p.37). These authors presented
a more complex and coherent framework of Pur-
poseful Self-Renewing Organization (PS-RO),
which encompasses five qualities (Sparrow and
Ringland, 2010, p. 34-35):
• Insight: Knowledge about how the oper-
ating environment works and how it may
soon change,
• Options: Changes of the portfolio by gen-
erating new ideas, innovations or their
evaluation,
• Values: The element of cultures or sub-
cultures of stakeholders,
• Machinery: Knowledge management in-
frastructure, human resources and the “pro-
cesses that drive Insight, define Values, di-
rect the investigation of Options.”
• Narratives: Which exist in every
organization.
The university context can be considered in two
dimensions. The first emphasizes that innovation
which impacts firm’s renewal is derived from
the university knowledge or transferred technol-
ogy (Bercovits & Feldman, 2006, p. 181). The
second, more appropriate to the discussed topic,
is pertaining to renewal of the university itself. It
concerns the shift from the traditionally regarded
mission, embracing teaching and pure scientific
research, to the mission incorporating various
forms of for-profit relations with commercial or-
ganizations (Etzkowitz, 1983; Laukkanen, 2003).
The organizational renewal of the university may
be perceived in the same categories as presented
by Sparrow and Ringland (2010) or Pöyhönen
(2004). Supplemental findings are pointing toward
several groups of factors impacting entrepreneurial
attitudes of the university, such as (Rothearmel et
al., 2007, p. 708-740):
• Incentive System: Pertaining to faculty,
department and intermediary agents, e.g.
technology transfer office or incubators,
• Status: Public or private, prestige,
departments,
• Location: Proximity to high-tech firms or
industries,
• Faculty: Status, disclosure decision, expo-
sure to external agents,
• Nature of The Technology To Be
Commercialized
• Culture: Differences between US, Europe
and Japan,
• Policy: Concerning intellectual property.
The reactions of university authorities and
employees, including other researchers, to the en-
trepreneurial attempts of scientists are sometimes
very contrasting. The problem may be perceived
through the analogy with Herzberg’s Motivation-
Hygiene Theory, discerning two types of factors
impacting the motivation of an individual (Griffin,
2004, p.524-525):
61

• “Hygiene Factors”: Necessary to avoid
dissatisfaction,
• “Motivators”: Necessary for satisfaction.
The key issue is that “Hygiene factors” by
themselves do not provide satisfaction. Analogi-
cally, on the one side there are all the negative
reactions, pursuing the elimination of academic
entrepreneurship attempts, like colleagues op-
position or establishing rules that prohibit some
forms of participation in industrial involvement
(Etzkowitz, 1983, p.200,223). In turn, the positive
ones are on the other side, pursuing encourage-
ment of entrepreneurial activities, for instance in
the form of enterprise trainings, TTOs activation
etc. (Evans-Jonas, 1998, p.40). Thus, stimula-
tion of the university renewal may require both,
diminishing the “Hygiene factors” and increasing
“Motivators.” Assumed correlation would require
an empirical proof, however the link seems to be
logical and accurate.
Also, there is a link between organizational
renewal and innovation. For instance, Dougherty
(1992, p. 77) noticed that product innovation is
a primary means of corporate renewal, and Me-
zias and Glynn (1993, p. 78) associate corporate
renewal with the innovation process. Thus, in-
novation requires a glance.
Innovation
Although innovation has been deeply explored
over the last couple of decades, its definition still
causes problems (Cooper, 1998; Białoń 2010),
mainly due to several different fields of research,
such as business and management, economics,
organization studies, innovation and entrepre-
neurship, technology, science and engineering,
knowledge management and marketing (Baregheh
et al. 2009).
Some classic definitions, like Schumpeter’s
(1934, p.66), consider an innovation as: (a)
an introduction of a new production method,
product or its quality, (b) the opening up for of a
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Introduction to Academic Entrepreneurship
new market or a new source for raw materials or
semi-manufactures, or (c) the creation of a new
organizational structure in industry. Also many
quoted definitions were given by Damanpour
(1996), who conceives innovation as:
A means of changing an organization, either as
a response to changes in the external environ-
ment or as a pre-emptive action to influence the
environment. Hence, innovation is here broadly
defined to encompass a range of types, including
new products or services, new process technol-
ogy, new organization structure or administrative
systems, or new plans or programs pertaining to
organization members. (Damanpour, 1996, p. 694)
A more contemporary approach presented in
the Oslo Manual (2005) defines an innovation
as “the implementation of a new or significantly
improved product (good or service), or process,
a new marketing method, or a new organizational
method in business practices, workplace organiza-
tion or external relations” (p.46). This definition,
however useful and widely applied in research,
does not include two crucial issues: differentiating
innovation from changes, inventions or creativity,
and the purpose of implementation. Moreover, it is
not flexible to use in other contexts, like social or
cultural. Therefore, it is better to use the definition
of workplace innovation, which may be consid-
ered as a broad definition of innovation – “the
intentional introduction and application within
a role, group or organization of ideas, processes,
products or procedures, new to the relevant unit
of adoption, designed to significantly benefit the
individual, the group, the organization or wider
society” (West & Farr, 1990, p. 9).
Three attempts of presenting a comprehensive
picture of innovation are noteworthy. One because
of its simplicity, and in turn the other, due to their
complexity and the extent of conducted research.
The approaches are presented more insightfully
in Table 4.

Introduction to Academic Entrepreneurship

Table 4. Multi-dimensional frameworks of innovation

Authors Framework Components

Cooper (1998) Three dichotomous dimensions: product versus process, radical versus incremental, and technological versus
administrative
Berghah et al. (2009) 1. Stages of innovation: creation, generation, implementation, development, adoption
2. Social context: organizations, firms, customers, social systems, employees, developers
3. Means of innovation: technology, ideas, inventions, creativity, market
4. Nature of innovation: New, improve, change
5. Type of innovation: Product, service, process, technical
6. Aim of innovation: succeed, differentiate, compete.
Crosnan & Apaydin The model encompasses three determinants (1-3) and two dimensions (4-5) of innovations, which were described
(2010) as:
1. Individual and group level focused on leadership, encompassing: Chief Executive, Officer’s, Top
Management Team’s and Board of Directors’ ability and motivation to innovate;
2. Organizational level focused on managerial levers, embracing: (a) mission, goals and strategy, (b)
structure and systems, (c) resource allocation, (d) organizational learning and knowledge management and (e)
organizational culture;
3. Process level focused on business processes, including: (a) initiation and decision-making, (b) portfolio
management, (c) development and implementation, (d) project management, (e) commercialization;
4. Innovation as a process, comprising: (a) individual, group or firm level, (b) driver, such as resources or
market opportunity, (c) top-down or bottom-up direction,(d) source, such as invention or adoption, (e) locus –
firm or network, and (f) tacit or explicit nature;
5. Innovation as an outcome, embracing: (a) form, such as product, service, process or business model, (b)
incremental or radical magnitude, (c) referent, such as firm, market or industry, (d) administrative or technical
type, tacit or explicit nature.
Source: Own elaboration based on (Crosnan and Apaydin, 2010; Berghah et al., 2009; Cooper, 1998).

Cooper (1998) claims that every innovation is
defined at the same time by three dichotomous
dimensions, however some innovations appear to
be uni- or even bi-dimensional in nature. Berghah
et al. (2009) examined 60 definitions from afore-
mentioned fields, and synthesized six attributes of
the innovation process. As a result of their studies
they defined innovation as “the multi-stage process
whereby organizations transform ideas into new/
improved products, service or processes, in order
to advance, compete and differentiate themselves
successfully in their marketplace” (p.1334). In
turn, Crosnan and Apaydin (2010) presented
the most complex multi-dimensional framework
of innovation, based on broad literature studies
consisting of 525 most cited or up-to-date posi-
tions. The model encompasses three determinants
impacting on two dimensions of innovations. Ad-
ditionally, the most recently presented in literature,
the multilevel model of innovation, depicts how an
individual innovation evolves into societal innova-
tion with a global impact (Sears and Baba, 2011).
Presented frameworks and definitions already
embraced the most important division of innova-
tions. First typology, widely recognized and ap-
plied, distinguishes product, process, marketing
and organizational innovations (Oslo Manual,
2005, p.47-52). Among other numerous classifi-
cations (Białoń, 2010, p. 21-22; Janasz & Kozioł,
2007, p. 27; Świtalski, 2005, p. 89-105) two are
essential to mention, dividing innovations into (a)
radical and incremental, and (b) based on novelty
(original) or adoption.
Why innovation is important and what is its
relation with entrepreneurship and university?
The impact of innovation on economic growth
has been well recognized (Solo Manual, 2005;
Green Paper on Innovation 1994), therefore the
source of innovation is a matter of increasing
interest. Through interactions with universities
a firm can gain access to knowledge which may
complement its portfolio and lead to innovation
(Bercovitz & Feldman, 2006, p.181; Arvanitis &
Woerter, 2009, p.1071). Taking into account the

63

significant role of academia, it directs the atten-
tion to university - a “storehouse” of inventions.
Primarily, the academic context of innovation
concerns the environment and networks of innova-
tion, as university entrepreneurship is a result of
being embedded in networks of innovation influ-
enced by the larger environment (Rothaermel et
al., 2007). In particular, four areas in which factors
directly influencing university entrepreneurship
were indentified. These are: innovation networks,
science parks, incubators and geographic loca-
tion. Their description and some key findings are
presented in Table 5.
The improvement of the firm’s innovation
and economic performance is influenced by the
choice of knowledge and technology transfer
strategy (Arvanitis & Woerter, 2009), which
is embedded in the process of university R&D
and technology transfer interaction leading to
Table 5. Factors directly influencing innovation networks and university environment
Element Description
Innovation networks People, institutions and companies
that are inside or outside the firm, who
are intellectual assets that companies
can link up with to solve problems and
find ideas.
Science parks Property-based organizations with
identifiable administrative centers
focused on the mission of business
acceleration through knowledge
agglomeration and resource sharing
University’s
Technology Business
Incubator (UTBI)
Geographic location Geographical proximity to universities
and technology setting of the region
Source: Own elaboration based on (Rothaermel et al., 2007, p.765-777; Phan et al., 2005; Knowledge@Wharton, 2007).
64

Introduction to Academic Entrepreneurship
its commercialization (Conceicao et al., 1998).
According to Conceicao et al. (1998, p.623) the
framework consists of four components, which
depict the process (numbers do reflect the logic
of the process): (1) university R&D embracing a
discovery; (2) technology transfer encompassing
securing IP rights, assessing valuation of tech-
nology opportunity, and implementing transfer
strategy; (3) technology development, consist-
ing of prototyping, consent proofing, ongoing IP
protection, site testing, establishing a business
plan, and raising seed capital; (4) technology com-
mercialization, including finalizing the product,
capital acquisition, and the initiation of launching
on to the market.
Although the three basic acts constituting
broadly understood entrepreneurship can be ap-
plied to the academic context, are they compre-
hensive enough to cover all the forms of university
Some Key Findings
• Involvement in innovation networks enhances a firm’s embeddedness
in social networks and increases its survival
• Several means to develop are: informal and formal collaborations,
facility sharing and deep and reciprocal knowledge sharing
• Firm’s choice and behavior concerning development of innovation
networks impacts firm’s development
• They provide links of technology transfer through spin-offs, research
collaborations, and informal points of accessibility to various
resources, including human resources,
• Their growth can be modeled using the adoption of the innovation
model,
• Membership in science parks is not a factor in contributing to a
firm’s economic performance, however it may impact on factors that
lead to higher economic performance, such as motivation of founders,
cooperation, and networking opportunities with universities.
Several main issues have been recognized:
• The key success factors of UTBIs,
• Their value added,
• Best methods to assess their performance,
• Sources of UTBI impact.
• An important issue is whether universities are part of a regional
technology cluster,
• Geographical proximity of start-ups to universities is determined by
the need to transfer tacit knowledge,
• Proximity to universities has an impact on the competitive advantages
of new technology-based firms.

Introduction to Academic Entrepreneurship

entrepreneurship? What are they in particular?
What are the consequences of academic entre-
preneurship in general? These issues need to be
resolved if the introduction to academic entrepre-
neurship should be completed.
EXTENDED CHARACTERISTIC OF
ACADEMIC ENTREPRENEURSHIP
The extended characteristics of academic en-
trepreneurship encompass several issues. The
classification of the elements describing AE al-
lows to understand better the complexity of the
phenomenon and interdependences between the
factors constituting and impacting it. Recogni-
tion of enablers and barriers helps to improve the
management processes. The benefits and threats
depict the impact of the research and technology
commercialization not only on the economy, but
in a wider context of sustainable development and
corporate social responsibility, which managers
must take into account (Lewandowski, 2011).
Thus, the assessment of how the policy-driven
approach has been effective in enhancing academic
entrepreneurship is provided. Finally, the overview
of the models lead to the creation of a framework,
summing up the findings presented in this chapter.
Exploring all those issues is useful to formulate
recommendations for researchers, managers and
policy programmers.
Typologies
Numerous typologies of entrepreneurship appear
in the literature (e.g. Webster, 1977; Hisrich et
al., 2007), but only very few directly concern
academic entrepreneurship (Table 6).

Table 6. Types of academic entrepreneurship, entrepreneurs and their work

Author Criterion AE Types

Dickson et al (1998)
Giacon (2009)
Birley (2002)
Stokes (1997)
Louis et al. (1989)
Evans-Jonas (1998)
Klofsten & Evans-Jonas (2000)
Berovitz & Feldmann, (2006)
Brennan et al. (2005)
Link et al. (2007)
Source: Own elaboration based on (Dickson et al, 1998, p.35; Evans-Jonas, 1998; Klofsten and Jones-Evans, 2000; Louis et al., 1989,
p.115; Brennal et al., 2005; Stokes, 1997; Giacon, 2009).
Extent of involvement in
entrepreneurship
Extent of involvement in
entrepreneurship
Source of entrepreneurial activity
Scientific research methods
Form of science-business relation
Form of science-business relation
Form of science-business relation
Form of science-business relation
activity towards the discipline
knowledge and academic-university
relationship
Academic entrepreneur, Entrepreneurial scientist, Scientific
entrepreneur
Consultant, Former academic, Hybrid entrepreneur, Pro-
active entrepreneur
Orthodox spinout, Technology spinout, Hybrid spinout
Pure basic research, Use-inspired
basic research, Pure applied research
Large-scale science, Supplemental incomes augmentation,
Industrial support for university science, Patenting, Direct
commercial involvement
Large scale science project, Contract research, Consulting,
Patenting and licensing, Spin-off, Services in general
Large scale science project, Contracted research, Consulting,
Patenting/licensing, Spin off firms, External teaching, Sales,
Testing
Sponsored research, Licenses, Hiring of students, Spinoff
firms, Serendipity
Hero, Maverick, Broker, Prospector
Formal and informal

65

Three types of academic entrepreneurs identi-
fied by Dickson et al (1998) depict the differences
in intensity on the business focus of scientists. For
an academic entrepreneur, entrepreneurial activity
is adjunct to academic work while an entrepreneur-
ial scientist is fully involved in business ventures
but also strongly devoted to his or her scientific
interests. The scientific entrepreneur operates in
a venture but treats science as business (Dickson
et al 1998, p.35). To some extent, supplemental is
the classification of the scientific research methods
discerned by Stokes (1997) and called “Pasteur’s
Quadrant.” Birley (2002) pointed out three types
based on spinouts classification, where orthodox,
one type is a company founded by academics
who left the university for this purpose, technol-
ogy spinout is when an investor buys or leases
the intellectual property from the university and
forms a new company. Hybrid spinout contains
both forms. This approach also concerns forms of
academic entrepreneurship, however this is nar-
rowed to the classification of one type – spinout.
Typology presented by Giacon (2009) is focused
on motivations of entrepreneurial decision.
Louis et al. (1989, p.115) presented extended
typology based on the criterion of academic en-
trepreneurship form, and discerned:
• Large-Scale Science: Considered as large
research projects, groups or laboratories,
usually founded from grants,
• Supplemental Incomes Augmentation:
Contains mainly consulting, private prac-
tice or “lecture circuit,”
• Industrial Support for University
Science: Support of initiating, linking and
managing research projects and ventures,
• Patenting: Reserving patents for commer-
cially applicable results of research,
• Direct Commercial Involvement: Mainly
creation and ownership (sole or partial) of
firms.
66

Introduction to Academic Entrepreneurship
Very similar types were identified by Evans-
Jonas (1998) and Klofsten and Evans-Jonas
(2000), who were researching several European
countries. These may be considered as a more
detailed and a little extended version of Louis et
al (1989) findings. Comparing those typologies
with the origin forms of academic entrepreneurship
discerned by Etzkowitz (1983) leads to a conclu-
sion that the forms have not changed very much
since the university-industry relations emerged.
However, the scale of the phenomenon has in-
creased significantly over the last few decades
(Shane, 2004, p.1; Hong &Walsh, 2009). Other
forms of academic entrepreneurship encompass
networking with practitioners, joint publications
with industry, staff exchange and joint student
supervision (Girmaldi et al., 2011). Link et al.
(2007) distinguish formal (e.g. patent, license or
royalty agreement) and informal (e.g. technical
assistance, consulting, and collaborative research)
technology transfer mechanisms. Also, some forms
of academic entrepreneurship overlap with the
methods of knowledge and technology transfer,
e.g. university researchers’ participation in firm
R&D, long-term research contracts or consulting
(Arvanis & Woerter, 2009).
The more complex typology presented by
Brennan et al. (2005) is focused on the profiles
of academic entrepreneurs and takes into consid-
eration entrepreneurs’ approach to the discipline
knowledge and relationship with their host uni-
versity (Table 7).
Those two dimensions reflect the four key
themes describing academic entrepreneurship.
These are work relationships, knowledge produc-
tion, acquisition, and organizational orientation.
These themes are based respectively on the fol-
lowing questions: What are the work relation-
ships whilst undertaking entrepreneurship?
How discipline knowledge is used to produce
new knowledge? In which way the knowledge
networks are used? How the relationship with

Introduction to Academic Entrepreneurship

Table 7. Academic entrepreneur’s profiles

Profile Work Main Focus of Knowledge Knowledge Acquisition Organizational

Relationships Production Orientation
Hero Social Discipline fore-front Institutional network Host university and
external entrepreneurial
environment
Maverick Social Application of discipline knowledge Own scanning network External entrepreneurial
and interdisciplinary knowledge environment
exchange
Broker Social Application of discipline knowledge Institutional and own Host university and
and interdisciplinary knowledge scanning network external entrepreneurial
exchange environment
Prospector Individual Application of discipline knowledge Own scanning network, External entrepreneurial
and interdisciplinary knowledge small use of institutional environment
exchange network
Source: Derived from Brennan et al, 2005, s.314-315.

the host university institution is being regarded
and managed? (Brennan et al., 2005, p.313-314).
Finally some other types of entrepreneurship,
such as: potential entrepreneur, team entrepreneur,
nascent entrepreneurs, female entrepreneurs,
retiree entrepreneurs or fatherless entrepreneurs
(Hisrich et al, 2007) may also apply to the con-
text of academic entrepreneurship. Additionally,
a noteworthy context is pertaining to the social
economy phenomenon (Benkler, 2008). In turn,
social entrepreneurship should be taken into ac-
count in the university context as well, because
an academic entrepreneur might be a social
academic entrepreneur. It extends the academic
entrepreneurship outcomes to intangible, socially
important impacts. This approach complements
the triple perspective consisting of Dickson’s et
al. (1998), Klofsten’s, Evans-Jonas’s (2000) and
Brennan’s et al. (2005) typologies, and in turn
makes a relatively complex picture of the phe-
nomenon, depicting the major issues.
General Enablers and Barriers
One of the main research areas includes the bar-
riers and instruments supporting academic entre-
preneurship. Although several factors influencing
organizational creation, renewal and innovation in
the university context has already been identified,
some more general factors also exist. The literature
overview provides the following implications:
• National culture and academic socializa-
tion can influence the degree to which indi-
vidual scientists participate in technology-
transfer activities (Bercovitz & Feldmann,
2006, p.180);
• Training effects, leadership effects and co-
hort effects strongly influence the decision
of an individual to participate in technol-
ogy transfer through the process of dis-
closing inventions (Bercovitz & Feldman,
2004);
• Resources, reporting relationships, auton-
omy and incentives of technology licens-
ing offices shape both licensing university-
created knowledge and seeking additional
sponsorship for R&D projects (Bercovitz
& Feldmann, 2006, p.180);
• Changes in university management, includ-
ing mission, decentralization, funding re-
search, human resource management, and
evaluation processes (Bernasconi, 2005);
• Better university brands enables better op-
portunities for consulting and higher rates
in the market (Bernasconi, 2005);

67

• Undertaking several initiatives by univer-
sity, such as: Innovation networks, campus
companies, enterprise training, research
contracts, patenting/licensing, career ser-
vices/training, service provision, industri-
als professorship (Jones-Evans, 1998);
• Providing a protected environment where
students can experiment with new ideas
and follow their passions (e.g. the begin-
ning of Dell or Yahoo!) (Grimaldi et al.,
2011).
Also, the impediments of academic entrepre-
neurship have been provided in the literature.
Several of them pertain to:
• Obtaining faculty disclosures may be in-
fluenced by (a) unwilling to risk delaying
publication in the patent and license pro-
cess, (b) unwilling to spend time on the ap-
plied research and development that is of-
ten needed for businesses to be interested
in licensing university inventions, (c) per-
ception of the proper role of academic sci-
entists and engineers (Thursby & Thursby,
2002, p. 93);
• Conflicting opinions over the university
system’s mission (Rothaermel et al. 2007,
p.706);
• Organizational pathologies, such as: (a)
the familiarity trap - favoring the familiar,
(b) the maturity trap - favoring the mature,
and (c) the propinquity trap - favoring the
search for solutions near to existing so-
lutions, inhibit breakthrough inventions
(Ahuja & Lampert, 2001);
• Public sector pay-scales, which make it
difficult to recruit qualified technology
transfer personnel (Grimaldi et al., 2011,
p.1047);
• The conflict of interest between the tradi-
tional academic reward system (focused
on peer reviewed publications of basic
research), and the technology transfer re-
68

Introduction to Academic Entrepreneurship
ward system (focused on revenue genera-
tion from applied research) (Siegel et al.,
2007b, p.497).
There are numerous factors influencing
academic entrepreneurship and each of its forms.
However, knowing them is useless without rec-
ognizing the outcomes first.
AE Policy-Driven Approach
Assessment
In order to assess how the policy-driven approach
has been effective in enhancing academic entre-
preneurship in higher education institutions and
the innovation system, it is essential to point out
the major policy instruments. In the broad context
of innovation system developments the significant
issues are the formulation of a Green Paper on
Innovation (1995) by the European Commission,
and the publishing of the Oslo Manual (firstly in
1992) by OECD. The first document emphasized
the role of innovation in increasing the industrial
competitiveness of the European Union, and was
a genuine European strategy for the promotion of
innovation (Green Paper…, 1995). The second
document provided a comprehensive system of
measurement for scientific and technological
activities (Oslo Manual, 2005).
A widely acknowledged instrument of political
intervention directed at the role of university in
fostering economic growth is the enactment of
the Bayh-Dole Act in 1980 by the USA (Wright
et al, 2008; Litan et al. 2007; Shane, 2004). In
particular, the legislation unified patent policy
across federal agencies, removed many restrictions
on licensing, mainly by expanding university rights
to patent and license inventions from federally
funded research, and introduced a requirement of
disclosing inventions based on researches founded
from federal grants to the technology licensing
offices (Grimaldi et al, 2008; Thursby & Thursby,
2002, p. 92, 101). The Bayh-Dole Act was also
underlying to similar changes in the law systems

Introduction to Academic Entrepreneurship
in several European and Asian countries (Grimaldi
et al., 2008; Lacetera, 2009). Lacetera (2009) also
points to the Federal Technology Transfer Act in
1986, and Link (2006) the R&E tax credit enacted
in 1981, and the National Cooperative Research
Act legislated in 1984.
The effectiveness of a policy driven approach
in the US may be depicted by numerous indica-
tors, two chosen ones were used for this purpose
– annual total licensing income, and the number
of patents granted to universities (Figure 1).
Source: own elaboration based on data obtained
from (Siegel et al, 2007a; www.autm.net).
However, Litan et al. (2007) are critical about
the pragmatic part of the reform, which pertains
to the implementation and to the organization of
technology transfer offices in particular. They
claim that;
With new rights have come new layers of admin-
istration and often bureaucracies. Rather than
implementing broad innovation and commer-
cialization strategies that recognize different and
appropriate pathways of commercialization, as
well as multiple programs and initiatives to sup-
port each path, many universities have channeled
Figure 1. Annual licensing income generated by universities and patents granted to universities in US.
their innovation-dissemination activities through
a centralized technology transfer office (TTO).
(Litan et al, 2007, online)
The numbers, although only two indicators
were presented, do not cover all the anticipated
results and unexpected implications of the policy,
which should be taken into account whilst during
its assessment.
Outcomes of academic entrepreneurship may
be perceived from different points of view. The
triple helix model, which gives a perspective of
three sub-systems: university, industry and govern-
ment (Leydesdorff & Etzkowitz, 1998) could be
applied for this purpose, however it would require
additional perspectives to be more comprehensive.
Thus, “agathos effectiveness” conception based
on eight modifiable perspectives (Lewandowski,
2011) is more useful. Moreover, it emphasizes
the ethical context in terms of “accountability
against,” not only “accountability for,” which
better fits to the managerial perspective of the
book. According to this approach some academic
entrepreneurship outcomes have been assessed
(Table 8). The question mark “(?)” indicates fields
of research hardly explored.
69
 
Introduction to Academic Entrepreneurship

Table 8. Balance of academic entrepreneurship outcomes according to the “agathos effectiveness”

conception adapted to the university context

Authors Etzkowitz, 1983; Jones-Evans, 1998; Laukkanen, Giacon, 2009; Sundbo, 2003; Laukkanen, 2003;
2003; Shane, 2004; Bercovitz & Feldmann, 2006; Etzkowitz 1983; Hong & Walsh, 2009; Fabrizio,
O’Shea et al. 2008; Lach & Schankerman, 2008; 2007;
Kivimaa, 2008
Effectiveness - Benefits Threats
Perspective of
Society • Enhancing quality of life • Creative destruction (innovations oust old products
• Providing products that satisfy customers needs and processes, which has a great social impact)
• Growth of knowledge • Danger for scientific neutrality, objectivity and open
• Facilitating the training of students science
• Employment of students and graduates (giving job)
Employees • Increased income for academics Experiencing mental conflicts by some scientists
• Career outside of the university for young scientists
Organization • Extra funds for scientific projects Limited communication and lower transfer of
• Employment of students and graduates (obtaining knowledge between academics caused by the
workforce) anticipation of future profits
Natural environment e.g. pollution control technologies (?)
Law (?) (?)
Other organizations Increased growth and profits for firms (?)
Economy • Generating economic value, University patenting may be an impediment for
• Encouraging economic development at national and industrial innovation
local level,
• Enhancing economic stability,
• Reinforcing endogenous self-renewal and growth of
regions,
• Revival of the economies in cities, regions and
countries
• Contribution to GDP
Policies • Labor policy (creating jobs) (?)
• Development policy
• Environmental policy
Source: Own elaboration based on (Lewandowski, 2011; Hong & Walsh, 2009; O’Shea et al. 2008; Kivimaa, 2008; Lach & Schankerman,
2008; Fabrizio, 2007; Bercovitz & Feldmann, 2006; Shane, 2004; Laukkanen, 2003; Sundbo, 2003; Jones-Evans, 1998; Etzkowitz, 1983).

The analysis encompasses general benefits
and threats, but due to the variety of academic
entrepreneurship forms not all of them have
been considered (authors do not always refer to
the specific forms, however spinoff is the most
unquestionable).
Models
Considering all aforementioned characteristics
of academic entrepreneurship, a need for a com-
prehensive framework becomes appropriate.
Moroz and Hindle (2011) identified 32 models
of entrepreneurship. This abundance may impede
the conceptualization of academic entrepreneur-
ship as well as the fact that none of them refer
directly to academic context, although at least a
few of them could be applied to some extent, like
Gartner’s (1985) for instance.
Regarding academic context Bercovitz &
Feldmann (2006) provided the model of the univer-
sity-industry relationship, depicting transactions
between university environment and commercial
firms, also including the individual researcher.
Additionally to their explanations, some other

70

Introduction to Academic Entrepreneurship
explorations derived from the reviewed literature
are supplemental.
The central element – transactions – may be
described by the forms of academic entrepreneur-
ship provided by Louis et al. (1989, p.115), Evans-
Jonas (1998), Klofsten and Evans-Jonas (2000)
or Bercovitz and Feldmann (2006), presented in
the typology section in this chapter. In turn, an
individual researcher and his or her relations with
the university and firms may be described by the
profiles and key themes explored by Brennan et al.
(2005). Lacetera’s (2009) model focusing in detail
on the choice and timing of commercialization of
research by academic entrepreneurs in comparison
with industry entrepreneurs is supplemental. His
findings show that academic and non-academic
scientists select different projects, in particular
that academic researchers will tend to forsake
commercial projects with positive but small com-
mercial value. Instead, they will pursue the purely
scientific ones because of the direct benefit from
performing research, in the form of publication
and peer recognition in the scientific community.
Therefore, in some cases they are more reluctant
to commercialize research if they do not want to
resign from these benefits. However, in other cases
academic scientists may commercialize faster
than a profit-seeking firm would, and perform
less basic research (Lacetera, 2009).
Also, the comprehensive framework should
incorporate the situation in which an individual re-
searcher may commercialize intellectual property
without disclosing the invention to the university
- “through the back door” as Shane (2004, p. 4)
calls it. Moreover, the conceptualization of aca-
demic entrepreneurship must include not only the
directly impacting factors, but also more general
ones, like social and cultural context, industry
characteristics or policy programs (Bercovitz
& Feldmann, 2006; Patzelt & Shepher, 2009;
Baker et al.,2005; Etzkowitz, 1983; Hofstedte &
Hofstedte, 2007).
Also, the very insightful work of Rothaer-
mel et al. (2007) is helpful in conceptualizing
academic entrepreneurship. In their detailed and
expanded literature studies they discerned different
elements forming a university entrepreneurship
conceptual framework, such as: environmental
context including networks of innovation, new
firm creation, productivity of technology transfer
offices, entrepreneurial university and facilitating
the process. They also emphasize that there is cur-
rently no literature review providing an overarch-
ing framework to encompass the different pieces
making up university entrepreneurship, such as:
technology transfer, university licensing, science
parks, incubators, university spin-offs, technology
transfer offices etc (Rothaermel et al., 2007, p.706).
Recognizing all those issues and the contribu-
tion of the authors, a conceptual framework of
academic entrepreneurship has been developed
(Figure 2).
Source: Own elaboration based on literature
review used in this chapter.
The presented model does not reflect the main
processes of entrepreneurship related to the acts
constituting this phenomenon – organizational
creation, renewal and innovation. However, it
encompasses most of them or their components.
It is also sufficient to provide some solutions and
recommendations for practitioners.
Solutions and Recommendations
The positive results of the academic entrepre-
neurship are unquestionable, in particular their
economic impact. Therefore enhancements should
be maintained or even expanded. It pertains to
government, local and university polices. The
general framework of “Hygiene Factors” and
“Motivators” seems useful, the first group should
be minimized, whilst the second one increased.
For instance, universities should try to downsize
the bureaucracy and increase the number of en-
71

Figure 2. Conceptual framework of academic entrepreneurship
trepreneurial attempts made among academics
by introducing some incentives and recognition
for individuals. They should also focus more on
students, as they can generate very innovative
ideas. Government in turn, should provide legis-
lation facilitating the easiness of using particular
forms of academic entrepreneurship, instead of
building hypertrophied controlling systems. Also,
the Bayh-Dole Act is an example worth building
upon, especially for the countries which need to
develop their intellectual property laws.
Another important field is the cooperation
between universities, firms and local government
to support local and regional development is es-
sential. On the one hand the clustering initiatives
could be facilitated, on the other the profession of
each party (businessman, administration officer,
scientist) engaged in the process might be consid-
ered as a sub-culture. Therefore some intercultural
72

Introduction to Academic Entrepreneurship
management and communication theories are
noteworthy to test in this context.
Moreover, the development of instruments
encouraging implementation of innovations which
bring socially important, intangible outcomes,
should be put into an agenda. Forming a special
fund for socially relevant innovations, opened
for inventions derived from social sciences and
humanities is another noteworthy idea.
FUTURE RESEARCH DIRECTIONS
From the conducted literature overview some
emergent issues pertaining to academic entrepre-
neurship appear. They encompass many questions,
from which only a few were raised. For instance,
how to successfully maintain the relationship
between university and a firm and what is the role

Introduction to Academic Entrepreneurship
of partnerships? What strategies are being applied
in different forms of AE and with what effects?
What are the relationships between those forms?
What organizational structures and management
models best fit to particular forms of AE? What
is the potential and the current contributions of
student’s ideas in enhancing academic entrepre-
neurial activities? Also, there is a need for a more
comprehensive framework capturing the processes
of various forms of academic entrepreneurship,
as well as their critical success factors.
One of the most important questions concerns
not only the indirect impact of university spinoffs
on economic value, as Shane (2004, p. 20) sug-
gests, but also the direct and indirect effects of
all the AE forms in a broader context. Especially,
the threats require a further insightful exploration,
in particular those concerning some more con-
temporary consequences of creative destruction
in the international context (Bauman, 2004), and
the postponed results of innovations underlying
its progress in terms of the future meaning of
“trans-human” and “post-human.”
A widely unexplored field is pertaining to po-
tential outcomes of social academic entrepreneur-
ship, focused on the socially relevant outcomes.
Academic entrepreneurs create not only business
ventures but also non-governmental organizations
(NGO). Moreover, the transferred knowledge and
technology, to remain socially relevant, thus cul-
ture relevant, must be opened for the contribution
of social sciences and humanities.
CONCLUSION
The research on academic entrepreneurship is
grounded in the broader entrepreneurship theory.
Traditional acts constituting entrepreneurship
are more limited when pertaining to university.
For instance, organizational creation seems to be
narrowed to university spinoffs, and renewal to
the shift in perceiving a university mission which
leads to an openness for commercialization of the
scientific research and better knowledge manage-
ment in academia. Also the topic of innovation is
narrowed to the participation of university in the
innovation networks, incubators or science parks
in order to generate more innovations.
The classic categories, such as organizational
creation, renewal and innovation, apply to the
academic context, but do not give the full and
comprehensive picture of the phenomenon. Apart
from those typical forms there are some others
more nested in the university context and not
necessarily institutionalized. Those encompass
formalized activities, such as large scale science
projects, contracted research, consulting, patent-
ing/licensing, external teaching, sales, testing,
hiring of students, or even more. However, pat-
enting and licensing are usually a part of innova-
tion and spinoff creation processes. Therefore,
university spinoffs seem to be the most mature,
comprehensive and impactful form of academic
entrepreneurship. Also, it is noteworthy that
the academic entrepreneurship forms have not
changed very much since university-industry
relations emerged.
As the acts of organizational creation, renewal
and innovation are not sufficient to depict the
phenomenon of academic entrepreneurship, the
definition requires updating. It can be understood
as the process of transferring university-based
knowledge or technology to industry and/or so-
ciety through diverse forms of activity, initiated
by the decision made in uncertain and arbitrage
conditions and undertaken by individuals or orga-
nizations in order to provide benefits to engaged
parties and/or public interest. The provided con-
ceptual framework of academic entrepreneurship
captures the most important entities, forms and
outcomes of the process, as well as some factors
influencing it.
Also, several recommendations and solutions
were formulated. For instance some of them con-
cern cooperation between universities, firms and
73

local government to support local and regional
development, whilst other pertain to engage stu-
dents in entrepreneurial activities, or to facilitate
the inventions derived from social sciences and
humanities.
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KEY TERMS AND DEFINITIONS
Academic Entrepreneur: An individual
rooted in the scientific institution, engaged in the
process of transferring university-based knowl-
edge or technology to industry, through one or
multiple instruments, in order to provide benefits
to engaged parties and/or public interest.
Academic Entrepreneurship Forms: A set
of diversified instruments underlying the process
of transferring university-based knowledge or
technology to industry, encompassing in particular
but not exclusively: spinoffs, large science proj-
ects, contracted research, consulting, patenting,
licensing, external teaching, sales, testing, hiring
of students, networking with practitioners, joint
publications with industry, staff exchange and
joint student supervision.
Academic Entrepreneurship: The process
of transferring university-based knowledge or
technology to industry or society, through diverse

Introduction to Academic Entrepreneurship

instruments, initiated by the decision in uncer-
tainty and arbitrage conditions, and undertaken
by individuals or organizations in order to provide
benefits to engaged parties and/or public interest.
Entrepreneurship: Undertaking the activity
encompassing acts of organizational creation,
renewal, or innovation, inside or outside an organi-
zation, initiated by the decision in uncertainty and
arbitrage conditions, in order to provide benefits
to engaged parties and/or public interest.
Innovation: Intentional implementation of
ideas, processes, products or procedures, new to
the relevant unit of adoption, pursuing significant
benefits for the individuals, organizations or
public interest.
Organizational Creation: An effort of a group
of people, who are pursuing common goals, to
harmonize their cooperation and assets, in an stan-
dardized, formalized and/or institutionalized form.
Organizational Renewal: Internal reorgani-
zation conducted as a response to environmental
evolution, where knowledge assets play a key role,
in order to avoid projected demise of organization.

This work was previously published in Academic Entrepreneurship and Technological Innovation edited by Anna Szopa,
Waldemar Karwowski, and Patricia Ordóñez de Pablos, pages 1-28, copyright year 2013 by Information Science Reference
(an imprint of IGI Global).

81
82

Chapter 5
Historically Reading the
Concept of Gender by the
Dilemma of Heterodox-
Orthodox Vision
Ilkben Akansel
Artvin Coruh University, Turkey

ABSTRACT
In this chapter, the authors analyze the concept of gender and its history; they look at the crisis that is
caused by this concept in terms of both orthodox economy and the heterodox economy. A wide range of
feminist economics arguments are considered. Feminist economics arguments correspond to the points
of Antonio Gramsci’s “hegemony” and Louis Althusser’s “ideology.” Starting with both philosophers’
concepts, the authors explicate the dilemma of orthodox-heterodox economics. First, they discuss the
vision of heterodox-orthodox economics. Then, they discuss how technology becomes an important part
of orthodox economics, and through the aforementioned philosophers, they discuss what would happen
in the economic system if this situation changes.

INTRODUCTION directly related to the topic. But, firstly we should

The history of economics is actually a history of
war among whole human beings in all historical,
sociological, political, etc. areas. In this war,
beginning from the ancient times until rising of
monotheistic religions, women always had much
less importance; they had a secondary role in the
economic history.
Before mentioning the feminist econom-
ics’ becoming a part of economic history, it is
necessary to mention some concepts which are
examine the relationship between technology and
heterodox-orthodox vision.
Of course, economics history has not been
formed by itself; it was affected by many important
elements and one of the most significant one of
these elements is technology. Technology not only
affected how products are produced, what would
be produced etc., but also the economics view.
Economic crisis got deeper in parallel with the
progress the technology; because, it was formed
only by firms on the thought of how much money

DOI: 10.4018/978-1-4666-8468-3.ch005

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
they would earn. Technology does not really deal
with human beings. This case is caused by the
orthodox economics vision. Because, the structure
of orthodox economics, which was never interested
in people needs, caused increase in the technology.
So, in this study we will examine how technol-
ogy is affected by the orthodox economics vision.
What we will say about the orthodox economics’
improprieties will show us the heterodox econom-
ics view more clearly and through this approach,
technology will be produces for the need of people.
We choose the feminist economics thoughts
for two reasons: The first one is, the orthodox
economics do not give importance to woman’s
thoughts about economics vision. The second
one is, as one of the approaches of the heterodox
economics, feminist economics can give some
useful advices to technological improvement by
the view of women’s.
In this study, our methodology is firstly, to
mention about some concepts which are related
to working life in terms of heterodox-orthodox
concepts. Secondly, we will elaborate the concepts
of heterodox-orthodox economics. Thirdly, we
will introduce the relationship between feminist
economics-heterodox economics and try to tell
what causes economic crisis through the dilemma
of heterodox-orthodox economics. Consequently,
we will briefly conclude the dilemma of heterodox-
orthodox economics; we will summarize the point
of view of these two concepts about crisis.
GLANCING AT GENDER AND
FEMINIST ECONOMICS
Why is Heterodox
Economics Important?
Firstly, we must examine ‘gender’ concept affect-
ing not only economics field but also entire social
life. We can say that contemporary view accepts
that human sexuality have two types; heterosexual-
ity, namely, ‘female’ and ‘male’ genders; and ho-
mosexuality. These three human sexualities refer
to the biological presence of humans. However,
gender that is defined by biological sex points out
to a different situation. It attributes home-domestic
roles to women, home-external roles to men.
We mean that while cleaning the house, taking
care of children etc. are attributed by society to
women; earning living is accepted to be the duty
of men. Namely, distribution of duty according
to biological sex is ‘gender’ (Serdaroğlu, 2010,
pp. 9). The effect of gender reflected in terms
of women working through the concepts ‘dis-
crimination’ and ‘segregation’. Discrimination is
“paying different salaries for same job or paying
different salaries for different jobs to people who
have equal productivity” (Lordoğlu & Özkaplan,
2003, pp. 224).
“Because, while the role of earning a living for
the family is attributed to men, the role of taking
care of children, housework etc. is attributed to
women […]” (Ecevit, 2000, pp. 157). Jobs that are
divided as ‘woman jobs’ and ‘man jobs’ mean seg-
regation (Lordoğlu & Özkaplan, 2003, pp. 224).
Of course, problems by gender concept occur
at working life of women. As it is seen on every
field like sociological, etc. economic events are
accepted to be male issues. Because of this reason,
women haven’t gained a seat in the progress of
economics history. It is possible to examine the
progress in the history of economics mainly by
two concepts.
Orthodox Economics: It is the name of giving
neo-classical economics apprehension, because of
it has a hegemonic way which is expected whole
economics education, institutions and politics and
all other thoughts. Neo-classical economics has a
widespread superiority. Since 1970s Keynesian
economics did not produce to solutions to solve
the problems of economics in praxis and as a result
of this in theory it has been argued. Neo-classical
theory has gained superiority (Emiroğlu, 2006,
p. 661-662).
83

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
Heterodox Economics: Economists who share
the point of view that economy shouldn’t be limited
to orthodox economy and this is a disadvantage
can be grouped as the believers of the concept of
heterodox economy. Feminist economics is one
of the heterodox approaches (Emiroğlu, 2006,
pp. 346).
As the adoption of the appellation ‘heterodox’
proliferates, the need for clarification of its nature
becomes more imperative for the future direction
and potency of the heterodox research program.
If heterodox economics does indeed suggest a
diversity of opinion, then the accuracy in the ap-
plication of the term must be addressed (Wrenn,
2007, p. 2).
It is important to remember that feminist
economics thought is one of the heterodox eco-
nomics thought. In this sense, we must not start
by defining what the feminist economics is; we
must start with what the feminist economics is
not: We can describe feminist economics through
what it does not approve. “Feminist economics is
not mono, limited, regulatory, racist, sexist, and
imperialist.” Feminist economics explicates fol-
lowing topics: Criticizing all methods, theories,
concepts, descriptions and dealing with the subject
of economics by providing an equal circumstance
for women-men. For this reason, entire sexist
structure of economics is questioned by feminist
economics (Serdaroğlu, 2010, pp. 3). “Feminist
economy does not analyze woman in economics,
it analyzes women perspective in economy. It
objects to the analysis of entire economy theories
only through one economist view and it takes his-
torical, cultural and sociological contexts. These
economics theories can be built by richness and
renewed circumstances” (Serdaroğlu, 2010, p. 6).
As it is seen, the point of view of economics
will be radically changed by making differences
in the definition of gender concept. Historically,
feminist economics has determined some fields
similar to the orthodox economics, and again
similar to orthodox economics which determines
84

some objects to explain each economics relation,
feminist economics has some specific objects
(Serdaroğlu, 2010, p. 5).
Before we start explaining feminist economics
thought broadly, we will examine why and how
economics thought was divided into two main
sections mentioned above. Because if we know
the historical map we can understand where is the
problem originated from.
Since its intellectual inception, the devel-
opment of economics has been accompanied
by divergence of thought. Through the years,
particularly in the latter half of the twentieth
century, a fissure emerged within the discipline,
dividing conventional thought from the dissen-
tion of heterodox economics. Indeed, throughout
the post-WWII period, economics experienced
a distinct splintering into various groups – from
Neo-Keynesians to Post Keynesians, from New
Classical to Neo-Marxist, and sundry shades
between – some of which may be interpreted as
heterodox. The nature of the division, however, as
well as the nature of heterodox thought is unclear.
Despite the lack of clarity, heterodox economics
appears to have a long history and to be enjoying
recent growth. Although dissent and critique prove
constant in the history of economic thought, the
term ‘heterodox’ is relatively new to the economic
lexicon. The term made its first published ap-
pearance in Allan Gruchy’s 1947 book, Modern
Economic Thought within context as “Veblen
and other heterodox economists...” (1967 reprint:
621). In the following half of the century, the term
was used only sporadically (Boulding, 1957: 4;
Gruchy, 1967: 1). The formation of associations
and conference sessions, roundtables, and plenary
sessions using the term heterodox thus proves to
be a rather new development, but one that has
grown over the past decade. Indeed, the notion
of ‘heterodox economics’ currently holds wide
currency (Wrenn, 2007, p. 1-2).
As is seen, the debates about what kind of a
view should we have about economics is very

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
old. We should remember that during the creation
of modernization theories criticism also started.
The starting point of crisis in the past and today
and the irresolution of crisis are originated from
how orthodox economics has monopolized the
entire education of economics and institutions
of economics.
Because of this reason, orthodox econom-
ics politics was established to affirm existing
system. Not questioning existing system causes
not satisfyingly discussing economics problems.
Thereby, feminist economics objects to neo-
classical economics which represents orthodox
economics mainly at these points: 1) the subject
of economics 2) the method of economics 3) the
modeling of economics 4) the education of eco-
nomics (Serdaroğlu, 2010, pp. 8).
As is seen, the issues that are mentioned above
are the ones which orthodox econmy claims to
explain. But at the same time, there are problems
about these issues in the present economy.
If we can say heterodox economics observes
social relationships, feminist economics also
discusses social relationships as a part of this
economics.
Indeed a contrast is drawn between this intoler-
ance and the pluralism of heterodox economics. An
account is then given (pp. 7–11) of the heterodox
critiques of orthodox economics, stemming from
the shared view that economic processes are inher-
ently social. While different heterodox groupings
have developed different critiques of mainstream
economics, Lee (2009, p. 7) argues that, rather
than a ‘disparate collection of critiques’, they
constitute together ‘a concatenation of different
heterodox critiques that generate its dismissal’,
thus providing ‘the basis for making heterodox
economics quite distinct from mainstream eco-
nomics’ (Dow, 2011, p. 1153).
As we can say specifically to feminist econom-
ics, generally it can be said heterodox economics
do not give importance hierarchical view unlike
orthodox economics. With this feature economics
actors get close to one another. Therefore the ques-
tions about what will be produced; for who they
will be produced etc. will be solved more quickly.
Honestly, heterodox-orthodox clash differs from
country to country. In order to understand this
conflict, we should look what academicians said
about distinction.
I too have experienced heterodox economics
on both sides of the Atlantic (in my case, the UK
in the 1960s, Canada in the 1970s and the UK
thereafter). I was exposed to radical economics in
Canada in the admirably pluralist department at the
University of Manitoba and then in the context of
practical policy implementation at the provincial
government level. I remember an acknowledged,
but debated, sense of difference from orthodox
economics (i.e. there was communication across
the orthodox–heterodox divide). I also remember a
sense of openness, and an engagement with policy
issues, among heterodox economists themselves.
Latterly I became aware of the newly emerging
Post Keynesian economics and was delighted to
find, through the appearance of the new Journal
of Post Keynesian Economics, that there were
others out there pursuing a similar approach. But,
coming back later to the UK with a newfound
interest in understanding differences between
schools of thought at a methodological level (i.e.
methodological pluralism), I came across main-
stream economists who thought it inappropriate
to draw attention to difference, on the grounds
that economic had continued a long British tradi-
tion as an open and tolerant discipline. Nor did
I perceive much support from what appeared to
be a traditional monist approach within Marxism
(Dow, 2011, pp. 1154-1155).
Accompanying academics debates about
technology have been affected by the production
process in late 20th century: “Virtual term means
something is very close to real or something that
really happens. If something is virtual, it will in-
clude another thing’s power or talent.” In 1950’s
scientists improved some computers which were
called virtual computers. So, virtual reality term
comes from computers. “Computers and informa-
85

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
tion technologies have become a basic part of every
company using Internet, e-commerce and virtual
reality until the late 20th century to 21st century.
In the first years of 1990’s, applications focused
on company integration and objective technolo-
gies. Now, e-commercials based on Internet not
only used for companies but also there are some
integration applications and virtual attempts for
other organizations. Virtual production is one of
the application areas of virtual reality. Virtual
reality is formed by an integrated and a synthetic
production area aiming at providing its own func-
tions besides deciding every step in production.
Many specialists agreed a definition on virtual
production is that: virtual production ‘it is a model
which is stimulated by manufacturing order re-
ally existing or not.’ Virtual production system
is an integrated computer based model within
physical and logical scope of real production
system’s behaviors/running. This system carries
manufacturing activities interested in models and
simulations instead of objectives and operations
in real production environment. [...] The vision of
virtual production makes the manufacturing virtual
on computers” (Baykasoğlu, 2006, pp. 25-29).
“One of the greatest handicaps of mass produc-
tion is to have work with not re-shaping plants and
high amount of stocks. The main goals in mass
production system are reducing operation times
and amount of stocks and increasing the flexibility
of plants. As can be understood, if these three
goals are reached, while the ones that achieved
these can stand in the world league, the other
ones continue to exist only regionally. On the
other hand, while decreasing stock amounts and
operation costs is necessary, it is also significant
to increase factory flexibility and product/service
quality. This approach is called Simple Produc-
tion/Administration. The word ‘simple’ means
the most effective usage of sources, preventing
wastes and removing the unnecessary things.
[…] Simple organizations provide abolishing
redundant steps in the plant and putting the rest
of them in a continuous flow order. […] Simple
86

organization is a dynamic structure, it is against
slowness and it predicts designing giving rapid
market changing, customers’ demand and critique
changes. […] Because of the globalization if a
firm wants to survive and becomes a ‘world firm’
it will change the classical production to simple
production. For this reason, Just in Time (JIT),
Cellular Manufacturing (CM), Flexible Manufac-
turing (FM) and Agile Manufacturing (AM) are
bound to be used in production. Agile is described
by using in environment which is unpredictable
general strategy. The most important dispersive
part of agile production on any other production
technologies is hidden in its own description.
Differing all of the others in agile production
benefits from out-firm sources. In conclusion,
it is a sometimes necessary to share sources and
technologies, and sometimes to make a collabora-
tion with rival firms. Because of this, firms which
want to make agile production must give great
importance to collaboration.” The distinguish-
ing characteristic of agile production the rest of
production technologies is to benefit out of firm
sources. It is involved that sometimes there will
be a cooperation with rival firms in terms of using
sources and technologies. “For this reason the insti-
tutions which want to make agile production give
much importance to cooperation. This cooperation
can be made with supplier or the rival who make
production in the same sector or with customers.
For instance, companies in the industrial zone in
Gaziantep started to produce their own electric-
ity. So, they have gained competition power with
low producing electricity. Today, automation term
uses for the meaning such as process planning,
carrying equipment, verification of quality, item
montage and its production without manpower
(or at least with very few labor)” (Baykasoğlu,
2006, p. 22). Reducing the electricity helps only
firms. So, we can say that technology sometimes
is a barrier in working life; it sometimes causes
reducing the amount of employee. This situation
is resulted from orthodox economics logic.

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
This issue of the divide between orthodox
and heterodox economics is of strategic impor-
tance. Chick (1995) considers a classification
of strategies for addressing different theoretical
approaches, based on her analysis of the physical
sciences. She identifies four possible strategies:
rejection, containment, paradox, and synthesis.
The rejection strategy, in the sense of an assertion
of correctness, seems to go against the pluralist
approach to heterodox economics advocated by
Lee, which advocates tolerance of difference. And
yet most heterodox economists do reject main-
stream economics. Indeed Lawson (2009, p. 94)
defines heterodoxy in terms of rejection of some
doctrine of orthodoxy, and proceeds to identify the
mainstream insistence on mathematical formalism
as what heterodox economics rejects. The second
strategy, containment, treats one approach or
theory as a special case of the preferred approach
or theory (as in Keynes’s general treatment which
encompassed uncertainty as well as certainty).
This would involve allowing for the acceptabil-
ity of some mainstream methods (e.g. deductive
mathematics) in particular circumstances. But
mainstream methodology as a general insistence
on mathematical formalism in all circumstances
cannot be contained as a special case; if mathemati-
cal formalism is only applicable in particular cases
then insistence upon it is to be rejected (Lawson,
2006, 2009). This brings us to the third strategy,
paradox, which draws attention to the distinctive
nature of open-system logic, where consistency
is not as defined within a closed system (Dow,
1990). Indeed these strategies can illuminate
the apparently contradictory use of the rejection
strategy alongside the containment strategy, and
pluralism. While pluralism suggests tolerance
towards alternatives, paradoxically this does not
extend to intolerance. Even within a pluralist ap-
proach, therefore, rejection of an insistence on the
exclusive reliance on mathematical formalism is
justified (Dow, 2011, p. 1157).
In our opinion, the main conflict between
heterodox-orthodox economics is caused by plu-
ralism. In fact, the basic interest point of feminist
economy about orthodox economy is that it only
takes what market says into consideration and
ignores what other economic actors say.
In order to really understand the point of
heterodox-orthodox economics we should look
at the distinction between for example feminist,
post-Keynesian economics.
Feminist economics encompasses a differ-
ent set of topics and debates. A hallmark of the
tradition is its emphasis on broadening the range
of research questions that can be recognized as
‘economic’ in nature. Perhaps not surprisingly,
feminist economics is currently characterized by
its focus on themes relating to the roles women
undertake within society and why these have often
been excluded from definitions of ‘the economy’.
Some of these themes include: the full range of
‘provisioning’ activities undertaken within soci-
ety; the role of care; the importance of institutions
and social practices including families, national
income structures and education structures; seg-
mented labor markets; the implications of eco-
nomic growth; gender analysis of public policy;
gender-based differences in access to resources.
The tradition has also focused attention on the wide
range of research methods that can be usefully
employed to address economic issues. In large
part this reflects feminist economics’ origins in a
feminist philosophy of science, which argues that
modern science, with its ideals of detachment and
domination, is inherently andocentric. Feminist
philosophies typically start from the observation
that ‘science is a socially constructed activity:
the social location, status and gender of scientists
and scientific communities all play a significant
role in determining the methods and practices of
science’ (Barker, 1999, p. 325). […] This outline
of our preferred definitions of post-Keynesian
and feminist economics should make clear that
we do not see the traditions as well bounded,
discrete bodies of thought, but, rather, as largely
separate areas of economic inquiry. At a surface
level, the separation of the two traditions might
87

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
be attributed to the policy issues and subject areas
that have been of significance in their historical
development. For example, explaining unemploy-
ment was a key impetus for Keynes’ work and has
been reflected in the continued development of
post-Keynesian economics, whilst the significance
of women’s largely neglected economic roles has
been an impetus to feminist economics (Austen
& Jefferson, 2007, pp. 1110-1111).
Compared with FE (Feminist Economics),
PK (Post-Keynesian Economics) seems a more
coherent tradition in its unanimous rejection of
core neoclassical ideas such as market clearing,
perfect information (or rational expectations) and
exclusively exogenous-based change. Although
many feminist economists are heterodox econo-
mists, some work within the neoclassical tradition
and define themselves as neoclassical economists
(Staveren, 2008, p. 1124).
Because of the single sided structure of Post-
Keynesian theory, which is a part of orthodox
economics, women are neglected.
The extent of apparent differences between the
reactions of prominent post-Keynesian and femi-
nist economists to critical realism raises obvious
questions about whether there are insurmountable
barriers to closer links between the traditions.
Identifying pluralism as a feature of feminist
economics is relatively unproblematic. As noted
above, much of the rationale for the development
of feminist approaches to social and economic
research was the recognition that there is more
than one way of seeing and investigating the world.
The recognition of the socially constructed and
historically situated nature of research provides
a rationale for adopting different methods and
approaches to researching a particular subject
area. It implies that research from a diversity of
interested standpoints assists in the development
of more complete knowledge that represents the
views of a diverse community (Barker, 1999,
2003; Harding, 1987, 2003; Nelson, 1993, 2003a,
2003b; Peter, 2003; Pujol, 1992; Strassman, 1994;
Strober, 1994; Austen & Jefferson, 2007, p. 1116).
88

Another main problem of heterodox-orthodox
economics is the orthodox one is too realistic. One
cannot evaluate the problem of being realistic. We
can answer that question; it should be remembered
that economics does not involve only one-side. It
has both market-individuals and including woman-
view. Then it is said that there is an economics
imperialism caused by the orthodox vision.
“‘Economics imperialism’ had previously
relied upon Becker-style reduction of all eco-
nomic and social phenomena to an as-if market
analysis with individual optimization, efficiency
and equilibrium to the fore” (Fine, 2009, p. 175).
Therefore, the claim that economy will always
be balanced is not correct at all times. People are
affected by many circumstances in their economi-
cal choices. One can remember that people are
not involved in decision-making in the market.
Especially, in technology they have no chance to
make decisions.
It is accepted that ‘production’ is the survivor
of crisis. The problems of real sector are brought
a question in the foreground however there are
some problems answering those questions: which
will be produced, how will be produced and why
will be produced. Only fifteen-twenty years ago
production has been understood earning much
more money for doing this mass production would
have been done. The goal was to be produced much
more, using all of the capacity, selling much more
and earning sale. The reason of this there was no
Internet, no global competition and the world has
not globalized yet (Baykasoğlu, 2006, p. 17-18).
Today, products are more specialized. How-
ever, according to our opinion, this does not come
from customers needs. It is caused by the form of
the market. Firms that want to make high profits
have to sustain high costs. It is not important
whether customers really need it, use it, and want
to buy it or not. For this reason, quantity and
sort increases in the market are not related with
customers’ situation. Capitalist market structure
pushes people to buy the products through many
ways such as advertising.

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
Today, customers demand more personal and
more specialized products. Many firms to be
pushed by new production and marketing strate-
gies in order to increase their competition power
because of this obscurity and variability of cus-
tomers’ need. This necessity is supposed to face
us new product development (NPD). Firms that
want to survive applying effective NPD in the
environment because of the uncertain demand and
supply, need more powerful production thoughts
than mass production and simple production. So,
agility and reactivity are two of the main product
strategies. […] Agility- Reactive production aims
to provide the complex products fast, flexible and
integrated design and service which are spread and
globe in supply-chain. NPD is a process which
contains starting to produce a new product idea,
maturing a new product idea in the firm, designing
the new product and ready to produce this product.
This process aim to design and produce the quali-
fied product which meet the expectations in the
market as short as possible. So, we can describe
this process is a customer focused process.
If we can look the firms applied this process
what they are aimed to:
• Profiting to interfere in the market to meet
the customers’ demand and need as soon
as possible.
• Designing to produce the products more
rapid and more qualified.
• Including the customers’ demand and even
are capable to produce designs more than
expectations.
• Minimizing the costs included design
changing and because of costs which cause
to wrong design (Baykasoğlu, 2006, p.
109).
NPD can be classified four parts as it seen in
below:
Planning the product: This phase is the first
step of NPD. The new product idea is measured
by different ways in this process.
Designing the product: In this phase the
techniques required to apply the product idea are
needed more. Production design can be made by
CAD visual on computer and by the mediation
of CAM this product’s data can be transferred
directly to the production environment.
Designing the production process: CAD, CAM
and GT (Group Technology) are used to remove
the problems to this process.
Planning the production and controlling: This
process asks this question: ‘Do we have enough
sources for production?’ So, these techniques
will be used by Material Requirement Planning
(MRP), Just In Time (JIT), Computer Integrated
Manufacturing (CIM) (Baykasoğlu, 2006, p. 112).
If the technology is determined by orthodox
economics and it is neglected to what heterodox
economics says about economics data, we should
especially look at the ideas of some philosophers.
We can understand the structure of the economics
world better by these philosophers. It is possible
to explain why orthodox economics is seen as
the pure determiner and descriptor of concept of
‘hegemony’ by Antonio Gramsci and the view of
‘ideology’ concept of Louis Althusser.
How can we explain the achievement of this
hegemony? Is it possible to cope with at least
some dominants participation? Will there be sus-
tainability against this? (Burke, 2000, pp. 83-84).
According to Gramsci’s hegemony, “a society
does not only be administrated by force but also
be administrated by convenience. Thus, a society
learns how their administers look at the circum-
stances and they will look the circumstances from
their administers. The advantage of a group will
obviously see by ‘domination’ and ‘intellectual
leadership.’ Hereby, dominant group can control
the against-group which is probably a volunteer
for destroy their selves” (Gramsci, 1971; Arrighi,
2000, pp. 54-55).
Moving from the questions above, in our
opinion, it is not wrong to explain how orthodox
economics became a ‘dominant’ part in econom-
ics literature: Seeking to answer of all economics
89

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
questions have been done by the classical econom-
ics which turned itself to the neo-classical one
in the process. The claim is searching the best
one and the best solution have turned to a crisis.
However, the answer to the question why doesn’t
any of the solution of orthodox economics give a
proper or sufficient result is that it sees itself as
hegemonic dominant.
Not clarifying the main points of the problems,
which were solved enough, means that main prob-
lems are unsolved. Nevertheless, the orthodox
economics point of view has not changed; it occurs
a deadlock which is in‘dominance’ spire. Some-
times, we can call it as non-crisis, the orthodox
economics makes an ‘intellectual leadership’ to
economics. Namely, it is claimed that its recipes
for problems are pure and solution oriented. As
it affects every fields of social life, there is an
ideological thought underlying why orthodox
economics see itself as a ‘pure’ descriptor. In that
case, we should firstly discuss ‘ideology’ concept.
So, that will show us a right map, if we look fa-
mous French philosopher Louis Althusser. First
of all we should handle three main theses about
ideology which are related to ideology:
According to Althusser’s theory practice of
society and ideology are nested within each other.
a) “If one can remember that ideology dispatches
the thoughts which are related about irregular facts
on the contrary, the real thoughts related about real
facts.” b) Ideology has not a history. Ideology is
a war of classes. c) “Ideology calls individuals
as a subject and named them as a subject. […]
Ideology is the way to be turned individuals back
as a subject by the mediation of naming. […] In
this ways, individuals play the roles which would
be expected by them in the borders of being a
subject” (Kazancı, 2006, p. 10).
We need to emphasize below what ideology
represents in our topic: a) if the roles given by
women and men in the content of gender causing
by sociological, economical etc. reasons before,
this case is the truth of women and men. So, if
women are seen as secondary class to work in
90

the working life, especially it can be the truth. In
other words, it is true that the constitution of the
orthodox economics is unsolved. The irregularity
in here is that the problems in the constitution
cannot discuss itself. The reason is, if there will
be a debate; it means whole system will be com-
pletely reshaped. b) The history of ideology is as
old as the history of humanity. The wars were seen
in every era in the history are classified wars to
some extent. There is exactly an economical basis
underlying this. Actually, according to feminist
economics positions of women in this war is not
determined. c) Whereby the ideology appears
through a subject, it is available for subjects and
it turns to individuals to subjects via ‘naming’,
then what is the point of rejection of feminist
economics? It objects completely the emphasis of
male-dominant thoughts make a human as a subject
and of the orthodox economics. While doing this
in the context of make a subject of human it will
not discriminate any difference between woman-
man and it gives a new method, education, topic
and making a model to economics in a point of
view human-oriented. Feminist economics which
is stood the monophony structure of orthodox
economics against has different types of methods
in itself. We can be grouping these as follows:
Affirmative action feminism claims that if
the number of women economists increases their
personal experiences will be abolished the sexist
thoughts in the economic theories.
Feminist empiricism claims that the methods
using in scientific researches are right but the
problems causes by its application. This claim
abides the argument which neo-classical theory
is not a patriarchal one; however man theorists’
conclusions’ are patriarchal.
Feminist difference claims that if the econom-
ics theory figures out women’s experience, it will
be not be sexist any more.
Feminist postmodernism claims that post-
modernism will be the answer to the problems
of traditional economics theory. For example, the
economics theory must be deconstruction.

Historically Reading the Concept of Gender by the Dilemma of Heterodox-Orthodox Vision
Feminist construction claims that if the ideol-
ogy, paralleling the social construction of sex and
the social construction of science don’t explicate
peculiarly in the economics area the efforts which
would make in the sexist components in the
‘dominant economics’ field(s) won’t come to a
conclusion (Serdaroğlu, 2010, pp. 8-10).
CONCLUSION
Since 1970s Keynesian economics didn’t solve
economics crisis, neo-classical economics
declared that it was the ‘pure’ solution of the
economics problems itself. However, increased
problems were not solved in time. Moreover,
crisis is getting larger. Because of this reason,
neo-classical economics, which is the part of the
orthodox economics, did not present really new
solutions to the problems. On the contrary, the so-
lutions given by have become unsolved problems.
One of the reasons why crisis cannot be
resolved is that a part of orthodox economics
thought technology handles it by two sides. Now,
the main problem of technology is; it only thinks
market side. On the other side, if there are custom-
ers that really demand by taking technology into
consideration, customers’ needs can be regarded
much more. Technology must listen what hetero-
dox economics says and the more applies what
heterodox economics suggest the easier will be
solved economics crisis.
So, especially in 1990s a new economics
methods, theories aroused. Every new theory has
different solutions but their associated views tell
the same thing: The orthodox economics don’t
have power to solve the crisis. And all of these
other economics theories have an associated
name: Heterodox economics. One of the heterodox
theories is the feminist economics.
Feminist economics try to get a woman’s
view included in economics. Because of the
gender roles, women don’t only have problems
in social and business life; they have some dif-
ferent experiences as well. If these experiences
get involved the economics theory, getting better
solutions will be possible. Or because of the or-
thodox economics view economics have a certain
thought and method, if these will be changed by
the mediation of feminist economics approach
most of the problems and their social, political,
etc. conclusions will be solved.
Consequently, feminist economics does not
involve women; generally it wants to include
women’s view and experiences in the economics
theory instead of neo-classical theory which is a
part of orthodox theory.
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Austen, S., & Jefferson, T. (2010). Feminist and
post-Keynesian economics: Challenges and op-
portunities. Cambridge Journal of Economics, 34,
1109–1122. doi:10.1093/cje/bem046
Baykasoğlu, A. (2006). Üretimde bilgi teknolojisi
yöntemleri [The Methods of Information Technol-
ogy in Production]. İstanbul: Kırmızı Yayınları.
Berberoğlu, B. (Ed.). (2006). Ekonomi sözlüğü
[The Dictionary of Economics]. İstanbul: Bilim
ve Sanat.
Burke, P. (2000). Tarih ve toplumsal kuram [His-
tory and Social Theory]. İstanbul: Tarih Vakfı
Yurt Yayınları.
Dow, S. C. (2011). Heterodox economics: History
and prospects. Cambridge Journal of Economics,
35, 1151–1165. doi:10.1093/cje/ber017
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Ecevit, Y. (2000). Kadın erkek eşitliğine doğru
yürüyüş: Eğitim, çalişma yaşami ve siyaset
[Walking Through the Equality of Woman-Man:
Education, Working Life and Politics]. İstanbul:
TÜSİAD.
Fine, B. (2009). The economics of identity and
the identity of economics. Cambridge Journal of
Economics, 33, 175–191. doi:10.1093/cje/ben036
Kazancı, M. (2006). Althusser, ideoloji ve ideoloji
ile ilgili son söz. [Althusser, Ideology and the
Last Word About Ideology]. İstanbul Üniversitesi
İletişim Fakültesi Dergisi, 10, 1-20.
Lordoğlu, K., & Özkaplan, N. (2003). Çalışma
iktisadi [Operating Economics]. İstanbul: Der
Yayınları.
Serdaroğlu, U. (Ed.). (2010). İktisat ve toplumsal
cinsiyet [Economics and Gender]. Ankara: Efil
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92

Wrenn, M. V. (2007). What is heterodox econom-
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1–12.
KEY TERMS AND DEFINITIONS
Discrimination: Paying different wages to
same job or different wages to different jobs.
Feminist Economics: One of the part of
heterodox economics which give important to
gender roles.
Gender: Making an emphasis to feminity-
masculinity apart from sexual identity.
Heterodox Economics: Economics which is
objected to neo-classical economics.
Ideology: All thoughts about the world.
Orthodox Eceonomics: Economics which
covers whole economics life. It is also called
neo-classical economics.
Segregation: Jobs are divided as ‘woman jobs’
and ‘man jobs.’
Technology: All things using the production
make easier.
 93

Chapter 6
How Knowledge,
Technology, and Project
Management Processes in
Brazilian Universities Help
Innovation in Industry
Patrícia Pellegrino de Souza Danilo Cançado Peixoto Pires
Associação Wylinka, Brazil Associação Wylinka, Brazil

Ana Carolina Calçado Lopes Martins Elimar Pires Vasconcellos Renato da Silva
Associação Wylinka, Brazil Lacerda
Associação Wylinka, Brazil
Tina Stutzman
ECOVEC, Brazil Renato Ferreira Rodrigues de Macedo
Associação Wylinka, Brazil
Luz América Castiblanco
Associação Wylinka, Brazil

ABSTRACT
Knowledge is the act of having a concept of something. It includes descriptions, assumptions, and theories.
Knowledge Management is about making the right knowledge available to the right people. A Brazilian
university made its own pathway to manage the knowledge generated inside the academia favoring the
market needs, showing that an organization can learn and use its knowledge in businesses applications,
creating competitive advantage, regarding innovation, for the productive sector. An understanding of
the market and society’s demands enabled the development of products, technologies, and services with
high added-value in line with solutions to challenges faced by businesses. A Brazilian startup made the
“interaction” between market and academia allowing interest increase of productive sector in perform-
ing projects in partnership with research and technology institutes. Both successful cases in this chapter
ensure the importance of knowledge, project, and technology management processes conferring innova-
tive technological and market advantages to small companies and big industries.

DOI: 10.4018/978-1-4666-8468-3.ch006

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Knowledge, Technology, and Project Management Processes in Brazilian Universities
INTRODUCTION
Knowledge is the act or fact of knowing; it is to
have an idea or concept of something. It is the
wisdom, the education and the information. It
also includes descriptions, assumptions, concepts,
theories, principles and procedures.
In order to speak about knowledge, it is neces-
sary to talk about data, which is a mixture of codes
and information. As the result of the manipulation
of data processing, the knowledge can be consid-
ered information presenting utility (Figure 1).
Knowledge can be divided into a number of
categories: sensory knowledge that is common
knowledge between humans and animals; intel-
lectual knowledge that is the reasoning, thinking
of the human being; popular knowledge that is
the form of knowledge of a particular culture;
scientific knowledge that are evidence-based
analysis and philosophical knowledge which is
linked to the construction of concepts and ideas
(Stanley, 2002).
Procedures to organize and relate scientific
knowledge with ideas and perceptions of the
Figure 1. Information vs. Knowledge
94

course of the events would give rise to a field
called Knowledge management. This term has
been used in both academic and business areas
since it was first thought up in the 1980s. Inter-
est has increased rapidly during the new century
and shows no signs of decline. The current state
of the knowledge management field is that it
encompasses four overlapping areas: Managing
knowledge (creating/acquiring, sharing, retaining,
storing, using, updating, retiring), organizational
learning, Intellectual capital and Knowledge eco-
nomics. Within (and across) these, knowledge
management has to address issues relating to
technology, people, culture and systems.
Technology is a Greek word derived from the
fusion of two words: techne (meaning art) and
logos (meaning logic or science). Thus, technol-
ogy means the art of logic or the art of scientific
discipline. Technology can include both tangible
products, such as the computer, and knowledge
about processes and methods, such as the tech-
nology of mass production introduced by Henry
Ford, for example. One interesting definition
about technology was quoted by Michael Bigwood

Knowledge, Technology, and Project Management Processes in Brazilian Universities
(2004) in his book Research-Technology Manage-
ment where technology is defined as “the use of
science-based knowledge to meet a need.” He says
that the definition “perfectly describes the concept
of technology as a bridge between science and new
products.” Technology is based on and arises from
scientific advances and the understanding/knowl-
edge obtained through research and development.
It then leverages knowledge and information to
improve both the performance and overall useful-
ness of products, systems, and services.
Michael Porter, a Harvard Business School
Professor, is a business analyst who believes that
technology is one of the most significant forces
affecting business competition. In his book, Com-
petitive Advantage (1985), Porter observed that
technology has the potential to change the structure
of existing industries and to create new industries.
As stated by the U.S National Research Council
(1987), technology management links “engineer-
ing, science, and management disciplines to plan,
develop, and implement technological capabilities
to shape and accomplish the strategic and opera-
tional objectives of an organization.” Thus, tech-
nology management focuses on the intersection
of technology and business, encompassing not
only technology creation but also its application,
dissemination, and impact. Since Knowledge
and technology are such vital forces to economy
growth, the fields of knowledge and technology
managements have emerged to address particular
ways in which universities, science and technology
institutes and companies should approach the use
of both types of management in business strate-
gies and operations, working alone or together.
It is known that technological change is a
combination of two activities: invention and in-
novation. But, it is worthy to separate the two
concepts. Invention is the development of a new
idea that has useful applications, whereas inno-
vation is a more complex term, referring to how
an invention is brought into commercial usage.
Inventions are very important because they are
part of the creative process which helps to de-
velop new ideas and products. But relatively few
inventions become products that are going to be
introduced in the market. Invention may be part of
the process of innovation but innovation is much
broader which embraces the whole spectrum of
ideas, attitudes and structures within an organi-
zation. Innovation is a framework within which
continuous improvement in products, services
and processes can be made. As stated by Joseph
Schumpeter (1934) “Innovation is the successful
exploitation of new ideas.” It can be defined as
the whole process of developing a new concept
into a new product or process which adds value to
business. This process has to be recognized and
managed in what is called innovation management
which includes a set of tools that allow manag-
ers and engineers to cooperate with a common
understanding of process and goals. Innovation
management allows the organization to answer to
external or internal opportunities using creativ-
ity to introduce new ideas, processes or products
(Kelly & Kranzburg, 1978).
Describing two case studies, this chapter dis-
cusses how Knowledge, Technology and Project
Managements processes in Brazilian Science and
Technology Institutes and Universities facilitate
the Innovation Management in the productive
sector. First, a successful implementation of
knowledge and project management in a Brazil-
ian University that focuses on the needs of the
market and the society by analyzing products,
technologies and services that are potentially
interesting economically and technologically to
the productive sector, enabling a greater interac-
tion between the Universities with businesses and
industries. And second, a case that shows how to
create a new business model and a new startup,
taking advantage of the market needs, developing
new products and services using the knowledge
obtained from another Brazilian University.
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Knowledge, Technology, and Project Management Processes in Brazilian Universities
Knowledge, Technology, and Project
Management: A Case Study
Scientific knowledge is considered a ‘real knowl-
edge’ because it deals with facts or occurrences
constituting a contingent knowledge, once its
hypotheses or propositions have their truth or
falseness proven through experimentation and
not only by sense, different from philosophical
knowledge that doesn’t need to be proved. On
the other hand, there is also empirical knowledge,
which is acquired in the course of the day by trial
and error in a grouping of ideas and does not
need scientific proof. It is incorporated by life
experience that is also important when we talk
about constructing processes to learn and obtain
knowledge (Popper, 1975).
Proven hypotheses or propositions organized
and related with ideas and perceptions of the
course of the events would lead to Knowledge
management. The Knowledge management field
encompasses four overlapping areas: Managing
knowledge organizational learning, Intellectual
capital and Knowledge economics. Knowledge
management is about making the right knowledge
available to the right people. It is about making
sure that an organization can learn, and that it will
be able to retrieve and use its knowledge assets
in current applications as they are needed. In the
words of Peter Drucker it is “the coordination
and exploitation of organizational knowledge re-
sources, in order to create benefit and competitive
advantage” (Drucker, 1999).
In the same track of Drucker’s thinking, a
Brazilian University created its own way to put
the right knowledge available to the right people,
coordinating and exploiting organizational knowl-
edge resources, in order to create benefit and
competitive advantage for the University and also
to the market the knowledge will address.
The Federal University of São Carlos (UFSCar)
started its activities in 1970. In the late 90s, discus-
sions about the topic of Intellectual Property in
the academic community had begun, and the first
96

organization within the University for this purpose,
and for technology transfer, was created. At this
time, the Center for Extension UFSCar-Enterprise
(Nuemp) emerged from the need to deal with the
concern about cooperation and interaction with
the market, companies and society. This concern
has been an issue in the University for several
decades. In this center there were 3 areas: Intel-
lectual Property (IP), Technology Dissemination
(TD) and Entrepreneurship.
In the beginning, Nuemp’s IP area wanted
to know what was being done at the University
including development of products, technologies
and services but without the ambition to further
protect inventions or knowledge.
The technology dissemination area was trying
to understand what the market wanted and see if the
technologies were consistent with market needs,
rather than to start creating patents disconnected
to those needs.
The third area was to encourage entrepreneur-
ship among researchers, developing an environ-
ment mixing knowledge, science, creativity and
management. It culminated in the creation of the
UFSCar Junior Center which was an incubator of
junior companies inside the university coordinated
by the professor Ana Lucia Vitale Torkomian - still
in function till today.
In the first years of the 21st century, the
Foundation for Institutional Support of Scientific
and Technological Development (FAI-UFSCar)
assumed the leadership of the IP and TD sectors,
protecting technologies/processes originated from
the University (see Table 1 to know more about
the types of IP rights that can be protected in
Brazil and in UFSCar). It also created the Proj-
ect Area, responsible for activities related to the
management of the first University’s patents. In
the meantime, it was approved, by the University
Council, the Decree No. RG 627/03 of 24 October,
2003 establishing a program for protecting intel-
lectual property and technology transfer within the
UFSCar also regulating the rights and obligations
relating to industrial property and other provisions.

Knowledge, Technology, and Project Management Processes in Brazilian Universities

Table 1. Types of IP rights that can be requested

Copyright Artistic, literary and scientific works

Patent Inventions presenting application in industry
Industrial Design Original ornamental or aesthetic aspect of an object
Brand Sign that distinguishes the goods or services
Computer Program Source code of computer programs (it does not apply to algorithms)
New varieties of Plants (Cultivar) Improvement of new varieties of plants
Geographical Indications Quality of certain services or products, agricultural or crafts that present regional, unique and
exclusive features
Know-How Protected through secrecy knowledge

In this sense, it was settled, for example, the
ownership of the Intellectual property, which
should always be of the UFSCar since all the
projects are developed inside the University and
with its financial resources and researchers. When
external partners take part in the development of
the project, technology or service, the IP owner-
ship may be shared.
Businesses often award patents, and for good
reasons. They grant exclusivity and a strong
competitive advantage. There are even a set of
businesses – commonly known as patent trolls –
that exists solely to acquire patents and sue patent
infringers. This importance to business has made
technology licensing the most economically im-
portant type of royalty agreement.
License fees and royalties are determined by
negotiations between licensor and licensee. Fees
and royalty rates are rarely high because most of
the technology is in early stages and risky, thus
requiring considerable investment to transform it
into a marketable product. There are, however, a
few technologies that have clear commercial ap-
plications and have large potential markets. In such
cases, the university can negotiate larger fees and
higher royalty rates. The deciding factors are: the
type of technology, its stage of development, the
size of the potential market, the profit margin for
the anticipated product, the amount of perceived
risk, the strength of the patents, and the projected
cost of bringing a product to market.
To place this in perspective, license fees rarely
reach into the six figures for a single patent, but
often range from a few thousand to a few tens of
thousands of dollars. Royalty rates range from less
than one percent (for some process technologies)
to perhaps eight percent (for a pharmaceutical
patented compound with a significant market).
According to the University’s policy, the majority
of royalty rates are in the 3% to 6% range, based
on net sales.
Many universities seek to accomplish several
basic goals in development of the package of fees
and royalties: a) the licensee should fund the pat-
ent application either through an up-front fee for
reimbursement of costs already incurred by the
university during the research process or of the
ongoing expenses of the university; b) the license
agreement should include ongoing considerations
to the university (royalty); c) minimum annual
royalties requirement after a specified period of
time regardless of actual sales; and d) assurance
of entrance of the university’s technology in the
market. This “formula” hopefully assures that the
technology is developed to completion and put in
the stream of commerce assuring a fair return to
the university (Lago, Campos & Santos, 2012).
The amount received as license fees and royal-
ties, in UFSCar’s case, is distributed as follows: a
third for inventors as a recognition award, a third
for the department where the research or invention
was created or developed, and the last third for the

97

Knowledge, Technology, and Project Management Processes in Brazilian Universities
University, preferably for IP protection program
that can then continue to foster the whole process.
As cited above, the Foundation for Institutional
Support of Scientific and Technological Devel-
opment was the UFSCar’s organization that was
used to perform the IP program, however with the
Federal Innovation Law No 10.973 of 2004, the
University began to discuss whether the model
of the Foundation was the most suitable for the
legal requirements.
The law has three main components: incentives
for building and strengthening partnerships be-
tween universities, research institutes and private
companies; incentives to encourage the participa-
tion of universities and research institutes in the
innovation process; and incentives for promoting
innovation within private companies.
Looking into the component regarding the
incentives to encourage the participation of uni-
versities and research institutes in the innovation
process, Brazilian universities and research in-
stitutes were obliged to have in their structure an
Innovation Center or a Technological Innovation
Nucleus responsible for innovation, IP rights and
technology transfer processes.
To comply with the law, in 2008, the UFSCar
set an innovation agency up through the Decree
No. 823/2008 that then absorbed the IP division
of the Foundation’s work. This same decree de-
cided to create the Innovation Board under the
responsibility of the University Council. In the
same year, the University Council approved the
name of Professor Ana Lucia Vitale Torkomian as
the Executive Director of the Agency. Since then,
the UFSCar’s Innovation Agency, an agency of
the rectory, is responsible for tackling the issues
of Intellectual Property and Technology Trans-
fer, including entrepreneurship, incubators and
scientific parks in the University.
Interestingly, the process to initiate the Agency
was accomplished under the coordination of the
professor Ana Lucia, that submitted a project to
Study and Projects Financial Agency`s (FINEP)
Public Call of the Ministry of Science, Technol-
98

ogy and Innovation named “Creation and imple-
mentation of Technology Management Center at
UFSCar.” The project, which included the partici-
pation of teachers from various departments and
employees of FAI-UFSCAR, was approved and
its activities were completed in 2009.
During its activities, a special project to stimu-
late networking between Innovation Agencies of
Universities and research Institutes from São Paulo
was also submitted to another FINEP’s Public
Call. Diverse agencies joined the project related
to evaluation of technologies and deployment
of good practices and innovation processes. A
private consultancy firm called Instituto Inova-
ção - Inventta entered in the process to train the
staff to map and evaluate technologies as well as
help them incorporate innovation practices and
management procedures.
At this time, an innovative process was
originated inside the University. An Innovation
Committee, called Intellectual Property Special
Committee (COEPI) started to analyze any re-
quest of IP protection proposed by the Innovation
Agency. The procedure goes as follows: firstly
inventors (professors, researchers, students and
employees) seek the agency and present the inven-
tion, technology, product or process; secondly, a
technical report is written by inventors and techni-
cal agency specialists to be submitted to COEPI
which makes a detailed technical and economic
feasibility study of the IP requested. At the end,
the committee decides whether or not protects
the submitted project (Figure 2). The main goal
of the analysis is to protect IP requests that can be
brought to market. Having a huge amount of IPs
is not an important aim of the University. How-
ever, the capability of transferring the protected
technology becomes the target of the innovation
process. This is an example of great knowledge
management being used to put the right knowl-
edge available to the right market. It shows that
an organization can learn, and that it will be able
to retrieve and use its knowledge assets in current

Knowledge, Technology, and Project Management Processes in Brazilian Universities
Figure 2. UFSCar‘s innovative process to request an IP protection
and businesses applications, creating benefit and
competitive advantage to the productive sector.
Following the innovative pathway created at
UFSCar, the technology transfer department of
the Innovation Agency participates at the COEPI
meetings and, after receiving the decision of the
analysis, it goes in search of partners for technology
transfer. The seeking process is always advised
by the Legal and Communication Departments,
which helps with legal agreements and marketing
of the technology respectively.
It is important to take into account that when it
comes to performing a partnership between busi-
ness and research institutes or universities, best
practices are recommended for phases of planning
and negotiation. It is during these stages that the
conditions of the partnership are discussed, ad-
justed and agreed, so then all can be translated into
work plans and contractual inside the instruments
of the project management, innovation manage-
ment and management of relevant legal processes.
These conditions include the formatting of the
partnership project, the work plan, stipulation of
the amounts involved, in addition to aspects of
the right to use, operate and commercialize the
intellectual property and the confidentiality agree-
ment, among others. It is noteworthy; however, that
during the execution of the project the negotiation
of some aspects, which were not identified in the
preliminary stages, may be necessary.
Planning is an essential step for the establish-
ment of goals and the formatting of the partnership,
which includes defining the scope, methodology
and division of work, the allocation of the in-
frastructure and human and financial resources,
deadlines, and deliverables during and at the end
of the project, among others. Robust planning,
prepared jointly by the partners and stakeholders
involved, and with clear metrics, is undoubtedly
a key factor for the success of the partnership.
Negotiation is one of the most important and
relevant human skills in any activity or relation-
ship.
Negotiating is first and foremost about com-
munications. It is a dialogue in which each person
explains his or her position and listens to what the
other person is saying. During this exchange of
views, proposals are made and concessions are
explored. For greater legal certainty for the parties,
the negotiation should address compliance with
99

Knowledge, Technology, and Project Management Processes in Brazilian Universities
current legislation and all the variables that may
occur during the lifetime of the partnership. But
the flexibility of the partners is a key feature in
this relationship, since the research, development
and innovation activities assume the existence of
risks and uncertainties. The end result is intended
to create added value for both parties.
Communication Management
Helping the Productive Sector
How can the Communication Department from the
University really help the innovation management
process of the productive sector? Communication
and Information Management is the systematic
planning, implementing, monitoring, and revision
of the channels of communication within an or-
ganization and between organizations. It includes
the organization and dissemination of new com-
munication and information directives connected
with an organization, network or technology.
Aspects of communications management include
developing corporate communication strategies,
designing internal and external communications
directives and managing the flow of information
through conventional and online communications.
And that is exactly what the UFSCar’s Com-
munication Department does. The department
makes a 2-3 minutes video of each technology/
Figure 3. Synthetic paper produced by mixing different waste plastics such as polyester (PET bottles)
and polyolefins (water bottles and jars for food and cleaning supplies) and its use in the industry
100

product/process specially directed to its appliance
to the market presenting its business importance
to awaken the desire and interests of partners.
The videos are then spread over all media via
agency websites, Twitter, Facebook, Youtube,
among others, all of them to give more visibility
to the technology (Figure 3). The technology is
also presented by the UFSCar`s radio station in
a program called “patent minute,” throughout
the daily radio programming, aiming to promote
the technologies using the show. Moreover, these
minutes disseminate the entrepreneurship and in-
novation culture also telling the community what
is being done within the University. It is worthy
to notice that another way to ultimately sensitize
the scientific community to the importance of
intelligent protections is the meetings of the in-
ventors with the technical agency specialists and
the process to write the technical report of the
technology/product/process to the IP Committee.
UFSCar has 103 patent requests (96 inventions
and 7 utility models), 5 brands, 8 software programs
and 20 cultivars (genetically improved plants) as
IP protections. Regarding the impact and range of
income earned, some protections can be highlighted
including the synthetic paper and the 20 cultivars
(17 in sugarcane and 3 in lettuce) which are the
results of partnerships between universities and
companies since the time of the research.

Knowledge, Technology, and Project Management Processes in Brazilian Universities
Successful Technology Transfer
Synthetic paper is a paper made from plastic waste
similar to paper made from pulp properties. This
is the result of an invention named “Process for
obtaining synthetic paper mixtures of polyesters
polyolefins,” whose authors are Sati Manrich
researcher, Department of Materials Engineering
and Rodrigo Fabiano Ravazi, post-graduate in
Science and Materials Engineering at the time.
To obtain this type of paper particulate or
powdered inorganic charges are added to plastics
mixtures. Then, this material passes through an
extrusion process, yielding a film that receives
a chemical treatment. With cellulose-paper like
mechanical properties, the ecological synthetic
paper presents some different features: it is denser
than the first; it is produced in a single layer, which
makes the process easier; it is environmentally
friendly as it reduces the use of cellulose and
encourages recycling of plastics not absorbing
moisture. This latter feature makes it ideal to be
used as paper for billboards, banners and product
labels that have contact with water or moisture.
Currently, a synthetic paper exists in the
market, but it is produced with virgin and spe-
cific material for this purpose, which makes the
use of the ecological product more interesting.
Another advantage of the ecological one is that
the raw material is formed by mixing different
waste plastics such as polyester (PET bottles) and
polyolefins (water bottles and jars for food and
cleaning supplies) (Figure 3).
After ten years of research, the complete de-
velopment of the ecological synthetic paper was
possible through a very successful cooperation
between the University and a paper and packag-
ing company called Vitopel, the second largest
company of the field in the world. Now called
VitoPaper, the ecological synthetic paper is already
being used on books and outdoors.
The impact of the protected cultivars can be
seen looking at the São Paulo State’s agribusi-
ness sector, the most economically important
Brazilian state. Sixty percent of all sugarcane
produced in the state is UFSCar’s variants. The
development of the variants is a result of a col-
laboration between 165 companies from the early
stage of the research to its end. Following a legal
agreement, the companies have the license to
commercially plant and exploit the variants they
help to genetically improve. These companies are
in the sugarcane genetic improvement program,
a cooperation program between Universities and
companies (market) following an open innovation
phenomenon described by Henry Chesbrough
(Chesbrough, 2003, 2004) (Figure 4).
The fostering of entrepreneurship and innova-
tion cultures inside the University is also part of
the Innovation Agency work since it contributes
to increasing the interaction between Academia
and Market (University and Company), showing
significant importance to the economic develop-
ment of the industry and the society near by the
University, and the University itself.
The intelligent use of knowledge and project
management towards the needs of the market and
the society, analyzing products, technologies and
services that are potentially interesting economi-
cally and technologically to the productive sector,
enables a greater interaction between the Univer-
sities and Research and Technology Institutes
with businesses and industries. This interaction
creates increasing interest in the productive sec-
tor in performing projects in partnership with
universities and recognizes that the knowledge
generated within the academia is highly important
in generating innovation as technological and
market advantage over competitors, reinforcing,
even more, an open innovation model.
Open Innovation Used to
Improve the Productive Sector
Companies, increasingly, use open innovation as
an alternative in the search for answers to their
business demands. The model has gained the at-
tention of organizations seeking to become more
101

Knowledge, Technology, and Project Management Processes in Brazilian Universities
Figure 4. Closed innovation versus open innovation
competitive, because when using proven and
consolidated methodologies, companies increase
the diversity of input and the speed of innovation
processes. Simultaneously, open innovation`s
new tools arise with different characteristics and
purposes. But, which will be the most appropriate
option will, mainly, follow the context and the
specific demands of each company.
The subject has been attracting attention fast
and cases of companies using open innovation
multiply every day, but they do not always show
the expected success. Hence the importance of
having a clear vision of the open innovation tools
102

and the understanding of their main characteristics
and objectives are significant to better use them
at work.
According to Chesbrough (2003), open innova-
tion is a paradigm that assumes that firms can and
should use external ideas or the ones generated
internally, as well as internal and external means
to reach the market through the way of technologi-
cal development (Chesbrough, 2003). Through
interaction with people and organizations with
different skills external to the companies, open
innovation allows the increasing of the return of
the investments in innovation.

Knowledge, Technology, and Project Management Processes in Brazilian Universities
The paradigm of open innovation opens up
numerous opportunities for businesses to work
their innovation process in a collaborative manner.
A recurrent question that arises from discussions
about the subject is how companies can indeed
incorporate these possibilities in their innovation
process. However, there are many other questions
that we can also ask. How can open innovation be
used in the work? How can it help the strategy of
the company to grow? How can we evaluate and
define the best option? Can we use more than one
in the company to achieve better results?
Below we will try to answer some of these
questions. Firstly, there are many possibilities
to include open innovation in companies. Some
examples we can see nowadays being practicing
by some industries: technological challenges
propositions, co-creation, networks of collabo-
ration, crowd sourcing, ideation systems, and
challenges of concepts, among others. However,
people and companies must understand the context
of innovation in the organization to define the
most appropriate tactic to make open innovation
and how it will affect the innovation management
process, which should occur at different stages.
This management must be aligned with business
features, organization, and culture. Below, we
describe some open innovation processes that
can be used by businesses in order to increase the
return on investments in innovation as collective
intelligence, crowd sourcing, co-creation, col-
laboration, cooperation among others.
Collective Intelligence, for example, is a
concept developed in the 80s and 90s in many
areas of knowledge. The idea emerged from the
writings of Douglas Hofstadter (1979), Pierre
Lévy (1994), Howard Bloom (1995) and other
theorists. In 1994, the French philosopher Pierre
Lévy consolidated the concept by referring to
shared intelligence as an intelligence that emerges
from the collaboration and/or competition between
groups of individuals. In his book “Collective
Intelligence: Mankind’s Emerging World in
Cyberspace” (L’intelligence collective: Pour une
anthropologie du cyberspace), the philosopher
puts Collective Intelligence as being something
that is distributed everywhere and results in ef-
fective mobilization of skills. He also pointed out
that no one knows everything, everyone knows
something, and all knowledge is in the humanity,
in a Collective Intelligence.
Crowd sourcing is a term described by Jeff
Howe, in 2006, referring to the act of transferring
tasks, traditionally performed by an employee or
a supplier, to a large, undefined group of people
or community, through a procedure called Open
Call. Two years later, Brabham describe crowd
sourcing as an online, distributed problem-solving
and production model. The concept uses, mainly,
the popularity of connectivity tools developed
in recent years that allow the transfer of work to
people with better conditions or knowledge to run
it, regardless their geographic origin. Examples of
companies in the country that follow this concept
are CEMIG, an electricity distributor in the State
of Minas Gerais; USIMINAS, a leading company
in the steel sector; and Natura, a cosmetic company
considered one of the most innovative companies
in the world.
Co-creation arises with the involvement of
customers and other external stakeholders of
the companies` activities in the development
of products and services for the enterprise. The
involvement encompasses a relevant and active
participation in the creation process with the
expectation that, at the end, a more satisfactory
result is given to all the parties involved in the
process, a product that best matches the needs
and constraints of the market or customers, for
example. Co-creation completely changes the
traditional idea of one person inside the company
as a central creator. One example of a company
that wants customers always taking part of the
creation of some products or the improvement
of the ones already in the market is FIAT. It is
always making surveys or asking questions about
what needs to be changed or created to better fit
customer`s desires and necessities.
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Knowledge, Technology, and Project Management Processes in Brazilian Universities
Cooperation can be understood as a process of
work or joint action in its simplest form involv-
ing two or more parties acting in alignment as
an alternative procedure to direct competition in
case the parties act separately. It is an effective
measure for cost reduction. The parties involved
in the process have demand for certain resources
and they find benefits sharing these resources,
despite having different objectives, sometimes
potentially conflicting. Thus, cooperation tends
to be a transient situation between the parties, and
it requires clear rules regarding the role of each
party in the process and ethics between them.
Collaboration is another open innovation
process that can occur between companies, be-
tween companies and universities, businesses and
consumers, or companies and research institutes,
in different ways and at different times of the in-
novation process. The company or business needs
to understand how collaboration can create value
at every stage of its innovation management to
define the most appropriate one for the context
of the business open innovation initiatives. The
company also needs to be connected with the
emerging concepts and possibilities of working
with open innovation. It is worthy to notice that
collaboration is an interactive process in which two
or more parties come together to achieve common
objectives through sharing knowledge, learning
and consensus building. Unlike simple coop-
eration, the parties involved in the collaboration
process give different complementary resources
(usually skills and abilities); seeking to achieve
greater results than only one party could achieve
acting alone. The strong mutual dependence firms
the necessary commitment and trust between the
parties, besides demanding that the construction of
the earnings expectations are based on what is right
for each party (this is the case of the companies
within the program of genetic improvement of
sugar cane and lettuce plants in the UFSCar, cited
above). In open innovation between companies and
universities or research and technology institutes
there is, generally, the intention to collaborate and
104

not just to make cooperation agreements among
themselves.
In addition to conducting its own initiatives,
companies can also use market tools to support
their open innovation initiatives putting busi-
ness challenges in open forums or platforms for
innovation as the ones provided by companies
including NineSigma, Ideawicket, Innoget, and
Ideaken, which are available on the market. Several
platforms were pioneers in the implementation of
innovative concepts we use today.
Open Innovation applies the principles of free
trade to innovation, advancing new ideas with tools
such as partnerships, joint ventures, licensing and
strategic alliances. Through collaboration with
outsiders, including customers, vendors and even
competitors, Open Innovation enables the rules
of comparative advantage to guide the efficient
allocation of research and development resources.
Companies can import lower-cost, higher-quality
ideas from a wide array of world class experts to
improve the speed, quality and cost of innova-
tion. This approach allows the business to refocus
its own innovation resources where it has clear
competitive advantages. Open innovation depends
upon companies to work in four main precepts. The
first principle is to focus on their core innovation
advantages by allocating resources to the oppor-
tunities with the best potential to strengthen the
core businesses, reduce research and development
risks, and raise the returns on innovation capital.
The second one is to improve the circulation of
innovative ideas, developing information systems
to capture insights or enhancements, minimizing
duplicative efforts, which can lead to reduced costs.
The third precept is to increase innovation imports,
gaining access to valuable new ideas, complement-
ing core innovation advantages, improving the
company’s collaborative abilities, and building
their reputation as an innovative partner. The last
and fourth one is to increase innovation exports
by establishing incentives and processes to assess
objectively the fair market value of innovations.

Knowledge, Technology, and Project Management Processes in Brazilian Universities
In the context of establishing incentives for
innovation the government can be a useful and
really helpful “partner” by providing financial
incentives, programs or fellowships to companies,
industries, universities and science and technol-
ogy institutes. In Brazil, companies that conduct
research, development and innovation, the latter
being closed or opened, can usufruct from tax
incentives from the government to support their
innovation processes. The Brazilian government,
trying to boost innovation in the country, launched
the Law no 11.196, of November 21st, 2005, known
as the “Lei do Bem,” regulated in 2006. This Law
consolidates tax incentives that corporations can
automatically benefit from carrying out research
and technological development of innovation. The
“Lei do Bem” strengthens the Law No 10.973/2004
(Innovation Law) to support technological devel-
opment and innovation in Brazilian companies.
The benefits of the “Lei do Bem” are based on
tax incentives, such as deductions of income tax
related to expenditures made ​​in research, devel-
opment and innovation activities; tax deduction
on Industrialized Products (IPI) in the purchase
of machinery and equipment for research and
development; accelerated depreciation of these
assets; accelerated amortization of intangible as-
sets; exemption of income tax withheld at source
regarding remittances abroad intended to pay the
registration and maintenance of trademarks, pat-
ents and plant varieties; and economic subsidies
due to the hiring of researchers, master degrees
and or PhD, employees in companies to carry out
research, development and technological innova-
tion activities regulated by the Ministry of Science,
Technology and Innovation (MCTI).
However, despite the large expansion observed
in recent years, the number of Brazilian companies
that benefit from tax incentives for technological
innovation through the “Lei do Bem” is still quite
small. In 2012, only 767 out of a total of about
more than 5,000 companies that develop research,
innovation and technological development in the
country (annual MCTI report about “Lei do Bem”)
benefitted from the law. The problem may still
reside in the insecurity of entrepreneurs to use
the benefits. Most of the entrepreneurs complain
about the lack of clarity of the “Lei do Bem.”
They know about the existence of the benefit but
they do not know how to use it.
Technology Push and Market
Pull Leading to Innovation
According to Schumpeter (1934), in the book The
Theory of Economic Development, the essential
forces behind social and economic changes are
innovative technologies. Technology, whether
generated outside the economic system or in large
Research and Development laboratories, is the
leading engine of growth (Coombs, Saviotti &
Walsh, 1987; Antonelli & De Liso, 1997).
The concept of technology push was created
by political scientist Joseph Schumpeter, in the
first half of the 20th century that presents the
mechanisms by which one gives the insertion
of technologies developed in technology-based
companies, universities or laboratories in the
consumer market. The concept recommends
that ideas be conceived internally in companies
or universities from proposed or developed stud-
ies by research groups. Once the technological
projects are “ready,” the search for partners and
companies interested in integrating technology
in the market begins (Figure 4). It is what hap-
pens more often in Universities and Science and
Technology Institutes in Brazil.
Schumpeter also says that the supply of new
technologies is more important than the adaption
to existing patterns of demand (Coombs, Saviotti
& Walsh, 1987). Furthermore, only product inno-
vations can lead to the creation of new industries.
They are thus more significant than process in-
novations, which can only lead to the increased ef-
ficiency of existing industries (Coombs, Saviotti &
Walsh, 1987). In this sense, the concept of market
or demand pull technologies emerged (Figure 5). It
was described by Jacob Schmookler (Schmookler,
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Knowledge, Technology, and Project Management Processes in Brazilian Universities
Figure 5. Technology push vs. market or demand pull
1962, 1966) who refers to the need/requirement
for a new product or solution to a defiance, which
comes from the market. The need is identified by
potential customers or market research. A product
or a range of products are developed, to solve the
original need. Market pull sometimes starts with
potential customers asking for improvements to
existing products. Focus groups are often central
to this, when testing a concept design or an exist-
ing product.
Nevertheless, Schmookler argues that demand
forces were not the only determinants of inven-
tive and innovative activity (Schmookler, 1962,
1966). He used the example of scissors with two
open blades representing invention and demand
as two interacting forces. However, he gives more
emphasis on demand factors (Schmookler, 1962,
1966). The dichotomy of market/demand pull
and technology push is frequently found in the
academic literature (Tolfree & Jackson, 2007).
Understanding the Market
Needs: A Successful Case
Following this context of market/demand pull
idea, a spin-off called Rizoflora Biotechnology
emerged, in 2006, from the Federal University
of Viçosa, Minas Gerais, Brazil. Rizoflora Bio-
106

technology works on an innovative counter attack
against nematodes – soil tiny worms with about
one millimeter, which attack all types of planting
and cause a huge economic damage to agriculture
business worldwide.
Nematodes or roundworms constitute a di-
verse organism’s phylum inhabiting a very broad
range of environments. They have successfully
adapted to nearly every ecosystem from marine
to fresh water, to soils, and from Polar Regions
to the tropics, as well as the highest to the lowest
altitudes. Nematode species can be difficult to
distinguish, and although over 25,000 have been
described (Hodda, 2012; Zhang, 2013) more than
half are parasitic to humans, animals and plants
(Lambshead, 1993).
Parasitic Nematodes generate more than $100
billion in losses every year in World Agriculture
with production losses estimated in around 12%,
and these losses occurs in cultures of great eco-
nomic importance, including cotton, sugarcane,
potato, tomato, soybean, cassava, carrot, banana,
vegetable crops, and ornamentals (Sasser &
Freckman, 1987). In Brazil, there is not a precise
number about the size of the damage caused by
worms, which act in a sneaky way to damage the
roots of the plants. “It is estimated that they af-
fect 10% of soybean productivity, up to 20% of

Knowledge, Technology, and Project Management Processes in Brazilian Universities
the tomato and even 100% on some crops” says
a Rizoflora’s researcher.
The Domestic Market for products has been
considerably large, considering the degree of dis-
semination of the Nematodes by different cultures
and the size of the planted area in Brazil that is
about 64 million hectares. The Vegetable Crops
Market (cash crops) itself has been estimated at
750.000 hectares (Rizoflora’s market evaluation).
The market of nematicides in Brazil reached
approximately 224 million dollars in 2011, which
corresponds to about 2.7% of the pesticide market
in the country. The majority of sales are directed
toward soybean, corn, and cane sugar, which to-
gether represent 91% of the market, followed in
lesser extent, coffee and cotton cultures. In the last
6 years, this market has had a big change in Brazil,
growing from $90 million dollars in 2007 to $224
million dollars in 2011 – the strong growth driven
by soybean and corn, which came with force in
the nematicides market in 2010. In large part, this
growth is a reflection of the lack of information on
the specific nematode and its control in the affected
areas (Rizoflora’s market evaluation).
Most of the products used to control the spread-
ing of nematodes are chemicals from Bayer Crop-
Science, FMC, Syngenta, BASF and Iharabras
companies presenting as active factors Aldicarb,
Terbufos, Dazomet, Abamectin, Imidacloprid/
thiodicarb, Cadusafos and Carbofuran.
Recently, the population and the market itself
are trying to develop and incorporate organic
products to the company’s portfolio of products.
It is known that chemical products are sometimes
considered dangerous to human health so there is
a strong tendency of the market, government and
the society to use organic products to avoid crop
losses caused by nematodes. So a market/demand
pull emerged from this need and Rizoflora Bio-
tecnology was created thinking about solving the
challenge encountered by agribusiness, mainly, in
Brazil. Meanwhile, the scientific agronomy com-
munity asked for more applied science that could
help producers solve challenges in agriculture.
Taking advantage of the need to develop or-
ganic products connected to technical expertise
about plant disease, a group of researchers at The
Federal University of Viçosa created a biological
control for diseases caused by nematodes. The
Biotechnology Company invented an innova-
tive process to use soil fungi species Pochonia
chlamydosporia to control nematodes spreading,
called PC-10 (Figures 6A-E). The treatment is
similar to that adopted by the United States and the
Philippines. Unlike chemical products employed
in crops (nematicides), the application of the
fungus, via irrigation (Figure 6B), poses no risk
of contamination and promises greater efficiency
to remain in the soil for many years, showing heat
and drought’s resistances.
The PC-10 (commercially named Rizotec)
was selected among 100 strains of P. chlamydo-
sporia fungus and according to the company’s
researcher, is the best strain which “adheres to
the worm, penetrates the nematode, feeding itself
using the parasite as substrate” (Figures 6C and
D). The production of the organic compound is
made ​​in the laboratory by means of a rice or corn
substrates, which must be mixed with soil before
planting or seedlings transplanting.
The company ensures that the cost of $220 dol-
lars per hectare, sometimes higher than traditional
products, compensates for its qualities. However,
crop rotation is still indicated as the nematodes
are easily spread. According to Rizoflora’s re-
searcher, Professor Leandro Grassi, the action of
the worms in the soil is extremely silent. “When
the producer realizes the problem, it has already
gained epidemic proportions,” he says.
Pest control with living organisms is a grow-
ing activity. The statistics are inaccurate, but it is
estimated that in Brazil, biological control is used
on more than 8 million hectares of crops, according
to the Brazilian Association of Biological Control
(ABCbio). Competitors’ products are based on
bacteria with ephemeral effect or on fungi with
lower efficiency than Rizoflora’s products.
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Knowledge, Technology, and Project Management Processes in Brazilian Universities

Figure 6. A) Pochonia chlamydosporia fungus spores; B) the application of the fungus via irrigation;
C) when Pc-10 finds the roots, it colonizes them and multiplies being able to kill the female of the
nematode; D) Comparison of plant root’s growth when using PC-10 or water in the soil; E) Rizoflora
Biotechnolgy Company

But the creation of the Company was not an
easy process. Beginning a scientific life working
with plant virology, Professor Leandro started to
think more about applied science and intended to
show society the benefits or the interactions that
can exist between producers and biotechnology.
Normally, people used to think that the technical
knowledge learnt at the universities takes part
only in a science-fiction world, a complex and
complicated subject to understand. It is used to
create medications, discover the cure of diseases
or to make mathematical formulas. The lack of
interaction between the academic knowledge and
what is taught in schools or being shown to the
population has created a gap between these two
worlds.
But, since the middle of the twentieth century,
things have been changing in both worlds. People
are more interested in what has been done in the
Universities and Research Institutes in Brazil and
in the world. On the other hand, professors and
researchers are more excited about understanding
market and population demands. They are look-
ing towards solving challenges presented by the
market, the government, and society itself, beyond
human diseases or medical problems. Biology,
Chemistry, Physics, Engineering, History and
others are trying to propose interesting solutions
to the questions. They improve people’s life with
inventions and processes they have been creating
using the knowledge obtained in academia. They
understood that the knowledge generated in the
academia can and must be use to benefit others
and the world.
Rizoflora’s history initiated from a program
of technology evaluation performed by an inno-
vation consulting firm called Instituto Inovação
which visited 35 technology based laboratories
and among them, the Professor Leandro Grassi’s
laboratory, in 2005. The PC-10 was not the more
thoroughly evaluated technology but it was one of
best ones. In fact, the differential was the entre-
preneurial profile of the professor, the principal
researcher regarding the technology. As soon

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Knowledge, Technology, and Project Management Processes in Brazilian Universities
as the evaluation phase ended, Gustavo Mamão
and Paulo Renato Cabral, Instituto Inovação’s
founders, excited about opening technology-based
startups, proposed Professor Leandro to start a
company. Even with hundreds of doubts related
to taxes, labor charges, infrastructure and other
negative points of opening a company in Brazil,
Leandro agreed and formalized the company in
2006.
The next step was to seek resources to set the
company up. In 2007, an official announcement
allowed them to write a project and submit to
the government to receive financial aid to start
(around $15 thousand dollars). In the same year,
the Federal government launched the Criatec
Fund, a seed fund, presenting $50 million dollars
of employed capital with National Economic and
Social Development Bank (BNDES) and Brazilian
Northeast Bank (BNB) as shareholders. Within
the consortium with Antera Resources Manage-
ment S.A, the Instituto Inovação coordinated the
regional structure for prospecting opportunities,
investment, management and divestment of in-
novative enterprises. Being one of the best tech-
nologies evaluated by the group and already in
contact with the founders, Rizoflora was one of
the first in Instituto Inovação’s project pipeline.
Together with Professor Leandro Grassi and
Eric Ribeiro, the regional CRIATEC manager
in Belo Horizonte, Gustavo Mamão detailed the
business thesis of the technology and Rizoflora’s
innovative project and presented them at the first
CRIATEC Committee in January, 2008. After 60
days, Rizoflora was chosen to receive about $1
million dollars to produce a sufficient amount of
PC-10 able to be tested by producers. The amount
normally produced in the laboratory incubator
was not even enough for one producer or some
producers to make an efficiency test.
They needed to start from the embryonic stage,
designing a business plan, building a factory,
planning and checking procedures to produce suf-
ficient amount to be tested in the crops. Professor
Leandro had to visit similar factories outside of
Brazil to see how they produced pest control with
living organisms (Cuba and others). During several
years, hard problems faced: sometimes the factory
could not produce the right amount to be tested; at
others, the production was correct but there were
no producers to test the technology. So, from 2009
to the end of 2012, there was always a challenge
to be settled: a balance between production and
buyer’s demand.
In parallel, there was another defiance: a
regulatory process requesting product registra-
tion, mainly, expressing that the company needed
to have everything set up before starting to sell,
almost preventing Rizoflora’s survival. The regu-
latory process assumes that a company will test
the product without the existence of a factory to
produce it, or if the factory exists and can produce
an acceptable amount it must survive without
selling the product till the registration is obtained.
Trying to find a way to face the regulatory claiming
and flow what was being produced, the product
was selling as organic compost rather than as pest
control with living organisms.
Favorably, market validation and perception
always occur in a faster way than the regulatory
process. Nowadays, all tests have been done and
the registration has already been requested in
2014, which should be obtained in two years. The
factory can now sell everything that is produced
and there is already sufficient demand. Nonethe-
less, the factory is operating at the very edge of its
capability of production, creating an expectation
of finding an investor to guide the company to
the next stage – increasing 10 times the current
scale of production. The scale is already 4 times
the scale planned at the beginning of the factory
production plant, reached after a second round
of investment given by the Development Bank
of Minas Gerais – BDMG. The 10 times raise
is feasible because of the learning process and
knowledge management about how to perform
production, testing and selling products as organic
product with living organisms than a pest control.
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Knowledge, Technology, and Project Management Processes in Brazilian Universities
Another difficulty was with the intellectual
property right. Being forbidden to demand mi-
croorganism IP protection in Brazil, the company
asked for a trade secret to obtain an economic
advantage over competitors. The real differential
of Rizoflora is its leadership in the knowledge of
the life and behavior of the P. chlamydosporia
fungus. The major challenge will be to master
organism combinations with other organisms and
other chemical products and maintain itself as a
world leader in fungus know-how. Another interest
of Rizoflora is to launch other products to answer
new challenges of the agribusiness, in Brazil or
worldwide, using the same specie or other species
of fungi in a more accelerated manner once the
company has learned a lot about processes and
procedures during all these years.
Learning from the last years and analyzing the
evolution of the company, the process of technol-
ogy transfer was achievable because of innova-
tion process elements. First, the existence of an
inducing program of technology evaluation, which
evaluates the potential of technology to solve a
social or market problem, to treat PC-10 as a good
product was critical. Second, the entrepreneurial
profile of the people who took the risk to open a
company still in an embryonic phase was neces-
sary. The third element was the launching of the
fostering seed capital to allow the emergence of
a real factory capable of producing, selling, and
testing the technology. “In all these phases the
company could close the doors but the work and
perseverance of the entire team was the force to
turn the dream into reality” says Gustavo Mamão,
Rizoflora´s manager.
Rizoflora’s understanding of the market needs
or demands enabled the development of a product
with high added-value in line with solution for the
challenge faced by the agribusiness productive sec-
tor. Again, this “conversation/interaction” between
market and academia allows increasing interest
of the productive sector in performing projects
in partnership with universities and generating
recognition of the importance of the high added
110

value products technologies or services that can
come from the academia capable of conferring
advantage to small companies and big industries.
The Rizoflora Biotechnology Company is an
excellent example of market pull and of how to
use governmental financial programs and funds
to help the creation and development of a product,
process, service or technology. Besides this type
of aid, other kinds of help are emerging from the
innovation progress that is evolving in the world.
One new model of help is corporate venturing, a
new collaborative venture that has gained place
in the market in recent years.
The corporate venturing concept has roots in
venture capital, where venture capitalists invest
resources in new companies seeking future earn-
ings. The difference is that, in this case, companies
and organizations constitute the party that takes
the place of the investor. It is not a person any-
more but an organization itself that will invest.
Moreover, the forms of investment and goals
are also distinct. A traditional investor gives the
financial resource and, sometimes, some sort of
mentoring or management support. However, an
already structured organization can offer, besides
capital, a number of other assets, such as tech-
nology, brand strength, management tools, and
distribution channels, among other advantages.
There are two ways for a company to invest
in a corporate venture. The first is stimulating a
new rising business within the organization (a spin
-off), or second, seeking in market a startup that
relates to the business of the company. Among the
benefits of the practice, some advantages are really
significant to notice. The first and most basic is the
financial return for the investor company - if the
new venture grows and generates profit, obviously.
However, the positive points go beyond financial
profits. The investor company, when investing
in start-ups, can have access to technologies and
emerging business models that it would not notice
or focus on alone. An investment corporate ven-
ture capital type works like radar to innovations.
Without this radar the company may in the future,

Knowledge, Technology, and Project Management Processes in Brazilian Universities
be overcome by a technology it did not help to
create or develop. In the case of internal corporate
venturing (investing in spin-off), the advantage is
in align with the thinking of the new generation
of professionals within the company which gives
vent to their entrepreneurial impulses. It is a way
of creating value from the innovative spirit of
the team. The absence of an open channel in this
sense is to risk losing a valuable human capital.
The Investment in corporate venture is based
on the need or desire of the industry or company
to generate innovations, even if the principle is of
little impact or initiatives outside the core business
of the company. However, in a traditional way of
investment done by an investor or government
(capital venture), or innovative way by corporate
venturing, the important point is always to incen-
tivize partnership and the evolution of research,
development and innovation in the country and
worldwide. Since the beginning of civilization,
collaborative work shows its advantages. Forces,
ideas, knowledge and practice work better when
people help each other. In the case of the economy,
it is also real the same kind of thinking. When col-
laborative processes take place between the market
and the academia (with or without governmental
incentives), the development of innovation occurs
in a fast and greater way.
CONCLUSION
In conclusion, from the two cases described
above it is seen that Knowledge and project
management imply a strong tie to organizational
goals and strategy, and they involve, mainly, the
management of the apprenticeship that is useful
for some purpose and which creates value for the
organization – university, spin-off, company or
government. It is known that inspiration can come
from anywhere and at any time but great ideas don’t
usually come from prescribed brainstorming ses-
sions. However, when these ideas come combined
with the knowledge obtained in the Academia and
the market needs, they contribute not just to the
exploitation and management of existing assets,
but also the initiatives involved in the creation
and acquisition of new technologies, products,
services and processes that significantly change
the economy, the culture and the society. The smart
use of knowledge and project management towards
the needs of the market and the society, analyzing
products and services potentially interesting to
the market, enables a greater interaction between
Academia and businesses and industries. This
important interactions allow increasing interest
of the productive sector in performing projects
in partnership with universities and recognizes
that the knowledge generated within academia
is highly important in generating innovation as
technological and market competitive advantage.
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This work was previously published in a Handbook of Research on Effective Project Management through the Integration of
Knowledge and Innovation edited by George Leal Jamil, Sérgio Maravilhas Lopes, Armando Malheiro da Silva, and Fernanda
Ribeiro, pages 362-382, copyright year 2015 by Business Science Reference (an imprint of IGI Global).

113
114

Chapter 7
Entrepreneurship
Readiness in Turkey:
Profiles from Istanbul-
Kayseri-Van Provinces

Leyla Tulunay
Hacettepe University, Turkey

Semra Güney
Hacettepe University, Turkey

M. Kemal Öktem
Hacettepe University, Turkey

ABSTRACT
The target group of the study is composed of the entrepreneurs having business in manufacturing and
services in Istanbul (Marmara Region), Kayseri (Central Anatolia Region), and Van (Eastern Anatolia
Region), Turkey. Istanbul is a first degree developed city, Kayseri is a second degree developed city,
and Van is a fifth degree developed city. A questionnaire having three parts was developed to collect
data for the study. The first part of the questionnaire was about the factors influencing the decisions of
establishment of a new business, the second part was about the personality characteristics, and the third
part was about the demographic features of the entrepreneurs. One-hundred-seventy-eight questionnaires
were collected from the companies in the targeted regions, and their results are analyzed statistically.

INTRODUCTION broadened to the new meanings. Early this century;

In the literature, many definitions of entrepreneur-
ship can be found describing business processes.
Entrepreneurship is first used in middle age and
derived from the word “entreprendere” and means
one who does business. Later, the definition is
risk taking, pursuing opportunities, innovation and
the process of running a business was added to
the definition of entrepreneurship (Öztürk, 2008).
The role and importance of public administration
in improving the entrepreneurship in Turkey is a
multi-dimensional subject interacting with various

DOI: 10.4018/978-1-4666-8468-3.ch007

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Entrepreneurship Readiness in Turkey
variables (Öktem, Aydın and Ekinci 2007), and one
can observe that some provinces are better than
others in terms of potentials and prospects. So,
what can be done and how can be done to support
entrepreneurship requires a good deal of analysis.
Entrepreneur is defined as the one who dis-
covers, evaluates, and exploits opportunities for
creating goods and services (Shane and Venkata-
raman, 2000).
The other three words derived from the ‘en-
treprendere’ are ‘entrepreneurship entrepreneurial
and entrepreneurial processes’. These concepts are
related with each other. Entrepreneurs are the one’s
who undertakes the projects for the conception
of entrepreneurship. Entrepreneurship is what to
entrepreneurs does. Entrepreneurial process is a
continuous process which entrepreneur is in by
creating new values as a result of new project
(Wickham, 2001).
Entrepreneurship necessitates the presence of
opportunities as well as enterprising individuals
who wish to take advantage of them (Venkatara-
man, 1997). Shane and Venkataraman (2000)
suggest that entrepreneurship involves the study of
(a) the sources of opportunities, (b) the processes
of discovery, (c) evaluation and taking advantage
of the opportunities as well as (d) the group of
individuals who discover, evaluate and exploit
these opportunities.
Entrepreneurship is widely defined as a process
by which individuals pursue opportunities without
regard to the alienable resources they currently
control (Hart et al., 1995). It may also be defined
as a human activity aimed at a long-term economic
and social prosperity of an enterprise, and at fill-
ing of market niches (Salka., 2006).
The entrepreneurial process is one in which
the entrepreneurs acquire and develop resources,
and where the new venture outcome is to a large
extent determined by the nature of the resources
the entrepreneurs are able to acquire (Arild, 2005).
In spite of the two major attempts in 1950s
and 1980s to improve private sector contributions,
most of Turkey’s output is produced by state-
owned companies in Turkey (Kozan et al., 2006).
However, SMEs represent more than 99 percent
of the total number of Turkish enterprises in the
manufacturing sector and provide 76.7 percent
to the total employment. They contribute to 10
percent of exports and constitute 26.5 percent of
investment and 38 percent of value added in Tur-
key (KOSGEB, 2005). Ozsoy, Oksoy, and Kozan
(2001) found that Turkish small businesses have
to rely on family sources rather than government
loans or private institutions for financial support.
The success of a small business depends on the
initiatives of the individual entrepreneur to create
a viable business. Therefore, discovering the fac-
tors that motive the individual to go on entrepre-
neurial career becomes important in stimulating
entrepreneurship.
Theoretical Framework
The literature reviewed on entrepreneurship
research reflects the multifaceted nature of this
subject. For years; researchers have attempted to
capture the uniqueness of an entrepreneur. Re-
search on entrepreneurship has been conducted by
academics from a wide array of disciplines having
diverse perspectives on defining entrepreneurs.
Scholars researching entrepreneurship represent
the disciplines of psychology, economics, an-
thropology, history, sociology and management
(Dobransky, 2002).
According to Vesper (1980) this idea can be
stated as the following: According to an economist,
an entrepreneur is one who brings resources, labor,
materials and other assets into combinations that
make their value greater than before, and also one
who introduces changes, innovations and a new
order. According to a psychologist, such a person
is typically driven by certain forces- need to obtain
or attain something, to experiment, to accomplish
or perhaps to escape authority of others. Accord-
ing to a businessman, an entrepreneur appears
as a threat, an aggressive competitor, whereas
to another businessman the same entrepreneur
115

may be an ally, a source of supply, a customer,
or someone good to invest in. The same person is
seen by a capitalist philosopher as one who creates
wealth for others as well, who finds better ways
to utilize resources and reduce waste, and who
produces jobs others are glad to get.
Regardless of the background of the researcher
studying entrepreneurship; there is agreement
that personality is a key area in understanding
entrepreneurs.
Role of Personality in
Entrepreneurship
It is generally agreed by most researchers that
an individual’s personality plays a considerable
role in his or her becoming an entrepreneur.
Personality characteristics of entrepreneurs have
been researched extensively (Brockhaus, 1982;
Brockhaus & Horwitz, 1986; Furnham, 1992;
Gartner, 1989,1990; Hornaday, 1982; McClel-
land, 1961,1987; McClelland, Atkinson, Clark, &
Lowell, 1976; Miner, 1997; Stewart, Watson, Car-
land, & Carland, 1999). A number of researchers
support the study of entrepreneurial personality,
and suggest that the personalities of entrepreneurs
can be highly influential in the organizations they
create (Ibrahim & Goodwin, 1986; Kets de Vr-
ies, 1985). Some researchers concluded that only
a few essential characteristics are responsible
for one’s proclivity for entrepreneurship. These
characteristics include achievement motivation,
risk-taking propensity and innovation (Stewart,
Watson, Carland, & Carland 1999).
In contrast, other researchers argue that there
are several different types of entrepreneurs, each
supporting a distinct list of characteristics (Hor-
naday, 1982; Miner, 1997 and Vesper, 1980).
Early contributions to the study of personality
related to entrepreneurs may be found in Mc-
Clelland’s (1961) pioneering research on ‘need
for achievement’. This study led to the develop-
ment of a psychological motivation theory that
ultimately became the foundation research in
116

Entrepreneurship Readiness in Turkey
business management and entrepreneurship. This
human motivational theory holds that people are
motivated by three principal needs: (a) the need
for achievement, (b) the need for affiliation, and
(c) the need for power.
As simply stated by McClelland and Winter
(1969), the Need for Achievement is the urge to
improve. It means doing a job well and maintain-
ing a certain self-imposed standard excellence.
Individuals, who have a high need to achieve,
seek challenging situations in which they can set
moderately difficult goals that can be achieved
realistically (McClelland, 1961). Achievement-
motivated people prefer a moderate degree of risk
because they believe that their skills and efforts
will influence the outcome. Those who score
high on need for achievement instruments are
typically interested in receiving feedback on their
accomplishments. They like assuming personal
responsibility for solving problems that are in
their control. People who are in need to achieve
are often innovative; thus finding creative ways
to make a new product or service. McClelland
hypothesized that entrepreneurs display a higher
need for achievement than those in other profes-
sions, and concluded from his studies that indi-
viduals exhibiting a higher need for achievement
would be more inclined to choose entrepreneurial
occupations.
McClelland maintained that individuals with
a high need for achievement also have a moderate
risk-taking propensity. Individuals with a moderate
risk threshold tend to take calculated risks to start
businesses that are in their control. Entrepreneurs
have long been thought of as being risk takers,
in comparison to other business persons, to such
a high degree that the term ‘risk taking’ is often
included in definitions of ‘entrepreneur.’ Brock-
haus (1982) defined risk-taking propensity as
the perceived probability of received the rewards
associated with success of a proposed venture,
which is required by an individual before he will
subject himself to the consequences associated
with failure; the alternative situation provides

Entrepreneurship Readiness in Turkey
fewer rewards as well as less severe consequences
than the proposed venture. Risk tolerance is de-
scribed as one’s willingness to accept possible loss
in order to realize future gain (Wonderlic, 1995).
Researchers (Timons, Smollen, & Dingee,
1985) support the argument that entrepreneurs
take calculated risks. In addition, they assert
that successful entrepreneurs convince others
to share the risk with them, thereby minimizing
their personal risk. Miner (1997) argues that the
expert-idea-generator type of entrepreneur gener-
ally avoids taking risks. However, this behavior
tends to change when a stronger motive drives
the entrepreneur to take risks. Research on char-
acteristics of successful entrepreneurs suggest
that, entrepreneurs may exhibit more risk taking
propensity in the early stages of enterprise growth
when there is less accumulated financial wealth at
stake; and as the entrepreneur matures in venture
experience, they better calculate risk and have the
necessary skills to minimize its adverse effects.
Risk taking is a major aspect in initiating one’s
business venture.
Personal Characteristics
of Entrepreneurs
Age: The period between ages 25 and 40 is the
time when most entrepreneurs decide to start a new
business venture (Brockhaus, 1982; Cooper, 1992;
Furnham, 1992). New ventures may be initiated
at this time because individuals have obtained
sufficient experience and education. Also, they
are young and have not incurred the responsi-
bility of a family or other financial obligations
(Furnham, 1992).
Bird (1989) suggests that there are three types
of entrepreneurial careers, each related to a differ-
ent age of actual inception. The three types are as
follows: (a) Early 20s age group who begin their
entrepreneurial careers within one year of gradua-
tion; (b) Late 20s to early 30s age group, who are
employed by someone else but anticipate starting
a business; and (c) Mid 30s age group, who did
not plan on selecting entrepreneurship as a career
but started a business later in life. The latter type
is the most frequent pattern followed in starting
new business ventures. Overall, research on age
indicates that it is better to start a business at a
young age possibly because of their high energy
level and motivation related to youth and the
resiliency to recover if the business fails.
Gender: Male entrepreneurs have been re-
searched extensively. Traditionally, there have
been fewer female entrepreneurs and because
of their tendencies to operate smaller business,
they have not been as visible (Bird, 1989). In
addition, women had more difficult time acquir-
ing proper funding to start new businesses, and
fewer resources have been allotted for women’s
businesses in comparison to men’s. However, the
number of self-employed women has increased
considerably over the past years.
Research on entrepreneurship has been
conducted by academics from a wide array of
disciplines having diverse perspectives on their
definitions of entrepreneur. It is generally agreed,
however, that an individual’s personality plays
a considerable role in his or her becoming an
entrepreneur.
The literature indicates that particular per-
sonality characteristics have been associated
with entrepreneurship (Brockhaus & Horwitz,
1986; Fasiska & Fasiska, 1987; Furnham, 1992,
Gartner, 1989; Hornaday, 1992; Miner, 1997;
Wonderlic, 1995).
There are different types of factors influencing
the entrepreneurs’ decision on running their own
business or not. These factors can be categorized in
4 groups; namely demographic, social, psychologi-
cal and other factors. Demographic factors include
age, marital status, gender and education. Family
environment and cultural environment compose
the social factors. Self-actualization and gain social
status and need for achievement, affiliation, and
power are listed in psychological factors. Taking
over a family business and earning high profits
are included in other factors.
117

Researches indicate that the entrepreneurs’
level of education is higher than that of the general
public (Brockhaus, 1982; Gasse, 1982). The role
of education of the entrepreneur has changed with
the worldwide economic shift toward innovation
and high technology.
METHOD
The persons who set up their own business are
assumed to be an entrepreneur in this study.
Questionnaire was conducted to the participants
face to face and it was guaranteed that the only
owners of the ventures answered it. In the study,
random samples of 195 persons/owners/manag-
ers each of them are members of the chamber of
commerce and industry of Istanbul, Kayseri and
Van provinces and employed minimum 5 and
maximum 500 people. Targeted provinces are
located in different geographic areas of Turkey,
each having different social-economic level of
development. Participants received and filled a
three part questionnaire, first part for getting an-
swers of 25 questions about the factors influenced
their decision on to set up a business; second part
composed of 11 questions for describing one’s
personality characteristics and the other for an-
swering a few questions about their demographic
features and their venture properties.
Reliability measures using “Cronbach alphas”
were calculated for each part of the questionnaire.
The reliability coefficient is 0.86 for first part of
the questionnaire falling with factors influencing
the entrepreneur decision on to set up a business
and 0.75 for the second part falling with personal-
ity characteristics.
With a response rate of 91.3%, study is based
on 178 completed questionnaires: 79 entrepreneurs
from Istanbul, 61 entrepreneurs from Kayseri and
38 from Van.
Data were gathered from 178 owner charac-
teristics of gender (19,7% female; 80.3% male),
age (34.3% younger that 30; 37.1% aged between
118

Entrepreneurship Readiness in Turkey
31-40 and 28.7% aged between 41-5),marital
status (72.5% married and %25.8 single), place of
birth (14.6% village, 5.6% town, 18.5% district,
30.9% city and 30.3% metropolis), place where
entrepreneurs spent most of their life (1,7% vil-
lage, 1.7% town, 6.2% district, 38.8% city and
51.7% metropolis), education (4.5% primary
school degree, 7.9% secondary school degree,
41.6% high school degree, 5.6% vocational high
school degree, 37.6% university degree and 2.8%
graduates school/doctoral degree), age when
entrepreneurs set up their first business (74.7%
aged under 30 and 25.3% aged between 31-40),
entrepreneurs status (9.0% director, 1.7% owner,
1.7% marketing director, 87.6% manager) and
business characteristics of year of business founda-
tion (6.2% founded in 1981-1990, 24.7% founded
in 1991-2000 and %69.1 founded after 2001),
corporation type (15.7% joint-stock company,
52.8% limited company, 4.5% unlimited company
and 27.0% partnership company), management
(39.9% family members, 36.0% family members
and professionals, 13.5% professionals and 10.7%
others), size as measured by the number of em-
ployees (24.7% employs 1-10 employee, 54.5%
employs 11-50 employees, 10.1% employs 51-
100 employs and 10.7% employs more than 100
employee) represented industrial sectors (62.4%
manufacturing and 37.6% services).
“Likert-type” 20 items were asked to the re-
spondents to indicate their degree of agreement
on each of the statement on a 5-point scale rang-
ing from 1=Strongly Disagree, to 5= Strongly
Agree. After the questionnaire was applied, the
collected data were analyzed through a statistical
software program. After analyzing the results 9
items were eliminated as most of the people are
tend to be agreeing with these items naturally.
A point is given to the each answer (Strongly
Disagree holds for -2 point, Disagree holds for
-1 point, Not decisive holds for 0 point, Agree
holds for 1 point and Strongly Disagree holds for
2 points) and all of the answers points are added
to get an entrepreneurial personality score (EPS)

Entrepreneurship Readiness in Turkey
(Table 1). EPS is adopted from an existing scale
used in Turkey before. EPS scores differences
are analyzed in terms of provinces and some of
the demographic features. Desire for to learn and
problem solving skills got the highest mean in the
items used to calculate entrepreneurial personal-
ity scores.
25 pre-identified factors were asked to the
participants to indicate their degree of effec-
tiveness in influencing the decision of set up a
business on a 5-point scale ranging from 1= not
effective to 5= very effective. ‘To gain success
and to be well known’ had got the highest mean
score; whereas to follow family’s profession got
the lowest mean score.
ANALYSIS AND RESULTS
80.3% of the participants are male and rest is
female. Most part of the sample is composed of
male participants. Analyzing the entrepreneurs
according to gender in Turkey; labor force par-
ticipation rate of women entrepreneurs is highly
lower than the men’s. Also, research question-
naire is conducted to the participants in industrial
zones of the cities. Women entrepreneurs’ rate
is low in industrial zones too. Consistent with
Allen et al. (2007) and Minniti (2005), we found
a significant difference between the numbers
of men versus women entrepreneurs in Turkey.
The number of men entrepreneurs is more than
double of the number of women, particularly for
the established entrepreneurs. The average male/
female ratio is 4.07, which is higher than the
developing countries (1.26). Hence, the women
participation in entrepreneurial activity in Turkey
is almost a quarter of number of women in the
other developing countries.
When comparing the entrepreneurs according
to their place of birth, it could be concluded that
most of them, immigrate to places more developed
than their current place. Entrepreneurs’ educa-
tional level is higher than it is expected. Most of
Table 1. Mean and standard deviations of EPS
according to provinces
Province Number Mean Std. Deviation
Kayseri 61 11.08 4.97
Van 38 11.63 5.92
EPS
İstanbul 79 14.13 4.88
Total 178 12.55 5.31
the participants have got the high school or the
university degree. The importance of education
on entrepreneurship has been excessively men-
tioned in the literature. The studies of Minniti and
Bygrave (2004) and Minniti (2005), have shown
that the influence of education on the likelihood
to become an entrepreneur is not strictly linear.
Most of the entrepreneurs (74.7%) set up their
own business before they are 30. Researchers
(Hisrich, 1985; Bird, 1989) state that most of the
entrepreneurs decide to set up business at the age
of 25-40. Analyzing the age of entrepreneurs, early
stage entrepreneurs are most frequently between
25 and 34 years-old. For Turkey, this finding is
consistent with previous research that concludes
early stage entrepreneurs are in the 25-34 age
groups in the developing countries and in the 35-
44 age groups in the developed countries (Bosma
et al., 2007).
Results show that 87.6% of the entrepreneurs
are working at their own business as manager.
This is due to their high level of energy and de-
sire to control and manage their own business by
themselves. All of the managers are also owners
of their own enterprises.
%69.1 of the targeted enterprises was founded
after 2001. It could be concluded that most of
the enterprises are founded after 2001 economic
crises in Turkey. They were several opportunities
in the market; entrepreneurs took advantages of
these opportunities. However, this issue should
be examined in another survey in detail.
The literature indicates that particular person-
ality characteristics have been associated with
119
 
Entrepreneurship Readiness in Turkey

entrepreneurship (Brockhaus & Horwitz, 1986;
Fasiska & Fasiska, 1987; Furnham, 1992, Gartner,
1989; Hornaday, 1992; Miner, 1997; Wonderlic,
1995). Entrepreneurial Personality Scores (EPS)
of the entrepreneurs are calculated according to
entrepreneurs’ characteristics.
Most of the entrepreneurs targeted in this
research stated that they have got the following
characteristics respectively; diversifying produc-
tion, orienting and directing their employees in
accordance with the companies objectives, re-
searchers, high communication skills, high self
confidence, problem solving, pursuing opportu-
nities, having long term objectives related with
their work, focusing on work, affecting people,
calm down when face with difficulties, risk taking.
Simple mean score (Table 1) showed that the
total EPS, differ from city to city. F-tests of the
means were performed, EPS (Table 2) varies
from city to city (F=2.96, p=.001). According
to the post hoc Table 3, there is a significant dif-
ference between Istanbul-Kayseri and İstanbul-
Van, whereas no meaningful difference between
Van-Kayseri. As predicted, Istanbul has got the
higher score than the other cities. On the other
hand, other two cities have got similar scores,
which is unexpected.
F-tests of the means were performed and no
significant differences found between EPS with
age, gender, marital status, place of birth, place
of grown up, education level, ranking number
amongst the one’s sisters/brother, age when they set
up their first business and whether entrepreneurs
worked somewhere else before or not variables.
Simple mean score (Table 4) showed that the
total Entrepreneurial Personality Scores (EPS),
differ according to place where entrepreneurs
spent most of their life. F-tests of the means
were performed, EPS (Table 5) varies according
to place where entrepreneurs spent most of their
life (F=4.94, p=.004). According to the post hoc
Table 6, there is significant difference between
District- City and City-Metropolis.
As regards the factors influencing one’s deci-
sion on setting up a business, self actualization
has the highest score amongst the other. F-tests of

Table 2. “Anova test” for EPS according to provinces

Sum of Squares Df Mean Square F Sig.

Between Groups 359,878 2 179,939 6,798 ,001
Within Groups 4632,166 175 26,470
Total 4992,045 177

Table 3. Post-hoc table for EPS according to provinces

(I) Province (J) Province Mean Std. Error Sig. 95% Confidence Inverval
Difference (I-J)
Lower Bound Upper Bound Lower Bound Upper Bound Lower Bound
Kayseri Van -,54961 1,06325 ,606 -2,6480 1,5488
Istanbul -3,04462(*) ,87692 ,001 -4,7753 -1,3139
Van Kayseri ,54961 1,06325 ,606 -1,5488 2,6480
Istanbul -2,49500(*) 1,01569 ,015 -4,4996 -,4904
Istanbul Kayseri 3,04462(*) ,87692 ,001 1,3139 4,7753
Van 2,49500(*) 1,01569 ,015 ,4904 4,4996
* The mean difference is significant at the.05 level.

120

Entrepreneurship Readiness in Turkey

Table 4. Mean and standard deviations of EPS according to place of where the entrepreneurs spent
most of their life

Place of where the Entrepreneurs Spent Most of Number Mean Std. Deviation
their Life
EPS Village 3 15,66 0,58
Town 3 15,00 3,46
District 11 14,82 5,34
City 69 10,70 5,38
Metropole 92 13,49 5,02
Total 178 12,55 5,31

the means were performed according to the fac-
tors. It found that there is a significant difference
between factors according to the cities. Means of
factors are generally high for Istanbul according
to the other two cities, which are expected. On
the other hand ‘Job Creation’ factor is high for
Van unlike the others.
DISCUSSION
There are a few important findings from this
research. First, the results from entrepreneurial
characteristics indicated that some personality
characteristics are associated with entrepreneurs.
Most of the entrepreneurs reported that they hold
most of the listed characteristics. The literature
indicates that particular personality characteris-
tics have been associated with entrepreneurship
(Brockhaus & Horwitz, 1986; Fasiska & Fasiska,
1987; Furnham, 1992, Gartner, 1989; Hornaday,
1992; Miner, 1997; Wonderlic, 1995) which is
parallel with our research findings.
Istanbul is the most developed city in Turkey
and it is the hearth of Turkish economy. In the
scope of this information, it is normal that EPS
of the entrepreneurs in Istanbul have got the high
scores unlike two other cities.
Kayseri is another developed city in Turkey
and has got a long time entrepreneurial skills and
knowledge dating back to centuries ago. Habitants
of Kayseri have got knowledge in entrepreneurship
and trade. They are famous for their commercial
intelligence in Turkey, and also, process of indus-
trialization in Kayseri began in 1930. Where as
industrialization process in Van began very late
compared with the Kayseri and Istanbul. Kayseri
is more developed and has higher levels than Van
in socio economic, cultural, and sociological is-
sues. It is unexpected that there are no significant
difference in between Kayseri and Van EPS. After
analyzing the industrialization process of Van, this
unexpected result partially could be explained.
First industrial zone in Van established in 1998
and other prompting activities for set up a business
are widespread after 2000. Most of the enterprises

Table 5. “Anova Test” for EPS according to place of where the entrepreneurs spent most of their life

Sum of Squares Df Mean Square F Sig.

Between Groups 422,144 4 105,536 3,995 ,004
Within Groups 4569,901 173 26,416
Total 4992,045 177

121
 
Entrepreneurship Readiness in Turkey

Table 6. Post-hoc table for EPS according to place of where the entrepreneurs spent most of their life

(I) Place of (J) Place of Mean Std. Error Sig. 95% Confidence Interval
Where the Where the Difference
Entrepreneurs Entrepreneurs (I-J)
Spent Most of Spent Most of
Their Life Their Life
Lower Bound Upper Bound Lower Bound Upper Bound Lower Bound
Village Town ,66667 4,19648 ,874 -7,6162 8,9496
District ,84848 3,34763 ,800 -5,7590 7,4559
City 4,97101 3,03118 ,103 -1,0118 10,9539
Metropolis 2,17754 3,01535 ,471 -3,7741 8,1291
Town Village -,66667 4,19648 ,874 -8,9496 7,6162
District ,18182 3,34763 ,957 -6,4256 6,7893
City 4,30435 3,03118 ,157 -1,6785 10,2872
Metropolis 1,51087 3,01535 ,617 -4,4407 7,4625
District Village -,84848 3,34763 ,800 -7,4559 5,7590
Town -,18182 3,34763 ,957 -6,7893 6,4256
City 4,12253(*) 1,66861 ,014 ,8291 7,4160
Metropolis 1,32905 1,63968 ,419 -1,9073 4,5654
City Village -4,97101 3,03118 ,103 -10,9539 1,0118
Town -4,30435 3,03118 ,157 -10,2872 1,6785
District -4,12253(*) 1,66861 ,014 -7,4160 -,8291
Metropolis -2,79348(*) ,81851 ,001 -4,4090 -1,1779
Metropolis Village -2,17754 3,01535 ,471 -8,1291 3,7741
Town -1,51087 3,01535 ,617 -7,4625 4,4407
District -1,32905 1,63968 ,419 -4,5654 1,9073
City 2,79348(*) ,81851 ,001 1,1779 4,4090
* The mean difference is significant at the.05 level.

are established (34.2% in 1998-200, 52.6% after
2001) after these dates. It could be concluded that
entrepreneurs pursued those opportunities when
running a business.
LIMITATIONS
As a field study, this research is not without
limitations. First, it is only conducted in only 3
provinces of Turkey, each from different geo-
graphical areas. Second, it is difficult to reach the
founders of enterprises if they are not working in
the enterprises. Third, enterprises in industrial
zones are generally included due to the time and
budget limitations. Despite the limitations, this
research has important research implications.
Research raises conceptual issues regarding the
entrepreneurial characteristics and factors influ-
encing the entrepreneurial decision according the
different geographic areas.
However, for the further studies, it can be sug-
gested that some important factors which shapes
an entrepreneurial personality such as need for
achievement, locus of control, risk taking propen-
sity, tolerance for ambiguity, innovativeness and

122

Entrepreneurship Readiness in Turkey
self-confidence could be investigated. Addition-
ally, it would be better making analysis by using
current statistics of GEM TURKEY 2010 Report
(Global Entrepreneurship Monitor).
IMPLICATIONS
Based upon the research findings, some of the
suggestions proposed in the study are as follows:
Each of the entrepreneurial characteristics and
each factor influencing the one’s decision on set-
ting up a business could be searched in detail to
get new findings. Moreover, entrepreneurs from
different geographic areas could be searched and
according to findings and results, new strategies to
develop the entrepreneurship in those areas could
be determined. Findings of this research could be
used in other researches taking into considerations
of limitations.
According to research results; persons hav-
ing entrepreneurship skills regardless of their
geographic place set up their own business un-
der appropriate circumstances. As a developing
country, Turkish Government is making new
investments especially in non-developed areas.
Research showed that under appropriate circum-
stances, people could run a business regardless of
their place. Government may set the people hav-
ing entrepreneur skills in non-developed parts of
Turkey and create opportunities for these people
to give them a chance for taking advantages of
opportunities such as setting up their own business.
Thus, reindustrialization of economy in different
provinces would be activated resulting in higher
socio-economic levels.
Research results indicate that socio-economic
history of provinces does not have too much effect
on the entrepreneurial decision under the same
circumstances. There are no big differences in
entrepreneurial personality scores of people liv-
ing in cities with different socio-economic and
cultural level. If the entrepreneurs pursue suitable
opportunities, no matter where they live; there is
a high chance that they will succeed in running
their own business and contribute to the develop-
ment of economy.
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This work was previously published in Effective Human Resources Management in Small and Medium Enterprises edited by
Carolina Machado and Pedro Melo, pages 415-426, copyright year 2014 by Business Science Reference (an imprint of IGI Global).

125
126

Chapter 8
Perceptions and Framing of
Risk, Uncertainty, Loss, and
Failure in Entrepreneurship
Kimberly M. Green
University of West Georgia, USA

ABSTRACT
Research indicates that perceptions of risk and loss affect decision-making. Entrepreneurship presents
a context in which risk, failure, and loss frequently frame decisions. This paper presents a review of the
entrepreneurship literature that is grounded in Kahneman and Tversky’s 1979 article on prospect theory.
The theory’s contribution to the understanding of how the framing of losses affects decisions offers a
useful foundation for considering streams of research in entrepreneurship and small business, given
that the prospects for loss and failure are high in these endeavors. This review identifies 79 articles and
organizes them into four broad themes: risk-taking perspectives of the entrepreneur and stakeholders,
aspirations and reference points, organizational innovation and change, and learning from failure. The
review concludes by considering the future research potential in the topics of regret, mental accounting,
and an understanding of competitors.

INTRODUCTION sions framed as situations of potential loss were

Entrepreneurship is a risky undertaking in which
failure and loss are not unexpected outcomes.
An entrepreneur’s response not only to a real-
ized failure but also to the potential for failure
has implications for the willingness to engage
in the risk-taking behavior that is a hallmark of
entrepreneurship.
Approximately 35 years ago, Daniel Kahneman
and Amos Tversky (1979) demonstrated that deci-
evaluated differently than decisions framed as situ-
ations of potential gain. Demonstrating behavior
that these researchers explained in prospect theory,
decision-makers will tend to pursue risk-seeking
alternatives in an effort to avoid a loss.
The influence of Kahneman and Tversky’s
research (Evans & Over, 1997; Kahneman, 2003)
in the bounded rationality and cognitive biases of
decision-makers has been widely felt in various
disciplines and research streams. Prospect theory

DOI: 10.4018/978-1-4666-8468-3.ch008

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
is one facet in that body of work that highlights
the role of loss, offering a useful foundation from
which to consider how entrepreneurs’ behavior
is affected by the prospects of loss and failure.
Given that entrepreneurship is known to carry
a high risk of failure, researchers have considered
how those prospects in general affect entrepre-
neurs’ behavior. Further, they have examined how
experiencing actual losing or failing performance
may lead entrepreneurs to opt for a high-risk choice
among what is considered a risky set of options.
This paper presents a review of the entrepreneur-
ship literature based on Kahneman and Tversky’s
1979 article and sets this entrepreneurship research
within the broader set of work derived from that
original theoretical foundation. Other disciplines
have taken different turns and investigated differ-
ent research questions that may fruitfully inform
future entrepreneurship research, and this review
closes by making these ties in identifying future
research possibilities.
LITERATURE SEARCH
Because this review is focused on entrepreneurs’
perspectives on loss and failure, the findings of
prospect theory (Kahneman & Tversky, 1979)
serve as a key foundation. In short, prospect theory
suggests that a decision-maker faced with losing
prospects will pursue a risky alternative in an effort
to avoid the loss. This cognitive bias toward risk-
taking is an example of the bounded rationality of
decision-makers. The entrepreneurship research
that is covered in this review indicates that there
are different ways in which the outcome of “loss”
or “failure” can be manifest. Of course, a business
can suffer a financial loss or a series of financial
losses severe enough to cause the business to close.
Some businesses, however, close without ex-
periencing an actual financial loss, but they were
not sufficiently successful to be sustainable and
survive. A part of a business – such as a unit or a
product line – may fail while the rest continues.
The business may fail to meet an objective set
by the entrepreneur, falling short of growth or
profit expectations, for example. In addition to
the business-specific losses, the business owner
may experience some psychological or emotional
loss since an owner’s identity or reputation may
be closely tied to the business. Or the owner may
close the business because more highly-valued
alternatives exist and the business represents an
opportunity cost.
Kahneman and Tversky (1979) examined the
prospects for failure, referring to a future outcome.
But research in prospect theory also considers
that we look at future prospects based on current
conditions and our past experiences. For instance,
research covered in this review examines behaviors
of entrepreneurs making decisions about busi-
nesses that are currently under-performing but
have not failed yet. Thus, in addition to having
application to entrepreneurs contemplating the
gamble on starting a new business that may fail,
the research covered in this review is relevant to
a broad set of entrepreneurs. For instance, serial
entrepreneurs may be making a decision about
a new undertaking in light of a recently failed
business. Individuals may not have a failed busi-
ness or losses in their own past, but perhaps they
are considering partnering with an entrepreneur
who has overseen a failed or poorly performing
business.
The body of work by Kahneman and Tversky,
which garnered a Nobel Prize in 2002, has been
a foundational reference for much research. The
1979 paper, specifically, has been cited extensively.
A search of the EBSCO Business Source Complete
database indicates that over 3,000 articles have
cited this paper “Prospect theory: an analysis
of decision under risk” that was published in
Econometrica. Each of the business disciplines
are represented in this article count including eco-
nomics (approximately 25% of the publications),
marketing (25%), management (25%), finance
and accounting (15%), and other miscellaneous
topics (e.g., law, communications) making up
127

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
the balance. There is some overlap among these
categories since, for example, economics journals
include articles about consumer prices (also the
purview of marketing) and stock prices (found, too,
in finance journals). Approximately two-thirds of
the articles were published after the Nobel prize
and one-third prior to it.
To identify the articles fitting the scope of this
review as an investigation of entrepreneurship, the
search of articles citing the Kahneman and Tversky
(1979) publication was narrowed by searching for
key words “entrepreneur(ship),” “small business,”
or “innovation.” This search yielded 79 articles
that deal with the risk-taking, uncertainty, failure,
and loss in innovation and entrepreneurship and
how perceptions of those factors affect decision-
making. This review divides these articles into
four major themes, and the articles relevant to
each of those themes are summarized in Table
1 on the following page. The following sections
describe these four streams of research, identifying
the articles that support each theme. After that,
the paper draws from research in other fields to
suggest future directions for entrepreneurship to
apply the Kahneman and Tversky (1979) work.
RISK-TAKING AND LOSS AVERSION
The bulk of the articles citing the Kahneman and
Tversky work on the framing of loss have dealt with
risk-taking propensity and loss aversion tenden-
cies. Given the quantity of articles on this topic,
this review further divides this theme into three
sub-categories: the general topic of risk-taking by
entrepreneurs, perceptions held by stakeholders,
and means to manage the prospects for loss.
Entrepreneurs
Kahneman and Tversky’s (1979) research dem-
onstrated that individuals exhibit risk-seeking
behavior in the context of avoiding a sure loss.
Instead of risk aversion, individuals demonstrate
128

loss aversion by preferring to take a gamble in
an effort to avoid a sure loss. An entrepreneurial
endeavor is a gamble with a high failure rate. In
the context of entrepreneurship, then, risk-taking
behavior is an expected and key element. In fact,
the entrepreneurial orientation (EO) construct that
has been widely used in studies of corporate en-
trepreneurship includes risk-taking as a dimension
(Lumpkin & Dess, 1996). While Kahneman and
Tversky demonstrated the risk-seeking behavior
for individuals, studies of risk-seeking propensity
and loss aversion have applied these concepts not
just to individual-level behavior but also to team-
level (Simsek, 2007) and firm-level (Antoncic,
2003; Lumpkin & Dess, 1996) behavior.
Research focused on risk-seeking behavior
in entrepreneurs has found evidence that, while
entrepreneurs may appear to be willing to take on
more risk than individuals in general, the entre-
preneurs are actually perceiving some measure
of influence or control. For example, DeCarolis,
Litzsky, and Eddleston (2009) found that an in-
dividual’s social networks and relational capital
enhance the illusion of control which is related to
progress on new venture creation. Using a Global
Entrepreneurship Monitor sample of 9,549 nascent
entrepreneurs to study innovative versus imitative
entrepreneurship, Koellinger (2008) finds that a
high degree of self-confidence is associated with
innovativeness.
Tyszka, Cieslik, Domurat, and Macko (2011)
reported a high degree of confidence for oppor-
tunity-driven but not for necessity-driven entre-
preneurs. Norton and Moore (2006) contend that
differences in information, not risk aversion, may
explain the decision to launch or grow a venture.
Using students as subjects, Zheng and Prislin
(2012) find that entrepreneurs take higher risks
than non-entrepreneurs but offer an explanation
in that entrepreneurs see relevant information
as a challenge while non-entrepreneurs take it
as a threat. Fayolle, Barbosa, and Kickul (2008)
capture a similar dichotomy when they propose a
multi-dimensional risk-taking construct to include

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship

Table 1. Summary of articles by theme and approach

Topic Article Type Articles

Antoncic (2003); Das and Teng (1997); Freeman and Engel (2007);
Fischer and Rueber (2007); Gaglio and Katz (2001); Liesch et al.
Theoretical
(2011); Lumpkin and Dess (1996); Ren and Guo (2011); Shaver and
Scott (1991)

The entrepreneur’s Burmeister-Lamp et al., 2012; Caliendo et al. (2010); Chen and
perceptions Hambrick (1995); DeCarolis et al. (2009); Delmar and Davidsson
(2000); Dutton et al. (1997); Falck et al. (2012); Fayolle, Barbosa
Empirical and Kickul (2008); Koellinger (2008); Koellinger and Thurik (2012);
Norton and Moore (2006); Petrakis (2005); Simsek (2007); Strag
Risk-taking/Loss (2012); Sulej et al. (2001); Tyszka et al. (2011); Zheng and Prislin
aversion (2012)
Theoretical Arthurs and Busenitz (2003);

Stakeholders Bruns et al. (2008); Douglas (2010, 2013); Fischer and Rueber
Empirical (2007);Guler (2007); Jansen et al. (2011);Parhankangas and Hellstrom
(2007); Valliere and Peterson (2004);
Theoretical Arend (2009)
Means to manage
the prospects for Busenitz et al. (1997); Dewald and Bowen (2010); Huffman and
loss Empirical Skaggs (2010); Lubbe and Nienaber (2012); Sine et al. (2005); Tang
and Leung (2009); Vaaler and McNamara (2004)
Theoretical Wennberg et al. (2010)

Aspirations and reference points Gimeno et al. (1997); Greve (2003, 2008); Grunhagen and
Empirical Mittelstaedt (2005); Tominc and Rebernik (2007); van Rijnsoever et
al. (2012)
Theoretical Day and Schoemaker (2000); McGrath (1999); Woo et al. (1994)
Learning from failure Eggers (2012); Garud and Van de Ven (1992); Henderson and Stern
Empirical
(2004); Lant and Mezias (1990); Li et al. (2011); Sandri et al. (2010)
Abrahamson and Rosenkopf (1993); Baucus et al. (2008);Mone et al
Theoretical
(1998); Remneland-Wikhamn and Knights (2012); Teece (2007)
Agarwal et al. (2004); Basu et al. (2011); Berglund (2007); Chandy
Organizational change and innovation et al. (2003); Fuller et al., (2012); Gilbert (2006); Greve (1999;
2007); Moenaert et al. (2010); Rusetski and Lim (2011); Singh
Empirical
(1986); Steensma and Corley (2001); Stern and Henderson (2004);Su
and McNamara (2012); Vogel and Frost (2009); Voss et al. (2008);
Wiseman and Bromiley (1996)

entrepreneur’s perceptions of risk as a threat and
risk as an opportunity. In a review focused on
risk in international entrepreneurship, Liesch,
Welch, and Buckley (2011) suggest that risk
perceptions may change over time as experience
increases. While increased international experi-
ence provides more information and may reveal
more uncertainties and risks, entrepreneurs may
become acclimatized and accommodate the risk.
Researchers have also considered individual
differences in risk perceptions and framing.
Shaver and Scott (1991) suggested that decisions
about entrepreneurial activity may be affected by
relatively enduring individual attributes such as
motivational variables and one’s mental construc-
tion and interpretation of the external environ-
ment. Petrakis (2005), on the other hand, suggests
that entrepreneurial risk propensity needs to be

129

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
determined within the entrepreneurial behavior
framework. Das and Teng (1997) indicate that
additional considerations such as individuals’
risk horizons and future orientation must be used
to obtain an accurate picture of risk propensity.
There may be differences across countries,
cultures or genders (Delmar & Davidsson, 2000;
Falck, Heblich & Luedemann, 2012; Koellinger
& Thurik, 2012; Strang, 2012). Compared with
entrepreneurs who also maintain a wage job
while starting their new enterprise (i.e., hybrid
entrepreneurs), entrepreneurs whose sole work
is in their new venture exhibit different patterns
of tradeoffs between financial risk and return as
it relates to time allocation to the new venture
(Burmeister-Lamp, Levesque & Schade, 2012).
We may also find that individuals vary in their
perceptions and frames if we examine specific
stages of the entrepreneurial process, such as the
entrepreneurial alertness that facilitates oppor-
tunity identification (Gaglio & Katz, 2001). A
study of self-employment in Germany investigates
different stages of the life cycle of entrepreneurs,
comparing the effect of risk attitudes on the deci-
sion to become self-employed and on the survival
of the venture (Caliendo, Fossen & Kritikos, 2010).
Similarly, research in entrepreneurial orienta-
tion (Lumpkin & Dess, 1996) suggests that not
just individuals but also firms vary in degree of
risk-taking. Studies of firm-level differences in
innovation and competitive expectations have
considered how small firms differ from large
and how new firms differ from established (Chen
& Hambrick, 1995; Freeman & Engel, 2007).
Investigating partnerships between small and
larger organizations, Sulej, Stewart, and Keogh
(2001) found that these different stakeholders in
the alliance have different perspectives on the
risk because they perceive and frame problems
differently. Some researchers have examined how
firm-level decisions arise from individual-level
risk preferences and perspectives (Antoncic, 2003;
Dutton, Ashford, O’Neill, Hayes & Wierba, 1997;
Ren & Guo, 2011), noting that different levels of
130

the organization attend to different issues. And
research indicates that corporate entrepreneurs
operating within a large firm will differ in their
perceptions from entrepreneurs who run their own
businesses (Corbett & Hmieleski, 2007).
Stakeholders
Research has expanded beyond a focus on the in-
dividual or firm that is making the entrepreneurial
decision and investigated other stakeholders in
entrepreneurial firms. Fischer and Rueber (2007)
use cognition theories to investigate the process
by which stakeholder groups interpret the signals
new firms send and use them to develop beliefs
about the reputations of the firms. Investors face
potential loss and failure when contributing to
entrepreneurial firms, and research indicates that
decisions by venture capitalists are subject to bias
(Arthurs & Busenitz, 2003; Guler, 2007). A study
of 90 venture capitalists indicated that VC’s apply
risk-reduction strategies to shield themselves from
losses but that their responses to risk are more
like those of typical entrepreneurs than those of
typical managers (Parhankangas & Hellstrom,
2007). Cognitive processes among venture capital
investors are argued to have contributed to the
dot-com investment bubble when the investors
believed they were acting rationally but were
bypassing accepted practices to compete in an
unfamiliar sector with unknown success criteria
(Valliere & Peterson, 2004).
While venture capitalists tend to focus on
upside potential, lenders are thought to focus on
the potential for loss. In a study of loan officers,
Bruns, Holland, Shepherd, and Wiklund (2008)
hypothesized that loan officers who are more
familiar with small-business loans will perceive
relatively less risk in small-business loans and be
more likely to approve the loan, but they found
that this result is contingent on the lender’s ex-
perience being similar to the borrower’s experi-
ence. An in-depth case study on the change of
ownership for a small business (Douglas, 2010;

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
2013) highlights the commercial consequences
that can result due to changes in the employees’
cognitions and behaviors in responding to new
managerial practices. Research indicates that
customers of insurance companies are willing
to donate to micro-insurance programs to cover
entrepreneurs starting businesses in developing
economies (Jansen, Gossling & Bullens, 2011).
Means to Manage the
Prospects for Loss
The idea of managing risk can seem paradoxical
in the context of prospect theory since entrepre-
neurs who underestimate prospects of failure may
make fewer contingencies for it (Hayward, Forster,
Sarasvathy & Fredrickson, 2010). However, if we
consider that entrepreneurs perceive not that they
are taking more risk but that they can have some
control, then this line of research focuses on the
means by which entrepreneurs attempt to impose
some influence or control over the potential for
loss. The development of regulative and cognitive
institutions that reduce the risks of entering new
sectors has been found to affect the founding rates
of firms using novel technologies (Sine, Haveman
& Tolbert, 2005).
Investigating the influence of advice from spe-
cialists and experts, Lubbe and Nienaber (2012)
found that small businesses prefer conservative
over aggressive tax advice but will agree with a
tax practitioner regardless of the advice offered.
As long as the advice does not involve tax evasion,
these small businesses preferred to retain the tax
practitioner’s services regardless of whether they
agreed with the advice. A study of expert credit-
rating agencies noted that outside experts may
themselves be prone to skewed decision-making
due to their own industry environment changing
(Vaaler & McNamara, 2004).
Ironically, experts may be most likely to mis-
lead clients in unstable industry environments
when their advice is most needed. Expert advice
can have a framing of its own (Busenitz, Moesel,
Fiet & Barney, 1997). Decision support systems
can be designed to evaluate multiple risks and
to deal with the qualitative aspect of the options
(Tang & Leung, 2009). A firm may develop pre-
emptive defenses and planned responses against
rival innovation (Arend, 2009; Dewald & Bowen,
2010). Huffman and Skaggs (2010) demonstrate
that a strategy of designing services with direct
face-to-face interaction with customer increases
switching costs and protects innovation, thus
inducing the firm to pursue more innovation.
The research mentioned above regarding micro-
insurance (Jansen et al., 2011) noted that this
relatively new financial product is designed to help
start-up businesses in developing and transition
economies in the way that micro-financing has.
Aspirations and Reference Points
A segment of the literature has focused on the idea
of “loss” or “failure” being measured differently
by different individuals or firms. This research has
focused on the reference point, goal, or aspiration
against which losing performance is gauged by
the decision-maker. Gimeno, Folta, Cooper and
Woo (1997) noted that firms with low thresholds
of performance may choose to continue and sur-
vive while other firms reporting equal economic
performance will not survive.
Survival depends not only on an organization’s
economic performance but also on that firm’s
desired or acceptable threshold of performance.
Wennberg, Wiklund, DeTienne, and Cardon
(2010) note evidence that firms may be liquidated
or sold even if they are performing well. These
researchers develop a model describing four
distinct exit routes to explain why entrepreneurs
exit firms in financial distress and firms perform-
ing well. Tominc and Rebernik (2007) found
that growth aspirations for early-stage entrepre-
neurs are affected by cultural differences across
countries. Multi-unit franchisees and sequential
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Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
multi-unit franchisees were found to have differ-
ent objectives and perspectives (Grunhagen &
Mittelstaedt, 2005).
Research by Greve (2003, 2008) offers insight
into the aspirations view. In studies of the insur-
ance and shipbuilding industries, he finds that
low performance relative to aspirations levels
gives managers high risk tolerance, leading to a
search for solutions to the performance shortfall
and the development of innovations. He distin-
guishes between search prompted by a shortfall
in performance – problemistic search – and search
prompted by excess resources to be put to use
– slack search. He also explains that firms will
have both social aspirations or goals relative to
their peer organizations and historical aspirations
or goals relative to their own prior performance.
Van Rijnsoever, Meeus, and Donders (2012)
investigate the role of an innovation boundary
beyond which the display of innovative behavior
becomes attractive. Their study also considers
economic status as both an enhancer and an inhibi-
tor of innovation, a variable that may give insight
into the endowment effect of prospect theory.
Organizational Change
and Innovation
A segment of literature that also has foundations
in Kahneman and Tversky’s work on the framing
of loss includes studies dealing with organizational
change and innovation. This research investigates
factors that help or hinder change and innovation,
with the recognition that these are risky endeav-
ors with high prospects of failure. Articles in the
stream of organizational change and innovation
together reveal an interesting question. When faced
with potential changes, is the higher-risk, prone-
to-loss option to implement change or to stick with
the status quo? Rusetski and Lim (2011) find that
success leads managers to become defensive of
132

the status quo, and the firm should reduce pres-
sure on managers if it wants them to experiment
with innovation.
Chandy, Prabhu, and Antia (2003) show that
managers of dominant and nondominant firms
demonstrate different investment behavior even
when they have the same expectations about a new
technology. Research demonstrates a bandwagon
effect which pressures firms to adopt an innovation
principally because they fear below-average per-
formance if many competitors profit from adopt-
ing the innovation (Abrahamson & Rosenkopf,
1993). Yet there is evidence that decision-makers
do consider criteria which are ultimately relevant
to the success or failure outcome of innovation.
For example, the competitiveness of the strategic
option was shown to be an important predictor
of new product success (Moenaert, Robben, An-
tioco, de Schamphelaere & Roks, 2010). Gilbert
(2006) notes that discontinuous change typically
does not trigger an organizational response until
the change is perceived as a threat. However, the
response prompted by threat perception may en-
hance organizational rigidity rather than encourage
change. One solution to the competing frames of
threat and opportunity that is revealed by Gilbert’s
(2006) study is the creation of subunits within the
organization to enact different behaviors simulta-
neously. Freeman and Engel (2007) also suggest
separating a creative unit from the bureaucratic,
disciplined units in order to foster innovation.
Similar to the notion of using organization
structure to manage innovation, research has
considered the boundaries of the firm as a key
decision contributing to innovation efforts in the
firm (Berglund, 2007). Noting the tendency of
decision-makers to frame decision contexts bi-
modally as either threats of loss or opportunities
for gain, Steensma and Corley (2001) investigate
three influences on decisions about information
sourcing: the threat of opportunism, the threat of

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
commercial failure, and the opportunity to develop
sustainable advantage. In addition to some specific
findings, they observe that, generally, managerial
risk-taking has more of an effect on how manag-
ers act on their interpretation of a decision frame
(i.e., threat or opportunity) than on the formation
of those perceptions.
Open innovation efforts span the boundaries of
the firm as customers or suppliers or other exter-
nal organizations share knowledge with the firm.
Drawing on the finding of asymmetry in treatment
of gains and losses (Kahneman & Tversky, 1979)
as well as similar asymmetries in other views
of behavior, Fuller, Matzler, Hutter, and Hautz
(2012) suggest that different components will
have asymmetric effects on consumers’ creative
output and on their interest in co-creation activity.
Using an automotive manufacturer as an example,
Remneland-Wikhamn and Knights (2012) explain
that the assumptions of transaction cost economics
to define the boundaries of the firm may actually
undermine innovation. Notions of framing that
consider not only the risk of losing but also the
risk of not winning may better support the shift
from a cost-orientation to a knowledge-orientation
as firms need to involve users in their innovation
efforts (Remneland-Wikhamn & Knights, 2012).
Greve (1999) reported that change can be ben-
eficial for low-performing firms but may be harm-
ful for large and successful ones. One risk-seeking
alternative chosen by some low-performing firms
is diversification (Basu, Phelps & Kotha, 2011;
Stern & Henderson, 2004). When the prospects
for success in the firm’s current industry or market
are low, the firm will try to position itself in an
industry or market with better prospects. How-
ever, this choice is often risky because the new
industry may be only distantly related, if at all, to
what the parent company knows and understands.
Not unexpectedly, then, the diversified unit often
performs poorly.
To improve the overall performance of the
organization, the diversified unit may be sold,
spun-off, or closed (Agarwal, Echambadi, Franco
& Sarkar, 2004; Henderson & Stern, 2004). Con-
sistent with the idea that parents’ core business
prospects are associated with diversification and
divestment moves, Agarwal et al. (2004) found
that incumbents with both strong technological
and market pioneering knowledge generated
fewer spin-outs than firms with strength in only
one of those areas. Broadly, there are two com-
peting views on innovation in low-performing
or declining organizations. One contends that
low-performing organizations will reduce their
riskier activities such as innovation while the
other expects that low-performing organizations
will take more risks (Mone, McKinley & Barker,
1998; Wiseman & Bromiley, 1996). Results of
an empirical study of 344 low-performing firms
suggested that organizational decline increases
risk which in turn reduces performance further
(Wiseman & Bromiley 1996). A study of phar-
maceutical development initiatives indicates that
failure experience triggers technological search
but not market search (Su & McNamara, 2012).
However, despite research suggesting that change
might prove harmful for successful firms, the
presence of slack resources typically associated
with high performance is often found to facilitate
innovation and change (Garud & van de Ven, 1992;
Greve, 2003; Singh, 1986; Voss, Sirdesmukh &
Voss, 2008).
Teece (2007) explained that dynamic capa-
bilities enable firms to both adapt to the business
environment and shape it through innovation.
These capabilities are complex to develop and
sustain, in part because they need managers to
make unbiased judgments. Noting Kahneman
and Tversky’s (1979) work, Teece (2007) pointed
out the tendencies toward inconsistent decisions
such as being averse to outcomes that are not
certain or to being risk-taking and discounting the
possibility of loss. These tendencies can lead to
decisions that, on the one hand, block innovation
efforts and, on the other, take on high-risk, low-
probability projects that are prone to fail. Either
bias does not yield the sustainable innovation and
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Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
change process that supports firm success in the
long-run. Similarly, Greve (2007) explains that
a potential bias away from exploration due to its
greater risk compared to exploitation can reduce
the development of new capabilities.
A study of a think tank working to modern-
ize the public sector suggests a framing strategy
through which organizations can promote the
adoption of innovation by managing the frames
in which the ideas are presented (Vogel & Frost,
2009). Using an ethics and responsibility lens,
Baucus, Norton, Baucus, and Human (2008) point
out that the risk-taking behavior that is typically
considered necessary for innovation could raise
ethical issues which have received little attention
in creativity and innovation research.
Learning from Failure
Researchers contend that entrepreneurs should not
view failure as a loss but as additional information.
Entrepreneurship is essentially experimentation,
and a failed experiment helps to continue to reduce
variation in outcomes and refine the path to suc-
cess. Many articles that investigate learning from
failure refer back to the Kahneman and Tversky
work on the framing of loss. This notion essentially
frames failure as a learning opportunity. Learning
could be considered one way in which entrepre-
neurs exert some control over their endeavors and
the risk of failure.
Woo, Daellenback, and Nicholls-Nixon (1994)
recommended twenty years ago that experimenta-
tion and learning receive increased attention in
entrepreneurship research. Research indicates that
different firms learn differently and at different
stages of the innovation process. A study of SMEs’
adoption of an online direct sales channel (ODSC)
found evidence of a learning effect within adopt-
ing firms that was interpreted to imply that they
perceive the advantages of the ODSC differently
than do pre-adopters (Li, Troutt, Brandyberry
& Wang, 2011). Henderson and Stern (2004)
examined how firms learn from internal selec-
134

tion and external (i.e., environmental) selection
in their decisions to retain or eliminate products
and technologies.
Research shows that learning from failure does
not always occur or lead to improved performance
and success. Psychologists note that learning from
failure is subject to its own biases since people do
not like to admit failure, they may not recognize
failure when it occurs, or they fail to learn from
failure (Potts, 2010). In a study of internal cor-
porate venturing, Garud and Van de Ven (1992)
noted that trial-and-error learning did not seem
to be occurring since the corporate entrepreneurs
would persist with a course of action despite ex-
periencing negative outcomes. They concluded
that situations when ambiguity is high and slack
resources are available do not foster trial-and-error
learning because the ambiguous feedback does not
help refine the path and there are enough resources
to continue on the existing course. Also noting the
relevance of different levels of ambiguity, Lant and
Mezias (1990) demonstrate that lessons learned
from past experience can result in learning traps
when the environment changes. Eggers (2012)
studied firms that were faced with choosing a
technology in a competing technology situation.
Interestingly, those who invested initially in the
losing technology were less successful subse-
quently because their experience with failure led
them to choose less risky alternatives. And the
risk-reducing strategies they choose can also tend
to reduce the learning that can occur.
The approach to innovation that is presented
as real options logic (McGrath, 1999) references
the Kahneman and Tversky (1979) work on their
common ground as approaches to decision-making
under uncertainty in which failure thresholds
involve the subjective assessment of alternatives.
Applied to entrepreneurship, real options reason-
ing involves small, incremental investments in
entrepreneurial initiatives, thus limiting the loss
that is experienced if the entrepreneur decides to
cancel the project (McGrath, 1999).

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
A key to the success of real options reason-
ing rests upon the firm applying what it learns in
the failures to the new initiatives it undertakes.
Entrepreneurs must balance the value of what
they are learning by continuing with an initiative
against the cost of continued investment in a fail-
ing course of action (McGrath, 1999). In a study
comparing entrepreneurs and non-entrepreneurs,
Sandri, Schade, Musshoff, and Odening (2010)
find modest support for the disinvestment triggers
and optimal stopping pattern of real options logic
but note that most individuals in general hold on
to a losing project for longer than real options
reasoning would predict. Day and Schoemaker
(2000) submit that incumbent firms can more
effectively deal with emerging technologies by
building a learning capacity and adopting real
options, particularly since established firms tend
to stick with the familiar too long.
FUTURE RESEARCH DIRECTIONS
While there is a substantial literature that exam-
ines facets of prospect theory in the context of
entrepreneurship and small business, opportunities
remain for building on this theoretical foundation.
Some significant topics that have been covered in
fields other than entrepreneurship could indicate
fruitful directions for scholars of entrepreneurship
and small business.
Regret
An editorial retrospective on the contributions
of Amos Tversky summarized that the research
examines the effects of reference points, fram-
ing, and regret in decision-making (Evans &
Over, 1997). The results of the present review
presented above indicate that entrepreneurship
research has looked at reference points and fram-
ing. However, the concept of regret has received
little attention in entrepreneurship research and
could offer potentially fruitful insight in the future.
Business disciplines that have considered regret
include marketing, which has focused primarily
on consumer regret over purchases, and finance,
which has investigated investor regret over stocks.
Much of the other work on regret comes from
psychology and sociology.
While the Kahneman and Tversky (1979) work
presumed a monetary loss, there are a variety of
losses that may be the focus of an entrepreneur’s
loss aversion. Research on responses to failure has
identified, for instance, psychic losses or falling
short of a personal goal. In entrepreneurship, a
loss might be a missed opportunity or a failure
might be the entrepreneur’s failure to exploit an
opportunity. Not pursuing an entrepreneurial
opportunity – inaction – may produce a sense
of loss later when someone else successfully
develops the idea or when the entrepreneur looks
back wondering what might have been had that
entrepreneur only given it a try. The construct of
regret offers promise for application in entrepre-
neurship research to study such perspectives on
loss in entrepreneurial decisions. Existing research
highlights a useful distinction between action and
inaction regret (Abendroth & Diehl, 2006; Feld-
man, Miyamoto & Loftus, 1999). Might individu-
als expressing entrepreneurial intentions tend to
feel regret over a lost opportunity more acutely
due to beliefs that they could have navigated to a
successful outcome rather than a business failure?
To explore differences between entrepreneurs
and non-entrepreneurs as well as different types
of entrepreneurs, Das and Teng (1997) noted that
risk is embedded in time and that entrepreneurs
vary in their future orientation. The idea of time
is reflected in the construct of anticipated regret
(Nordgren, van der Pligt & van Harreveld, 2007).
If applied to entrepreneurship, anticipated regret
could be used to capture either whether individuals
think they will regret failing in their entrepreneurial
endeavor or whether they think they will regret
not pursuing an opportunity. For those individuals
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Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
who would regret the lost opportunity, regret aver-
sion (Reb, 2008) could be a motive for becoming
an entrepreneur.
The idea of considering today how one might
feel in the future is an element of a stream of
research in psychology dealing with mental time
travel (Fortunato & Furey, 2010, 2011). Entrepre-
neurs motivated by anticipated regret are acting
today based on what they expect they will feel
in the future. Studies of mental time travel ask
individuals to consider a future event and imagine
how they would feel, think, and respond. Future
research might consider how the interaction of an
entrepreneur’s regret over a past failure and any
anticipated regret regarding a pending venture
affect the go/no-go decision on that venture.
Sociology offers a perspective that could prove
particularly relevant to the study of corporate
entrepreneurship: collective regret (Olick, 2007).
Research cited in the review above noted that
firms experiencing failure may choose less risky
alternatives in the future, be subject to inertia, and
maintain the status quo. Could collective regret
over a failed new venture or new product develop-
ment initiative aid in explaining this behavioral
inertia as the firm operates following the failure?
Organizational learning research incorporates the
notions of organizational memory and forgetting
(Casey & Olivera, 2011). Can organizational for-
getting minimize downsides of collective regret?
Does collective regret facilitate or hinder learning
from failure?
Mental Accounting
The concept of mental accounting has its roots
in the value function and loss aversion defined
in prospect theory (Thaler, 1999). Foundational
contributions applying prospect theory and estab-
lishing the stream of research in mental accounting
were made by Kahneman, Tversky, and Thaler
(Kahneman, 2003; Kahneman & Tversky, 1979,
1984; Thaler, 1980, 1985). Mental accounting is
defined as a set of cognitive operations in which
136

individuals or households organize and group
expenditures into categories such as housing,
food, and entertainment (Thaler, 1999). Decision-
makers then apply their framing of gains and losses
within those categories or “accounts.” Choices
are affected by these notional boundaries. Thaler
(1999: 197) explains the accounting with some
examples: “a loss hurts less if it can be combined
with a larger gain; a purchase is more likely to be
made if it can be assigned to an account that is
not already in the red; and a prior (sunk) cost is
attended to if the current decision is in the same
account.”
Much of the business research in mental
accounting can be found in the marketing or be-
havioral finance and accounting literature (e.g.,
Seiler, Seiler & Lane, 2012; Soster, Monga &
Bearden, 2010; Thaler, 1985). From the man-
agement literature, we can find an application of
the concept relevant to entrepreneurship topics.
Hayward and Shimizu (2006) used a mental ac-
counting framework to explain CEOs decisions to
divest poorly performing acquisitions. This paper
lays groundwork for how mental accounting could
inform the study of corporate entrepreneurship
since the external mode of corporate venturing
involves acquiring outside businesses as a means
to obtain innovations.
Beyond this connection, direct application of
mental accounting to entrepreneurship could pose
other interesting questions in future research. Do
entrepreneurs establish a mental account for their
entrepreneurial endeavors that separates those
gains and losses from other investments or expen-
ditures in their lives? Can individual entrepreneurs’
different reactions to loss and failure be explained
by their mental accounting, such as by how nar-
rowly they define their accounts or how often the
“balance” them (Thaler, 1999)? The suggestion by
researchers that mental accounting is used not just
by individuals but also by households also makes
this a system that could provide insight not just at
the level of the individual entrepreneur but also
at the firm level.

Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
Understanding Competitors
A research stream discussed earlier highlighted
the framing of loss prospects by stakeholders in an
entrepreneurial firm, not just by the entrepreneur
or focal firm itself. One stakeholder group that has
received little attention is competitors. Research-
ers in political science have pointed out prospect
theory’s usefulness in helping to understand the
frames employed by countries with which your
country may be negotiating, partnering, or at odds
(Mercer, 2005). Taken to an entrepreneurship
context, this line of thinking would lead to an
investigation of how competitors frame loss and
failure in their decision-making. A competitive
advantage could arise from understanding the
frames and anticipating the resulting choices of
competitors. Earlier-mentioned papers from the
innovation literature that move in this direction
discuss the role of pre-emptive defenses and
planned responses to sustain the business when
rivals introduce disruptive innovations (Arend,
2009; Dewald & Bowen, 2010).
Implications and Limitations
The present study has implications for research
through the future research topics discussed above.
Highlighting topics from other disciplines that
have relevance for entrepreneurship, this review
offers suggestions for expanding the application
of prospect theory in future research.
This study also has implications for the practice
of management. The body of research reviewed
here demonstrates that perceptions of risk matter
in the types of decisions that drive entrepreneur-
ship. Even though risk is an inherent part of
entrepreneurship, decision-making in the context
of that risk is still subject to individual perceptual
differences. Individuals may, therefore, implement
different contingencies and mitigation measures
for buffering their entrepreneurial initiatives from
risk. As a psychological tendency, the risk aver-
sion or loss aversion may be relatively enduring.
However, changes that occur in the business over
time as it ages and grows may call for different
framing and for modifying the measures to assess
and accommodate the risk. This review study
also suggests that entrepreneurs or managers of
entrepreneurial initiatives should prepare not only
for financial loss but also for psychological risks,
such as regret.
The insights drawn from the articles in this
study and the implications should be considered in
light of limitations of this research. The search was
designed to be expansive by using search terms for
entrepreneurship, innovation, and small business.
However, articles involving these topics may not
have been associated with these key words and,
thus, excluded from the study. The insights from
the study are based on the organizing framework
that has been used, but other frameworks could
be applied and yield different results.
CONCLUSION
This review is based on Kahneman and Tversky’s
1979 article in which they reported the findings
that individuals make different choices depend-
ing on whether a decision situation is framed as
a gain or a loss. These findings were presented as
prospect theory, a framework that has been widely
investigated in the business disciplines and other
behavioral sciences.
Since failure is an ever-present prospect in
entrepreneurship, efforts to expand our under-
standing of how entrepreneurs perceive, evaluate,
and respond to loss and failure are significant to
furthering our knowledge about the entrepreneur-
ial process and how to manage it. Entrepreneurs
decide whether to start a business in light of the
chances for failure, whether to either persist or
to exit when in the midst of losses, and whether
to start another venture after overseeing one or
more failed ventures.
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Perceptions and Framing of Risk, Uncertainty, Loss, and Failure in Entrepreneurship
This review has illustrated the nuances of
analysis and application that can be derived from
this theoretical basis and the many ways that one
fundamental cognitive frame can affect decisions
made about entrepreneurial initiatives.
The recommendations from the study are that
researchers should consider prospect theory as a
lens to investigate uncertainty and risk manage-
ment, not only in the financial industry, but in
other industries and disciplines. It is interesting to
note that Kahneman emerged from the psychology
discipline yet he made an instrumental theoreti-
cal contribution to the business decision making
practice with prospect and regret theories. This is a
good example of thinking outside the box but tak-
ing an interdisciplinary research perspective rather
than simply relying on statistical probability and
mathematical programming to model a complex
problem. Other researchers are encouraged to do
the same. There are many opportunities to inves-
tigate the psychological complexity underlying
uncertainty and risk management using theories
from the contributing disciplines.
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 145

Chapter 9
Strategic Entrepreneurial
Orientation and Small
Business Growth
João J. Ferreira
University of Beira Interior (UBI), Portugal & NECE - Research Unit in Business Sciences, Portugal

Mário L. Raposo
University of Beira Interior (UBI), Portugal & NECE - Research Unit in Business Sciences, Portugal

Cristina I. Fernandes
NECE - Research Unit in Business Sciences, UBI, Portugal

ABSTRACT
This chapter aims to define a coherent theoretical framework enabling a broader understanding of the
strategic entrepreneurial orientation (SEO) and to evaluate their effects on small firm growth. A sample
made up of 211 small Portuguese firms from various different sectors of activity was surveyed by ques-
tionnaire. The results demonstrate how the life-cycle of companies, their resources, capacities, motiva-
tions and surrounding environment all influence the SEO of small companies. The empirical evidence
shows how SEO, and across four specific dimensions – proactiveness, innovativeness, risk taking and
competitive aggressiveness, clearly impacts on the growth of these small firms. The study contributes
both theoretically (through advancing knowledge on the field of strategic factors for small business
growth) and practically (when designing support policies strategically orientated towards small firms).

INTRODUCTION and small firms in particular has become a very

The business reality demonstrates how strategic
entrepreneurial orientation (SEO) generates
a significant contribution to a firm’s success
(Stevenson, 1984). The importance of strategic
management to the growth of businesses in general
important and generally accepted topic (Davids-
son, 1989; Covin & Slevin, 1991; Smallbone. et
al., 1995; Delmar, 1996; Davidsson& Wiklund,
1999; Fayolle, 1999; Davidsson & Wiklund,
2001; Davidsson et al., 2002; Moreno & Casil-
las, 2008). Moreno and Casillas (2008) focus on

DOI: 10.4018/978-1-4666-8468-3.ch009

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Strategic Entrepreneurial Orientation and Small Business Growth
the strategic orientation-growth relationship in
order to identify several simultaneously ongo-
ing relationships between strategy, environment,
resources and growth.
Given the great variety of factors presented
as growth stimulators, it is not possible to trace
the development of a single theory concerning
growth at small firms. Several approaches have
been proposed in attempts to appropriately study
this growth process. Theory and previous re-
search suggest that, for firms to grow and obtain
a good performance, they need to have an SEO
(Covin & Slevin, 1991; Zahra, 1993; Wiklund,
1998; Ferreira, 2010). According to Wales et al.
(2013), entrepreneurial orientation encapsulates a
firm-level strategic posture toward the pursuit of
new opportunities for organizational growth and
renewal. Core to the notion underlying SEO is how
firms most probably seek to embrace creation and
pursue new markets and opportunities (Lumpk-
ing & Dess, 1996; Miller, 2011; Wales et al.,
2013). Moreover, firm-level SEO motivates and
supports efforts to leverage absorbed knowledge
into value-creating resource bundles (Wiklund &
Shepherd, 2003; Wales et al., 2013). Wales et al.
(2013) conclude that SEO enhances the financial
performance and firms with higher levels of SEO
achieve higher levels of absorptive capacity (the
company’s ability to acquire, assimilate, transform,
and exploit new knowledge).
However, when examining the relationship
between SEO and growth, recognition of the
multidimensional nature of the growth construct
becomes essential (Davidsson, 1989; Zahra,
1991). The extent to which growth throughout
one particular dimension reflects on another is
an empirical question that requires testing (Zahra,
1991; Wales et al., 2013). It is hard to imagine small
firms capitalizing on opportunities and making a
considerable impact on the market without actually
growing. Thus, growth seems to stand out as an
important actual representation of the entrepre-
neurial behavior of small firms (Davidsson, 1989;
146

Kozan et al., 2006; Tang et al., 2008). Despite the
complexity and controversy that revolves around
this theme, further research is claimed.
In this context, the present research strives,
within the framework of a strategic approach,
to empirically examine the relationship between
strategic entrepreneurial orientation (SEO) factors
and growth in the small business context. The
study contributes both theoretically (through ad-
vancing knowledge on the field of strategic factors
for small business growth) and practically (when
designing support policies strategically orientated
towards small firms).
SEO AND SMALL FIRMS GROWTH
Essential to the context of the current research is the
identification of the strategic variables reflecting
the practice, the process, the organizational meth-
ods and the style of decision–making that small
firms implement and that most probably shape their
growth patterns. Nevertheless, the literature review
reveals how this strategy represents a broad and
deep concept with not only many different defini-
tions of strategy but also typologies to the possible
strategic choices available to small firms (Covin
& Slevin, 1989; Lumpkin & Dess, 1996; Ferreira,
2010). As a starting point to identifying the most
important strategic dimensions to small firms,
we may consider the firm strategy typologies put
forward by authors taking a theoretical approach
to organizations (e.g. Porter, 1980; Miles & Snow,
1978; Davidsson, 1989; Lumpkin & Dess, 1996).
Each of these models relates a group of variables
which do not depend on organizational growth. In
addition, the Miles and Snow (Hambrick, 1983;
Zahra & Pearce, 1994; Gimenez, 1999) and Porter
models (Miller, 1983) were empirically tested to
validate that relationship.
Previous researches do consider the dimensions
to SEO as of great importance (Mintzberg, 1973;
Miller & Friesen, 1984; Miller, 1987; Lumpkin,

Strategic Entrepreneurial Orientation and Small Business Growth
1996; Lumpkin & Dess, 1996; Wiklund, 1998;
Bhaskaran, 2006; Kozan et al., 2006; Hmieleski
& Corbett, 2006; Wang, 2008; Rauch et al., 2009;
Ferreira, 2010) and, additionally, some also con-
sider that entrepreneurial strategy bears a great
impact on growth (Moreno & Casillas, 2008; Fer-
reira, 2010). Miller and Friesen (1982) maintain
entrepreneurial firms both innovate courageously
and regularly while also taking considerable risks
in their product/market strategies.
Although many factors are pointed out in
explaining this growth process, in this research
we focus on SEO as the theoretical framework of
study. According to Miller (1983), an entrepre-
neurial firm is one that commits itself to product/
market innovation, undertakes actions which are
slightly risky and is the first to proactively deploy
innovations able to beat the competitors. This
SEO incorporating definition focuses more on
the process than on the actor behind it (Wiklund,
1998; Davidsson & Delmar, 1999), thus, this places
greater emphasis on the entrepreneurial process
than on the entrepreneur.
When studying small business strategies and
in particular those strategic options influenc-
ing growth, it would seem pertinent to discuss
the dimensions and means of measuring SEO.
Although different interpretations of such mea-
suring instruments have been put forward, that
does not inherently preclude feasible instruments
for measuring key aspects to SEO. Covin and
Slevin (1991) support Miller’s (1983) point of
view by referring to how organizations, and not
only individuals, behave entrepreneurially. They
also defend the adoption of risk taking, innova-
tiveness and proactiveness as the most relevant
dimensions. However, Lumpkin and Dess (1996)
identify competitive aggressiveness as a crucial
strategic dimension. Nevertheless, they refer to
this as a behavior type labeled as SEO.
In this context, and according to Miller (1983),
an entrepreneurial firm is one that engages in
product-market innovation, undertakes somewhat
risky ventures, and is the first to come up with
‘proactive’ innovations, beating competitors to
the punch. SEO is one of the central concepts of
this study and defined through four variables: 1.
innovativeness; 2. risk taking; 3. proactiveness;
and 4. competitive aggressiveness.
1. Innovativeness: Schumpeter (1934) em-
phasizes the role of innovation to business
processes and placing it at the heart of
entrepreneurship. Most authors agree that
all types of entrepreneurship are based on
innovation (Stopford & Banden-Fuller,
1994; Lumpkin et al., 1996; Macmilan
& McGrath, 2000; Aloulou & Fayolle,
2005) demanding changes in the pattern
of resource usage and the creation of new
capabilities opening up new opportunities
for positioning in new markets (Stopford et
al., 1994). Innovation is, according to Bird
(1988), more than invention and involves the
marketing of ideas, implementation and the
modification of existing products, systems
and resources. Furthermore, Freeman and
Soete (1997) associate entrepreneurship
with innovation as the first commercial ap-
plication or production or a new process or
product, and the crucial contribution of the
entrepreneur to inputting new ideas into the
market. Innovation refers to a willingness to
support creativity and experimentation in
introducing new products/services (Lumpkin
& Dess, 1996).
2. Risk Taking: According to Schumpeter
(1934), being an entrepreneur involves
trying to enter new markets and incurring
errors through taking on a certain degree
of risk. These risks stem from a tendency
to commit to actions and invest a great deal
of resources in projects with uncertain out-
comes (Lumpkin & Dess, 1997). The first
distinction to risk incorporates this sense of
uncertainty and may thus be applied to any
type of risk usually discussed in the study
of entrepreneurship, i.e. personal, social or
147

Strategic Entrepreneurial Orientation and Small Business Growth
psychological risks. Both the concept of
high indebtedness and resource usage falls
within the scope of this risk taking definition
(Miller & Friesen, 1982).
3. Proactiveness: This approaches the way
firms discuss opportunities in the market
on their own initiative (Lumpkin, 1996;
Lumpkin & Dess, 1996). Proactiveness is
generated by seeking out new products or
services and the introduction of new prod-
ucts or new technological resources ahead
of the competition. Proactiveness enables
the firm to shape the nature and direction of
competition to its own advantage (Lumpkin
& Dess, 1996, 1997). Proactiveness thus
serves as a driver of competitive advantage
due to the initiative and the implementation
of new products and new markets (Moreno
& Casillas, 2008). For Venkatraman (1989),
proactiveness is a process based on an-
ticipating future needs and performance by
identifying opportunities that may or may
not be related to the initial business, prod-
ucts, services, and strategically eliminating
operations that are in a mature and declining
stage.
4. Competitive Aggressiveness: Competitive
aggressiveness is a fundamental feature of
successful entrepreneurial activity (Covin
et al., 1990; Lumpkin & Dess, 1996;
Venkatraman, 1989). The competitive
aggressiveness factor refers to how firms
respond to competition and trends and re-
quirements that already exist in the market-
place (Lumpkin, 1996). A strong offensive
posture aimed at overcoming competitors,
aggressively defending its market position or
entering a market where it has pre-identified
specific rivals, characterize competitive
aggressiveness.
148

DIMENSIONS IMPACTING ON SEO
Various models aim to explain entrepreneurship
and SEO. For example, Covin et al. (1990) dis-
cuss their model of entrepreneurship through the
relationship between SEO and strategy, structure,
and the environment. Within the set of factors
described in the literature as impacting on SEO,
we here include the following: 1. entrepreneurial
motivations, 2. company life-cycle, 3. resources,
and 4. environmental characteristics:
1. Motivation: The literature clearly por-
trays the influence that motivation has on
SEO (Miner, 1990; Kets de Vries, 1999).
Individuals who are motivated to develop
and expand the firm have a greater tendency
to introduce innovative solutions.
2. Company Life Cycle: Different stages
in company life cycles represent different
characteristics of structure and environment
complexity. Several studies (Greiner, 1972;
Mintzberg, 1973; Kazanjian, 1988; Dodge
et al., 1994; Ferreira, 2010) argue that the
company life cycle influences the respective
strategy and SEO in effect at the firm. The
literature on life cycles presents a variety of
models. Each model emphasizes different
factors proposed to explain the changes that
occur in firms (Greiner, 1972, 1972; Adizes,
1979, Hanks et al., 1993). The competitive
environment increases in heterogeneity
and hostility as firms expand their range of
products or services in response to greater
maturity and market saturation (Quinn &
Cameron, 1983; Adizes, 1979). For instance,
Mintzberg (1973) shows that entrepreneurial
processes in the start-up stage of companies
are superior to subsequent stages in the life
cycle.

Strategic Entrepreneurial Orientation and Small Business Growth
3. Resources and Capacities: To design
and implement entrepreneurial strategies,
people need to deploy resources (Wiklund
& Shepherd, 2003). Resources are the basic
inputs into the production process just as ca-
pabilities refer to the power of a coordinated
set of resources to carry out certain tasks or
activities (Barney, 1991). These capabilities
increase the prevailing productivity and effi-
ciency of a firm so that competition between
firms may be perceived as a power rivalry.
Thus, while resources are the source of the
company’s capabilities, they also represent
the main sources of their competitive ad-
vantage (Grant, 1991).
According to the resource-based view, a firm
with abundant resources and with easy
access to resources will in all likeli-
hood display a greater entrepreneurial
orientation (Covin et al., 1991; Greene
1997).
4. Environment: The environment is consid-
ered by many authors as a key determinant
of SEO activities (Covin et al., 1990; Miller,
1983, Lumpkin & Dess, 1996) and the dimen-
sions of dynamism, hostility and heteroge-
neity are often deployed to characterize the
environment perceptions of firms (Miller,
1983; Miller & Friesen, 1982; Covin et al.,
1990; Merz et al., 1994).
Martins et al. (2012) also make it clear that the
entrepreneurial orientation and financial perfor-
mance are positively related, despite hostility in
the environment playing an important moderating
role in this relationship. According Kreiser and
Davis (2010), a firm operating in a munificent
environment should emphasize high levels of in-
novativeness and proactiveness, moderate levels
of risk-taking within the framework of an organic
structure.
SEO AND GROWTH
It would be hard to conceive of small firms tak-
ing advantage of opportunities and generating
considerable impacts on the market without
actually growing. On accepting the perspective
that entrepreneurship is a question of extent and
not a dichotomized variable (Davidsson, 1989;
Green & Brown, 1997), growth would then seem
to emerge as an important demonstration of the
entrepreneurial behavior of small firms (Davids-
son, 1989; Kozan et al., 2006).
The growth of firms has become a very impor-
tant topic in the field of entrepreneurship research
(Davidsson, 1989; Covin & Slevin, 1991; Delmar,
1996; Davidsson & Wiklund, 1999; Fayolle, 1999;
Davidsson & Wiklund, 2001; Davidsson et al.,
2002; Moreno & Casillas, 2008). Davidsson et al.
(2002) discuss under what conditions the study of
growth effectively contributes to our understand-
ing of entrepreneurship processes. According to
these authors, to identify ‘entrepreneurship’ as
the same as ‘launching a new firm’ is to reduce
the field of entrepreneurship as this does not fully
reflect its contemporaneous definitions before
then suggesting that researchers in this field
should approach company growth as part of and
complementary to the entrepreneurship process.
The majority of firms never actually grow to
any major extent. According to Observatoire des
PME Européennes (2003), approximately 95% of
all U.S. (United States) firms have less than 5 em-
ployees. In Portugal, the Small and Medium-sized
Enterprises (SME) segment (small and medium
sized enterprises) represents 99,5% of firms and
responsible for over 73% of employment and
56% of total business volume. Even very small
firms – fewer than 20 employees - represent more
than 85% of total partnerships and around 24%
of employment. The Portuguese entrepreneurial
structure has been showing an increase in the
149

Strategic Entrepreneurial Orientation and Small Business Growth
relative weighting of firms very small in scale to
the detriment of other firm sizes. Therefore, the
importance of SMEs to economic life in Portugal
is unquestionable.
In the process of reviewing the literature pub-
lished on the growth of small companies, Storey
(1994) concludes that their growth process results
from a combination of three basic components: (1)
the characteristics of the entrepreneur/manager;
(2) the characteristics of the small firm; (3) its
development strategies. These three components
are not mutually exclusive and they mutually and
collectively influence the growth of small firms.
The entrepreneurship model proposed by Co-
vin and Slevin (1991) suggests there is a positive
relationship between the entrepreneurial posture
and business growth. In turn, the research of Stuart
and Abetti (1987) leads them to maintain there is
a negative relation between the two. Theory and
previous research suggest that, for firms to grow
and obtain a good performance, they need to have
an entrepreneurial orientation (EO) (Covin &
Slevin, 1991; Zahra, 1993; Wiklund, 1998; Fer-
reira, 2010). Lumpkin and Dess (1996), in turn,
justify the idea that the influence of an EO on an
organization’s growth is related to a variety of
different variables.
However, when examining the relationship
between SEO and growth, recognizing the mul-
tidimensional nature of the growth construct
becomes essential (Davidsson, 1989; Zahra,
1991). Furthermore, the point when growth in
one dimension reflects on another is an empirical
matter that requires testing (Zahra, 1991).
Several studies report how the SEO dimen-
sions (innovativeness, risk-taking, proactiveness,
and competitive aggressiveness) bear a positive
influence on growth (Miller, 1983; Venkataraman,
1989; Covin & Slevin, 1989; Covin et al., 1991;
Zahra, 1991; Lumpkin & Dess, 1996; Wiklund &
Shepherd, 2003; Ferreira, 2010; Kreiser & Davis,
2010). However, Brockhaus (1982) returns incon-
sistent results and ambiguous relations between
risk-taking and growth. In sum, and based on
150

the literature review and the research hypotheses
set out above, we propose the following research
model (Figure 1).
METHODOLOGY
Sample
This research opted to apply a quantitative research
approach (cross sectional) involving an inquiry
of Portuguese SME by questionnaire. Our data
contains a total of 1,470 SME from different in-
dustries and sectors. From those firms, a total of
211 constitute the final sample. The questionnaire
methodology was chosen for data collection. In
order to survey the factors and the variables that
influence SEO and to evaluate their effects on
growth, a Likert scale proposed by several authors
was applied (see the subsection: defining and
measuring the variables).
Table 1 details the main sample characteristics.
In terms of area of activity, 4.1% of companies
belong to the primary sector, 42.6% are transforma-
tive industry based with the remaining 53.3% firms
dedicated to commerce and services. Company
ages vary between 1 and 83 years of operation with
an average of 20.1 ± 14.8 years. As regards their
number of employees, the average came in at 59.9
± 66.4 members of staff while reporting a range
of between 1 and 262 workers. The sales volumes
ranged from €3,500 to €60,000,000 with average
turnover of €3,058,841.74 ± €7,329,193.02. In
relation to company ownership, 16.7% are subsid-
iaries firms, 19.6% hold subsidiaries and of these
74.4% run a subsidiary firm, with 23.1% owning
two subsidiaries and 2.6% with three subsidiaries.
Method
In order to test the model, we deployed multiple
linear regression and estimated robust standards
of error in order to counter eventual problems
with heteroskedasticity while also calculating the

Strategic Entrepreneurial Orientation and Small Business Growth

Figure 1. Research model

Table 1. Survey data collection

greater proactiveness while the more significant
Temporal Basis Cross-Sectional
the Innovativeness results the higher the focus on
innovation with high Competitive aggressiveness
Geographic Area Portugal
results similarly driving greater aggressiveness.
Sectors Primary, transformative industry,
commerce and services
Analysis Unit SME Defining and Measuring
Sample 211 valid questionnaires
the Variables
Data gathering Postal questionnaire
Strategic Entrepreneurial Orientation (SEO) is
Key Informant Owner/managers or CEO
seen as a combination of four dimensions. Three
Data Analysis Univariate and Linear Regression
were drawn from Miller’s original scale for en-
trepreneurial orientation: i) innovativeness, the
development of new and unique products, services
variance inflation factors (VIF), with all results
or processes; ii) risk taking, a will to pursue risky
coming in below ten and thus demonstrating an
opportunities, taking the chance of failing; iii)
absence of multicollinearity.
proactiveness, an emphasis in the persistence
The dependent variable scores relating to
and creativity to overcome obstacles, until the
strategic entrepreneurial orientation (SEO) were
innovator concept is completely implemented.
determined through the average of the underlying
Another dimension was added and as proposed
scores for each factor. Thus, in the case of the Risk
by Lumpkin and Dess (1997): iv) competitive
taking factor, the higher the score, the greater the
aggressiveness (Table 2).
risk with higher Proactiveness scores reflecting

151
 
Strategic Entrepreneurial Orientation and Small Business Growth

Table 2. Variables measuring

Variables Means of Measurement Based on

Strategic Entrepreneurial Orientation
Innovativeness A five point Likert scale: Miller (1983)
Risk-taking 1= “strongly disagree” to 5= “strongly agree”
Proactiveness
Competitive aggressiveness Lumpkin and Dess
(1996)
Firm life cycle Hanks et al. (1993)
Stages of life cycle Measured based on self-categorization
Contextual variables Firm age; Size; Growth rate
Structural variables Structure form
Centralization
Formalization
Motivations
Firm objectives A five point Likert scale: Davidsson (1989)
1= “strongly disagree” to 5= “strongly agree”
Creativity
Personal benefits
Stability
Power
Sales growth Increase in sales
Employment growth Increase in number of employees
Tasks/functions of firm A five point Likert scale: Delmar (1996)
1= “strongly disagree” to 5= “strongly agree”
Rewards Davidsson (1989)
Resources & capacities Davidsson (1989)
Entrepreneur’s traits
Management education background Any management qualification? Yes or No
Level of education Please state your level of education?
Nationality Were you born in Portugal? Yes or No
Gender Male or female
Age Year of birth of entrepreneur
Length of service in current position When did you take over your current owner/
manager position?
Experience in sector of activity What is your experience in this sector of activity?
No experience, limited experience, extensive
experience.
Management experience Have you ever served as manager in another
company? If yes, how many different management
positions?
Other roles and positions Do you hold other positions in other companies? If
yes, please indicate your role?
Experience in launching new companies Have you personally been involved in launching
a business over the last three years? If yes, how
many?
Firm resources

152

Strategic Entrepreneurial Orientation and Small Business Growth

Table 2. Continued
Variables Means of Measurement Based on
Size of management team How many managers do you employ? Davidsson (1989)
Size of board management team How many people sit on the company board?
Current company size How many staff does the company employ?
Size compared with competitors Is your company larger, smaller or approximately
the same as its competitors?
Number of employees with university education How many employees hold university degrees?
Sales volume What was last year’s sales volume?
Employee involvement in decision making A seven point Likert scale: Miller (1987)
1= “strongly disagree” to 7= “strongly agree”
Networks
Professional consulting A seven point Likert scale: Davidsson (1989
1= “strongly disagree” to 7= “strongly agree”
Operational consulting
Linkage to other firms
Environment
Dynamism; A seven point Likert scale: Miller & Friesen (1982)
Heterogeneity; 1= “strongly disagree” to 7= “strongly agree”
Hostility
Dynamism changes; Heterogeneity changes; Hostility Miller (1987)
changes
Growth
Sales growth Calculated according to sales in 2012 and in 2011 Davidsson (1989); Zahra
(1991)
Employees growth Calculated according to number of employees in
2012 and in 2010
Sales growth compared with competitors A seven point Likert scale:
1= “strongly disagree” to 7= “strongly agree”
Market value compared with competitors
Performance Cash-flow; Profits and losses and; Gross sales
margins
Control Variables
Size of firm Number of employees
Turnover Sales volume
Age of firm Year company founded

Life-Cycle of Firm: This is measured based
on self-categorization, i.e., the respondents them-
selves identify the life-cycle stage of their firm.
A definition of each stage was provided with the
respondents asked to identify the stage most ap-
propriate to their firm: i) start-up stage; ii) growth
stage; iii) mature stage; iv) diversification stage;
and v) decline stage. This approach has been
suggested and proposed by several researchers in
the literature (Kazanjian, 1988; Lumpkin & Dess,
1996). This incorporates variables related to the
context and structure of the company (Dodge et
al., 1994; Hanks, et al., 1993; Ferreira, 2010),
such as: age; size; employment growth; company
structure (hierarchical levels); formalization of
decision-making; and centralization of decision
making.
Motivations: This is measured based on three
variables: firm objectives; tasks; and rewards
(Davidsson, 1989; Delmar, 1996) (Table 2).

153

Strategic Entrepreneurial Orientation and Small Business Growth
Resources: This dimension is analyzed by
taking into account: 1) the entrepreneur’s traits
(experience and qualifications, entry way of the
entrepreneur/manager into the company, age and
gender, etc.) based on Davidsson (1989) and Miller
(1987); 2) Firm resources (management team
size, management board size, firm size, number
of employees with higher education, etc.); and
3) networks (professional consulting, operational
consulting, linkages to other firms) (Davidsson,
1989) (Table 2).
Environment: According to the population
ecology approach, the environment is the main
determinant of business development and internal
factors such as strategy, resources, and motivation
hold only a smaller influence. Given the dif-
ficulty in capturing objective information about
the firm’s environment, projects quite commonly
adopt imperfect or subjective measures (Miller,
1983; Covin et al., 1990; Merz et al., 1994; Brown,
1996). Ten questions related to the three dimen-
sions of the environment (dynamism, hostility and
heterogeneity) were developed and the respective
dimensions of these changes over the last three
years. The dynamism of the environment refers
to the level of change and unpredictability of
change in customer preferences, production or
services, technology and methods of competition
in leading industrial companies. Heterogeneity
is reflected in differences in competitive tactics,
customer preferences, product lines, distribution
channels, among others, throughout the company’s
markets. These differences may be significant
and require different practices and approaches to
marketing, production and management. Hostility
is expressed by price, by product, by competition
or technological competition distribution, or, by
unfavorable demographic trends (Miller, 1987)
(Table 2).
Firm Growth: This dimension is evaluated
according the variables: 1) employment growth
(calculated based on the change in the number of
employees); 2) sales growth; 3) sales growth com-
pared to competitors; 4) market value compared
154

to competitors; 5) performance (this variable is
measured by cash-flow, profits and losses; and
gross sales margins) (Davidsson, 1989; Zahra,
1991) (Table 2).
Control variables: We have included as con-
trol variables, firm size, turnover and firm age
(Table 2).
DISCUSSION OF RESULTS
Factors Influencing SEO
Life-Cycle
Table 3 displays the results for the company life
cycle factors significantly impacting on strategic
entrepreneurial orientation.
In the case of company life cycles, we report
that companies already into more advanced
phases (p <.05) return a significantly lower level
of competitive aggressiveness. As regards the
contextual variables, older companies display a
significantly more proactive orientation (p <.01)
and report higher levels of innovation (p <.01) and
competitive aggressiveness (p <.01).
As regards the structural variables, the higher
the level of formalized decision making processes,
the greater the risk taking (p <.01) and innovative
orientation (p <.05), the greater the centralization
of decision making processes in the entrepreneur,
the greater the risk taking (p <.01) and the lower
the proactiveness level (p <.05). When decision
making involves employees, companies tend to
display a lower level of competitive aggressiveness
(p <.05). The larger the number of hierarchical
levels in the company, the greater the level of risk
taking (p <.05) and competitive aggressiveness
(p <.05).
We would note that the older the company
does not necessarily mean that it has entered into
the more advanced stages in the life cycle such as
the mature phase. Our results point to competitive
aggressiveness as being positively influenced by

Strategic Entrepreneurial Orientation and Small Business Growth

Table 3. Linear regression: Dependent variable: SEO dimensions; independent variables: life cycle
(unstandardized coefficients)

Risk Taking Proactiveness Innovation Competitive

Aggressiveness
Life-Cycle Stages -0,08 -0,19 -0,16 -0,17*
Contextual Age 0,00 0,01** 0,01** 0,01*
variables
Growth in employment -0,16 0,18 0,13 0,12
Size 0,00 0,00 0,00 0,00
Structural Formalized decision making 0,08* -0,02 0,17** 0,04
variables
Centralization – owner 0,52** -0,11* -0,02 -0,04
Centralization – employees 0,04 0,01 0,01 -0,08*
Structure 0,14* 0,13 0,09 0,17*
R2 65,8% 8,8% 9,5% 7,8%
Adjusted R 2
65,1% 4,7% 10,9% 3,9%
* p <.05; ** p <.01

company age and hence the ambition to advance
in the life cycle drives the competitive aggres-
siveness and consequently fosters and nurtures
the innovation activities ongoing at the firm. We
also verify that companies with decision making
processes overly centralized in the entrepreneur
do not generate proactive attitudes and thereby
weaken the company’s strategic and entrepreneur-
ial orientations. However, whenever decision mak-
ing processes are duly formalized, this enhances
the orientation towards risk and innovation. Thus,
companies with well defined decision making
structures, but not overly entrepreneur centered,
are those reporting the highest levels of strategic
entrepreneurial orientation.
Motivations
The motivational factors that significant influence
the different dimensions of strategic entrepreneur-
ial orientation are set out in Table 4.
In relation to the variables for the objectives, we
report how the greater the importance attributed
to creativity, the lower the level of risk taking (p
<.01), innovation (p <.01) and competitive ag-
gressiveness (p <.01). The greater the employee
involvement in working on priority tasks, the
greater the risk taking (p <.01) while competi-
tive aggressiveness falls (p <.05). Risk taking is
negatively influenced by the supply of products
and services that improve the livelihoods of others
(p <.05). The greater the importance attributed
to obtaining personal benefits in terms of raising
one’s standard of living, the greater the level of
proactiveness (p <.05). The greater the importance
attached to reaping the rewards of one’s own work,
the greater the level of risk taking (p <.01) and the
lower the proactiveness (p <.05) and innovative
orientation (p <.01). The greater the level of profit
stability, the greater the risk taking (p <.01), the
innovative orientation (p <.05) and competitive
aggressiveness (p <.01). Risk taking (p <.05),
proactiveness (p <.01), innovative orientation (p
<.05) and competitive aggressiveness (p <.05)
are simultaneously negatively influenced by the
importance attributed to stability and enabling the
company to survive recessions and by dependence
on a small number of clients and suppliers. The
greater the importance placed on product quality,
the greater the level of proactiveness (p <.01).
The perception of higher sales than competitors,
meanwhile, drives a lower level of risk taking (p

155
 
Strategic Entrepreneurial Orientation and Small Business Growth

Table 4. Linear regression: Dependent variable: SEO dimensions; independent variables: motivation
(unstandardized coefficients)

Risk Proactiveness Innovativeness Competitive

Taking Aggressiveness
Creativity – being creative 0.33** 0.08 0.21* 0.17*
Creativity - working on priority tasks -0.13** 0.00 0.01 0.04*
Creativity – supplying products/services that 0.41* -0.16 0.27 0.16
improve the lives of others
Personal benefits - standard of living -0.07 -0.16* 0.16 0.03
Personal benefits - reaping the rewards -0.33** 0.16* 0.24** -0.03
Objectives

Stability - profitability 0.26** -0.06 0.25* 0.14**

Stability - surviving recessions 0.14* 0.11* 0.2** 0.11*
Stability - independence 0.24* 0.47** 0.32** 0.34**
Stability - product quality -0.39 -1.14** -0.23 0.22
Power – earning social status -0.18 0.07 0.05 0.08
Power – managing others 0.34 -0.12 -0.10 0.02
Growth in sales -0.22** 0.01 0.07 0.03
Growth in employment -0.28** 0.02 -0.25** 0.22**
Strategy - board level work 0.04 -0.12 -0.24** 0.15*
Strategy - marketing plans 0.01 0.00 0.36** -0.24*
Strategy - strategic development 0.17 0.4** -0.16 0.25**
Marketing - contacts with clients 0.26* 0.01 -0.06 -0.28**
Marketing – sales -0.48** -0.06 -0.29 0.23*
Tasks/functions

Marketing - new client development 0.15 0.16 0.04 -0.17*

Production - calculating costs 0.22 -0.21 -0.16 -0.42**
Production - production -0.17 -0.19 -0.18 0.09
Production - procurement -0.04 0.09 0.21 0.10
Accountancy - administration and finances 0.11 0.07 0.20 0.25**
Accountancy - auditing the performance -0.11 -0.20 0.24 0.19*
Accountancy - banking relations -0.44** -0.17* -0.26** 0.05
Extrinsic rewards -0.58** 0.21 0.59** 0.09
Employees

Intrinsic rewards 0.2 -0.16 -0.55** -0.42**

Working conditions 0.34 0.02 -0.4* -0.20
R2
51.4% 60.1% 57.1% 58.5%
Adjusted R 2
42.1% 51.3% 46.8% 46.1%
* p <.05; ** p <.01

<.01) and the greater the importance attributed to We thus find that the generality of company ob-
growth, the lesser the levels of risk taking (p <.01) jectives incurs a negative impact on risk taking, in-
and innovative orientation (p <.01), while that of novation and competitive aggressiveness. Hence,
competitive aggressiveness tends to rise (p <.01). where companies attribute excessive importance

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Strategic Entrepreneurial Orientation and Small Business Growth
to these objectives, they end up weakening their
overall strategic entrepreneurial orientation. We
would furthermore highlight how proactiveness
is only influenced positively by personal benefits,
which means members of staff need to perceive the
benefits from their actions before taking proactive
stances. Finally, the results demonstrate that only
when companies attain financial stability do they
dedicate themselves to aggressive competitive
strategies.
As regards motivation in terms of the tasks
and functions, we find that the greater the time
entrepreneurs dedicate to management tasks,
the lower the level of innovative orientation (p
<.01) while returning higher levels of company
competitive aggressiveness (p <.05). Dedicating
greater importance to marketing plans positively
influences the innovative orientation levels (p
<.01) while impacting negatively on competitive
aggressiveness (p <.05). Proactiveness (p <.01)
and competitive aggressiveness (p <.01) are both
positively influenced by the time spent by entrepre-
neurs and senior management on strategic devel-
opment. The greater the level of time dedicated to
contacts with clients, the greater the level of risk
taking (p <.05) while competitive aggressiveness
(p <.01) turns out lower. The time spent on sales
negatively influences risk taking (p <.05), while
this bears a positive influence on competitive ag-
gressiveness (p <.01). Competitive aggressiveness
(p <.01), in turn, experiences a negative influence
from the time spent by company management on
accountancy based tasks. The greater the time
entrepreneurs apply to their relationships with
banks, the lower the level of risk taking (p <.01),
proactiveness (p <.05), and innovative orientation
(p <.01). Companies that award major importance
to their dealings and relations with banks display
greater competitive aggressiveness, however, these
relations do not enhance either proactiveness or
risk taking. However, the time put into strategic
development does foster proactiveness and com-
petitive aggressiveness.
In terms of motivations at the employee level,
we note that the greater the importance attributed
to extrinsic rewards, the greater the risk taking
(p <.01) while lowering the level of innovative
orientation (p <.01). Meanwhile, the greater the
importance attached to the intrinsic rewards, the
greater the innovative orientation (p <.01) and
competitive aggressiveness (p <.01). Further-
more, the attention paid to the working conditions
prevailing positively influences the orientation
towards innovation (p <.01).
We correspondingly find that the working
conditions prove a factor fostering innovation in
the SEO.
Resources and Capacities
Table 5 presents the results stemming from the
variables for resources and capacities that signifi-
cantly forecast the different dimensions to strategic
entrepreneurial orientation.
As regards the entrepreneur’s traits, we would
note how management experience significantly
boosts innovation (p <.05) and competitive
aggressiveness (p <.05) just as a management
education background (p <.05) raises the focus
on innovation.
In terms of company resources and capaci-
ties, the results demonstrate how the greater the
number of members of staff (p <.05), the greater
the risk taking while the larger the company size
in comparison with its competitors, the lower
the proactiveness (p <.05), innovation (p <.01)
and competitive aggressiveness (p <.01). We
find here that company size does not bear any
positive influence on proactiveness leading to the
consideration that the larger the company’s size,
the lesser its proactiveness.
As regards networks, the greater the importance
attributed to experts in accountancy, the greater
the level of proactiveness (p <.01) and competi-
tive aggressiveness (p <.05). Furthermore, the
greater the attention paid to family and friends,
the greater are the levels of risk taking (p <.05),
157
 
Strategic Entrepreneurial Orientation and Small Business Growth

Table 5. Linear regression: Dependent variable: SEO dimensions; Independent variables: Resources
and capacities (Unstandardized Coefficients)

Risk Proactiveness Innovativeness Competitive

Taking Aggressiveness
Experience in launching new companies 0.28 -0.46 -0.10 -0.11
Other roles and positions 0.01 -0.11 -0.14 -0.13
Management experience 0.26 0.52 1.52* 1.12*
Entrepreneur characteristics

Experience in large companies 0.00 0.00 0.00 0.00

Experience in industry 0.14 -0.27 -0.34 -0.27
Length of service in current position 0.01 0.01 0.01 0.00
Age 0.00 -0.01 0.01 -0.01
Nationality -0.12 -0.27 0.15 1.03
Gender -0.22 -0.15 0.19 0.47
Training 0.04 0.01 0.19 0.05
Management education background 0.30 0.42 0.81* 0.10
Current company size 0.11* 0.00 0.00 0.00
Size of management team 0.24 0.29 -0.59 0.22
Company Resources

Size compared with competitors 0.07 0.22* 0.24** 0.25**

Number of employees with higher education -0.12 0.02 -0.42 -0.21
Employee involvement in decision making processes 0.38** -0.07 0.14 -0.07
Size of current board -0.42** -0.13 -0.29 -0.09
Current volume (sales) 0.00 0.00 0.00 0.00
Professional consultants – external consultants 0.09 -0.11 0.04 0.02
Professional consultants – lawyers 0.11 -0.12 -0.12 0.15
Professional consultants – regional support institutes -0.14 -0.08 0.30 -0.03
Regular expert advice – accountancy expert -0.34 -0.7** 0.00 -0.5*
Networks

Regular expert advice – bank manager, etc 0.10 0.04 -0.25 -0.15
Regular expert advice – family and friends -0.28* -0.27* -0.47** 0.4**
Consultants on the chain of value - clients 0.36 -0.42 0.80 -0.50
Consultants on the chain of value – suppliers -0.29** 0.16 -0.27* 0.14
Consultants on the chain of value - Employees 0.23 -0.05 0.08 -0.04
R2
81.7% 57.9% 70.5% 64.6%
Adjusted R2 68.2% 43.7% 50.6% 38.9%
* p <.05; ** p <.01

proactiveness (p <.05), and innovation (p <.01) In general terms, the network variables con-
while resulting in lower competitive aggressive- tribute positively to the variable underlying the
ness levels (p <.01). Risk taking (p <.01) and strategic entrepreneurial orientation and we should
innovation (p <.05) rise in accordance with the highlight how the level of importance attributed by
importance attributed to suppliers. entrepreneurs to personal lives drives lower levels
of competitive aggressiveness in the company.

158

Strategic Entrepreneurial Orientation and Small Business Growth

Environment technological change, the greater the pace of in-

The factors in the environment significantly
influencing the different dimensions to strategic
entrepreneurial orientation are set out in Table 6.
In relation to dynamism, our findings dem-
onstrate that the greater the perception of market
dynamism, the greater the company proactiveness
(p <.05) and competitive aggressiveness (p <.05).
Furthermore, the longer the product life cycle,
the lower the level of risk taking (p <.05). The
unpredictability of the competition drives lower
rates of innovation (p <.01). Greater demand
unpredictability drives lower levels of innova-
tion (p <.01) and competitive aggressiveness (p
<.01). And, finally, the greater the frequency in
novation (p <.01).
Our results convey how difficult demand
prediction conditions result in innovation drop-
ping away. The fact that products have long life
cycles also leads companies into inertia and
shunning risk taking. Hence, entrepreneurs tend
to become accustomed to the prevailing level of
sales and market acceptance of their respective
product or service.
As regards market heterogeneity, higher levels
of heterogeneity drive higher levels of company in-
novation (p <.05). Nevertheless, this heterogeneity
reflects in less risk taking (p <.05), proactiveness
(p <.05) and competitive aggressiveness (p <.05)
taking place at companies. Here, markets that do
not display homogeneous characteristics do serve

Table 6. Linear regression: Dependent variable: SEO dimensions; Independent variables: Environment
(Unstandardized Coefficients)

Risk Proactiveness Innovatiness Competitive

Taking Aggressiveness
Dynamism Market dynamism 0.13 0.2* 0.10 0.11*
Product dynamism -0.11* 0.10 -0.06 0.04
Competitor dynamism -0.24 0.01 -0.45** -0.03
Dynamic market demand 0.02 0.06 -0.18** -0.12**
Technological dynamism -0.13 -0.08 -0.19** -0.01
Heterogeneity -0.27** -0.24** 0.17** -0.13**
Hostility Difficulty of survival 0.17* -0.12 0.00 0.15*
Price hostility -0.04 0.00 0.23** -0.01
Quality hostility 0.10 -0.02 0.13** 0.05
Market hostility -0.11 -0.07 -0.17* 0.05
Changes in Changes in sector expansion opportunities 0.02 -0.13 -0.16 0.09
dynamism
Changes in sector innovation -0.18 0.10 -0.14* -0.21**
Changes in sector research activities 0.28 -0.06 -0.02 0.13*
Changes in heterogeneity -0.40* -0.25 0.13 -0.23**
Changes in Changes in the predictability of competitor 0.02 -0.31** 0.07 -0.16*
hostility market activities
Changes in the aggressiveness of competitor 0.03 0.14 -0.11 0.25**
market activities
R2 25.8% 22.9% 45.7% 47.3%
Adjusted R 2
18.2% 15.1% 40.2% 42.0%
* p <.05; ** p <.01

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Strategic Entrepreneurial Orientation and Small Business Growth
to foster the level of innovation. Hence, compa-
nies seem not to react well to that which they do
not understand, even while this unpredictability
alongside complex and heterogeneous environ-
ments do foster innovation.
In terms of hostility, our results report that the
greater the threat to company survival, the higher
the levels of company risk taking (p <.05) and
competitive aggressiveness (p <.05). In the case of
the level of threat to prices and the product quality
of competitors, the greater the level of threat, the
lower the level of both innovation (p <.01) and
aggressiveness (p <.05). Higher levels of market
hostility reflect in higher levels of innovation (p
<.05) taking place among companies.
As regards changes to the prevailing levels
of dynamism, the greater the rate of process
and product innovation, the greater the level of
innovative orientation (p <.05) and competitive
aggressiveness (p <.01) and the higher the level
of R&D activities ongoing in the sector, the lesser
the level of competitive aggressiveness (p <.05). In
relation to changes in the heterogeneity prevailing,
the greater the changes taking place, the greater
the level of risk taking (p <.05) and competitive
aggressiveness (p <.05). In changes to prevailing
hostility levels, the results convey how higher
levels of predictability and competitor market
aggressiveness result in greater proactiveness (p
<.01) and competitive aggressiveness (p <.05).
Table 7 features a summary of the effects (posi-
tive and negative) of the different facets on SEO.
SEO Influence on Small Firm Growth
Table 8 puts forward the results relative to the
influence of strategic entrepreneurial orienta-
tion (SEO) on growth and business performance.
These serve as control variables for the two factors
referring to scale (number of employees and the
company sales volume) and company age.
In relation to the growth variables, we find
that only the factor for competitive aggressive-
ness generates statistically significant influence
160

on the development of sales (p <.05) and growth
in market value (p <.01) within the framework of
which the greater the level of competitive aggres-
siveness the greater the rise in both sales and the
perception of market value in comparison with
company competitors.
As regards performance, we encounter signifi-
cant linkage between innovation and competitive
aggressiveness and rising cash flow (p <.05) and
demonstrating that higher levels of scores for com-
petitive aggressiveness drive more positive cash
flows in comparison with the competition with an
inverse relation holding for innovation scores. In
the case of profits, we find a significant association
with the results for risk taking in which the higher
the score for risk taking the lower are the profits
and losses in comparison with competitors while
higher levels of competitive aggressiveness result
in larger gross sales margins (p <.05).
FUTURE RESEARCH DIRECTIONS
Growth is an empirical and multifaceted phe-
nomenon. Therefore, the application of multiple
indicators is necessary in order to reflect its entire
dimension. It thus becomes possible to ascertain
to what extent SEO affects the various types of
firm growth and in which different ways. A pos-
sible research approach would be to model SEO
as a latent dimension with a range of indicators
and subject it to structural equations. The use
of structural equations has additional important
implications for future research as the number of
variables may be reduced without omitting infor-
mation due to the latent variable structure; with
the relations between theory and empirical results
rendered directly clear from the analytical outputs.
The strategic entrepreneurial orientation (SEO)
is commonly seen as something inherently good,
something firms should make an effort to attain.
This vision is supported by the results of this
research. However, future research is essential
in order to examine the relationship between this

Strategic Entrepreneurial Orientation and Small Business Growth

Table 7. Effects of factors impacting on SEO

Risk Proactiveness Innovativeness Aggressiveness

Taking
Life Cycle
Life cycle phase -
Age + + +
Formal decision making + +
Centralization – owner + -
Centralization – employees -
Structure + +
Motivations
Creativity – being creative - - -
Creativity – working on priority tasks + -
Creativity – supplier of products/services that improve lives -
Personal benefits - standard of living +
Personal benefits - reaping the rewards - - -
Stability – profitability + - + +
Stability - surviving recessions - - - -
Stability – independence - - - -
Stability - product quality +
Growth in sales -
Growth in employment - - +
Strategy - board level work - +
Strategy - marketing plans + -
Strategy - strategic development + +
Marketing - contacts with clients + -
Marketing – sales - +
Marketing - new client development +
Production - calculating costs -
Accountancy - administration and finances -
Accountancy - auditing the performance -
Accountancy - banking relations - - -
Extrinsic rewards + -
Intrinsic rewards + +
Working conditions +
Resources and Capacities
Management experience + +
Management education background +
Current company size +
Size compared with competitors - - -
Number of employees with higher education + + +

continued on following page

161
 
Strategic Entrepreneurial Orientation and Small Business Growth

Table 7. Continued

Risk Proactiveness Innovativeness Aggressiveness

Taking
Employee involvement in decision making processes +
Size of current board -
Regular expert advice – accountancy expert + +
Regular expert advice – family and friends + + + -
Consultants on the chain of value – suppliers + + +
Environment
Market dynamism + +
Product dynamism -
Competitor dynamism -
Dynamic market demand - -
Technological dynamism +
Marketing heterogeneity - - - -
Difficulty of survival + +
Price hostility -
Quality hostility -
Market hostility +
Changes in sector innovation + -
Changes in sector research activities -
Changes in marketing heterogeneity + +
Changes in the predictability of competitor market activities + +
Changes in the aggressiveness of competitor market activities +

and the sustained success of the firms. Future
research must consider longer periods of time
(longitudinal studies).
Given the complexity of the variables deployed
in this study, we believe it necessary for future
studies to adopt dimensions related to the com-
petitiveness of companies and the characteristics
of the industrial sector in which they do business.
CONCLUSION
The literature analyzed advocates how the growth
of small firms and companies tends to be inter-
twined with the behaviors of their managers and
entrepreneurs. Thus, growth becomes considered
as a logical consequence of their innovative ca-
pacities, their competitive aggressiveness, and
the proactiveness and risks assumed within the
company. The relationship between the strategic
entrepreneurial orientation of a company, its
growth and performance have all been subject to
wide reaching research whether from the concep-
tual or empirical point of view. However, there
still remains a set of factors requiring clarification
stemming from the fact they interweave analytical
indicators for growth and performance even while
such dimensions are to an extent contradictory
(Delmar et al., 2003).
This research stands out primarily for two
specific facets: i) we identify a set of factors that
would seem to a greater or lesser extent to deter-

162

Strategic Entrepreneurial Orientation and Small Business Growth

Table 8. Linear regression: Dependent variable: Growth; Independent variables: SEO (Unstandardized
Coefficients)

Growth Performance
Growth in Growth Growth in Sales Market Value Cash- Profits/ Gross
Employment in Sales Compared with Compared Flow Losses Sales
Competitors with Margin
Competitors
SEO Risk taking -2.79 -0.04 0.15 -0.04 0.07 -242.90** 0.15
Proactiveness -7.21 -0.02 -0.14 -0.13 0.17 -164.41 -0.14
Innovativeness 5.07 0.01 0.22 -0.09 -0.36* 183.62 0.22
Competitive -4.72 0.00 0.34* 0.32** 0.52* -150.95 0.34*
aggressiveness
Control Company size (no. 0.06 0.00 0.01 0.00 0.00 34.94 0.01
of employees)
Sales volume 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Company age -0.11 0.00 0.00 0.02 0.01 -11.12 0.00
R2 10.6% 7.5% 22.9% 48.4% 19.8% 61.7% 17.1%
Adjusted R 2
1.7% 1.6% 15.3% 43.3% 11.9% 60.5% 8.9%
* p <.05; ** p <.01

mine the strategic entrepreneurial orientation; and
ii) the separate analysis of the influence of each
dimension to strategic entrepreneurial orientation
in terms of growth and performance. We find
that the competitive aggressiveness dimension
emerges as the only factor with a statistically
significant impact whether in terms of growth
or in performance. In the cases of the innovation
and risk taking dimensions, these prove to have
no statistically significant impact on growth but
do display an impact on performance and thus
contributing to a reduction in profits and cash
flow. Given the cross sectional nature of this study,
we are not able to conclude whether any worse
performance is due to the efforts company place
on growth or whether instead this derives from
some structural factor inherent to the small scale
of the companies under study.
Based on these most consistent results, we
provide empirical evidence that SEO does impact
on the growth of small firms, although the rela-
tionship is complex. It was possible to conclude,
with some consistency, that the firms which are
strategically entrepreneurial detect opportunities
and obtain an advantage in searching for those
opportunities.
The results advocated the need for explanatory
variables at multiple levels to explain growth.
Setting out the SEO as an indispensable variable
to the growth of small firms seems conceptually
pertinent. These firms seem to share some charac-
teristics of the type of adhocracy firms suggested
by Miller (1987) and Mintzberg (1979) in being
flexible, with an informal organizational structure
and a strategy able to provide answers whether to
competitors, customers or market opportunities.
The results of this study stand implications for
managers and political decisions makers. While
the SEO seems crucial for the firm’s growth is not
a generalized current practice among such firms,
our results clearly point out that the strategically
entrepreneurial firms are more motivated to growth
and as such should be intensified. Furthermore,
managers and entrepreneurs need to be aware that
business growth should be defined in accordance
with their growth strategy. Political decision mak-
ers might therefore opt to strengthen such policies
and establish incentives for firms to engage in

163

Strategic Entrepreneurial Orientation and Small Business Growth
business networks and internationalization and
thereby foster higher levels of innovativeness and
proactiveness.
Nevertheless, any study inevitably has its
limitations. The limitations of any study vary
depending on the choices made, both deliberately
and unconsciously. Firstly, it always remains sur-
prising to understand that the major limitation is
the fact that these results do not stem from factual
reality but from analyses based on simplifications
and conceptual models. This study indicates that
it is possible to analyze growth in small firms.
However, the growth time considered was short
and behavior differences are not possible to de-
termine in a study of this nature (cross sectional)
and resulting in non-perfect powers of prediction.
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KEY TERMS AND DEFINITIONS
Competitive Aggressiveness: Related to
the propensity of the organization to direct and
i n t e n s e ly c h a l l e n g e i t s c o m p e t i t o r s
167
 
Strategic Entrepreneurial Orientation and Small Business Growth

to achieve better market positions aiming
overcome them, capacity to respond aggressively
to competitors’ actions.
Innovativeness: It reflects the tendency
of an organization to engage and support new
ideas, innovations, experiments and creative
processes that may result in new products,
services or processes.
Life-Cycle Stages: Developmental stages of
a firm over a period of time with specific charac-
teristics that define the life of a firm. In various
stages the firms use different strategies, structures,
different styles of decision-making and suffer the
interference of different contextual factors.
Proactiveness: Can be seen as trend of an
organization influence the environment and even
initiate change; A driver of competitive advantage.
Risk Taking: It captures the degree of risk re-
flected in several decisions of resource allocation,
as well as in choice of products and markets, reflect-
ing, in a way, a criterion for decisions and a standard
decision-making at the organizational level.
Strategic Choice: It describes the role that
leaders play in influencing an organization
through making choices in a dynamic political
process. These strategic choices formed part of
an organizational learning process that adapted to
the external environment as well as the internal
situation.
Strategic Entrepreneurial Orientation: It
emerges from a strategic choice perspective which
states that new business opportunities can be suc-
cessfully undertaken intentionally. It involves the
intentions and actions of key players in a dynamic
generator aimed at creating new businesses.

This work was previously published in a Handbook of Research on Strategic Management in Small and Medium Enterprises
edited by Kiril Todorov and David Smallbone, pages 180-203, copyright year 2014 by Business Science Reference (an imprint
of IGI Global).

168
 169

Chapter 10
ICT and Building a Knowledge-
Based Society in Egypt
Nagla Rizk
The American University in Cairo, Egypt

Sherif Kamel
The American University in Cairo, Egypt

ABSTRACT
This article aims to evaluate Egypt’s progress on the road towards a knowledge society. The paper discusses
the evolution and assesses the outcomes of ICT initiatives in place in Egypt. Equally, the paper analyzes the
status and potential of factors that are necessary for the realization of such a society at this turning point
in the country’s history. The paper pinpoints the progress achieved on many fronts and identifies neces-
sary steps to match leading knowledge and digital societies. The paper suggests some useful strategies for
the government to expand access and contribution to knowledge – promoting a shared knowledge society
in co-operation with the private sector in order to bridge the gaps. Efforts should not only be focused on
expanding and enhancing connectivity and technology, but should also promote content development,
provide educational opportunities and foster a comprehensive enabling environment.

INTRODUCTION ture and infrastructure in an effort to expand the

Information and communication technology (ICT)
is setting the pace for a changing, competitive
and dynamic global marketplace, representing
an invaluable vehicle for business and socioeco-
nomic development and introducing new forms
and structures of organizations that are not con-
strained by geographical or time barriers. Egypt,
as an emerging economy, has strived to achieve
the potentials of ICT since the 1960s and has
increasingly invested in building its infostruc-
DOI: 10.4018/978-1-4666-8468-3.ch010
economy’s disposition as an important growing
player in the global economy.
The purpose of this article is to evaluate Egypt’s
progress towards a knowledge society through
assessing the socioeconomic implications of the
diffusion of ICT in Egypt. The article assesses the
steps that Egypt has taken towards transforming
into a knowledge society through answering a set
of questions. How have the ICT for development
policy, strategy formulation and infrastructure
deployment evolved? How ICT has become a

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

ICT and Building a Knowledge-Based Society in Egypt
platform to access knowledge and a vehicle for
development towards a knowledge society? What
are the challenges remaining towards edging closer
towards a knowledge society?
SYNOPSIS OF INFORMATION,
KNOWLEDGE AND ICT STRATEGY
EVOLUTION IN EGYPT
Through its ancient history that extends over 3000
years B.C, Egypt has witnessed massive informa-
tion flows from Rosetta stones and papyrus papers,
to the establishment of the Library of Alexandria.
During the middle ages, Arabic manuscripts be-
came one of the most common means for infor-
mation and knowledge dissemination. In the early
19th century, Egypt witnessed the publishing of
the first journal and the establishment of the first
national archive system (Kamel, 1998a).
Yet in the 20th century and prior to 1985, Egypt
was perceived as being rich in data but poor in
information. Computers were viewed as ends and
not means; accumulated bureaucracy through red
tape and the existence of islands of innovation with
no connecting bridges restrained the production
of information (Kamel, 1999; Kamel, 1998b).
Moreover, government focus was on technical
issues and not decision outcomes; multi-sector
coordination was poor, synergy between informa-
tion and socioeconomic development strategies
was lacking and a clear case of the ‘brain drain’
became evident. Given how important and useful
ICT has proven to be to socioeconomic develop-
ment elsewhere around the world, building the
required information infrastructure for Egypt was
a necessity. The strategy deployed had to have
a two-tier approach. Society with its different
stakeholders can contribute in shaping the infos-
tructure, which in turn will effectively contribute
in the socioeconomic development and growth.
(World Bank, 2006). Table 1 demonstrates the
development of the information society in Egypt
during the 20th and 21st century (Kamel, 2007).
170

Information and knowledge continue to be
major drivers in the global economy, taking
precedence over land, capital or labor. The ca-
pacity to manage knowledge-based intellect is
the critical skill of this era where having a good
base of knowledge leads to the creation of fur-
ther knowledge (Kamel & Wahba, 2002). As the
impact of ICT on socioeconomic development
became apparent, governments around the globe
directed investment towards national informa-
tion infrastructures (Petrazzini & Harindranath,
1996). Accordingly, Egypt has heavily invested
in its technology and infostructure to become
the platform for the economy’s development and
growth (Kamel, 2005a). However, this effort is still
incomplete in terms of infrastructure deployment
and upgrades to use ICT effectively as a vehicle
for development.
In the 1980s, Egypt strived to implement a
nationwide strategy towards its socioeconomic
development objectives to address national chal-
lenges such as debt, a high illiteracy rate, poor
infrastructure and reforms. ICT was perceived
Table 1. The development of the information
society in Egypt
Programs Year
Open Door Policy 1974
Economic Reform Program 1985
Information Project Cabinet of Ministers 1985
(IPCOM)
Information and Decision Support Program 1985
(IDSC)
National Information and Administrative 1989
Reform Initiative
Egypt Information Highway 1994
Ministry of Communications and Information 1999
Technology (MCIT)
National Information and Communications 2000
Technology Master Plan
Egypt Information Society Initiative (EISI) 2003
Extending ICT to public services 2004
Egypt ICT Strategy 2007-2010 2007

ICT and Building a Knowledge-Based Society in Egypt

as a catalyst for that process. Accordingly, the KNOWLEDGE SOCIETY

Egyptian government adopted a set of informa-
tion-based projects leading to the establishment The definition of a knowledge society is not a fixed
of the Information and Decision Support Center one; it constantly evolves to reflect developments
(IDSC) in 1985, a think tank affiliated with the in the field as they unfold. Indeed, we have seen
cabinet of Egypt. Its objective was to develop and the evolution from a digital society to a digital
implement, using a supply-push strategy, large economy to an information economy and it is only
informatics projects to achieve socioeconomic natural that new connotations, beyond that of the
development using state-of-the-art ICT (El-Sherif knowledge society, will or have already emerged.
& El-Sawy, 1988).
The switch from state-focused development
Table 2. Egypt ICT profile (MCIT, 2011a; MCIT,
in the 60s to a private sector-led approach in the
2011b)
90s underlines the current paradigm of employing
public-private partnerships (PPP) as the optimum Indicators August
vehicle for socioeconomic growth. Hence, for 2011
the period 1985-1995, a government-private Internet Subscribers 29.75
million
sector partnership had a remarkable impact on
the build-up of Egypt’s infostructure through International Internet Bandwidth 134.72
Gbps
establishing hundreds of informatics projects
ADSL subscriptions 1.65 million
and centers in different public and private sector
Percentage of households using Internet from 34.83%
organizations targeting socioeconomic develop- Home
ment (Kamel, 1998a). Such projects considered Telephone Subscribers
as major building blocks necessary to establish Mobile Subscriptions 78.99
a full-fledged infostructure capable of keeping million
pace with global developments. In 1999, ICT Mobile Phones Penetration per 100 inhabitants 97.93%
was identified as a priority at the highest policy Fixed Lines Subscriptions 8.96 million
level and a new cabinet office was established, Fixed Lines Penetration per 100 Inhabitants 11.28%
the Ministry of Communication and Information Public Pay Phones 23,664
Technology (MCIT), leading to more investments IT Clubs 2,163
and infrastructure build-up (Kamel, 2005b). The ICT Companies 4,250
sector was perceived as having transformed itself Number of Employees 212,260
from a sector looking for support and subsidies, Operating Capital (billion US$) 7.98
to a sector contributing tangibly and intangibly IT Economic Indicators January-June 2011
to the economy with a total of 5.2 billion US
Revenues of the ICT Sector 3.7 Billion
dollars received by the treasury since early 2006 USD
through establishing and expansion of internet Annual Rate of Growth in the Revenues of the 3.98%
and ADSL services, mobile services upgrading ICT Sector

of fixed lines and others. Table 2 demonstrates ICT Real GDP 3.12 Billion
USD
some of these results.
Annual Rate of Growth of the ICT Real GDP 2.29%
Annual Rate of Growth of the Employees in the 7.02%
ICT Sector

171

ICT and Building a Knowledge-Based Society in Egypt
The term “knowledge society” was first used
in 1969 by Peter Drucker, at the same time where
similar notions evolved such as “learning societ-
ies” and “lifelong education for all” (UNESCO,
2005, p. 20). The concept of a knowledge society is
wider in scope than the concept of an information
society, in that the latter is based on technologi-
cal advances, while the former embraces broader
dimensions including social, ethical and political
ones (UNESCO, 2005). The UNESCO’s first
phase of the World Summit on the Information
Society (WSIS, 2008) argues that the concept of
a knowledge society is more empowering than
the concept of technology and connectivity where
“knowledge societies are about capabilities to iden-
tify, produce, process, transform, disseminate and
use information to build and apply knowledge for
human development. They require an empowering
social vision that encompasses plurality, inclu-
sion, solidarity and participation.” The Summit
emphasized the role of global information society
in “tending towards human development based on
human rights” (UNESCO, 2005, p. 27).
The knowledge society refers to a second-
generation information society aiming to gener-
ate knowledge through a culture of sharing, and
develop applications that operate via emerging ICT
like the Internet (ESCWA, 2005). The commission
of the European Union (2003) characterizes the
knowledge society by a number of interrelated
trends, including, but not limited to, major advanc-
es in diffusing and using ICTs; increased emphasis
on innovation in the corporate and national context;
the development of knowledge-intensive business
service economies and knowledge management,
in addition to trends towards globalization and
economic restructuring. Together with advances
in ICT, a knowledge society (Figure 1) is one
where the economy is a ‘knowledge based one’
and society is predominantly based on horizontal
networks and “democratic participation” (Arab
Knowledge Report, 2009, p. 33).
172

ICT FOR KNOWLEDGE SOCIETY
Knowledge has the characteristics of a public good;
it is non-rival and is arguably non-excludable. As
such, knowledge should be available to everyone.
Through knowledge, present and future genera-
tions practice integration and solidarity. The focus
on human rights in the “new” knowledge society
emphasizes basic relevant rights such as freedom
of opinion and expression, the right to universal
and free basic education, the right to “freely to
participate in the cultural life of the community
and to enjoy the arts and to share in scientific
advancement and its benefits” (UNESCO, 2005,
p. 18). From here comes the role of ICT as an
essential platform in developing a knowledge
society and allowing for exercising freedom of
opinion and expression and of knowledge sharing.
While ICT advances continue to be funda-
mental to the evolution of societies, other realms
are becoming increasingly important, namely an
enabling environment (Arab Knowledge Report,
2009). A knowledge society requires a certain
enabling environment where education fosters
innovation, good governance allows for transpar-
ency and accountability, and progress in economic
freedoms (Arab Knowledge Report, 2009). Uni-
versities, education and training institutions from
both the public and private sectors need to coop-
erate to realize the knowledge society paradigm.
Culture also serves as one of the most important
factors in formulating the knowledge society. Basic
enablers such as high gross national product per
capita, adequate basic infrastructure, lower rates of
illiteracy and familiarity with information sources
such as newspapers, television and Internet factor
greatly in the propensity of a society to process,
produce and consume knowledge (ESCWA, 2007).
The knowledge society is a force for fundamen-
tal global change (Garito, 1996). The changeover
is complex, requiring new forms of partnership
and cooperation between public and private sec-

ICT and Building a Knowledge-Based Society in Egypt
Figure 1. Mechanism for movement towards the Arab knowledge society
tor organizations (Kamel & Wahba, 2002). The
gradual move towards a knowledge society is
irreversible and expanding, involving massive
developments in information and communication
technologies that have revolutionized knowledge
production and sharing. Peer collaboration and
participation has remarkably democratized in-
novation and promoted user generated content
(Von Hippel, 2005). ICTs have been the catalyst
for this transformation from vertical to horizontal
platforms of knowledge production characteristic
of dynamic knowledge societies.
ICT is a fundamental component of a knowl-
edge society. This has been reflected in the evolu-
tion of indicators measuring the digital economy.
The first generation of ICT assessment focused
on e-readiness indicators that measure the pre-
paredness of countries, individuals or firms for
the digital economy. Their focus was to measure
e-readiness from a connectivity point of view,
whether the current or potential status. Examples
are most notably the EIU e-readiness rankings,
which in 2010 was renamed the ‘digital economy
rankings’, indicating a move from an assessment
173

ICT and Building a Knowledge-Based Society in Egypt
focused on connectivity to one that encompasses
other aspects (Economist Intelligence Unit, 2010).
Other important indicators include the Informa-
tion Society Index (ISI), which encompasses 15
variables in four infrastructures: computer, tele-
com, Internet and social (IDC, n.d). The World
Information Technology and Services Alliance
ICT research focuses on measuring ICT spending
and trends (WITSA, n.d.) and the UNDP Tech-
nology Achievement Index measures countries’
ability to create and diffuse technologies to build
a human-skill base (UNDP, 2001).
While connectivity is the focus of the above
mentioned indicators, recent assessments such as
the EIU ‘digital economy rankings’ mentioned
above, have moved towards a more holistic mea-
sure of the digital economy where the impact
of e-readiness on socioeconomic development,
the digital divide and human development is in-
corporated (Economist Intelligence Unit, 2010).
The revised indicator considers various factors
including IT infrastructure quality, government
policies, consumers’ and business’s ability to use
internet to their benefit and efficiency (Economist
Intelligence Unit, 2010). The International Tele-
communication Union (ITU)’s ICT Development
Index (IDI) focuses on the impact of science and
technology issues on developing countries (ITU,
n.d.). Additionally, The World Bank’s Knowledge
Assessment Methodology (KAM) developed in
2003 assesses countries’ strengths and weakness
towards transition to a knowledge economy, which
extends beyond its mere connectivity status (World
Bank, n.d.). The Networked Readiness Index (NRI)
developed by the World Economic Forum (WEF)
includes an assessment of ICT infrastructure in ad-
dition to the regulatory environment to determine
the extent to which countries are able to utilize
ICT effectively (World Economic Forum 2011).
The evolution of ICT indicators to encompass
the different aspects of the knowledge society
reflects its growing impact on business and so-
cioeconomic development. Indeed, information
has become a basic need of humankind, along
174

with food, clothing and shelter. Technology in-
novations could have remarkably positive implica-
tions for developing nations if they are properly
implemented. ICT must not be marginalized in
the development process. There is an urgent
need to show profits from deploying ICT exceed
the costs of their installation, which in turn pays
for socioeconomic development at large (Heeks,
2005). The main objective of ICT should be to
improve the everyday lives of community mem-
bers, fight poverty and advance the Millennium
Development Goals-MDGs.
DIGITAL DIVIDE: A CHALLENGE
TO KNOWLEDGE SOCIETY
It is commonplace in development literature that
the developing world lacks sufficient access to
ICT – a condition often dubbed as the “digital
divide” that refers to the gap between “haves” and
“have-nots,” correlating the possession of ICT
resources by individuals, schools and libraries
to variables such as income level, age, ethnicity,
education, gender and rural-urban residence (Ka-
mel, 2005b). Unaffordable personal computers,
poor or limited telecommunications infrastructure
especially in remote locations, and high illiteracy
rates coupled with poor educational systems are a
few of many factors that cripple the digital econ-
omy in developing countries (Kamel & Tooma,
2005). Characterized by an inequitable diffusion
of technology and expertise from North to South
and lacking contribution to the creation of knowl-
edge and technologies necessary for development,
the digital divide thus affects countries’ ability to
develop their local economies and compete on the
global platform.
There is a clear correlation between countries
that score high on the NRI (Networked Readiness
Index) and high on the Human Development Index
(HDI). World economies have been classified into
3 tiers based on the degree of progress of ICT
deployment from 2001 to 2008 (Dirks, Keeling,

ICT and Building a Knowledge-Based Society in Egypt
and Lyons, 2008). Tier 1 countries include 20 from
Western Europe, North America and Asia-Pacific.
These countries are amongst the top 20 in United
Nations Human Development Index (HDI), have
strong competitive global economies, solid legal
and political structures and their governments
adopt efficient e-government strategies. Egypt is
classified as a tier 3-country on grounds of starting
the new century with inadequately developed so-
cial, economic, political and legal infrastructures.
Moreover, ICT influences a very small part of
their economies (Dirks, Keeling, & Lyons, 2008).
Egypt together with other tier 3 countries such
as Jordan, India and Thailand suffer from poor
social infrastructure reflected in low educational
attainment together with wide income variation,
high population growth rates, high barriers to
market entry and challenges in adopting or de-
veloping ICT laws. These shortcomings hinder
ICT deployment and use. This is reflected in rela-
tively low expenditures on ICT in these countries,
where “per capita expenditures range from $100
to $200, with 75 percent for telephone services”
(Dirks, Keeling, & Lyons, 2008, p. 11). Dirks,
Keeling and Lyons explain that these nations
and Egypt is a good example, continue to direct
efforts to developing digital telecommunications
(telecom) infrastructure and on developing an
enabling environment for ICT adoption to allow
widespread efficient ICT deployment. However,
low performance in areas such as encouraging
consumer and business adoption of ICT continues
as a socioeconomic obstacle hindering deployment
(Dirks, Keeling, & Lyons, 2008).
The challenge for developing countries lies in
having a clear, implementable vision of how to
harness the power of ICT in socioeconomic de-
velopment. Indeed the digital divide can and does
extend beyond the inequality in access to technol-
ogy. ICT is but one component of the knowledge
society; inequality in technology access can be
seen as part of a wider digital divide that is itself
a developmental divide. Egypt’s current policies
and strategies are geared towards addressing the
connectivity obstacles. However, attention also
needs to be directed towards improving the legal
and regulatory environment, to capacity develop-
ment and raising awareness. Equally important
is the development of efficient mechanisms to
strengthen collaboration between different sectors
in the economy and to facilitate the deployment
of ICT to the benefit of sustainable development
through cultural adaptation and localization. One
challenge is using ICT as a platform for knowledge
dissemination in both major and peripheral cities.
The focus should always be on outcome assess-
ment for this strategy.
BUILDING EGYPT’S
KNOWLEDGE SOCIETY
With the latest estimates of Egypt population of 83
million1, and growing at 1.9%, Egypt is the most
populous country in the Middle East (World Bank,
2011). About 28% of its population is enrolled
in educational programs, schools and universi-
ties; 58% are under the age of 25 and 19 million
represent its workforce with around 5.7 million
working for the government sector (MSAD, 2008).
Egypt’s liberalization of its public sector involves
investing heavily in its human capital, encourag-
ing foreign direct investment and using ICT as a
platform for business and socioeconomic devel-
opment. Public-private sector partnerships have
been introduced in several economic sectors such
as education and health, and government reform
is targeting both inter and intra digital divides in
an aim to promote social inclusion.
Information is power, and it is a factor in the
manipulation of discourse about socioeconomic
reform (Stiglitz, 2002). Historically in Egypt,
government has dominated the supply of informa-
tion. However, the number of entities generating
information is expanding and the quality of their
service is improving. Over the last two decades,
the government has steadily opened more informa-
tion to the public, as indicated earlier through the
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ICT and Building a Knowledge-Based Society in Egypt
experience of IDSC (IDSC, 2008). The process
of information sharing and dissemination was
orchestrated by a number of public and private
sector organizations led by the Central Agency
for Public Mobilization and Statistics (CAPMAS),
considered the official source of data in Egypt
(El-Mikawy & Ghoneim, 2005). Established by
Presidential Decree Number 2915 in 1964, CAP-
MAS has since been the official source of data
collection in Egypt, collating field data and data
from other government agencies. CAPMAS has
recently has made information publicly available
to researchers and businesses in conjunction with
other research centers like the Center for Economic
and Financial Research and Studies (CEFRS), the
Egyptian Center for Economic Studies (ECES) and
the Economic Research Forum for Arab Coun-
tries, Iran and Turkey (ERF). MCIT was charged
with the task of creating an information society,
beginning with the preparation of the national ICT
plan which paved the way for Egypt’s Informa-
tion Society Initiative (EISI), which is structured
around seven major tracks, each designed to help
bridge the digital divide and progress Egypt’s evo-
Table 3. Egypt Information Society initiative (MCIT, 2005b)
eReadiness “Equal Access for All”
• Easy and affordable access to new technologies
• Developing a crucial robust communication infrastructure
eGovernment “Government Now Delivers”
• Delivering high quality government services to the public in the
format that suits them
• Reaching a higher level of convenience in government services
• Offering citizens the opportunity to share in the decision-
making process
eHealth “Increasing Health Services Availability”
• Improving citizens’ quality of life and healthcare workers’ work
environment
• Using ICT through to reach remote populations
• Providing continuous training for doctors
• Developing the tools for building a national health network
ICT Export Initiative “Industry Development”
• Fostering the creation of an export-oriented ICT industry
• Developing an ICT industry that will be a powerful engine for export growth and job creation
176

lution into an information society (MCIT 2005a;
2005b). Table 3 demonstrates the different EISI
building blocks.
ENABLING ENVIRONMENT
The transition towards a knowledge society in
Egypt, which necessitates a certain enabling en-
vironment, has seen the restructuring of the ICT
sector including the design of laws and regula-
tions related to telecommunications, electronic
commerce, intellectual copyrights and industry
development; investments in human resources;
and promoting innovation and research. This is an
ongoing process as ICT-empowered products and
services call for continuous monitoring, evaluation
and adjustment. MCIT took concrete steps like
establishing the National Telecommunications
Authority (NTRA) and the IT Industry Develop-
ment Agency (ITIDA) and radically modernizing
the Egypt National Postal Organization (ENPO).
The partnership between these institutions and the
ICT private sector accelerated ICT expansion over
eLearning “Nurturing Human Capital”
• Promoting the use of ICT in education
• Shaping a new generation of citizens who understand ICT and
are comfortable with its use in their daily lives
eBusiness “A New Way of Doing Business”
• Creating new technology-based firms
• Improving workforce skills
• Using electronic documents
• Developing ePayment infrastructure
• Using ICT as a catalyst to increase employment, create new
jobs and improve competitiveness
eCulture “Promoting Egyptian Culture”
• Documenting Egyptian cultural identity by using ICT tools to
preserve manuscripts and archives and index materials
• Offering worldwide access to cultural and historical materials
• Generating and promoting interest in Egyptian cultural life and
heritage

ICT and Building a Knowledge-Based Society in Egypt
the last two years, reaching 14.6% in 2008/2009
(American Chamber of Commerce, 2011). Al-
though the knowledge society must capitalize on
emerging ICT to create socioeconomic benefits,
the most highly valued and profitable assets in
a knowledge society are intellectual: knowledge
and expertise acquired by workers.
The World Bank outlines requirements neces-
sary to adopt a knowledge economy which include
(1) a sound institutional and economic regime,
(2) an effective educational system, necessary to
produce a qualified workforce (3) telecommunica-
tions infrastructure, an area in which Egypt has
made most progress comparatively, (World Bank,
n.d.).Increasing the availability of information
technologies as a public policy objective in Egypt
serves in providing momentum toward establishing
a cohesive framework for a balanced, knowledge-
producing, information society. However, these
activities and initiatives are at present fragmented
and dispersed. To ensure a greater accommodation
and use of knowledge in advancing development,
these initiatives must accompany public policies
that target the creation of an enabling environment
that supports the interaction of education, free-
doms -political freedom and freedom of expres-
sion- and governance (Arab Knowledge Report,
2009). Commitment to complementary invest-
ments in these three spheres implies a number of
related policy choices that would induce greater
value to knowledge-based activities.
Critical to realizing socioeconomic develop-
ment in the information age is the existence of
a win-win partnership between the government
and the private sector. While the framework is
not yet defined, the private sector would provide
information-based services while governments
construct a supporting regulatory framework based
on the greater public participation and consensus
essential for a knowledge society. The develop-
ment of the knowledge society cannot be left to
market forces. Governments are responsible for
taking a strategic approach to the demands of an
information-intensive global environment. This
approach should include: creating a shared vision
of the new ICT age, intensifying the process of
information acculturation, generating the neces-
sary human capacities, accelerating the develop-
ment and deployment of ICT infrastructure, and
building an electronically ready community.
Table 4 demonstrates the findings of a study
conducted by ESCWA on the status of the knowl-
edge society in Egypt. According to a study of
13 nations in the ESCWA region, the Egyptian
information society was rated at an average ma-
turity of 2.3, while the overall regional average
was 2.14 (ESCWA, 2007).
Egypt today has a well-developed telecommu-
nications system, including three mobile phone
companies and a subscriber base that has grown
exponentially. The rise of the Egyptian ICT sec-
tor has had positive repercussions for the treasury
and the economy as a whole. The ICT sector in
Egypt has contributed around 3.75% or what is
equivalent to $5.23 billion to Egypt’s total GDP in
2008/09(American Chamber of Commerce, 2011).
Simultaneously, on the grass root level, “Access
for All” programs such as IT clubs and PCs for
everyone have created a generation that cannot
imagine life without the Internet. As foreign direct
investment in IT-related industries has sharply
climbed due to legislative and regulatory changes
adopted by MCIT, a vibrant local ICT industry has
emerged to complement it. Moreover, government
is more accessible than ever, especially through the
eGovernment services provided by the Egyptian
National Postal Organization.
The diffusion of PCs in schools and universi-
ties is expected to produce a new generation of
computer literate users. It is important to make
use of ICTs across different curriculums that
cater to the young population soon to enter the
workforce. For ICT applications in education and
health, policies have been formulated but their
implementation plans are unclear and universal
access is still lacking. Concerning digital Arabic
content, plans and projects still need to be for-
mulated. Today, Arabic content on the Internet
177
 
ICT and Building a Knowledge-Based Society in Egypt

Table 4. Findings of the study of information society (ESCWA, 2007)

Component Maturity Level Status

ICT Policies and Strategies
Legal and Regulatory
Frameworks for ICT
ICT Infrastructure
ICT Capacity Building
Building the ICT Sector
ICT Applications in
Government Establishments
ICT Applications in
Education
ICT Applications Healthcare
Digital Arabic Content
3 • Develop a national ICT vision
• Formulation of a national strategy
• Regular amendment of an effective implementation plan
2 • Improvement and regular updating of the legal and regulatory frameworks
• Insufficient regulations for ICT industrial and consumer needs
• Limited enforcement of regulations
2 • Only average telephony density rates
• Increasingly attractive telecom market conditions for personal and corporate users
• Developing international links for telephony and the Internet backbone
• Improving Internet dissemination and enable an active Internet players market
3 • Developing awareness and dissemination programs
• Diffusing PC adoption in schools
• Increasing quality and quantity of market-driven vocational training output
• Increasing universities outcome in terms of curricula
2 • Emerging local ICT companies with limited investments
• Improving government role
• Developing ICT products and services for export
2 • A clear strategy but no clear implementation or plan of action
• Digitized and automated processes coming online
2 • eLearning policy in the formulation stage
• Sporadic Internet connectivity
• Developing eSchool projects and initiatives
• Limited university access to Internet services
2 • Plans to diffuse ICT in the health sector
3 • Moderate development of Arabic content with a growing software industry

is very limited, according to a recent study by a
UAE based e-book firm, Arabic content accounts
for 4% of global content (Zawya, 2011). Despite
a world population that is 5-6% Arabic-speaking
and 65.4 million Arabic speaking people using
the internet (3.3% of internet users) with 18.8%
penetration by Arabic language (Internet World
Statistics, 2011).
The pace of technology-driven change creates
multiple challenges for using ICT for socioeco-
nomic development in Egypt. With the rapid
globalization of trade in services, Egypt should
take all necessary steps to profit from oppor-
tunities in IT service outsourcing. In addition,
the explosive growth in Internet traffic volume
and density demands a new cyber-security and
governance framework. In addition, the global
shortage of ICT skills represents an employment
opportunity for the annual quarter of a million
Egyptian university graduates. Another challenge
is getting involved in smart sourcing by supplying
competitive human resources to the international
business community.
INFORMATION AND
COMMUNICATION TECHNOLOGY
FOR DEVELOPMENT: INITIATIVES
AND POTENTIAL IMPLICATIONS
Technology is a precursor for the knowledge soci-
ety. The evolution of society towards a knowledge
society therefore heralds a new socioeconomic
order characterized by the development and ex-
ploitation of ICT within all spheres of human
endeavor. Against that background, Egypt has
recognized the need to develop its information
and knowledge base through substantial invest-

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ICT and Building a Knowledge-Based Society in Egypt
ments in ICT and human capacity development,
improving access to higher and quality education
and training with an emphasis on creating digital
content accessible to the society.In that respect,
Egypt has taken steps to advance the the nation’s
economy and society to become information-
rich and knowledge-based, which would in turn
promote social and economic development. The
following are initiatives and programs that Egypt
has embarked on to further this objective:
ICT for All
ICT for all is an effort launched by MCIT to
encourage the use of ICT across the nation. The
initiative intends to realize two main objectives.
First, it aims to assist the government policy to
integrate ICT in government and public services
by a) increasing ICT penetration; b) fostering in-
clusion in the knowledge society and better public
services and quality of life and c) expanding the use
of post offices to provide public services. Second
and more obviously, this strategy aims to facilitate
ICT access for all citizens by a) increasing PC
penetration, b) expanding the reach of Internet
connectivity and broadband to all communities,
c) raising youth employability through ICT train-
ing and d) encouraging government employees
to attain international accreditation in ICT skills.
Following is a description of several projects
promoting electronic readiness.
Egypt PC 2010
Egypt PC 2010 is an initiative to bring Egypt as
a nation online.It is an amended version of the
2002 PC for every home initiative launched in
collaboration with Telecom Egypt (TE) that builds
on lessons learnt from other nations with similar
environments (MICT, 2007). The amended initia-
tive offers local and international brand PCs, from
simple models for beginners to high-end desktops
and laptops to the entire populace through facili-
tated retail banking prodecures. The new initia-
tive focuses on improving PC distribution in all
provinces, with an emphasis on underprivileged
communities. The initiative is realized through
public-private partnerships that empower civil
society organizations to play a leading role, work-
ing with the private sector represented by Internet
Service Providers (ISP) and the government rep-
resented by MCIT. The ministry is responsible for
policy formulation, strategic planning and building
the required capacities. In 2007 the penetration
rate was 7% (MCIT, 2007), the penetration rate
reached 29.75% in 2011, with higher density in
Cairo and two other major cities indicating lower
density in the majority of the provinces (MCIT,
2011a). This could be affiliated to poor digital
awareness among some social groups about the
importance of PCs as well unaffordability for
other income groups.The weak diffusion of PCs
is indirectly hindering the limited growth of the
Internet, which reaches 24 million subscribers
(MCIT, 2011a).
IT Clubs
There are over 2163 IT clubs across the nation by
2011 that can be used by small businesses, local
organizations and individuals (MCIT, n.d.), aimed
to provide users with the opportunity to become
computer literate and electronically ready, regard-
less of their initial skill level, gender or income.
They also serve as knowledge disseminators since
they provide training on and access to the World
Wide Web.Recently IT clubs have been established
in universities to bring up-to-date technologies wti-
hin reach of all university students, not only those
in educational programs with computer labs.All
stakeholders contribute to a typical IT club.MCIT
provides all necessary equipment, infrastructure
and training. Usually a local NGO or a university
provides the space and takes responsibility for
managing the IT club. Leading ICT multinationals
contribute training courses like Oracle, Microsoft
and Cisco Academy programs.Needless to say,
the success of the IT club, highly depends on the
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ICT and Building a Knowledge-Based Society in Egypt
club’s public advocates and management – as well
as the eagerness of the local community to make
use of its services.
Mobile IT Units
Mobile IT units visit areas where no NGO has yet
been identified to take on the responsibility of an
IT club.The mobile IT units spread awareness of
computer technologies to rural and remote com-
munities and serve as mobile computer facilities
for training courses, all offered free of charge.
Free Internet Initiative (Internet
and Broadband Connectivity)
To complement the spread of PC ownership,
Internet access has been subsidized since 2002,
when the cost of dial-up access was reduced to
that of a local telephone call. The service was
later upgraded to broadband connectivity which
supplies at least 256 (kbps) and does not disrupt
telephone use. The broadband tariff initiated in
2004, revisited twice and in 2007, was reduced
to reach just over USD 8, which is amongst the
lowest broadband charges in the world. As a result,
the number of Internet users in Egypt has risen to
over 26.34 million in 2011 (MCIT, n.d.).
ICT for Education and
Lifelong Learning
Today, one of the piorities of the government is
the objectiveof deploying state-of-the-art ICT
for education, including the optimization of ICT
investments to avail the required infrastructure
for promoting education and lifelong learning;
satisfying the ICT industry training requirements;
creating an open learning environment by connect-
ing the education community through broadband;
and increasing the efficiency and effectiveness
of education institutions, including by embed-
ding ICT in the curriculum.To those ends, MCIT
works closely and strategically with the Ministry
180

of Education (MOE) and Ministry of Higher
Education and Scientific Research (MOHE) on
a number of projects, the most notable of which
are the Egyptian Education Initiative (EEI), the
Smart Schools Network and ICT for Illiteracy
Eradication (MCIT, n.d.).
Egyptian Education Initiative
The Egyptian Education Initiative (EEI) is a
public-private partnership launched in 2006
between the government, the World Economic
Forum (WEF), the IT community and different
ICT multinationals and organizations operating in
Egypt. Bilateral agreements have been signed with
Microsoft, Intel, IBM, Oracle, Cisco, Computer
Associates, HP and Siemens, as well as more than
25 local partners, such as the British Council and
The American University in Cairo, in technology
sectors from connectivity infrastructure to elec-
tronic content development. The overall strategic
objective of EEI is to better prepare students to
engage in the digital economy by improving the
educational content and delivery mechanisms in
local schools and universities. The main goals of
EEI is to prepare students and teachers for the
digital workforce by enhancing their effective
and creative use of ICT andleveraging national
government commitment and corporate citizen-
ship to build an educational reform model that
can be exported and replicated throughout the
Arab region. EEI is divided into four tracks: pre-
university, higher education, lifelong learning
and ICT industry development to cover the entire
spectrum of learners.
Numerous projects in EEI capitalize on ICT
for access to knowledge for the community. A
prominent example is the Intel “Teach to the
Future” electronic content program, which
promises to prepare teachers for the digital age.
The program started with a pilot in 2007 in 12
different universities, training 120 staff members
how to teach a course using ICT. In parallel, 220
staff members and 4,109 teachers were trained on

ICT and Building a Knowledge-Based Society in Egypt
ICT fundamentals through Microsoft’s “Digital
Literacy” program. Another example is the eLearn-
ing Competence Center (eLCC) which prepares
most of the eLearning curricula, a partnership
between MCIT and Cisco. Despite the achieve-
ments to date, great efforts are still required to
integrate ICT and education to cope with mas-
sive population growth and to cater to the needs
of over 16 million students from elementary to
post-graduate education.
Smart Schools Network
This project aims to transform the teacher’s role
from information provider to facilitator by provid-
ing a gateway for different school to the World
Wide Web. For example, a new Community
Learning Center (CLC) will offer school classes
after working hours to provide a training service
to the community.
ICT for Illiteracy Eradication (ICT4IE)
The ICT for Illiteracy Eradication program has
produced electronic content for teaching Arabic
letters and words and elementary mathematics,
based on the General Authority for Literacy and
Adult Education (GALAE) curriculum, adapt-
ing a mixture of taught and self-study courses.
In addition, MCIT has established Training of
Trainers (TOT) programs in 15 provinces to serve
the growing demand for basic literacy training.
One of the most successful partnerships was
forged between ICT4IE and Resala Association,
a community-based NGO, to pilot CD-based IE
courses in different locations. The project has
attracted illiterates in remote locations to enroll
in the course. With the growing interest in self-
education and regular improvement of the tools,
CDs are meant to shorten the time required for
illiteracy eradication to four months, compared
to the usual nine months required by traditional
methods.
Although Egypt has made significant prog-
ress in achieving its eReadinessobjectives, its
eLearning programs are generally still at the pilot
stage.According to a regional report, Egypt’s
ICT for education implementation was ranked at
a maturity level of two out of four, indicating a
number of sporadic projects and initiatives that
had concrete impacts, but lacking the consistency
and long-term vision for successful implementa-
tion and sustainability (ESCWA, 2007). Of the
three eLearning programs detailed above, the
Egyptian Education Initiative has had the greatest
impact, training over 100,000 teachers in use of
ICT. The Smart Schools Network, although still
quite small, holds the potential to build on this
success to use ICT in a way that truly transforms
the educational experience. Finally, the ICT for
Illiteracy Eradication project demonstrates that
eLearning can be leveraged to achieve results in
lifelong learning, even for those at the greatest
educational disadvantage. To achieve a signifi-
cant impact upon access to knowledge in Egypt,
however, these programs must be greatly scaled
up. This will require broader advances in access
to computers and the Internet (eReadiness) than
has already been achieved.
ICT FOR HEALTH
In collaboration with The Ministry of Health,
MCIT has facilitated the integration of ICT in
health services like health administration, clinical
consultation and continuing medical education in
remote and underserved areas through improving
information acquisition and dissemination within
the health sector. This is the aim of the Integrated
National Health Record System project, through
which MCIT is developing a medical records
system for the ministry of health. The first phase
is underway and will be implemented in 400
family health units, spread across four provinces
with one central headquarters. Another project,
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ICT and Building a Knowledge-Based Society in Egypt
the Information System and National Network
for Citizen Health Treatment by the Government,
uses automated systems to centrally manage treat-
ment and direct patients to relevant therapeutic
units and specialized centers around the country.
Another initiative, the Medical Emergency Call
Center, aims to establish a modern automated
system including a central medical emergency call
room to control and direct ambulances to improve
coordination of services, especially in rural areas.
ELECTRONIC CONTENT
The digital content industry encompasses the
creation, design, management and distribution of
digital products and services and the technologies
that underpin these activities. Currently, it is an
amalgamtion of companies producing traditional
content, media and entertainment, software and
multimedia, and electronic hardware and telecom-
munications services. The objectives of a new
digital content intiative are to develop a world-
class, high-value Arabic digital content industry
and the necessary Arabic applications; use these
products for socioeconomic development; increase
the quality and accessibility of online Arabic digi-
tal content; and create an environment conducive
to the sustainable production of this important
and growing in use digital content. These objec-
tives can be realized by supporting universities,
research centers and ICT companies to develop
research and development capabilities for digital
content; encouraging local communities to develop
digital content; expanding broadband capacity
nationwide; and implementing a comprehensive
legal framework that guarantees the rights of all
parties involved in such endeavors. It is important
to note that eContent production is a key step in
the establishment of a knowledge society. Thus,
MCIT has led the way to an eContent industry
through its Arabic eContent initiative in patner-
ships with various MNCs and ministries. This
initiative aims to enhance the competitiveness
182

of the local eContent industry by supporting the
production, use and distribution of Arabic digital
content on global networks. For example, partners
have digitized material from the National Library
and Archives of Egypt and books from local pub-
lishers and launched portals focusing on news,
entertainment, science and technology.
One successful project, Eternal Egypt, man-
aged by the Center for Documentation of Cultural
and Natural Heritage (CULTNAT), is document-
ing Egypt’s heritage using cutting-edge ICT (Eter-
nal Egypt, n.d.). The technology of its flagship,
Culturama, has already been patented. Pioneering
projects like Memory of the Arab World, a special-
ized portal on the Internet to introduce the Arab
civilization to the world and spread knowledge of
Arabic content on the World Wide Web, and the
digitization of 90 million documents at the Na-
tional Archives of Egypt including historical maps
and Arabic Papyrus are currently underway. The
production of eContent is a key step in establishing
a knowledge society to inspire future generations
intellectually and culturally. Arabic eContent will
also increase opportunities for exporting and for
developing content business in Egypt.
While the goal of developing a high value
Arabic digital content industry is an important
one, it is important to take note that such a project
should also have the aim of expanding access to
this content so that it serves socioeconomic de-
velopment. This initiative has focused on protect-
ing cultural heritage, devising a revenue sharing
model between content and service providers, and
providing legal protection for digital intellectual
property through a legislative framework. Such a
model which provides legal protection for digital
content makes sharing problematic. Since cul-
tural heritage is indeed a cornerstone of Egypt’s
identity, any such digitization efforts should be
devised with the objective of expanding shared
access to content. The challenge in this process
becomes one of striking the balance between treat-
ing digital content as a profit-making, exportable
commodity and a tool to maximize knowledge in

ICT and Building a Knowledge-Based Society in Egypt
society. Initiatives such as this highlight the fact
that increasing eContent will require collaboration
between government and civil society, including
noncommercial partners.
ICT for Government
While MCIT led the introduction of eGovernment,
the responsibility of extending ICT to public
services was shifted to the Ministry of State for
Administrative Development (MSAD, 2008) in
2004. MCIT remains as the ICT advisory vehicle
platform for the governemnt and the primary agent
for handling partnerships and agreements. The
motto of the Egypt Information Society Initiative
(EISI) is “government now delivers.” The govern-
ment is attempting through EISI to deliver high
quality services to the public in a format that suits
them. Table 5 demonstrates some of the statistics
of eGovernment usage in Egypt.
E-government services ranging from paying
telephone bills to enquiring about car license fines
and obtaining high school examination results
save people time and effort. Yet, the potential for
effectiveness of e-government in Egypt is strongly
limited by low literacy and internet penetration
rates.
ICT for Economy
Expanding e-Banking services including debit
and credit cards have facilitated the lives of many
people in Egypt and saved their time and energy.
Debit/credit cards have been widely used and
Table 5. The use of ICT by government
Indicators
Proportion of users who use eGovernment services for ID cards, car or driving licensing and birth certificate
Proportion of users who use eGovernment services for information purposes
Proportion of governmental entities that offers online services
Proportion of governmental entities that provide forms to be filled by the public online
Proportion of governmental entities that publish documentary data online
accepted by people in Egypt. Many restaurant,
shops and places are widening their usage of
such e-cards. Tourists visiting Egypt also find it
easier and safer to use their debit/credit cards in
transactions.
ICT for Democracy
ICT paves the way for political freedoms, demo-
cratic participation and freedom of expression.
ICT has been and continues to be an important
tool used by Egyptians most noticeably since the
onset of the revolution on 25 January 2011. Social
networking websites have been used to organize
gatherings, as forums for debate and as means
to shed awareness on issues and events that have
either been unjustly covered by mainstream me-
dia or completely ignored. Political parties now
use internet forums to introduce their programs
and to attract public. The Supreme Council for
Armed Forces (SCAF) has attempted to establish
communication channels with public by creating
a facebook page.
In the 2011 Parliamentary elections, the High
Election Commission’s website provided useful
information for citizens who wish to use the service
to identify their polling station and learn about
voting procedures, running candidates, and win-
ners. Landline guide service and SMS service were
introduced for the first time to help citizens identify
their polling station (High Election Commission
in Egypt, 2011). Also starting 2011, and for the
first time in Egypt’s election history, Egyptians
abroad were allowed to vote by registering their
Percentage
25%
50%
70.9%
24.3%
29.7%
183
 
ICT and Building a Knowledge-Based Society in Egypt

information on the High Election Commission
website and then sending their voting cards by
e-mail to the Egyptian embassies/representation
in their country of residence.
FUTURE AGENDA
Despite the progress in technology deployment,
there is still some room for acceleration to reach
the critical mass of ICT users and level of ICT
utilization. Only then can Egypt effectively use
ICT as a catalyst for socioeconomic development.
Therefore, the government of Egypt through
MCIT had prepared an action plan that aims to
build a knowledge-based society that will boost
socioeconomic development and entice economic
growth. A number of critical success factors were
identified for the success of this agenda, as shown
in Table 6.
Despite the recent accomplishments, Egypt
is still an emerging nation in terms of ICT de-
ployment. More time is needed for the efforts
expended to generate a payoff – especially given
the size of the population and the different socio-
economic pressures and challenges. Based on the
experience of the last few years, attention in the
coming phase should be focused on increasing
the role of the private sector, addressing priority
needs in the education and health sectors, and
developing the ICT industry. The developments of
the previous phase addressed legal, technical and
business. As indicated earlier, the ICT sector has
been transformed from a repository for subsidies
and donations to an effective contributor to the
economy and socioeconomic development. In
the coming phase of ICT development, the focus
should be on primary needs in the education and
health sectors. The ICT industry needs more at-
tention on innovation, research and development.
ICT is not only a catalyst for development but it
is itself an expanding global industry in which
Egypt can play an active role. During the last few
years, many partnerships have been created with
ICT multinationals such as Microsoft, Oracle,
Intel and IBM to use Egypt as a hub for exporting
services, creating employment opportunities and
enabling an inflow of knowledge and research and
development. Through specialized centers, these
MNCs offer a wide variety of services, including
medical, financial and marketing services.

Table 6. Critical success factors to build Egypt’s Information Society

Critical Success Factors Definition

Completing the ICT infrastructure build-
up
Realizing infostructure interconnectivity
Linking Egypt nationally, regionally and
globally
Investing in human capital
Building an online society
Building the information highway
Building an ICT export industry
Smart Egypt
Design, develop and implement a nationwide infrastructure connecting all 28 provinces,
520 local administrations and over 8000 cities and villages
Realize interconnectivity and develop value-added information networks between
government, private sector and civil society organizations
Link the nation, both within and without, with the growing global digital market space
Invest in human capacities across different cultural and geographical segments of society
Build an online electronically ready community
• Complete Egypt’s information infrastructure
• Engage actively in the global information society
• Encourage innovation, creativity and research and development in different ICT areas
• Develop a high-tech industry that can support the development of major sub-industries
• Develop high-tech projects
• Promote public private partnerships

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ICT and Building a Knowledge-Based Society in Egypt
CONCLUSION
Egypt has taken commendable steps in advanc-
ing ICT with the purpose of utilizing ICT for
development. While focusing on ICT is impor-
tant for the development of a knowledge society,
there are other realms that Egypt like many other
Arab countries is still considerably behind. The
need for an enabling environment remains vital
to foster a knowledge society (Arab Knowledge
Report, 2009).
There are three pillars that form the core of
ICT development that will continue to advance
all MDGs. The first pillar is ICT research, which
will continue to push the private sector as a world
competitor and create new employment opportuni-
ties; the second pillar of continuing deregulatory
policy will allow free markets to flourish; and the
third pillar of concentrating information access at
all levels in society will allow successful delivery
of public services, such as eGovernment. Use of
public-private partnerships will continue to be
instrumental for the government’s strategy. The
private sector is pioneering new infrastructure
foundations such as telecom and wireless tech-
nology.
Human resource capacity building is a major
issue in mobilising Egypt’s available workforce
to work within the information society. Efforts on
this front include the Egyptian Education Initiative
and the illiteracy eradication project. Moreover,
connectivity and access have become a major
part of the government’s attempt to overcome
various infrastructural shortfalls. The government
is focusing on improving rural infrastructure for
educational, health, cultural and governmental
organisations. Knowledge is being actively ex-
tended to rural areas through wireless technology
and continuing initiatives such as PC 2010, Free
Internet, IT clubs and digital content. Beyond
building info structure, necessary steps towards
building Egypt’s knowledge society.
ICT expansion and advancement alone does
not guarantee to transfer Egypt to knowledge
society, other steps are required parallel to ICT
in many sectors including social, economic and
political spheres. Egypt has taken steps to allow
more economic freedoms but for a true knowledge
society to exist political freedoms must be devel-
oped at equal or matching pace, true democratic
participation rather than representation, freedom
of expression and thought must be fostered and
encouraged. The current changes in the society
could be a chance for a paradigm shift in ICT
policies. For example, in the education sector,
curriculum and teaching systems could be revised
to foster human rights values including freedom of
expression and other transparency and democracy
practices. It should also foster innovation and
creativity among students. Gradual support to low
costs access to ICT goods and services for grass
root levels is needed in this regard.
The ultimate goal of MCIT to build a knowledge
based society to boost socioeconomic development
is yet to be fully realized, progress has been made
on different fronts but there is still a significant
gap to bridge to match leading knowledge and
digital societies. Government should have an
active role in expanding access and contribution
to knowledge – promoting a shared knowledge
society in co-operation with the private sector.
Efforts should not only be focused on expanding
and enhancing connectivity and technology but
educational opportunities to equip people with the
tools to best use the technology available, cultural
development to introduce and deploy ICT in every
day’s life of people and other steps towards an
enabling environment towards an effective and
efficient knowledge society.
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ENDNOTES
1
In 2009, according to the World Bank 2011
Development Indicators.
 189

Chapter 11
Social Entrepreneurial
e-Empowerment
Alfonso C. Morales-Gutiérrez
ETEA-University of Cordoba, Spain

J. Antonio Ariza-Montes
ETEA-University of Cordoba, Spain

Noel M. Muniz
ETEA-University of Cordoba, Spain

ABSTRACT
Muhammad Yunus, micro-lending advocate and founder of the Bank of the Poor, defines social enterprises
as doing business to solve social, economic, and environmental adversities. The complexity of today global
context hinders the emergence of innovative endeavors; this inner enhancement of capabilities springs out
from worldwide entrepreneurs that reveal procuring the best environmental conditions and technologies
to nourish new ingenious ventures whether of social or any capitalist profile. Social entrepreneurs notice-
ably understand that making an intensive use of new technologies engenders innovation and scales impact
effects in society; that is why ICTs, and especially the Web 2.0, have constituted catalysts to accelerate
collaborations for social change: social innovation labs, social e-enterprise incubators, social innovation
centers, social innovation park, et cetera. This chapter reviews the main experiences of social entrepreneur-
ial empowerments, pinpointing those pioneering projects that exploit new technologies to provide services
and get access, with no boundaries, to a significant number of communities. It is structured as follows: it
starts analyzing the emergence and development of social enterprise, its encouragement and empowerment.
Later, some key initiatives for social entrepreneurs are examined, in particular those offered virtually (e-
empowerment). The chapter concludes with a brief summary of final thoughts.

INTRODUCTION international efforts to temper this problem1,

The development and establishment of capitalism
as a globally predominant system has left millions
of poor people spread out all over the world,
especially in the southern hemisphere. Despite
DOI: 10.4018/978-1-4666-8468-3.ch011
there is a significant gap so far, between stated
expectations and achieved challenges, in different
areas such as funding for development, ensuring
access to markets, new technologies and essential
medicines, as well as sustainability of the debt.

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The concern is further accentuated because of the
global economic crisis in which are embedded
many of the most developed economies in the
world, just those that, so far, earmarked funds
and resources of all kinds to reduce inequalities
in the world.
In this world conjuncture the social enterprise
becomes increasingly relevance, if that is possible,
in view of the fact that it is now considered a vital
part of societal and economic systems, as well as
the protagonist of a possible solution to the crisis.
As noted by Porter and Kramer (2011) “business
enterprise must reconnect prosperity with social
progress. Shared value is not social responsibil-
ity, philanthropy or even sustainability, but a new
way to achieve economic success. It is not on the
margin of what companies do but at the center.
We believe that it can give rise to the next major
transformation of business thinking” (p. 4).
The social entrepreneur is a person2 or a collec-
tive that develops and implements innovative solu-
tions to create a positive social impact, combining
business discipline with innovation perspective;
all of this with social purposes (Anderson & Dees,
2007; Dees, 2001; Elkington & Hartigan, 2008).
They lead the change in compliance with the prin-
ciple of the triple bottom line (social, economic,
and environmental responsibility) and have the
ability not only to make efficient use of available
resources, but also to multiply the effectiveness of
limited funds (Fundación Bankinter, 2010). Social
entrepreneurs are agents that respond to market
failures with transformational and financially
sustainable innovations, being uniquely positioned
to assist any government to deal with the hardest
social problems (Wolk, 2008).
The interest in social enterprise is not some-
thing new. By 1993, Harvard University launched
the Social Enterprise Initiative. Since that time,
numerous programs emerged from the patronage
of universities and private foundations to sup-
port training and strategic consulting for social
entrepreneurial managers, and that included
many non-profit organizations. In Europe, it is
190

Social Entrepreneurial e-Empowerment
also gestated an emerging process for developing
social businesses, particularly in countries like
Italy3, the United Kingdom4 and Spain; a process
characterized by the deficiency in the provision
of certain public services and the existence, in
these countries, of a significant development of
“social economy.” Specifically, for the case of
Spain, social enterprises were developed from
the mid-nineties under the scheme of insertion
companies5; the basic orientation of these enti-
ties has been the business transition6 to reserve a
significant percentage of their jobs to individuals,
in the process of insertion, who complete their
training and gain enough employability to join
the labor market.
Since then, growth of social sector is undeni-
able. In the past two decades, the global citizen
sector, led by social entrepreneurs, has grown ex-
ponentially. Just as the business sector experienced
a tremendous spurt in productivity over the last
century, the citizen sector is experiencing a similar
revolution, with the number and sophistication of
citizen organizations increasing dramatically. In
this context, social entrepreneurs play a vital role in
fostering societal change. In the next years, social
entrepreneurs and the social economy, at large,
have a key role to play to generate new growth
and strengthen the confidence of both citizens
and businesses in the Single Market7.
In the present chapter, thus, it is intended as
main purpose to take a closer look at some of the
most remarkable experiences of today worldwide
social entrepreneurial empowerments, denoting
those projects that intensify the use of ICTs on
reaching and interrelating individuals and com-
munities. It is structured as follows: it starts ana-
lyzing the emergence and development of social
enterprise, its encouragement and empowerment.
Later, there are examined some key initiatives for
social entrepreneurs, more in particular those of-
fered virtually (e-empowerment). It is concluded
with a concise allusion of possible future research
and a brief summary of final thoughts.

Social Entrepreneurial e-Empowerment
Based on the collected information, it has
been identified, among the cases studied8, certain
common patterns of behavior that might constitute
a useful starting point to distinguish trends and
consider possibilities to support the next genera-
tions of start-ups characterized by a clear social
nature and intensive use of new technologies.
This chapter is targeted primarily to the com-
munity of social entrepreneurs that will to realize
how some of their colleagues launch creative social
initiatives, getting the most out of new technolo-
gies. It might be targeted to policymakers, social
advocates, and entrepreneurship academics, inter-
ested in improving the comprehension and support
to the phenomenon of social e-empowerment, and
to anyone who believes in the need of new ways
to trigger social changes.
The present work reviews the main experi-
ences of social entrepreneurial empowerments,
identifying those cutting-edge initiatives that
take the most from new technologies to provide
services and get access, with no boundaries, to a
significant number of communities. It is structured
as follows: it starts analyzing the emergence and
development of social enterprise; the promotion
of social entrepreneurship and its organizational
encouragement and empowerment. Later, there are
examined some key projects for social entrepre-
neurs, more in particular those offered virtually
(e-empowerment). It is concluded with a brief
summary of final thoughts.
BACKGROUND
Elkington and Hartigan (2008) suggest that a
social entrepreneur is an innovative subject who
observes the social problems and sees opportuni-
ties for transformational change; they also tend
to be pragmatic and visionary as well, and direct
their visions in a collaborative manner, thus achiev-
ing the involvement and commitment of various
stakeholders. In any case, a social entrepreneur
should be founded on the ethos of social enterprise.
This distinctive nature is based on principles of
voluntarism, ethical behavior and a mission with
a social cause (Chell, 2007).
However, every aspiring social entrepreneur
should meet the same qualities and skills that any
entrepreneur9: a great idea, the ability to execute
it, practical business skills (that is to say, the com-
petence to run a company effectively and make
it profitable), passion, the determination to do
whatever it takes to succeed, and the belief that
nothing is impossible. Is a social entrepreneur born
or made? That is the eternal question; advocates,
who believe that a social entrepreneur is born,
claim that many of the qualities needed (such as
determination and not risk averse, among others)
are embedded in the DNA of these individuals.
However, the supporters of the notion that social
entrepreneurs are made, bear the possibility of
training these people to turn inspiration into a
business concept through persistence and non-
conformity: not taking a “no” for an answer until
achieving impacts on society10.
Nonetheless, social entrepreneurs exhibit an
extremely high level of passion and commitment
to their ideas. As a result, they remain steadfast
on realizing their vision, but they also remain
malleable in order to weather the obstacles that
they will confront. For their own idiosyncrasies,
social entrepreneurs are exceptional “bridgers”
between traditional and social economy. They
have the great ability to deeply engage multiple
and diverse stakeholders in their works, attract-
ing corporate, public, and nonprofit leaders alike.
However, social entrepreneurs need supporting
and a strong network to become a catalyst for
societal change. This mission is oftentimes lonely,
arduous and beyond the capacity of anyone indi-
vidually, especially during the start-up stage. A
strong network of support is critical to sustaining
the labor of great social leaders and broadening
their impact.
It is precisely in this context where it is
emphasized the importance of empowerment11
–encouragement of entrepreneurship– to support
191

the implementation and consolidation of business
projects with social nature. The entrepreneur takes
the risk, makes the determination, and provides
leadership and shared social vision of the venture.
However, for social entrepreneurship can become
a stable industry that generates quality employ-
ment, social impact and innovative services, it is
necessary to blossom an ecosystem that surrounds
and assists entrepreneurs, allowing them to scale
their projects, interconnect each other, get access
to funding, and active the demand (Innobasque,
2011). This collective habitat sets up the em-
powerment of entrepreneurship; an environment
sustained by different entities which, in this writ-
ing, will be referred to as Social Entrepreneurship
Promotion Organizations (SEPOs).
This bionetwork for supporting entrepreneur-
ship is not a recently created system. Business
incubators, for instance, have provided integrated
support and assistance services to novice entrepre-
neurs for decades. Business incubation process has
changed over time. Since its initial conception, as
a workspace and shared service facilitator -70’s-,
the incubation management has evolved into a
more complex and inspiring conceptualization of
the entrepreneurial and human talent, integrating
Figure 1. Main services offered by traditional incubators (Source: Own elaboration.)
192

Social Entrepreneurial e-Empowerment
within its processes the constant need to develop
knowledge, innovation, new technologies and
working relationships networks (Hansen et al.,
2000). According to Aerts et al. (2007), tenants of
European incubators have a wide range of services
at their disposal. An incubator seldom (4%) is
not equipped with a meeting room or conference
facilities. Most incubators (88%) offer a network
of business relationships to their tenants. The
majority (86%) assists tenants with the elaboration
of a business plan and the further development
of the company. Help with fund raising is often
(79%) offered, as well as general office equipment
(77%) and marketing (73%) and financial (72%)
advice. Pre-incubation comprises ‘‘the support
to future entrepreneurs before they start up their
business’’ (European Commission, 2002). Many
incubators (68%) offer this service. The Figure 1
gives a clear picture of the main services offered
to tenants by traditional incubators.
The empowerment of social entrepreneurship,
as defined in this chapter, manifests itself in two
different, but often-converging scenarios: physi-
cal space and virtual space. In both contexts, the
SEPOs provide to their assisted ones a wide range
of services related to the access to funding sources,

Social Entrepreneurial e-Empowerment
coaching, training, counseling, networking, bank
of ideas, knowledge, and so on. The difference
between physical space and virtual space is that
in the latter the information and communication
technology plays a fundamental role in the re-
location of resources due to dynamic platforms
designed for computer networks (intranet, extranet
and internet). In fact, social entrepreneurship
has become a global interconnected movement
largely for the development of new technologies
and social networks.
E-EMPOWERMENT OF
SOCIAL ENTERPRISES
The next sections describe some key empower-
ment initiatives for social entrepreneurs, offered
by SEPOs both physically and virtually, but more
in particular for the latter (e-empowerment). These
are experiences that together constitute the perfect
environment to empower social enterprises. The
account of examples follows the scheme pre-
sented in Figure 1, assuming that the ecosystem
of empowerment offered by SEPOs –physical and
virtual– to social entrepreneurs orbit around the
following vectors: financing, networking, training
and advising. Infrastructure services provided by
physical incubators are not analyzed in this work
since it does lack of sense for virtual SEPOs.
Financing
During the first stages of a business endeavor, any
external collaboration is always very welcome,
even more if it has to do with obtaining funding.
In the field of social entrepreneurship, the service
sources related to the procurement of funds by the
SEPOs, either physically or virtually, are mainly
three: collective funding or crowdfunding, social
investment funds, and public funding incentives
for social entrepreneurs.
Crowdfunding
Collective funding or crowdfunding is a financ-
ing mode based on credit contributions, often in
small amounts –microloans–, provided to specific
projects by people within the community. These
contributions are made in order to supply oppor-
tunities for social entrepreneurs to launch their
ideas getting off on the right foot. The compensa-
tion received by the person who has contributed
money, is often only a social reward. Donating
money to a business project is understood by
the alignment between the social interests of the
enterprise and the personal values of the donor.
At other times, the micro investors receive some
type of return: small gifts (shirts, promotional
lighters, etc.), the acquisition of a shared right of
creation, direct mention and acknowledgment,
discounts, and even the chance to recover the
invested money after some period of time12. The
use of one alternative or another depends largely
on the amount contributed.
Wikipedia defines crowdfunding as the collec-
tive cooperation, attention and trust by people who
network and pool their money and other resources
together, usually via the Internet, to support efforts
initiated by other people or organizations. Some
authors place its origin in the music industry,
specifically in the British rock band Marillion.
In 1997 American fans underwrote an entire U.S.
tour to the tune of $60,000, with donations fol-
lowing an online campaign. This way of financing
a project “bottom-up” –since there are potential
customers and other audiences who bring money
to the founders– clearly marks a difference from
the classic styles of private investment or public
funding sources. The philosophy and operation
of crowdfunding are closely associated with the
development and use of internet platforms, mak-
ing it really difficult to extrapolate this notion to
the physical SEPOs (perhaps the most similar
examples for physical experiences would be the
193

public raising of funds held by organizations such
as the International Red Cross or other relevant
public entities).
One of the newly created virtual SEPOs using
the formula of crowdfunding to finance social
projects is Buzzbnk (www.buzzbnk.org). This
British-born firm was established in late 2010
with the purpose of linking social entrepreneurs
with minor investors who share a desire for change
and social transformation. Web technologies allow
Buzzbnk to raise funds anywhere in the world and
to finance social projects located in the most remote
place on earth. In this case, the compensation that
a donor receives for collaborating to a project is
purely social: the satisfaction for contributing
to a shared vision of the community. Two other
experiences of e-empowerment of social enter-
prises are FundedByMe (www.fundedbyme.com)
and StartSomeGood (www.startsomegood.com).
The first is a Swedish organization that uses its
virtual platform to boost a diversity of ventures
that increase the values of the community in areas
such as education, culture, music, health, etc.
The latter, StartSomeGood, emerges as a global
proposal to foster the social innovativeness. Its
primary role is to involve any person or organiza-
tion economically in those innovative ideas that
are of mutual interest. One concrete example is
that in just twelve days, this site has raised nearly
$US 3,000 to fund a project aimed at narrowing
the education gap between the participants of
the Two Aboriginal´s and Torres Strait Islander
Students´ projects.
Social Investment Funds
Another scheme used by the SEPOs to deliver
financial resources for social enterprises are
social investment funds. These resources consist
of capital items generally managed by founda-
tions. Depending on its foundational principles,
the social investment funds finance potentially
transformative social projects in areas as diverse
as labor insertion of groups at risk of exclusion,
194

Social Entrepreneurial e-Empowerment
social housing, fair trade, rural development,
renewable energy and energy efficiency, eco-
efficient products and services, environmental
education, etc. To access these funds, any social
entrepreneur can submit a project proposal to the
institution offering the public calls. Most of these
SEPOs that offer social investment funds, exploit
online connections as the single channel to deliver
sponsorship requests.
In the United States one of the most recognized
foundations for supporting business projects with
high social impact are the W.K. Kellogg Founda-
tion, the Acumen Fund, and the Skoll Foundation.
Kellogg Foundation (www.wkkf.org) converges
its resources and activities, on encouraging vari-
ous social innovative agents (community-based),
willing to embark on projects that better living
conditions and reduce the particular and difficult
hardships children currently faced in three geo-
graphical areas of the world: U.S., Latin America
and South Africa. Throughout its 80 year his-
tory, the Kellogg Foundation has granted more
than US$ 3 billion. The Acumen Fund (www.
acumenfund.org), for its part, is a supporter of
social enterprises; it offers financial assistance to
any social innovator whose ideas tackle the lack
of access to food and essential services to the
population in the world: health, water, housing,
and agricultural inputs and services. During the
period 2001-2010, the foundation invested more
than US$ 69 million. A complete list of projects
financed by this fund, classified by country and
by type, is available at the following web address:
www.acumenfund.org/investments.html. Finally,
the Skoll Foundation (www.skollfoundation.org)
invests its funds, better known as Skoll Awards, in
social entrepreneurs whose efforts impact, on a
large scale, in critical areas of the society that re-
quire transformations: economic and social equity,
environmental sustainability, health, institutional
responsibility, peace and security, tolerance and
human rights, among others. Since its creation,
the Skoll Awards have conferred more than US$
100 million.

Social Entrepreneurial e-Empowerment
Investment funds for the promotion of social
entrepreneurship could also come from traditional
banking institutions. Budgetary allocations for
these institutions to empower social enterprises
are, sometimes, directly managed by themselves,
and on some other occasions, managed by “part-
ner” organizations that team up each other to foster
social innovation13. With regard to this matter, the
Deutsche Bank recently announced the launch of
its social investment fund “Impact Investment Fund
I” which aims to facilitate economic resources to
social ventures with the inner capability to gener-
ate positive impacts on their communities while
generating returns for its self sustainability. In
Spain, the Bilbao-Biscay Savings “BBK” sponsors
a program dubbed Solidarity Fund that addresses
implementing and promoting sustainable social
projects with the highest possibilities to impact
on societal improvement. The resources for these
funds come from the depositors –who jointly
donate their interests– the financial institution
itself –doubling every dollar contributed by a
depositor– and external donations.
Public Funding Incentives to
Social Entrepreneurs
In recent years public initiatives are also flourish-
ing to support the financing of social projects. In
2011, the Prime Minister of the UK announced
the launch for the program called The Giving
White Paper, which contains a large number of
measures and incentives for the empowerment of
social entrepreneurs. A few years earlier, Scotland
opened a credit line of £ 29 millions to provide
financial support to social enterprises through the
Scottish Investment Fund. A final example is the
Office of Social Innovation and Civic Participa-
tion, created by President Barack Obama (www.
whitehouse.gov/administration/eop/sicp/blog), in
which there are identified many effective social
innovation programs susceptible, among other
things, of being benefited with public funds for
social investment.
Networking
The incubation process of a business improved
when such a novel venture is accompanied by
an intensive use of social links. In this sense, the
current scientific literature agrees that the integral
creation and management of networks is one of
the most critical constructs for today’s successful
business creation (Freel, 2003; Hansen et al., 2000;
Johannisson, 1988; Tse, 2002). Entrepreneurs,
through the considerable utilization of these
networks, reduce information and transaction
costs as they have the opportunity to share certain
resources with other entrepreneurs (Williamson,
1975). Ford et al. (1998) stresses the importance
of networking as a tool to take full advantage of
new technologies and turn them into solutions for
the markets. Thus, joint working networks and its
management –networking–, based on the intensive
use of practices that generate social capital and
cooperation, have become pillars of the principles
for enterprise development and competitiveness
(Hughes et al., 2007).
Networking management is perhaps one of the
elements of social entrepreneurship promotion
that has undergone far-reaching changes in recent
years, boosted largely due to the possibilities of-
fered by new information and communication tools
(e-empowerment). At present, most of the SEPOs
handle both the physical and virtual networking,
but it is undeniable that computer technologies
have accelerated and increased the potential of
networking and value creation as well, generated
as a result of these embedded links within the
interrelated organizations.
Schwab Foundation (www.schwabfound.org)
is one such SEPOs guiding and assisting social en-
trepreneurs in the development and consolidation
of contact networks to increase their chances of
survival in the market during the initial starting-
up stages. This foundation provides opportunities
for dialogue to facilitate the interplay of social
innovators as well as links to various stakehold-
ers belonging to the World Economic Forum so
195

that together they explore the social changes our
planet required. Currently, more than 200 social
entrepreneurs form all over the world, take part
of Schwab community, where they share ideals,
problems and common challenges.
Another outstanding physical SEPO is the
Social Enterprise Alliance (SEA) of the United
States (www.se-alliance.org). Founded in the
late 90’s, this organization brings together more
than 800 members that comprise a countrywide
network of partners that includes academia (uni-
versities, research...) and assorted organizations
working for the encouragement of sustainable
social enterprises. The main function of SEA is
to stimulate the social sector by proposing and
supporting a series of initiatives that the network
itself propose as essential for the achievement of
common challenges: the establishment of a “social
enterprise” certificate or seal, the dissemination
of ideas and best social enterprise practices, the
schedule for annual conferences, the development
of proposals to influence the decisions of legisla-
tors and politicians, and so on.
Also in America, the Social Venture Network
(www.svn.org) connects, supports, and inspires
business leaders and social entrepreneurs in the
development of methods that lay the foundations
and edify a just and sustainable economy. Its
main activity is oriented to the relational value
creation among its members, so that it is consid-
ered a pioneer in promoting socially responsible
business networks. In the Social Venture Network
project, many leading international organizations
collaborate in the advancement of social business
sustainability14. This collective annually gives
awards to social innovators. One of the winners
in 2011 was Peter Frykman, founder of Driptech
(www.driptech.com) which is a social enterprise
that provides efficient solutions for irrigation; the
use of Driptech´s innovative irrigation system al-
lows farmers to grow year round while conserving
water, labor and time and increasing crop yields
from 20% to 90%.
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Social Entrepreneurial e-Empowerment
As indicated at the beginning of this section, the
Internet has multiplied the possibilities of expand-
ing the network of contacts, both personally and
professionally. Under this new reality, numerous
SEPOs have emerged to set up virtual meeting
rooms where social entrepreneurs share ideas,
opinions, knowledge, experiences, etc. NextBil-
lion (www.nextbillion.net) is one of these virtual
spaces –web/blog sites– of confluence for social
entrepreneurs, traditional entrepreneurs, NGOs,
policy makers and academics who want to explore
the social connection between development and
enterprise. This is an ongoing discussion forum
that works as an information and knowledge ba-
sis for individuals and organizations interested
in starting up a social business. The NextBillion
project started in May 2005 and from that time it
has become one of the leading forums of forums
–blogrolls– in the world for the promotion and
creation of new economically social enterprises.
Another remarkable example is the Social
Enterprise Network, hosted on The Guardian´s
–British newspaper– virtual platform (www.
guardian.co.uk/social-enterprise-network). This
grid of social entrepreneurs is an online site where
professionals working in social initiatives can
contact each other, get advice and expertise of
their colleagues with more experience, and tackle
together the difficult tasks the sector is facing as
a whole. Any person committed to social change
could be part of this commune to share their ex-
periences, find ways to boost your business, or
receive advice on how best to build your career
in the industry. This network makes available
online tools to entrepreneurs: live conferences,
interviews, reports, expert analysis, etc. With these
applications the project covers all information
relating to the emerging social investment sector.
Another relevant experience is i-genius (http://
i-genius.org/home/). This online web is formed
by an international community of entrepreneurs
committed to social and environmental change.
Founded in 2007, it offers a platform to the field

Social Entrepreneurial e-Empowerment
of innovative initiatives develop by and for society;
a site that delivers, among other things, academic
training and knowledge transfer by means of
events, workshops, courses, conferences, seminars
and other virtual activities.
Finally, in Spain the initiative UpSocial
(www.upsocial.org) has developed a hybrid
meeting point, in the same virtual and physical
proportions, for social innovation boosters: so-
cial entrepreneurs, international social networks
and service providers from the third and fourth
sector. Its mission is the integration of multiple
countrywide and international social actors for
sharing experiences, ideas, initiatives, knowledge
and even resources among its members in order
to accelerate social innovation.
Training
Having a great idea –no matter how social it might
be– does not guarantee its implementation nor,
of course, that people assuming the leadership of
these social endeavors have the required skills to
manage the organizational structure needed for the
realization of any mission statement. In fact, the
results of the GEM-2009 (Global Entrepreneurship
Monitor) show that, unlike what happens in other
countries, Spain has a low participation of people
with higher education in the social sector. This state
of affairs makes the exercise of entrepreneurial
role much more difficult and risky. Evidence of
this is the high mortality rate of new enterprises
–ranging between 20% and 80% in the first three
years of life–, which is significantly low when it
comes to those groups of new business creators,
with more training and management experience,
where the mortality rate does not exceed 20%
(Veciana, 2005).
Aware of the lack of training, traditional in-
cubators are offering in their range of services,
programs to enhance new entrepreneurial man-
agement skills; it is not about learning to become
entrepreneur (that is already in their genes), but
about being instructed in managerial competences
and skills, finance, human resources management,
negotiation techniques, leadership, etc.
The rise of social business has prompted
the proliferation of in-class training programs
designed ad hoc by prestigious universities, both
internationally15 and in the Spanish context as
well16. Some of these institutions have joined
forces in the Social Enterprise Knowledge Network
(SEKN)17. The SEKN´s pedagogical strategy is
to reach a growing number of students through
courses, degree programs and executive education
to offer transformative learning experiences; one
of its greatest achievements has been that many
significant issues –such as social entrepreneurship,
collaboration between companies and civil society
organizations, corporate social responsibility and
inclusive business, among others– have been in-
cluded in the curriculum design of this and many
other universities in the region.
Other universities have founded their own orga-
nizations, for example the Skoll Centre for Social
Entrepreneurship at the University of Oxford. The
Skoll Centre is a leading global entity for the ad-
vancement of social entrepreneurship (www.sbs.
ox.ac.uk/centres/skoll/Pages/default.aspx). They
foster innovative social transformations through
education, research, and collaboration. They
accomplish it commitment by creating a collab-
orative hub, advancing research and developing
talent, and offering world-class graduate education
that provides students with the vision and skills
to bring together market-based approaches and
social innovation.
However, the majority of the in-class training
programs are intended –at grade level– for college
students with no experience in the business world
or –at the graduate level executive– managers of
social enterprises, with certain characteristics and
economic dimensions, which grant scholarship to
pay the high cost of these courses. Consequently,
these training activities are banned for most of
the small social entrepreneurs, since they have
197

neither the time nor the ability to move, nor the
financial resources to afford these programs. It
is at this point where the e-empowerment, that
the Internet makes possible, plays a decisive role
once again: an entire habitat that allows social
entrepreneurs to boost their skills thanks to the
flexibility of space, time and pace they need given
their particular circumstances18.
In the web, numerous training tools are avail-
able for social change leaders. For example, the
United Nation University for Peace (UPEACE)
offers a specific online course named Entrepre-
neurship, Innovation and Social Change (http://
www.upeace.org/news/activity.cfm?id_activ-
ity=741). It is designed for nonprofit managers
and staff, social entrepreneurs, socially conscious
business executives and industry public innovating
leaders. In the Spanish context, the Universitat
Oberta of Catalunya (UOC) leads an MBA in
Social Entrepreneurship (www.uoc.edu): this
pioneering programme is aimed at sustainable,
scalable competitive social organizations that
provide access, to critical goods and services,
through open collaborations between social
agents, through institutional and governmental
support and through the incorporation of business
techniques and methods.
Possibly, the best formula used to train young
social entrepreneurs is neither the in-class nor
the virtual19, but a mixed model where, after
identifying these change leaders, they are invited
to participate in an intensive training process to
make available thereafter a whole ecosystem of
e-empowerment (groups of co-creation, virtual
resources, mentoring, networking, etc.) which
nourishes the social entrepreneur in the hard path
of project development and implementation, fa-
cilitating the survival of the company in its early
years. This is the method employed by Ashoka
internationally through its Young Changemakers
Program (www.concursocambiatumundo.org/).
This initiative delivers workshops, training to
develop action plans, seed capital, support and,
more importantly, access to a global network of
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Social Entrepreneurial e-Empowerment
nearly 3,000 young change makers in nearly 20
countries. The jury selects those projects charac-
terized by its potential to generate greater impact
in the community. Through Ashoka, the Mexican
Rafael Salas was able to start their business, who
thought to alleviate the housing problem in the
poorest areas of Latin America just reusing waste
generated in the wealthier areas of these countries,
and building worthy and ecological homes for the
less fortunate ones to benefit the planet.
Something similar is what they do in the
Unreasonable Institute, accelerating unreason-
able entrepreneurs and their ventures (www.
unreasonableinstitute.org). Each year, they unite
entrepreneurs from every corner of the globe to
live under the same roof for six weeks in Boulder,
Colorado. These entrepreneurs receive training
and build long-term relationships with 50 world-
class mentors, ranging from the former managing
director of investments at Google.org, to the CTO
of Hewlett Packard, to an entrepreneur who has
enabled over 19 million farmers to move out of
poverty. In the process, they also form relation-
ships and build their businesses with 20 investment
funds, receive legal advice and design consulting,
and pitch to hundreds of potential investors and
partners. From this experience many entrepreneurs
as Cynthia Koenig, co-founder of Wello, have
emerged. By pairing a simple product design (a
waterwheel) with an innovative business model,
Wello improves global access to water and reduce
the physical and time burdens of water collection.
This business model results in better health, female
empowerment, access to education and sustain-
able income generation. Wello is a hybrid social
venture. The for-profit entity generates revenue
through sales of the “WaterWheel” and the sale of
advertising space on the outside of the unit. The
role of Wello’s non-profit arm is to raise awareness
about the global clean water crisis and educate
end-users about the benefits of clean water.
In the European context, we have to mention
the ESADE School and BBVA Bank´s initiative
aimed at stimulating social entrepreneurship in

Social Entrepreneurial e-Empowerment
Spain through the Momentum Project (http://mo-
mentum-project.org/es)20. To fulfill this purpose,
Momentum has two lines of action: the develop-
ment of a program to consolidate and increase the
impact of these enterprises and the creation of an
ecosystem to foster social entrepreneurs. In each
annual edition of the program, ten entrepreneur-
ial ventures which in the selection process have
demonstrated its feasibility, impact and potential
capacity for growth and scalability, are selected.
The ecosystem to foster social entrepreneur
includes training workshops at ESADE, prepar-
ing the business development plan (through ten
weeks of learning and collaboration with a team
of ESADE/BBVA students, mentors and corporate
sponsors of the endeavors) and, finally, complet-
ing the plan at the BBVA Campus in Madrid and
presenting the subsequent submission during the
Social Investment Day event. One of the awarded
ventures in the 2011 edition is the Ana Bella
Foundation (www.fundacionanabella.org), which
proffers job opportunities to battered women via
-amongst some others- preparing caterings with
organic ingredients and fair trade products.
Advising
Another empowerment function provided by the
SEPOs is, undoubtedly, advising and coaching to
new entrepreneurs. But this counseling task is a
very broad one. In fact, most of the SEPO providers
identified so far, with greater or lesser degree of
continuity and planning, supply some type of advi-
sory services: preparing business plans, supporting
the attainment of funds, continuous training plans,
etc. Given the wide variety of possible options,
this section focuses on counseling activities that
enhance the growth of social enterprises, other than
those already discussed in the preceding pages:
financial support, networking, and training. It is
specifically included: a) facilitating brainstorming
sessions for entrepreneurship (Banks of Ideas), b)
provisioning resources and development tools,
with special reference to obtaining aid or other
resources under the crowdsourcing paradigm
(voluntary contributions), and c) promoting the
image and advertising of social enterprises.
Banks of Ideas
A suitable site for proposing business ideas is
ideas4all (www.es.ideas4all.com). This is a web-
site where people with ideas (ideators) can shared
them with the community; or where people, who
need a solution to solve a problem or challenge
(questors), can find the right answer. Third parties
located anywhere in the world (navigators) might
participate in this global brain activity expressing
their opinions to each other. This worldwide com-
munity of thoughts, based on the connectivity, is
a huge source of ideas for potential social entre-
preneurs. A description of the more than 80,000
ideas that nowadays form part of this community
is available at the following web address: http://
www.es.ideas4all.com/buscar/concept_search.
Another specific bank of ideas for social
enterprises is available in Socialnest (www.so-
cialnest.org): a community that brings together
professionals, companies, and universities and
business schools committed to improving society
and making a better world by providing expertise
and experience to help social entrepreneurs launch
their social initiatives. In fact, this business de-
velopment bionetwork performs its mechanisms
as an exclusive incubator for social enterprise,
promoting networking and providing useful tools
for potential entrepreneurs as well.
Provision of Resources and
Development Tools
From idea conception to market realization, there
is a long way not all social entrepreneurs are able
to go. Getting resources and development tools to
support the concretion of ideas is an invaluable
contribution. In this sense, Social Creative (www.
socialcreatives.com) offers social entrepreneurs
assorted tools and programs to enhance their
199

enterprises: methodologies, books, workshops,
contests, etc. This initiative is sponsored by the
Global Youth Fund, a Canadian NGO founded
in 2005 by Charles Tsai and Amy Eldon with
the support of the Creative Visions Foundation21.
But perhaps the most innovative experiences,
in the provision of resources and tools for social
entrepreneurs, are constituted by the microloans
better known as crowdsourcing. Many small entre-
preneurial innovators cannot test the feasibility of
their ideas in the market due to lack of resources.
The strength of crowdsourcing is to remove this
obstacle and avoid many of the mistakes –some of
them irreversible–, novice entrepreneurs tend to
make. Today, different crowdsourcing platforms
are emerging through the Internet that are, by
themselves, SEPOs of e-empowerment where
entrepreneurs (either pro-social or pro-profit)
can get feedback and assistance for free or at very
low cost. At global level we could cite the cases
of Quirky (www.quirky.com), GeniusCrowds
(www.geniuscrowds.com), and Kickstarter (www.
kickstarter.com). This latter is an e-empowerment
platform for inventors, artists and other creative
people who can test ideas and concepts without
risk. In most cases the operation is simple: a per-
son displays an idea for the community to vote
and give opinions. In addition, panels of experts,
including staff from their own websites, retailers
and manufacturers, make their own review and
select candidates.
In the socioeconomic sphere, crowdsourcing
has been labeled in numerous ways: community
production, collective knowledge, open innova-
tion, mass collaboration, intelligent human net-
works, etc. The generally accepted concept aims
to the action of outsourcing a number of tasks,
traditionally performed by an employee or a con-
tractor, to a large group of people or community
(mass) through an open and massive online call
relied on virtual platforms. The crowdsourcing
approach has been divided into categories such as
cloud work (collaborative human/labor resource
network), the crowd creativity (the joint effort to
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Social Entrepreneurial e-Empowerment
lead collective creativity), the already mentioned
crowdfunding (micro collective input), the dis-
tributed knowledge (knowledge dissemination
in the network), and finally, the open innovation
(members´ open determination to contribute to
the identification and development of innovative
ideas in an attempt to find creative solutions for
their communities).
Samasource (www.samasource.org) clearly
exemplifies the crowdsourcing model offering
a range of business services such as obtaining
high quality images, writing and editing content,
verification and development of databases, audio
and video transcription, and so on. This SEPO per-
forms this task both making use of an international
network of partners and collecting small scale
contributions of time and work. Another social
entrepreneurship promotion organization is Ioby
(www.ioby.org). This project happens to be an e-
empowerment platform that connects people with
innovative ideas, regarding environmental change,
with users and investors required for the social
transformations to take place. Another outstanding
case is Sparked (www.sparked.com), a platform
for collective collaboration to social entrepreneurs
and organizations; its network makes possible
community involvement in social projects by
means of volunteering and mobilizing resources.
Sparkes brings together people concerned about
social change to propose innovative and sustain-
able solutions. The challenges to be solved are
small activities or projects community generally
faces together and in a virtual way –online–. The
sum of these efforts contributed to the concep-
tion and growth of social businesses linked to
the use of new technologies, regulatory and legal
framework, strategies, marketing and advertising
tools, project designs, etc.
In Spain, an integrative crowdsourcing ini-
tiative, known as Goteo (www.goteo.org), has
recently emerged. This platform is a distributed
collaborative network –providing and exchanging
services, infrastructures, micro tasks, etc.– of-
fers individual rewards and collective returns for

Social Entrepreneurial e-Empowerment
the development of society and free knowledge.
Goteo constitutes a way to boost social projects,
an opportunity for individuals and small organiza-
tions to implement sustainable and long-lasting
proposal. The collaboration of the participants can
be made from different roles: a) Drivers are the
promoters of the enterprise who provide visibility
to shared principles and projects, and engage from
the beginning to the potential community of the
network; b) Co-financing Agents make monetary
contributions in exchange for collective returns
and/or individual rewards; and c) Collaborating
Agents who provide resources –time, energy and/
or abilities– in order to help improve specific
projects and promote the generation of positive
changes in society.
In light of this philosophy, Goteo has exceeded
the minimum crowdfunding needed for Book-
camping project to start up (http://bookcamping.
cc): a free, open and collaborative library that
aspires to make culture spring up from networking
socially. In addition, the Bookcamping promoters
have benefited from collaborative work through
Goteo: programmers to develop the source code;
beta-testers to prove the software usability and
propose suggestions for improvement; or editors
to collaborate registering, editing, and expanding
the library stock. In response, they hold out returns
of collective nature –a publicly accessible and col-
lectively managed library with free licenses– and
some other of individual kind: posters, mention in
the credits, and personalized counseling sessions
by professionals in the field of free licenses, edit-
ing, amongst others.
Promoting the Image and
Advertising of Social Enterprises
As well as having and developing a business idea
is to know how to communicate to the market. In
this sense, the case of social media company Xul
(www.xul.es) is paradigmatic (Iturbe-Ormaetxe et
al., 2010). Since its inception in 1996, this company
has stood out for its strong social commitment,
which has resulted not only in the type of clients
it assists, but also in its behavior and self manage-
ment. The Xul business model perfectly represents
the concepts currently in vogue in Fourth Sector;
that is to say, the set of organizations that try to
overcome the traditional separation between the
First (private), the Second (public) and the Third
(the non-profit organizations), to integrate social
and economic aspects as among its objectives (Ji-
ménez & Morales, 2011). Its ethical concern is a
ubiquitous feature, while this company sees itself
as a tool to help create and develop a more just
society. Imbued with this philosophy, Xul develops
its communication and marketing services around
the associative world and the solidarity economy.
This emotional connection, with specific collec-
tives, provides a surplus to the proposal brings
into the field of social economy, as business
niches are served with claims that sometimes do
not fit into the traditional offerings while ensuring
a greater harmony and a longer-term links with
such customers.
Another highlight in XUL is that it not only
works on demand, but also launches its own ini-
tiatives, constituting itself an example of social
entrepreneurship. Three of these actions distin-
guish for their relevance to its current approach
to business:
• Softwai: A software application for creat-
ing accessible web pages to people with
physical, motor or neurological disability.
• The Environment Portal: An environ-
mental information website –awarded sev-
eral times– managed and operated, fully
and freely, by Xul.
• TextoSign: A software application for
converting text to sign language for deaf
people. The result obtained from this tool
is a video in which an animated character
reproduces the text in sign language.
201

The company transmits its commitment to
society and plays with certain humility. No am-
bitious attitudes are seen to gain market share
through groundbreaking strategies. The concept
of “tempered radical”22 defined very well its
marked innovative approach: the change is made
every day and from within the organization. It is
not about reaching the first to a different world,
but about reaching it in the company of other
people and firms.
Another SEPO that looks after business proj-
ects “socialization” is H3S Social Consultants
(www.h3s-sroi.com). This is a Spanish consulting
firm specialized in measuring Value or Social
Impact (Emerson, 2001; Narrillos, 2010). For this
purpose, it is primarily used the Social Return
on Investment Method (SROI). This technique,
which has been in use a little more than a decade,
is among the fastest growing models in the field
of Corporate Social Responsibility, given that it
enables the measurement of the extra-financial
value from the invested resources; to be precise,
the environmental and social value that is not
reflected in conventional financial statements.
At the international level, it is remarkable the
advising on communication supplied by Media
Cause (www.mediacause.org), a virtual plat-
form that uses crowdsourcing as a mechanism of
e-empowerment. Media Cause brings together
professionals from advertising, marketing and
media to elicit active, voluntary and collaborative
interaction between different agents, improving
the image and communication campaigns of social
enterprises.
FUTURE RESEARCH DIRECTIONS
This section will constitute and attempt to identify
some important areas for future research regarding
social entrepreneurial e-empowerment. For that, it
will be utilized an approach based on a framework
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Social Entrepreneurial e-Empowerment
proposal developed by Short et al. (2009) for future
social entrepreneurship research opportunities that
concern other disciplines: accounting, anthropol-
ogy, economics, finance, management, political
science, and sociology.
When it comes to this type of e-empowerment,
future research could be related to the field of
accounting for the fact that we might get to need
reliable measures for calculating social perfor-
mance achieved by these social change initiatives.
Anthropologically speaking, it might be interest-
ing to know if there are any differences between
social entrepreneurial e-empowerment among
different cultures. In the case of the economics,
it might turn out exciting to get to know the ef-
fects of social entrepreneurial e-empowerment on
bringing regional and global economic growth,
and whether this effect could be measured. In the
financial field, it could be considered as a future
source of research to inquire the real possibilities
of financial sustainability for this e-empowerment.
With regard to management, one would expect
possible future lines of study to analyze in detail
the role of leadership and value creation in social
entrepreneurial e-empowerment. Another opening
and potential field of research might realize from
political science, because the new operational
guidelines that have emerged, and will continue
to arise over e-empowerment, would need the
existence of a legislative framework, and also to
know the influence of national and international
legislations to enhance social entrepreneurial
e-empowerment.
Psychologically speaking, it might become of
interest to figure out whether a particular profile
is more associated with the promoters of social
entrepreneurial e-empowerment than with others.
Finally, in the field of sociology, it seems logical
to expect the arising of several studies that might
address the current and future societal impact of
the worldwide social e-empowerment initiatives.

Social Entrepreneurial e-Empowerment
CONCLUSION
Nowadays, fostering an entrepreneurial culture
constitutes one of the most important priori-
ties for all countries. One of the tools available
to realize entrepreneurship is through business
incubators. Physical incubators have been –and
are– an important source of empowerment for
novice entrepreneurs, mitigating its insulation,
and reducing some of the uncertainties and risks
that accompany any process of entrepreneurship.
The latest business incubation models have be-
come genuine strategic intervention systems to
entrepreneurs; they aimed at adding value to the
activity of the assisted ventures within a context
of multiple interconnections (Hackett & Dilts,
2004). But it seems not to be enough, since the ef-
fectiveness of physical incubators is constrained by
the limitation of resources and their local impact.
Given this model of entrepreneurship promo-
tion, the e-empowerment provided through the In-
ternet offers to entrepreneurs unlimited resources
and a global scope. In this sense, the present work
has presented a series of Social Entrepreneurship
Promotion Organizations (SEPOs) that pursue to
develop an ecosystem conducive to the develop-
ment of social initiatives. The physical SEPOs
have a long tradition linked to local development
processes, while the virtual SEPOs have a more
recent growth, subject to the Internet and social
networks evolution. Both have some advantages
and inconveniences.
The physical SEPOs have a high cost in infra-
structure, which, in these times of crisis, is a sig-
nificant handicap for their main sponsors –public
entities and philanthropic foundations–, probably
undergoing severe budgetary constraints. Beside,
physical SEPOs tend to grow under a strategic
approach of closed innovation (fearing plagiarism
of ideas), making difficult the utilization of col-
lective synergies (Chesbrough, 2009). However,
these incubators usually proffer to their incubated
enterprises a comprehensive range of business
support services. The provision of these services
is possible through the ascription of a technicians
group which performance is linked to the number
of initiatives promoted or accompanied.
Meanwhile, the virtual SEPOs operate with a
significantly lower infrastructure cost –basically
maintaining a website– and allow a degree of diffu-
sion of much larger range due to the phenomenon of
long-tail economy (Anderson, 2007), providing ac-
cess to certain services unaffordable for traditional
incubators, such as banks of ideas, crowdsourcing,
crowdfunding, among others (Morales-Gutiérrez
& Ariza-Montes, 2010). However, these services
offer of e-empowerment is often incomplete and
unstructured which is something expected given
the environment in which it develops.
It has to be noted that the physical and virtual
SEPOs often act as independent realities despite
the high potential of complementarity that may
arise. And it is there, in the development of a
complementary service offering, where lies the
great opportunity for these instruments to boost
the entrepreneurial culture focusing on social
innovation and being increasingly effective in
their roles.
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KEY TERMS AND DEFINITIONS
Crowdfunding: Describes the collective
cooperation, attention and trust by people who
network and pool their money and other resources
together, usually via the Internet, to support efforts
initiated by other people or organizations.
Crowdsourcing: A distributed problem-
solving and production process that involves
outsourcing tasks to a network of people, also
known as the crowd. This process can occur both
online and offline. The difference between crowd-
sourcing and ordinary outsourcing is that a task
or problem is outsourced to an undefined public
rather than a specific other body. It is related to,
but not the same as, human-based computation,
which refers to the ways in which humans and
computers can work together to solve problems.
e-Empowerment: Refers to increasing the
spiritual, political, social, gender, economic or
educational strength of individuals and communi-
ties through electronic-new technology.
Entrepreneur: Someone who exercises initia-
tive by organizing a venture to take benefit of an
opportunity and, as the decision maker, decides
what, how, and how much of a good or service
will be produced.
205

Entrepreneurship: Processes through which
individuals identify opportunities, allocate re-
sources, and create value. This creation of value
is often through the identification of unmet needs
or opportunities for change.
ICT: Stands for Information and Communica-
tion Technologies and are the set of technologies
that allow the acquisition, production, storage,
processing, reporting, recording and presenta-
tion of information in the form of voice, images
and data contained in signals of acoustic, opti-
cal, or electromagnetic nature. ICTs consider the
electronic science as the technology basis for the
development of telecommunications, computer
and audiovisual.
SEPOs: Means Social Entrepreneurship
Promotion Organizations and it is a term used to
designate those social projects that foster singular
ecosystems to surround and assist entrepreneurs,
allowing them to scale their projects, interconnect
each other, get access to funding, and active their
particular service demand. This collective habitat
sets up the empowerment of entrepreneurship.
Social: Relating to human society, the interac-
tion of the individual and the group, or the welfare
of human beings as members of society.
ENDNOTES
1
In order to reduce the gap between North
and South, the peoples of the world gathered
at the United Nations in 2000. There, it was
established eight key objectives to achieve by
2015, the so-called Millennium Development
Goals (MDGs): to eradicate extreme poverty
and hunger, achieve universal primary educa-
tion, promote gender equality and empower
women, reduce child mortality, improve
maternal health, combat AIDS, malaria and
other diseases; ensure environmental sustain
and finally, to promote a global partnership
for development. The progress made in some
of these goals, during the first decade of
206

Social Entrepreneurial e-Empowerment
the XXI century, is undeniable. To cite one
example, according to the 2011 UN Report
on the Millennium Development Goals,
poor countries such as Burundi, Rwanda,
Samoa, Sao Tome and Principe, Tanzania,
and Togo have achieved universal primary
education; something unimaginable decades
ago. But there is still a long way to go. In
fact, if current trends continue as they are,
the poverty rate will be reduced to less than
15% in 2015; a trend that is apparently posi-
tive but well below the 23% target agreed
by the international community in 2000.
2
The social entrepreneur navigates the turbu-
lent waters of the balance between economic
survival and social objectives of questionable
financial viability; one kind of enterpriser
that, according to Pamela Hartigan –Direc-
tor of the Skoll Centre for Social Entrepre-
neurship at Oxford University– would be a
combination between Richard Branson and
Mother Teresa of Calcutta. As indicated
by Bornstein (2004) regarding the case of
microcredit: the most famous social entre-
preneur may be Yunnus Muhammad, the
founder of Grameen Bank. As Steve Jobs,
Yunnus took the product “credit” (which was
at first something exclusive, like the early
PCs), and turned it into a mass product.
Thus, his bank helped democratize access to
funds just like Apple Computer democratized
access to information; the effect is similar:
more choice and self-determination in the
hands of more people around the world.
Other known cases have been performed by
Michael Young (Open University), the Abbé
Pierre (Ragpickers Emmaus), Vicente Ferrer
(Fundación Vicente Ferrer) or Anita Rod-
dick (The Body Shop) (Morales-Gutiérrez,
2007).
3
The absence of the State as provider of basic
social services, political influence of the
great Italian cooperative federations, and
the attention of scholars from this country

Social Entrepreneurial e-Empowerment
to social enterprises explains, in large part,
the relevance social cooperatives –a special
type social enterprises– have in Italy. The law
of 1991–that protected the Cooperative of
Social Solidarity statute (Solidarité sociale
di cooperative)– opened the door to social
entrepreneurship, imbued with the desire to
contribute to the welfare of its members and
society in general.
4
In the UK, the evolution of the social en-
terprise followed a different logic. In 2002,
the Minister of State for Trade and Indus-
try published a document entitled Social
Enterprise: A Strategy for Success, which
accelerated the spread and implementation of
this organizational form (Social Enterprise
Unit, Training Programs, Social Enterprise
Coalition, etc.).
5
According to Veciana (2007), there are a
total of 189 insertion companies in Spain
(registered and/or affiliated) that provide
jobs for more than 4,000 employees in sec-
tors as diverse as recycling, collecting and
recovering, construction, commerce, textile
manufacturing, gardening, hospitality, or
services to Government. Catalonia, Basque
Country and Madrid are the autonomous
communities with a greater number of inser-
tion companies, accounting for just over 65%
of the total. Its number and societal dimen-
sion have grown mainly in the last 10 years
given that 50% of which exists today were
established after 1999; one last fact points
out that 60.58% were registered as limited
liability companies, while 20.63% have no
form of mercantile entity, but operate under
the scheme of foundations or associations.
6
Social enterprises can be classified as com-
panies in transition or finalists. The “finalist”
social enterprises are created to achieve –by
providing stable jobs for workers with re-
duced work productivity– the inclusion of
those who, due to their special insurmount-
able difficulties, seek to develop their careers
in these institutions. Many cases of social
enterprises, with groups where some type
of physical or mental disability exists, are
especially relevant.
7
With the adoption of the Single Market
Act on April 13 of 2011, the Commission
presented a detailed strategy to relaunch the
Single Market inter alia by placing social en-
terprises and the social economy at its heart.
For example, the proposal 36, to promote
innovative social enterprise, cites that the
Commission will propose a new initiative
to support social enterprise development
through the inclusion of social objectives in
public procurement rules, promoting ethical
and ecological labeling. At the same time,
this Commission will encourage banks and
other financial institutions to set up invest-
ment funds and make use of idle savings.
For the purpose of encouraging greater
cross-border activity, the Commission will
consider the establishment of a European
statute for organizations that contribute to
the social economy, such as cooperatives and
mutual societies, and propose a regulation
to create the European Foundation Statute.
8
We have remarked forty one varied cases of
efforts that seek social change worldwide.
Even though these exemplifications proceed
from different part of the world, we have
to keep in mind that, due to the use of IC
technologies and the common share of so-
cial purposes, they all exceed any physical
boundary not belonging, therefore, to any
country. Having said that, the recounting of
the initiatives is the following: seven projects
come from the United Kingdom (six English
and one Scottish), a case from Swedish,
Switzerland, and another one from Germany;
the relation of European experiences closes
with nine Spanish cases worthy to be men-
tioned. With regard to America, it is striking
the identified number of innovative projects
that have sprung up from the United States
207

(a total of sixteen examples). By contrast, it
was considered appropriate to mention from
the rest of the continent just three social en-
deavors. Regarding Asia, it was possible to
pinpoint three notable examples: two from
India and one from Singapore.
9
As pointed by Yunus (2011), we must recog-
nize the economic subject as a multidimen-
sional person, a person who has self-interest
and selflessness at the same time. In this
approach there are two types of enterprises:
one to gain personal benefits and another
to help others. The first one´s mission is to
maximize profits for owners; the latter is to
assist others and in no case the owners, just
the pleasure of serving humanity. To this
second choice to do business, built on the
selfless human nature, is what Yunus (2011)
called social enterprise, a company without
loss or dividends, fully dedicated to achieving
a social objective. Yunus has implemented
his idea of social enterprise by creating joint
ventures between Grameen and a variety of
multinational firms: Danone –to improve
nutrition of poor children in Bangladesh
via selling affordable yogurt fortified with
micronutrients–, Volia Water Company,
BASF, Intel and Adidas, among others.
10
So much so, they are many universities and
business schools with programs designed
exclusively for potential social entrepreneurs
to harness their performance toward social
innovation. As most experts agree, the edu-
cational system should be able to convey the
difference between a good idea and a good
opportunity. To this end, the curriculum of
these programs includes everything from
how to finance your idea, to how to assess
market demand and play business models and
ways of mitigating the risk. Educators can be
largely those who spread the optimism and
perseverance to carry out social projects.
11
The phenomenon of empowerment can be
analyzed from various fields of study. The
208

Social Entrepreneurial e-Empowerment
definition of this conceptualization was
introduced by religion in the 60’s, and a
decade later it expanded into the field of
sociology, which focused their study on the
distribution of real power among society. It
was not long for it to be accepted by other
sciences such as education, social work and
psychology, which gave a new twist to the
core of the research: focusing more directly
on the development of human welfare. Its
subsequent introduction into the organiza-
tional field, gave a new emphasis aimed at
increasing productivity (Bartunek and Sp-
reitzer, 2006). At present, empowerment is
considered a critical factor in management
practices for various reasons (Ergeneli et al.,
2007): first, the personal empowerment is
a fundamental element for the management
and business organizational effectiveness;
in other words, effectiveness is increased
when power and control are shared (Keller
and Dansereau, 1995). Secondly, empower-
ment is an enabling component to trigger the
necessary changes at the right time. Finally,
empowerment leads to beneficial results.
12
This is one of the best known cases of the use
of crowdfunding in Spain: the financing of
feature film The Cosmonaut; the first Span-
ish movie that used this financing method
of donations to raise 2 Euros contributions
from users in exchange for appearing in the
credits of the motion picture. In the collective
funding platform IDEAME (www.idea.me) it
is recommended to entail the rewards to the
project; they can be both physical and digital,
and also an experience with the creator or
producer; for example, a CD, a signed shirt,
a limited edition of an object, or any experi-
ence like being witness of the backstage and
production, a personal conversation with the
creator, a private music show, etc.
13
This is the case of the Young Social Entre-
preneurs Program “Changemakers,” coor-
dinated by Ashoka in Spain, Portugal and

Social Entrepreneurial e-Empowerment
Latin America thanks to the BBVA Bank’s
economic patronage.
14
Other notable initiatives are: BSR Organiza-
tion (Business for a Better World), BALLE
(Business for Local Living Economies Al-
liace) and NetImpact.
15
Two well known examples are the Execu-
tive Program in Social Entrepreneurship
at Stanford (www.gsb.stanford.edu/exed/
EPSE/index.html) and the Social Enterprises
MBA from Harvard Business School (www.
hbs.edu/socialenterprise/).
16
Some of these specialized programs include:
a) the Autonomous University of Madrid
has its own School of Social Entrepreneurs
(http://www.ciade.org/ees.html) b) the
School of Industrial Organisation offers
an MBA on Social Entrepreneurship (www.
eoi.es/portal/guest/curso/188/mba-on-
social-entrepreneurship) and c) The Deusto
Business School bears a separate title in
Innovation and Entrepreneurship (www.
innovandis.deusto.es/).
17
This is a collaborative network of ten of the
most renowned business schools in Latin
America: EGADE Business School (Mexico),
ESADE (Spain), Harvard Business School
(USA), Institute of Advanced Management
Studies, IESA (Venezuela), Central America
Institute of Business Administration, INCAE
(Costa Rica), Pontifical Catholic University
of Chile, PUCCh (Chile), University of the
Andes, Uniandes (Colombia), University of
the Pacific, UP (Peru), University of San
Andrés, UdeSA (Argentina) and University
of Sao Paulo, FEA/USP (Brazil).
18
In a context of outpouring of e-business,
virtual training or e-learning was required
to exploit the advantages of this new chan-
nel of transmission. New technologies have
revolutionized the learning process. In this
sense, experts agree that the most defining
feature of the system, the one that gives its
greatest usefulness and drives its complete
development, is flexibility, an attribute
that has three main components: flexibility
of space, time and pace. The e-learning
eliminates geographical barriers, reduces
the chronological stiffness of the in-class
system, and allows the customization of
training activities based on the starting level
and pace of student learning. This flexibility
makes instruction compatible with other
activities: leisure, work... (Ariza-Montes,
2002).
19
Another mixed model example is the Institute
for Social Entrepreneurs which organizes
seminars, workshops and coaching services
for social enterprises in the United States
and around the world (www.socialent.org).
In addition to classroom training, electronic
and print resources about social enterprise
are freely available on its website.
20
Another similar experience in the euro-
pean context is carried out by the Euro-
pean University of Madrid through the
Prize for Young Social Entrepreneurs
(http://www.youthactionnet.org/index.
php?fuse=institutesinfo&id=43). This
award offers two intensive learning leader-
ship development sessions, coupled with
mentoring, networking with key Spanish
youth development organizations and access
to on-line university courses and resources.
This personalized learning experience, to-
gether with a 3,000 Euro award to their proj-
ects and on-going mentoring support, will
allow these young social leaders to deepen
and expand their impact in local communi-
ties. The European University of Madrid
is a local partner to YouthActionNet (www.
youthactionnet.org), launched in 2001 by the
International Youth Foundation. YouthAc-
tionNet supports aspiring and accomplished
young leaders by providing skill-building,
advocacy, and networking opportunities. To
achieve its mission, it has a Virtual Institute
where provides young leaders globally with
209

a state-of-the-art virtual platform through
which to strengthen their knowledge, build
skills, network, and advocate for their causes.
21
Following the strategy of viral marketing,
it has developed a high impact “inaugural”
presentation in which, “paraphrasing” the
famous formulation of Steven Covey (Seven
Habits of Highly Effective People), there are
addressed the six habits of social entrepre-
neurs through the acronym “SOCIAL.”
22
“Tempered Radical” is a concept driven by
the founders of Xul. It is a term coined by
Scully and Meyerson (1995) to describe busi-
ness professionals who work oriented toward
This work was previously published in Social E-Enterprise edited by Teresa Torres-Coronas and María Arántzazu Vidal-Blasco,
pages 111-132, copyright year 2013 by Information Science Reference (an imprint of IGI Global).
210

Social Entrepreneurial e-Empowerment
positive change, but it held both professional
and personal orbit and a “soft.” Do not act
so “explosive” but soft handling skills, more
focused on relational and look allowing the
need for change without fanfare, but in a
continuous, day to day. Translated Xul how
it operates, this idea of he professional “radi-
cal lukewarm” could be considered a work
without major marketing activities seeking
media attention, but more based on “project
basis” in the search for a permanent concrete
ideas into specific actions and direct. It is
pursuing radical change from a strategy of
consistency.
 211

Chapter 12
Properties of Knowledge Matter:
A Re-Examination of the Glitz of
Entrepreneurialism as a Change
Paradigm for Higher Education

Mary A. Burston
La Trobe University, Australia

ABSTRACT
In this theoretical chapter, the concept of fungibility is deployed as an analytical device for re-examining
assumptions made about the capacities of entrepreneurialism to transform higher education, learning,
and curricula. The purpose is to demonstrate that properties of knowledge matter when it comes to
presumptions, policy directives, and promises made about academic and institutional agency and par-
ticipation in the knowledge economy. From the perspective that not all knowledge is equal in value, the
chapter highlights a core conceptual problem underpinning the reform agenda of entrepreneurialism in
concluding that properties of knowledge matter for democratic participation in the knowledge economy.

INTRODUCTION nomically realized commodities of exchange in the

The questions framing this chapter are: Why do
the properties of knowledge matter? and What
are the implications of the “unpropertied” in
the “entrepreneurial” reform agenda for higher
education?
This is a theoretical chapter in which the termi-
nology of entrepreneurialism is examined. In order
to do this, the concept of fungibility represents
an analytical device for investigating assumptions
about the translatability of knowledge into eco-
knowledge economy. Fungibility is an economic
concept that relates to the determination of the
value of a commodity. For the purposes of analysis
it is important to distinguish critical ideas implicit
in meanings of fungibility. One is the idea of mutual
substitution or interchangeability. To illustrate, a
unit of currency can be broken down into smaller
amounts but the total amount equals the same value
whether represented as coinage, paper or credit.
Fungibility represents the interchangeability of
value if other things are the same. Fungibility

DOI: 10.4018/978-1-4666-8468-3.ch012

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

does not mean exchangeability in the sense that
other commodities or products represent the same
value. While it is understood that exchangeability
is a critical function of economic markets and
economies, the meaning to be used in this chapter
is for the purposes of critiquing current discourses
of entrepreneurialism in higher education. This
conceptual difference needs to be made to enable
an understanding that not all commodities share
the same fungible characteristics or have equal
value. In broad terms, the “knowledge” economy
infers that knowledge forms represent fungible
assets of commodity exchange. The problem is
that not all knowledge properties ubiquitously
represent the same value.
The fungibility of a property refers not only to
its material form but also to the terms on which
judgments of value are made. Perceptions of value
reside in an “invisible, parallel life alongside their
material existence” (de Soto, 2000, p. 6). As fun-
gibility is central to property interchangeability
and determinations of exchangeability of value
in economic markets, the inquiry questions are
salient in the context of a paradigm shift proposed
for higher education institutions and for forms of
new citizen identities and future educational and
learning experiences (British Council, 2008; Shat-
tock, 2009; Barnett, 2011; Altmann & Ebersberger,
2013). In proposing an alternative interpretation,
this chapter will demonstrate that properties of
knowledge matter and conclude that implications
of the “unpropertied” are significant in terms of the
reform agenda for higher education. The chapter
first reviews current propositions and rationale for
reform in higher education. It then problematizes
assumptions made about the transformation of
new types of educational institutions, education
of citizens and educational values. By submitting
an alternative perspective of fungibility, it will
be concluded that properties of knowledge mat-
ter to democratic participation in the knowledge
economy.
212

Properties of Knowledge Matter
BACKGROUND
Universities have increasingly been brought into
the center of economic, political and national dis-
course within the past thirty years as new modes
of educational agency are advanced in the twenty-
first century “knowledge” economy. The shifting
of roles and institutional purposes – previously
held to as domains of academic and disciplinary
inquiry into knowledge - seeks to configure a new
paradigm in which economic market principles
and theories underpin the conceptual, institutional
and cultural architecture of the “entrepreneurial”
university (Rosenberg, 2003, pp. 113-140; Thorp
& Goldstein, 2010). While some welcome this
emerging schema as a necessity for renewing and
refocusing the purpose and role of universities in
contemporary society, others consider the damag-
ing effects of unilateral compliance to economic
imperatives and the impact on institutional cultures
of collegiality, values and academic practices
(Slaughter & Rhoades, 2004; Lambert, Parker
& Neary, 2007; Braunerhjelm & Henrekson,
2013). Under the rubric of entrepreneurialism,
new forms of institutional agency and identity are
being shaped in characterizations of innovation,
creativity, adventurism, opportunism and self-
autonomy in promoting aspirations of institutional
mobility and strengthened associations between
higher education and capitalization of knowledge
(Laredo, 2007; Bonaccorsi & Daraio, 2007).
Entrepreneurialism is invested in “third”
mission strategies for remediating academic
cultures and forms of learning. Advocates of the
entrepreneurial agenda insist that re-appropriation
of knowledge properties into commodity assets
is necessary for reforming traditionally bounded
cultures of learning and knowledge. Policy
agenda from the European Union to the Asia-
Pacific region and economic institutions such as
the World Bank, OECD and IMF promote the
notion that significant changes to curricula and

Properties of Knowledge Matter
types of knowledge and skills are required for
participation in an era of global entrepreneurial-
ism (Organization for Economic Cooperation
and Development, 2005). Etzkowitz’s triple helix
model (Etzkowitz, 1983; Etzkowitz & Zhou,
2008) contextualizes the shifting landscapes from
academic institution to entrepreneurial agent in
the last thirty years. Etzkowitz considers that
entrepreneurialism represents a generative capac-
ity to reinvigorate academic cultures but policy
and economic imperatives threaten to curtail and
constrain intellectual creativity. However he also
recognized that new identity formations were
being created by hierarchical determinations of
academic entrepreneurialism and that new mean-
ings of academic productivity separated those who
demonstrated agency in transforming knowledge
properties into commodity assets and those who
did not. While Etzkowitz (1983) has modeled
changing institutional relationships between the
university, government and the economy, he
does not fully explain alternative strategies that
universities could adopt.
Burton Clark’s eponymous texts, Creating
Entrepreneurial Universities (1998) and Sustain-
ing Change in Universities: Continuities in Case
Studies and Concepts (2004), symptomize the
rationale for transformation. In proposing remedies
for implementation, exemplar “entrepreneurial”
universities in the United Kingdom and Belgium
are cited as successes. Schumpeter’s paradoxical
conceptualization of “creative destruction” is
proposed as a methodology that will generate new
possibilities for action in which “entrepreneurial”
universities will lead to economic renewal and
institutional self-sustainability. In this rationaliza-
tion, the “entrepreneurial” university consolidates
system efficiency and economic productivity – the
change paradigm of knowledge capitalism on
which the future of universities rests. Impeding
this plan is the accumulated legacy of values,
attributes, dispositions, practices and behaviors
that consolidate the nature of academic colle-
giality germane to the academic university. The
ideal structure of the entrepreneurial university is
presented in Gibb’s (2005) “birth to the grave”
conceptualization of the entrepreneurial citizen,
values, identities and knowledge properties, and
determines the nomenclature of the “entrepre-
neurial” university.
When examining policy rhetoric outlined in An
Entrepreneurship Education Strategy for Ireland
(McSharry, 2010), the objectives for developing
entrepreneurship education appear to convey al-
truistic aspirations for societal improvement and
educational opportunity. Although asserting that
entrepreneurship education is not limited to busi-
ness enterprise, new curricula are to be replicated
on that concept of enterprise. The Irish case sug-
gests that future education values and citizen at-
tributes are determined by economic imperatives.
Part of the transformation program in Ireland is
to establish a dedicated university to be known
as The Technological University (Ireland Higher
Education Authority, 2013). This institutional
design synthesizes the reconfigured landscapes
noted by Etzkowitz (1983, 2000, 2008, 2013).
Some authors, (Fuller, 2005; Harvey, 2005; Kelly
2009; Silova, 2011), consider that governments are
too compliant to the agenda of neo-liberalism, to
the detriment of democratic citizenship and public
good. In contrast, in Latin America, the futures-
oriented modeling of entrepreneurial education
and implicit values is treated with some caution,
especially its narrow determination of the purposes
of education, and its proposed capitalization of
knowledge at the expense and exclusion of social,
citizen and national interests (Thorn & Soo, 2006).
The entrepreneurial reform agenda is theorized
as being instrumental in increasing psychological
stress and academic workloads (Shaw, Chapman
& Rumyantseva, 2011). Small-nation and former
Communist states in Europe struggle to achieve
educational reform objectives, thus reinforcing
and deepening disparities between Western and
Eastern Europe (Matti & Dinu, 2010). Entrepre-
neurial–market–driven education is a foreign
pedagogical and ideological construct in European
213

academic cultures which historically are based
on collective membership rather than competi-
tive economic territorialization for market share
(Fuller, 2005; Silova, 2011).
Experiences at some Asian universities sug-
gest that the importation of Western economic
theories of capitalism and the change paradigm of
entrepreneurialism may be detrimental to Asian
cultural values as entrepreneurialism promotes
individualism over collectivism (Yang, 2012).
The commercialization of intellectual products,
technologies and research did not flow automati-
cally to individual universities, whether they acted
as institutional entrepreneurs or as merchants of
intellectual property (Wong, 2011; Braunerhjelm
& Henrekson, 2013). In relation to academic-
knowledge capital exchange, spill-over benefits of
technology commercialization did not appear to
translate into positive financial return in the short
or medium term, as Wong observed. As Kanter
noted (2000, pp. 169-171), where “innovation is
uncertain, fragile, political and imperialistic,”
the success of an “entrepreneurial” university is
dependent on institutional capacities and external
networks to act quickly and decisively in setting
up long-term supportive and sustainable financial
and commercial markets and networks. To Harvey
(2005), neo-liberal ideations of economic order
have completely shifted the balance between
capitalism’s interests and citizens’ interests, glob-
ally and politically. While creative destruction
is espoused as an entrepreneurial pedagogy for
institutional renewal, Harvey sees it as a destruc-
tive pedagogy generative of global rupture and an
ideological and economic paradigm that has led
to increasing tensions between nations, econo-
mies and national institutions. Neo-liberalism is
manifested in neo-imperialized impositions of
ultra-individualism and reified in contemporary
politics and power relations. Harvey’s critique
of neo-liberalism has philosophical resonance
with a monetary concept known as Wergild. In
this conceptualization, “the value of the human
being…was…the principle classification for the
214

Properties of Knowledge Matter
monetary system and […] the determinate basis
for the value of money” (Frisby, 2013, p. 385).
Continued faith in the glitz of economic entrepre-
neurialism and belief that politicians and power
figures are the “sole guarantors of human well-
being and freedom may compromise the ideals
of democracy and equality ” (Giri, 2013, p. 73).
The iconoclastic “university” appears to have
surrendered autonomy and capitulated to market
economics and the power of consumption capital
(Barnett, 2011). Corporatism has replaced the
identity and value system of higher education.
The fictional Wanna Be university characterizes
and caricatures the emergence of the “entrepre-
neurial” university which represents the change
paradigm of glitzy entrepreneurialism, strategic
market brand image, advertising, logos, images
and institutional ranking (Tuchman, 2009).
The memorialization of the university as an in-
stitutional representation of collegiality, academic
culture, and an identity holistically preserved by
traditions of learning and acquisition of knowl-
edge, represents one argumentative position. On
the other, utilitarian economics collide with modes
of intellectual expression historically legitimized
as the preserve of universities. Equally, theoretical
distinctions made between the “traditional” and the
“entrepreneurial” university fail to recognize that
each constitutes a register of aesthetic categories
that invoke value/moral legitimation and “laws”
of governance for making sense of what can be
applied to social behaviors and norms (Vermeir,
Koen & Funk, 2011).
The inquiry questions into properties of
knowledge are important because there seems to
be conflicting evidence about the capacities of
entrepreneurialism to deliver projected benefits.
According to Scott, Rosa and Klandt (2008) and
Smallbone et al. (2010), the evidence so far is
relatively patchy or under-theorized. Crucial
points made by van Leeuwen (2008) support the
reasons for more careful scrutiny of the agenda of
legitimacy implied in conditions of participation in
the knowledge economy. Models of entrepreneur-

Properties of Knowledge Matter
ialism may appear to have objective functionality
and stability but there is no consensus on the best
method for implementing the change agenda in
higher education other than the projections of
populist political rhetoric and economic theories
(Gibb, 2013).
The glitz of entrepreneurialism projects op-
portunities for universities to capture the economic
potential of knowledge capitalization. Forty years
ago James Kilby described entrepreneurialism as
an elusive pursuit of a fictional image and con-
cluded that it was unlikely that consensus could
be achieved on a singular or universal meaning
(Kalantaridis, 2004). To Drucker (1985) entre-
preneurialism was a capricious thing, difficult to
manage and control although it provides a space
in market economies for entrepreneurial actors to
explore and exploit market opportunities. When
referring to the success ratio of “bright ideas”
entrepreneurialism, Drucker appears to endorse
the ethos of traditional inquiry associated with
“old” academic practices rather than the “super
star” promotion of scientific-technical innovative
entrepreneurialism which policy rhetoric promotes
(Drucker, 1985). “Bright ideas” entrepreneurial-
ism does not immediately translate into economic
success. The market place is littered with the
detritus of “bright ideas” products. Economic
theorist Joseph Schumpeter also held to the rela-
tively conservative view that entrepreneurialism
was unlikely to emerge from institutional contexts
because these inherently constrained creativity,
innovation and risk-taking (Kurz, 2012).
Since the 1990s, neo-liberal economic theories
promoted by the World Bank and personalities
such as Joseph Stiglitz strongly held to the idea
that the “knowledge” economy would generate
economic sustainability, be socially progressive
and reduce inequality globally and nationally.
Twenty years later, Stiglitz acknowledged that
faith in the capacity of financial markets to pro-
duce a better life for national and global citizens
is now problematic. Technological innovation
and entrepreneurial action have not produced
the promises of reducing societal and economic
poverty or enhanced democracy in western and
non-western contexts. The reverse is observed
in a deeper widening of information/knowledge/
education gaps between nations and societies and
existing structural and social inequalities (Stiglitz,
2010, pp. 197-8). Stronger government regula-
tion is now required to protect citizen and social
wellbeing from rampant “free” market capitalism.
Extreme deregulation has defrauded societies and
rewarded “bad” capitalism. The situation has now
been reached where private capital interests over-
ride citizens’ democratic rights (Baumol, Litan
& Schramm, 2007). The change in heart, even
by ultra-free-market economic theorist Milton
Friedman, acknowledged the failure of absolute
free market principles. Hindsight may infer a
retrospective reclamation of liberal humanist
values. However, theory also wears “the tertiary
properties of [its] bearers” (Rescher, 2004, p. 16),
suggesting that more caution should be taken when
assuming complete faith in the notion that markets
can produce equity and equality; or as adoption
of free market propositions that knowledge is
merchantable and can be traded as a commodity
asset like any other form of commodity in the
market place (Kanamori, 1999; Antonelli, 2006).
Whether “economic systems are able to generate
and implement the perfect network architecture”
is difficult to answer (Antonelli, 2005, p. 66). That
statement represents the core problem of assuming
that the glitz of entrepreneurialism will perform to
the same expectations in capitalizing intellectual
commodities of higher learning.
Promises and Problems
The notion that new entrepreneurial opportuni-
ties are generated by a paradoxically generative
but destructive process of “creative destruction”
(Schumpeter) is premised on the idea that the
entrepreneurial actor/institutional agent can elicit
the best means of obtaining profit (the economic
imperative) as well as the means for assigning how
215

profit will be distributed (the power objective)
(Burt, 1995). Relayed in this notion is the idea
that capitalist economies rely on friction between
competing interests and outcomes. Relational to
the proposition that entrepreneurialism catalyzes
the strategic interplay of interests and outcomes,
is the idea that, in the exchange between two
parties, an unintended or “third party” benefit
may emerge out of this conflict. This is known as
tertius gaudens (Latin etymology) or the “rejoic-
ing” third. Although normatively referred to as the
Schumpeterian paradox of “creative destruction,”
the attribute can be traced to nineteenth century
sociologist Georg Simmel when he described
the nature of societal competition between indi-
viduals and/or social groups (Frisby, 2013). By
definition, the concept of tertius gaudens infers
critical tensions. Entrepreneurialism is essentially
a disharmonic process whether manifested as an
adjectival register for describing human char-
acteristics, economic behaviors and actions, or
as an economic strategy. It is designed to defeat
others when competing in market places and for
achieving individual outcomes. The more complex
issue is that not all tertius exchanges produce
desired benefits for third parties. The value of
the entrepreneurial actor is to open a space in
market economies for the purposes of generating
and optimizing capital growth, primarily for the
principal party rejoicing in the spoils of economic
victory or by default, the third party beneficiary.
Third party benefit is not guaranteed. Promo-
tions of “creative destruction” are mobilized
in rationale for stimulating economic growth
and in premises made about the capacity of the
knowledge economy to radicalize higher educa-
tion. Such premises assume that tertius gaudens
entrepreneurialism will be positive.
The ideal-model type of entrepreneurialism
assumes ultra-efficiency, economic self-sustain-
ability, and market agency in which knowledge
capitalization is invested in the transformation
of a new type of educational institution. The
entrepreneurial university is simultaneously a
216

Properties of Knowledge Matter
condition, a stimulus, a property and a project of
recovery on which national economies are reliant.
The entrepreneurship agenda in higher education
arguably constitutes knowledge territories to le-
gitimize change and to endorse entrepreneurial
attributes in pedagogy and curricula (Gallagher,
2000; Cai Liu & Cheng, Y, 2005; Marginson,
2007; Aguillo, Ortega & Fernández, 2008). The
core problem in arguments and theories is the
proposition that all knowledge properties are the
same, in the sense that these represent commod-
ity status equal in value to other products in the
market place. Critical theorist Baudrillard (2005)
did not believe that educational capital/knowledge
has the same fungible value as a commodity of
economic exchange. Knowledge is different from
monetary value. Once knowledge becomes an
economic entity; from then onwards, it is subject to
the same market conditions as other commodities
and practices of consumption. It loses its status
and its value because it means nothing more than
any other product.
The logic of the economy is presented as a
sensible solution for redressing complex educa-
tional and institutional problems. Kalantaridis
(2004) recognized a similar problem with the idea
that the economy held an immanent capacity for
reforming existing social and economic structures.
New possibilities of consumption may emerge but
these do not radically change the nature of capital-
ism; rather, they reinforce “characteristic sets of
property rights, social and economic structures”
and reproduce and continue the patterning of
economic dominance (pp. 74-75). Technological
entrepreneurialism has increased the economic
power of corporate capital as indicated by the
mega corporate accumulation of individual wealth
and dominance of global, financial interests of
media/communications companies. Mautner
(2005) exemplifies the critical view that entre-
preneurialism represents a disabling discourse in
relation to the organization of economic, social
and intellectual knowledge, and a change agenda
dominated by “powerful external constituents -

Properties of Knowledge Matter
corporate ‘partners’ and governments...(which)
together… [constitute the]… modelling…[of]…
organisational practices, identities, and relation-
ships on commercial templates” (p. 113).
The classic idea that knowledge held liberating
agency for citizens and societies appears to be
defunct in a capitalist-economic order that con-
ceptualizes education and learning as a commodity
of exchange in the market place. Justifications for
implementing a new ideological and economic or-
der in higher education are not simply reducible to
administrative changes or a philosophical critique
of the morality of the enterprise but illustrative
of a critical conceptual gap in assumptions that
knowledge properties are equally fungible, equal
in status and in value, as well as in capacities to
be exchanged in the knowledge economy.
The Missing Piece: Fungibility as
a Condition of Commodity Value
As indicated in the introduction, the term fungibil-
ity represents an analytical device for investigating
the manner in which entrepreneurialism is pro-
moted as a change paradigm in higher education.
More critically, the meaning of fungibility relays
two critical states. One is mutual substitution and
the other is the determination of value. The value of
a commodity is not only represented by its materi-
ality but also by an invisible schema of perceptions
of value. The knowledge properties prioritized for
commodity exchange, hence, the value of material
status and in perceptions, relate predominantly to
the domains of science and technology. The fungi-
bility of intellectual capital and products is preset
by the invisibility of epistemological histories in
which science and the economy mutualize the
conditions of progress and the nature of relations
of knowledge. The problem is that the relativiza-
tion of value is invisible to economic markets.
In the case in point, gender and intellectualism
represent mutually interchangeable properties in
status quo theories of entrepreneurialism and value
references of knowledge. These are mutually sub-
stituted, constitutive and contingent on discourse
terms of property and power relations, bounded
and bonded by values attributed to competitive
masculinity (Petterson & Lindberg, 2013). With
the absence of women a signifier of negation in
epistemological histories and in economic theories
of entrepreneurialism, this structural hole (Burt,
1995) presents a critical obstacle for promoting
the agenda of entrepreneurialism as an enabling
discourse in terms of the effects of exclusion of
women from spheres of economic, institutional and
corporate participation (Bacchi & Eveline, 2005).
In gender positive democracies like Sweden,
only twenty five per cent of women are described
as entrepreneurs in the business sense. Norway
has the fifth most gender-segregated work market
despite having a highly educated female work-
force and a normative culture of egalitarianism
(Carter, Henry, Ócinnéide & Johnston, 2007).
Women entrepreneurs are not prominent in
contemporary discourses on economic action.
Although policy programs have been instituted
in America since the 1970s, women have not
reached parity status as economic actors and in
corporate realms (Ahl, 2004; Jepson, 2009; Brush,
de Bruin & Gatewood, 2010; Byrne & Fayolle,
2010; McAdam, 2013). Global Entrepreneurial
Data indicate that women are poorly represented
at all levels of entrepreneurial activities. Figures
in European Union countries are in the lower ten
per cent (Miniti, 2011). Entrepreneurialism may
appear to project egalitarian norms and democ-
ratizing imperatives but its core ethos and value
system are derived upon ideas about masculine
economic participation, economic activities and
capacities to initiate entrepreneurial agency and
autonomy. Whether invoked in economic theory,
in ideations of the entrepreneurial university,
and in promotion of entrepreneurship education
and curricula, the agenda of entrepreneurialism
subsumes the relational contingency of the fun-
gibility of gender as a determining characteristic
in the perceptual schema of entrepreneurialism.
Gender is embedded structurally, vertically and
217

horizontally in placing limitations on women’s
agency and autonomy as economic actors and
entrepreneurial agents (Kariv, 2013).
A core premise of the knowledge economy
is that all knowledge properties are mutually
fungible in the sense that the nature of tertius
gaudens competition produces benefits to higher
education institutions and generates new forms
of economic consumption constituted by knowl-
edge capital, information and products. While
fungibility is contextual in the sense of its appli-
cation to economic theory, it is also relational to
value determinations. The concept of fungibility
therefore relates to not only the material thing or
commodity but the suite of knowledge properties
embedded in values associated with that property
and its status. Fungibility is a critical component
of property categories. Domains of knowledge
held to have greater economic value reflect the
status references of masculinity in which contin-
gent values are relayed in societal, political and
economic spheres of enterprise (Byrne & Fayolle,
2010; Hughes & Jennings, 2012).
Techno-scientific, operational, strategic, or-
ganizational and business knowledge are given
maximum value in the “knowledge” economy
and in the curricula of future designs for entre-
preneurial education (Clegg & Palmer, 1996;
Dalkir, 2005; Becerra-Fernandez & Leidner,
2008). Whether invoked in economic theory or
as praxis promoted in ideations of entrepreneur-
ship education and curricula, the relative absence
of pedagogical exemplars for modeling female
entrepreneurialism is problematic, as well as an
implicit, but invisible status of the “unpropertied.”
By inference, this state represents the obverse of
a commodity, whether in status or in value.
We then need to examine the premise that
entrepreneurialism can be mobilized ubiquitously
as a change paradigm in higher education institu-
tions. The concept of fungibility illustrates the
problem that this chapter identifies in terms of
a self-generating paradigm of property charac-
teristics reflected in institutional preferences for
218

Properties of Knowledge Matter
assigning priority status and value to masculinized
knowledge properties. The knowledge economy
values areas of education and learning in which
women are not principal participants. With
minimal space in educational curricula to frame
female entrepreneurialism or for theorizing how
women use capital in market contexts, it becomes
evident that fungibility is a critical sign system
for illustrating the phenomenological invisibility
of a gendered economy of exclusion and absence.
The hypothesis of “creative destruction” rep-
resents a theory of economic action for explaining
how institutional agents can maximize economic
interests. The concept of fungibility may appear
to be theoretically abstract but it is important to
make the distinction that entrepreneurialism re-
fers to behaviors and actions whereas fungibility
refers to determinations of the value of property
characteristics to be capitalized. Entrepreneur-
ialism does not hold fungible value in the same
way that a commodity does. Entrepreneurialism
may describe a paradigm change for educating
citizens of the future but fungibility becomes
more critical when determining which attributes
of value are to be considered in the knowledge
economy, especially in relation to institutional
values and inherent gendered schema. With the
focus of attention on entrepreneurialism as a
change paradigm and in economic rationaliza-
tions of knowledge commodities, properties of
knowledge matter when representative of status
and contingent values that intersect gendered,
societal and economic domains of participation in
the knowledge economy. While the glitz of entre-
preneurialism may appear to present a remedy for
reforming higher education and for reclassifying
differences between academic and entrepreneurial
universities, fungibility problematizes institution-
ally gendered enablers and disablers within the
entrepreneurial arena, in economic activities, in
social conventions, and implicitly in gendered
dichotomies of knowledge and institutional power
relations (Markovic, 2007).

Properties of Knowledge Matter
CONCLUSION
This chapter is written at a time when the peda-
gogical remedy of entrepreneurialism occupies a
significant space in the theorizing of institutional,
government, national and global economic order.
We are now at the limit of exponential globaliza-
tion and economic consumption (Cazdyn & Sze-
man, 2011). The sustainability of the planet and
environmental resources is under serious pressure.
The pillars of democracy, citizenship and equality
are at a critical stage. Governments are less able
to counter the power of corporate interests. A
reconfiguration of political, social and economic
order is urgent but the glitz of entrepreneurialism
is unlikely to enable citizen agency and equal-
ity. What is at stake in the agenda of reform for
higher education sectors is not simply a change
of administration. The entrepreneurial university
symbolizes a global problem in western democ-
racies and in national contexts as governments
globally continue to divest themselves of public
service institutions, industries and services in favor
of private capital, market capitalism and private
control of public assets. The framework of future
citizenship is based on entrepreneurial competi-
tion and strategies to achieve best individual or
economic outcome. Entrepreneurialism may
describe a paradigm shift for educating citizens
of the future. Fungibility becomes a more criti-
cal concept when applied to the schema of value
determining which attributes of knowledge are
to be considered to hold greater value in market
economies.
The economy represents a significant shift
from what has normatively has been conceived of
collectivist public citizenship. Entrepreneurialism
therefore constitutes an ideological paradigm of
self-promotion through economic action. Deleteri-
ous consequences for the status ideals of public
citizenship and institutional values traditionally
associated with academic humanism have been
reported. Corporatism has replaced the identity
and value system of some higher education institu-
tions. Knowledge is merchandise and similar in
kind to any other commodity in the market place.
It was asserted in this chapter that properties of
knowledge matter. In reflecting the argumentative
view, the concept of fungibility was deployed as a
rhetorical and analytical device for investigating
assumptions about the translatability of knowl-
edge into economically realized commodities
of exchange in the knowledge economy. It was
necessary to distinguish conceptual differences
between entrepreneurialism as a descriptor for
economic action and the concept of fungibility
as an economy of value attributed to property
and commodity characteristics. The theory term
enabled the problematizing of assumptions related
to the gendered constitution of knowledge proper-
ties in terms of the phenomenological invisibility
of value attributes associated with the commodity
status of intellectual products. The literature re-
view established that the concept term of fungibil-
ity was not nominated as a crucial component of
properties of knowledge to be exchanged in the
knowledge economy. The limitations of the theo-
retical approach are acknowledged. The impor-
tance of the perspective however offers a different
interpretation of the glitz of entrepreneurialism,
not only to problematize the change paradigm in
higher education. The economy is to become the
central curricula of learning and education and
a framework for creating a new citizen order. In
opening a space for debate on the generic problem
of higher education reform and the legitimation
of entrepreneurialism in pedagogy and curricula,
the inquiry questions have led to the conclusion
that properties of knowledge matter. The constitu-
tion of knowledge properties is not a matter for
glitzy entrepreneurs to decide. The implications
of the “unpropertied” require further exploration
given the inferences of gender relativizations of
knowledge properties. It is for citizens to deter-
mine the fungibility of knowledge. Properties of
knowledge matter to democratic participation in
the knowledge economy.
219

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This work was previously published in Advancing Knowledge in Higher Education edited by Tanya Fitzgerald, pages 187-203,
copyright year 2014 by Information Science Reference (an imprint of IGI Global).
KEY TERMS AND DEFINITIONS
Exchangeability and Interchangeability:
Terms used for describing types of commodity
transactions in economic markets.
Fungibility: Derives from the Latin meaning
of fungi – to perform – and has been in use as
a theoretical term since the eighteenth century
(Oxford Dictionary online, 2014). Fungibility
represents the interchangeability of commodity
value in economic markets if it means the ability
to trade the same financial instrument in a dif-
ferent market in anticipating the same outcome.
Knowledge Economy: A description com-
monly used to differentiate knowledge from other
forms of economic capital.
Properties of Knowledge: Knowledge is divis-
ible and valued differently, for example, scientific
and medical knowledge constitutes properties
different to arts and social sciences.
Value: An assessment of a commodity either
economically, in monetary terms, or consisting
of other characteristics.
227
228

Chapter 13
Sustainability and
Entrepreneurship:
Fostering Indigenous Entrepreneurship
in the Brazilian Amazon Region

Raul Gouvea
The University of New Mexico, USA

ABSTRACT
This article elaborates on the diverse entrepreneurial activities of indigenous communities in the Brazilian
Amazon region. This article argues that further sustainability of the Brazilian Amazonian region is
intrinsically linked to the entrepreneurial activities by indigenous communities in the Amazon region.
Amazonian indigenous communities are under increasing economic and social pressure. Fostering sus-
tainable indigenous entrepreneurship in these disadvantaged indigenous communities has the potential
to improve indigenous communities, economic and social welfare, preserve their culture, customs, and
traditional knowledge, in addition to the rebuilding of these communities. Thus, engagement of indigenous
communities in sustainable activities further protects the local natural capital. The article also proposes
the creation of a center for indigenous entrepreneurship in the Amazon region aiming at supporting and
fostering indigenous entrepreneurship.

1. INTRODUCTION (Acselrad, 1991; Dantas, 2008; Almeida and

The Brazilian Amazon region is one the world’s
largest reservoir of biomaterials, which holds close
to 30% of the world’s tropical forest. It is also the
world’s largest reservoir of fresh water. In addition,
the region also shows a rich indigenous social and
cultural diversity. Environmental concerns have
been at the forefront of any discussion related to
entrepreneurial activities in the Amazon region
Campari, 2005; Vergolino, Gomes, and Monteiro
Neto, 1999; Villas Boas, 2011a,b).
The Amazon region is one of Brazil’s most
vibrant economic region, far from being an empty
space, offering a number of business opportuni-
ties that is slowly unfolding to economic agents
that make the effort to design business strategies
and environmental strategies, innovations, and
technologies in order to preserve Brazil’s unique

DOI: 10.4018/978-1-4666-8468-3.ch013

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Sustainability and Entrepreneurship
ecosystem. Today, one of the most pressing issues
in the Brazilian Amazon region is to how to ad-
dress poverty, while at the same time promoting
economic development and growth and preserv-
ing this fragile ecosystem and protecting local
populations. The region has seen over the past few
centuries several cycles of economic development
that have brought income into the region but also
had dramatic impacts on the local environment
and local populations (Dias, Zacca and Nogueira,
1998; Golding, Smith, and Mahar, 1996; Gouvea,
1998, Gouvea, 2000).
Currently, the region is undergoing a third
cycle of economic development, one that de-
mands a “green” inclusive approach to economic
development and one that takes into account the
indigenous communities of welfare, traditional
knowledge and protection of their culture. It is
clear that no plans for the future economic de-
velopment of the Brazilian Amazon region can
take place if the local indigenous populations are
not consulted and involved in the design of these
economic and social regional plans (Almeida,
1992; Almeida and Campari, 1995; Benchimol,
1992;Guimaraes, 2010).
Accounting for 60% of Brazil’s landmass,
the Amazon region is Brazil’s newest economic
frontier, holding the promise for further economic
growth and development of the Brazilian economy
and society. This economic development and
growth, has however, to take into account the
native communities that reside in the Amazon
region (Almeida and Campari, 1995; Allegretti,
1992, Terena, 2008; Terena, 2010).
In the past few decades, the Brazilian indig-
enous population has significantly increased
numbering today between 600,000 to 734,000
people, depending on the source. These indigenous
communities account for close to 0.4% of Brazil’s
total population. Brazilian indigenous communi-
ties’ claims for reservation land have resulted in
the Brazilian government allocating close to 1
million square kilometers for their reservations, or
13% of Brazil’s territory. Brazil’s policy towards
indigenous communities, have however, lacked
the emphasis on economic self-sufficiency. In
addition, Brazil’s policies towards indigenous
communities have not fulfilled their expectations
in the areas of health care and education (Villas
Boas, 2010).
The study of indigenous entrepreneurship on
a global scale is still quite recent (Dana and An-
derson, 2007; International Barents Secretariat,
2010). One can define it as being an activity that
involves the creation, management and design of
new ventures by native people with a clear intent
to benefit indigenous communities or individu-
als. These indigenous ventures may also provide
gains for non-indigenous partners and investors
as these communities develop strategic partner-
ships with non-indigenous partners (Hindle and
Lansdowne, 2005). Indigenous entrepreneurs
face a challenge to balance traditional values and
contemporary business values in order to create
successful ventures (Peredo, Anderson, Galbraith,
and Dana, 2004; Kayseas and Hindle, 2010). In
addition, indigenous governance issues, such as
self-government and intellectual property rights,
also tend to permeate indigenous entrepreneurship
venture initiatives. Indigenous communities also
show a strong attachment to their lands and natural
resources found in these ancestors lands (Berkes
and Adhikari, 2005; Souza, 2008). This special
relationship to the environment and attachment
to land and natural resources found in their land
also tend to distinguish indigenous entrepreneurs.
This paper will elaborate on the diverse entre-
preneurial activities of indigenous communities
in the Brazilian Amazon region. In addition, the
paper will also propose the creation of a center for
indigenous entrepreneurship in the city of Manaus
that will act as a catalyst for the further promotion
of sustainable entrepreneurial activities by these
indigenous communities. This paper argues that
further sustainability of the Amazonian region
is intrinsically linked to entrepreneurial activi-
ties by indigenous communities in the Brazilian
Amazonian region.
229

2. INDIGENOUS
ENTREPRENEURSHIP
In several Latin American countries, native
communities are under increasing economic and
social pressures. Political, social, and economic
practices in Latin American countries have mar-
ginalized native communities, depriving them of
their land, culture, and rights. In addition, the loss
of indigenous self-determination has not allowed
indigenous communities to manage their own eco-
nomic independence (Foley, 2006; Frederick and
Foley, 2006; Maritz, 2006). These Latin American
indigenous communities tend to show the lowest
levels of economic development in the region, with
high levels of unemployment and poverty. Several
countries policies towards their indigenous com-
munities have also resulted in welfare dependency,
not addressing or alleviating the plight for higher
levels of economic and social welfare in these
communities. While the causes for indigenous
poverty are multidimensional in nature, it is clear
that Latin American policy-makers have not been
able to design ways to increase these communities
economic and social welfare (Waltman, Hunter,
and Johns, 2003).
Fostering indigenous entrepreneurship in
these disadvantaged indigenous communities
is perceived as having the potential to improve
indigenous communities’ economic and social
welfare. In addition, it also offers an alternative
to welfare dependency (Fuller, Howard, and
Cummings, 2003). Entrepreneurship could result
in economic independence and empowerment,
resulting in positive synergies for these indigenous
communities to promote social and economic
improvements, leading to the re-building of in-
digenous communities. So, the leit motiv of these
indigenous communities involves not only social
and economic welfare improvements, but also a
cultural revival of these communities.
Thus, economic development would strengthen
their culture, language, and improve social eco-
nomic welfare. In addition, this would allow them
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Sustainability and Entrepreneurship
to utilize their natural resources more efficiently
and productively in a sustainable fashion, resulting
in a transition from dependency to self-economic
self-sufficiency. Furthermore, the perspective
of higher levels of social and economic welfare
preserves these communities’ self-respect and
social fabric (Terena, 2010).
Indigenous communities throughout the
Americas have traded for thousands of years,
defying the traditional approach and stereotype
that indigenous communities do not possess the
psychological trait to engage in entrepreneurial
activities (Abbott, 2002; Robbins, 2003). Instead,
one should also focus on indigenous environmental
enablers or environmental barriers for the creation
of an entrepreneurial mindset (Furneaux and
Brown, 2007; Tata, 2010).
3. THE TAXONOMY OF INDIGENOUS
ENTREPRENEURSHIP IN
THE AMAZON REGION
The culture and traditional knowledge of indig-
enous communities of Brazil’s Amazon region is
unique and important for the sustainability of the
Amazon region. The challenge is to find a way
to value, promote, and foster the local indigenous
cultural diversity, ethnic identity, while at the
same time building bridges between indigenous
communities and Brazil’s private sector, federal,
state, municipal agencies, NGOs, universities and
research agencies, in order to promote sustainable
indigenous entrepreneurship. The other challenge
is to develop sustainable models of economic
utilization of forest resources that also take into ac-
count the demands and participation of indigenous
communities (Baniwa, 2010; Cordeiro da Silva,
2008; Federacao das Organizacoes Indigenas do
Rio Negro, 2011; Ticuna, 2008;).
It is clear from the examples that are listed in the
next section that Brazilian indigenous communi-
ties are eager to engage in different entrepreneurial
activities. Environmental enablers have played

Sustainability and Entrepreneurship
and will play an increasing role in fostering these
entrepreneurial activities. The next section will
provide taxonomy of the different entrepreneurial
activities being pursued and developed by Brazil-
ian Amazonian indigenous communities.
Poverty amongst indigenous communities in
Brazil, and in the Brazilian amazon region is de-
manding comprehensive solutions that address in-
digenous communities’ aspirations and demands.
As a result of this pervasive poverty, the rate of
suicide amongst Brazilian indigenous communi-
ties is on average four times higher than that of
Brazil’s average. The highest rates of suicide in
Brazil are located within indigenous communities
such as the Tabatinga, in the state of Amazonas.
It is clear that the lack of professional options
and lack of income generation opportunities is
taking a heavy burden on Brazilian indigenous
communities. Entrepreneurial activities have the
potential to offer the young generation of indig-
enous Brazilians a better perspective for their
future (Nassif, 2011).
The increasing number of indigenous entre-
preneurship projects spanning in the Brazilian
Amazon region are mostly based on these com-
munities’ natural resources and culture (Aislan,
2008; Baniwa, 2010; Pereira, 2011). This section
will elaborate on the different types of indigenous
entrepreneurial projects.
3.1. Forestry and
Agroforestry Projects
Several Amazonian indigenous communities have
designed forestry and agroforestry projects in
partnership with Brazilian federal agencies, state
of Amazonas agencies and NGOS. The sustain-
able harvest of these forest non-timber products
has become an important source of income and
jobs for several communities.
The cultivation of Brazilian nuts (Castanha
do Para) and copaiba vegetable oil by indigenous
communities in the state of Amazonas has been
organized by the state’s indigenous secretariat –
SEIND. SEIND is working with local indigenous
communities, such as the Kassawa community/
Hexkaryana, in order to assess their production
potential, develop programs to further skills and
technical competence, create infrastructure such
as silos, provide financing and assist in the com-
mercialization of their production (Oliveira, 2010).
The Uru-Eu-Wau-Wau indigenous community is
also engaged in the sustainable management of
Copaiba.
Copaiba oil can be used in producing varnishes
and lacquers. In addition, copaiba has antibacterial
properties and other medicinal uses. The harvest
of copaiba offers additional income to these com-
munities and preserve their local ecosystem, at the
same time offering these communities an incentive
to keep the forest intact, showing them that there
are benefits in valuing and harvesting the Amazon
jungle. Families from each indigenous community
perform these activities. The buyer typically goes
to the community to buy the copaiba oil. The pro-
cess is supervised by the “Fundação Nacional do
Indio – FUNAI.” One of the challenges faced by
these ventures is to deliver the products in time,
with the quantity required, and with the quality
expected by the buyers. These products also need to
be certified in order to add more value in addition
to efforts in the areas of packaging and branding.
In addition, sustainable practices also need to be
observed (Euler, Arara, Gaviao, e Rocha, 2008;
Maretto and Gaviao, 2008).
Another indigenous forestry related project is
being developed by the Federal University of Acre
and by the Federal University of Para/Nucleo de
Altos Estudos Amazonicos with the indigenous
communities of Kaxinawa, Apurina, and Kaxarari.
The project utilizes natural rubber from indigenous
reservations in the state of Acre to manufacture
commercial products (“Encuchados de Vegetais
da Amazonia”). The “Poloprobio Project” trans-
fers manufacturing processes to these indigenous
communities adapting and simplifying techniques
231

of production. In addition, they also utilize native
knowledge for the production of these products.
The project also provides income directly to the
producers providing income self-sufficiency and
cultural empowerment, as well as environmental
preservation (Samonek, 2010).
Traditional indigenous knowledge is also being
utilized by research agencies such as The Insti-
tute for Research in the Amazon – INPA. INPA
is developing agroforestry projects, Guyagrofor,
based on traditional knowledge. The sustainable
management of Buriti, green composts, and man-
agement of different types of hardwoods are being
developed based on indigenous knowledge. These
projects also select products with the highest ac-
ceptance and market opportunities for indigenous
communities. The synergies developed between
local research institutions and local indigenous
communities provide a blueprint for additional
partnerships in the future (Hada, 2010).
3.2. Agriculture
Several indigenous communities are also engag-
ing in developing agricultural projects such as the
Paranapara and Solimões indigenous communities
in the regions of Alto Solimões, Benjamin Con-
stant and Tabatinga. These indigenous communi-
ties want to control the supply chain of selected
agricultural commodities including production,
transport, commercialization, and distribution
(Bastos Ticuna, 2008). They are planning to grow
beans, corn, watermelons, banana, and cassava.
They are working with local state agencies, such
as SEIND, to develop the infrastructure and raise
funds for equipment and machinery.
In another example, the Foundation for the
Sustainable Development of the Amazon (FAS)
Region has designed a number of projects aim-
ing at the conservation of the forest and at the
same time providing income to indigenous and
non-indigenous populations living in the for-
est, i.e., the Forest Income Transfer Program or
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Sustainability and Entrepreneurship
“Programa Bolsa Floresta.” The program brings
scientific institutions, multilateral organizations,
and indigenous and non-indigenous populations
that live in the forest (“ribeirinhos”) together in
a number of projects such as the REED project
(Reducing Emissions from Deforestation and
Forest Degradation). The program assists these
communities in several income-generating proj-
ects such as honey production from native bees,
aquiculture, and vegetable oils among other
economic activities. The program also invests in
educational programs and infrastructure to store
and transport the production of these products
(Tezza, 2010).
However, several indigenous communities in
the Amazon region are somewhat suspicious of
the ramifications and implications of adhering to
REED agreements. Uncertainties in the Brazilian
legislation governing these agreements as well as
the obligations under these agreements may restrict
the future utilization of these indigenous lands by
their communities. Indigenous communities want
to be consulted and informed before they embark
in these international agreements (Terena, 2010).
The state of Amazonas’ Secretariat for the
Environment and Sustainable Development (SDS)
has also been developing a number of actions
towards indigenous communities. Its main goal
is to create viable sustainable economic options
in the interior of the state. Its main actions are
in the forest, aquiculture and agriculture. The
agency also works as a catalyst in negotiations
between indigenous groups and ribeirinhos as
well as consumer markets. The agency is also
adding locally produced products to a number of
educational meal programs promoting a strong
demand for these products. The PREME/SEMED
programs have helped a number of indigenous
and ribeirinho communities. The secretariat also
promotes the use of managed green certified
woods to manufactured furniture for schools in
the region, helping again communities in the
process. The agency also promotes and supports

Sustainability and Entrepreneurship
the commercialization of handcrafts by a number
of indigenous associations such as the “União
das Mulheres Artesas Indigenas do Medio Rio
Negro – UMAI,” and “Associacão das Mulheres
Indigenas do Alto Rio Negro – AMARN” among
other associations. The secretariat also works with
indigenous communities to certify the origin of
their vegetable oils such as buriti, and Brazilian
nut production. Their actions have strengthened
the productive chains of non-timber products such
as vegetable oils, nuts, and natural rubber.
3.3. Ecotourism
Indigenous communities in the Amazon region
are under pressure from NGOs, entrepreneurs
and government agencies to engage and promote
ecotourism in their lands. The Brazilian Amazon
region has a natural competitive advantage in the
global ecotourism industry. Its ecosystem offers a
number of opportunities for indigenous communi-
ties to explore ecotourism activities.
Several indigenous communities are currently
undertaking such activities. One of the challenges
is to provide educational and technical training
to these indigenous communities to maximize
revenues from these operations. These indigenous
communities are still facing a number of challenges
such as building infrastructure to welcome and
lodge tourists, build human capital to manage these
ecotourism operations, and market their operations
(Anjos, 2010). Several indigenous communities
are designing partnerships with state agencies such
as Manaustur, universities such as UFAM/UEA,
federal research agencies such as INPA, SEBRAE
for instance in order to minimize their impact on
the environment and maximize revenues through
training (Silva, G; 2008; Silva, R, 2008).
The Tenharin indigenous community has de-
veloped a number of ecotourism activities such
as catch and release fishing. The whole commu-
nity was involved in developing these activities.
In addition, there was oversight from local state
agencies and federal agencies as well. The main
motivation was to provide the community with
additional income in order to keep their lifestyle
and culture. At the same time these activities also
help to preserve their ecosystem (Tenharin, 2008).
The Tukano native community is also building
a “Bahsa Kawii Jungle Lodge” that will familiarize
ecotourists with community values and culture.
The experience will allow visitors to experience
their dances, food, and canoe trips. These projects
also help to protect indigenous lands and preserve
the local ecosystem (Barreto and Barreto, 2010).
In another example, the “Comunidade Beija-
Flor” outside the city of Manaus, has also been
promoting ecotourism activities. The indigenous
community Satere-Mawe and other indigenous
groups live in the region. In 2006, they created
the “Associacão Etnoambiental Beija-Flor.” Their
initiatives are being assisted by the State Univer-
sity of Amazonas (Cruz, Maciel, Costa Filho, and
Sampaio, 2010). The Surui Paiter indigenous com-
munity of the state of Rondonia is also promoting
ecotourism activities; having attracted a number of
foreign visitors to their reservation (Surui, 2010).
There are also a growing number of indigenous
owned tourism companies, such as Yepa Turismo,
that works with several indigenous communities
in the Amazon region.
3.4. Mining
The Brazilian Amazon region is a region rich in
minerals and indigenous lands in the region are no
exception. Pervasive poverty in indigenous com-
munities is claiming the full utilization of these
resources by indigenous communities. However,
mining in indigenous lands has raised a number
of environmental, social, and cultural concerns
(Hariessa, 2011a).
The Amazon region has been the object of
substantial mining projects such as Jari, Carajas,
Pitinga, and Trombetas, interfacing with a number
of indigenous communities in the region. Exports
233

of mineral products are already one of the main
exporting items for the Brazilian amazon region
(Santos, 2010). Mining in indigenous lands,
however, requires approval from the Brazilian
Congress according to Article 231 of the Brazil-
ian Constitution.
There is however, a number of key minerals
located in indigenous land in the Amazon region.
For instance, rare metals have been identified in
the indigenous community of Yanomami, spe-
cifically gold in the indigenous communities of
Bare, Barasana, Suriana and Karapana. Thus, it
is clear that mining offers a great potential for the
indigenous communities in the region. However,
mining these minerals must be done in cooperation
and consulting with these different communities
to learn their goals and objectives. In addition,
indigenous communities that decide to explore
their resources will have to be helped via train-
ing as well as building technical, managerial and
environmental skills.
It is also clear that more local mining research
will also have to be made, and strategic partner-
ships will have to be designed (Santos, 2010).
Indigenous communities in the “Cabeça do Ca-
chorro” region, a 10.6 million hectares area in the
Rio Negro basin, are interested in exploring mining
options in cooperation with SEIND and CPRM,
Brazil’s federal mining agency. These communi-
ties are aiming at expanding their income genera-
tion opportunities with positive implications for
these communities in infrastructure, education,
and housing improvement. These communities
are also interested in “family mining” thus allow-
ing indigenous families to engage in mining as
well. These mining operations will also demand
the close cooperation of indigenous associations,
private sector companies, universities, NGOs, and
government agencies such as the “Departamento
Nacional de Producão Mineral – DNPM,” IBAMA,
and FUNAI. These operations can also be used
to create a social fund that can be used to address
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Sustainability and Entrepreneurship
indigenous community needs that can address
sustainability and other entrepreneurial activities
(Barreto, 2010; Villas Boas, 2010).
3.5. Arts and Crafts
Most indigenous communities in the Amazon
region commercialize their handcrafts. Some
cooperatives of artisans sell their handcrafts
directly and some are still dependent on the
state agencies to commercialize their products
domestically and internationally. The creation of
production handcrafts clusters is being supported
by the state of Amazonas state agencies, such
as the Secretariat for Indigenous Peoples of the
state of Amazonas. For instance, the “Associacão
das Mulheres do Medio Purus” which involves
the indigenous communities like the Jarawara,
Jamamadi, Paumari and Apurina. These arrange-
ments offer technical assistance to improve the
quality of these handcrafts and management of
raw materials. In addition, these partnerships are
also incentives for the production of handcrafts
and transportation of their products to the mar-
ket. Other indigenous communities such as the
Marubo, Kulina, Kanamari and Mayoruna are also
benefiting from these initiatives (Correa, 2010).
Handcrafts occupy an important place in the
indigenous communities quest to raise their in-
come. They have contributed to strengthen their
social organization as well as also raise debates
about the management of natural resources, and
assessment of their activities’ impacts on their
local environment. In addition, handcrafts also
symbolize their cultural expressions such as rituals
and myths (Ticuna and Cruz, 2008).
The state of Amazonas Fundacão Estadual
dos Povos Indigenas – FEPI in partnership with
several federal agencies in Brazil have developed
programs to support the indigenous handcrafts
industry in the Amazon region such as Caixa
Economica Federal, Ministerio de Integracão Re-

Sustainability and Entrepreneurship
gional, Ministerio do Desenvolvimento Agrario,
and Ministerio da Integracão Nacional. These
projects have aimed at identifying the different
types of indigenous handcrafts, training of in-
digenous artisans, and assessment of production
potential by different indigenous communities.
FEPI is also undertaking an inventory of artisans
and buyers of indigenous handcrafts, in addition
to providing identification of the origin as well as
the elaboration of handcraft catalogs. The creation
of poles of indigenous handcraft production such
as the ones in Benjamin Constant, Tabatinga, and
Amaruta for instance, are also important develop-
ments in the establishment of a strong indigenous
handcraft industry in the state.
Indigenous communities however complain
about the low prices for their handcrafts. Efforts
need to be made to add more value to these products
through a careful marketing strategy. This includes
certificates of origin, branding, merchandising,
and packaging in order to add value to indigenous
handcrafts (Ticuna and Cruz, 2008).
3.6. Fish Farming
The Amazon region has a natural competitive
advantage in aquiculture. The alliance between
indigenous traditional knowledge and research
institutions in the Amazon region may lead to
sustainable exploration of aquiculture as an en-
trepreneurial activity for local indigenous com-
munities. For instance, the indigenous community
Kokama Acapuri de Cima has developed a number
of aquiculture projects in partnerships with the
Secretaria de Estado para os Povos Indigenas
(SEIND), Funai, and Instituto de Desenvolvimento
Sustentavel (IDAM). By developing fish stock
management practices, indigenous communities
can raise their income and sustain the stocks of
several fish species in the region. The Kokama
community is also mapping their lakes to assess
the fishing potential of their reservation. They
have classified their lakes into three categories,
preservation, communal, and commercial. The
community thus established annual sustainable
quotas by community fisherman. The communi-
ties’ partners help them to transport, store, and sell
their fishing products (Mayuruna, 2010).
4. CHALLENGES FACING
INDIGENOUS ENTREPRENEURSHIP
IN THE BRAZILIAN
AMAZON REGION
Brazilian indigenous entrepreneurs are facing
a number of challenges that permeate and add
an unnecessary burden to their entrepreneurial
activities. In this paragraph a number of business
specific barriers will be mentioned.
4.1. Access to Capital
Often indigenous communities are in isolation,
and the distance to urban centers constitute a
barrier for access to capital. The lack of rural
bank programs in many countries, and Brazil
is no exception, makes this process even more
difficult. In addition, the lack of collateral as-
sets, such as their land that is inalienable makes
securing loans very difficult. Thus, government-
subsidized programs aiming at providing seed
capital becomes extremely important to start up
new indigenous business. Microfinance should
also be part of this government financial strat-
egy. It is also important to stress, however, that
financial literacy programs should also be part
of these programs. The Brazilian private sector
should also play a role in developing closer ties
to indigenous communities to act as inducers and
financiers of indigenous entrepreneurship projects.
This relationship should however involve other
government agencies providing the oversight
and assistance to indigenous communities. The
Brazilian private sector with few exceptions, have
not played a meaningful role in promoting indig-
enous entrepreneurship in Brazil. Several foreign
NGOs and Brazilian NGOs have had interaction
235

with indigenous communities. However, fostering
indigenous entrepreneurship have not been the
main focus and motivation of their interaction
with indigenous communities. It is clear that the
Brazilian private sector can become an important
source of funding for indigenous communities. For
instance, the Bradesco Bank, through the funding
of the “Fundacão Amazonia Sustentavel - FAS”
has developed a number of entrepreneurial proj-
ects with indigenous communities in the Amazon
region (FAS, 2010).
4.2. Human Capital Development
Amazonian Indigenous communities also tend to
show lower levels of education, and thus do not
accrue as much income as non-indigenous workers
with higher levels of education. Most of the educa-
tion programs in Brazil for native communities do
not emphasize management and business, creating
additional burdens for the creation of an indigenous
entrepreneurial mindset (Aquino, 2011). The lack
of good management skills and higher levels of
education is a prerequisite for the development
of promising indigenous entrepreneurial activity.
For instance, the State University of Amazonas
has a number of educational programs aimed at
indigenous communities, but not in management
or business. The Federal University of the state
of Amazonas – UFAM, also does not offer any
specific management or business course to in-
digenous communities. Local universities in the
Amazon region should play a meaningful role in
providing management and business education to
indigenous communities. Federal agencies, such
as SEBRAE, that provide support to Brazilian
small businesses have only developed a program
to address indigenous handcrafts. SEBRAE,
Brazil’s small business administration agency has
paid more attention to indigenous entrepreneurs.
SEBRAE’s Empretec program is supported by the
United Nations and promotes an intensive five-day
program aimed at polishing entrepreneurial skills
of participants (SEBRAE, 2010). Thus, building
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Sustainability and Entrepreneurship
human capital through management and business
training will strengthen Amazonian communities’
income and welfare.
Indigenous communities have received en-
vironmental technical support from a number
of federal agencies such as Amazon’s Research
Institutes – INPA, IBAMA, and local state agencies
such as SEIND, and SDS for the state of Amazonas.
The interaction between traditional knowledge and
locally developed scientific research also provides
additional sustainable business opportunities for
the local indigenous communities.
There is also a growing dissatisfaction with the
quality of education offered to native communities
and also with the strong non-indigenous content
of such offerings. Local organizations, such as the
“Federação das Organizacões Indigenas do Rio
Negro,” are calling for adaptations to the tradi-
tional educational offerings in order to reflect their
traditions and values. There is even a proposal to
create an “Indigenous University” that would be
the culmination of an all-encompassing indigenous
education. Countries like the U.S., have established
tribal colleges in the past few years granting associ-
ate degrees and bachelor degrees. Brazil will have
to look into other countries’ experiences such as
the “Universidad Autonoma Indigena Intercultural
Nacional de Colombia - UAIIN, the Universidad
Indigena de Venezuela - UIV, as well as Ecuador
and Mexico that have designed indigenous edu-
cational institutions in order to learn from these
experiences. In the U.S., several tribal colleges
have faced difficulties, and some have decided
to offer specific degrees, such as art.
In the state of Amazonas, 18% of their in-
digenous population, or close to 20,000 natives
out of the state’s total indigenous population of
120,000, are currently living in urban areas away
from their reservations. One the main motivations
is the proximity and availability of schools to the
young native population. In the state of Amazonas,
there are 697 indigenous schools with 51,800
enrolled students, and close to 1,500 attending
local universities (Barbosa, 2011). The lack of an

Sustainability and Entrepreneurship
educational infrastructure in Brazilian indigenous
communities is creating an indigenous migration
to urban centers in Brazil, which is motivated by
the availability of educational opportunities for
young natives. Brazilian policy-makers need to
rethink their indigenous policies; otherwise, they
will generate a forced migration to urban centers
in Brazil for those native families that search for
a better future for their children.
4.3. Infrastructure
Brazil’s Amazonian region has suffered from an
acute lack of investments by the federal and state
governments on infrastructure. Native communi-
ties suffer considerable hardships as a result of
this bottleneck. The remoteness of reservations
and indigenous communities in relation to urban
centers and other established infrastructure has
imposed additional burdens on indigenous en-
trepreneurs. The lack of reliable and affordable
transportation, availability of ports, and limited
number of airports, adds a very heavy cost of doing
business in the region. In addition, the region is
off the Brazilian energy grid, requiring decentral-
ized energy solutions. Many of the indigenous
communities do not have access to energy, and
those that do, have experienced a very unreliable
supply of energy. Recently, efforts by the state of
Para energy company Celpa, is resulting in the
supply of electric energy to the indigenous com-
munities of Xikrin and Jujeco. The Eletrobras/
Eletronorte Company has also provided energy to
the indigenous communities of Waimiri-Atroari
and Parakana. In the Xingu region, native com-
munities such as Kawaiwete and Yudja are adding
solar energy in addition to locally made biofuels
to power their biodiesel generators. Telecommu-
nications is also another important variable; most
of the indigenous communities suffer from access
to reliable telecommunication infrastructure.
This lack of an established telecommunication
in indigenous communities have deeply affected
educational programs, health care delivery, and
business projects. It is imperative that these
indigenous communities receive the necessary
support to have access to energy, transportation
and telecommunication.
4.4. Certificate of Origin
Brazilian indigenous communities are also con-
cerned about the number of knock off products
sold in the Brazilian and foreign markets. The
development of an “indigenous certificate of
origin” by the “Federacão Indigena Brasileira –
FIB,” is in partnership with the Brazilian federal
agency SEPPIR. FIB is consulting with different
indigenous communities in Brazil to develop the
indigenous certificate of origin. It will be applied
to services, handcrafts, textiles, forestry and agri-
cultural products. The efforts are also concerned
with traditional knowledge (Federação Indigena
Brasileira, 2010).
4.5. Health Care
Health care and indigenous entrepreneurship are
interrelated. Health care from Brazil’s federal gov-
ernment has neglected indigenous communities.
Indigenous communities in the Amazon region are
suffering from an acute lack of attention by Brazil’s
health care system. For instance, the “Fundacão
Estadual dos Povos Indigenas (FEPI)” indicated
that there are too many agencies involved in pro-
viding health care to indigenous communities, and
agencies such as Funasa, ONGs, and municipal
level agencies do not coordinate their actions and
do not deliver promised services (Barbosa, 2011).
The Brazilian federal government in 2010 cre-
ated a new agency to deliver health care services
to indigenous communities called Sesai. Sesai has
subcontracted NGOs to deliver these services to
indigenous communities, creating another venue
for corruption and lack of services to indigenous
communities. Sesai has not been able to allocate
physicians to indigenous communities. The situ-
ation is critical as 90% of the natives in the Javari
237

area have cases of HIV, as well as Hepatitis B and
C. Sesai has replaced Funasa at the institutional
level but the staff is very much the same, perpetuat-
ing the chaotic health care situation of indigenous
communities in the Amazon region. The lack of a
good quality and reliable health care services in
the indigenous communities also induce migra-
tions to urban centers, creating additional stress
in indigenous communities in the Amazon region
(A Critica, 2011,a,b).
4.6. Land Claims
Most of the indigenous entrepreneurial projects
are related to the natural resources found in in-
digenous reservations. Currently, Brazil has 674
reservations and another 150 under assessment by
the government. However, the current approach
taken by the Brazilian government stipulates that if
traces of indigenous occupation can be found in any
part of the Brazilian territory, they can potentially
be the target of demarcation as indigenous land.
This approach is creating a number of tensions in
Brazil’s agricultural community and do not help
to develop positive synergies between indigenous
communities and non-indigenous communities.
For instance, in the lower amazon region, specifi-
cally in the state of Mato Grosso do Sul, 10 million
hectares responsible for the production of 60% of
the state’s grain production are currently under
scrutiny by Funai (Arruda, 2011; Vital, 2010).
Brazil’s policy to grant additional reservations
without providing the infrastructure to support
these indigenous communities, in addition to not
extending educational and health care services,
deepens resentments in indigenous communities
around the nation. They are not conducive to a cre-
ating a dynamic and vibrant indigenous economy
in the country as close to 13% of Brazil’s territory
is being allocated to the indigenous community.
This territory is vital for the continuous growth
of the country and to the vitality of indigenous
communities in the country. In addition, the lack of
jobs, education, and healthcare is creating empty
238

Sustainability and Entrepreneurship
indigenous reservations, since members of these
communities have a strong incentive to migrate
to urban centers in Brazil.
4.7. The Economic Zoning and
Mapping of Brazilian Native
Reservations Natural Resources
One fundamental piece for the fostering of in-
digenous entrepreneurship in the Amazon region
also involves the economic zoning and mapping
of natural resources of all these reservations.
Thus, mapping the indigenous reservations’ main
resources will assist in the design of better entrepre-
neurial opportunities for the different indigenous
communities in the region. Brazil’s Statistical
and Geographic Institute - IBGE, could play a
meaningful role in providing detailed information
to native communities. IBGE has mapped Brazil’s
territory from a macro perspective. They have the
capabilities to engage these communities at the
micro level. There have already been initiatives
at the state level in terms of assessing the indig-
enous communities’ natural resources’ economic
potential. For instance, the “Secretaria Estadual
dos Povos Indigenas - SEIND” of the State of
Amazonas, in partnership with the Canadian min-
ing company Cosigo Resources (CHECK), has
begun to assess the state of Amazonas’ indigenous
communities mining potential. It is important to
mention that operations of mining in indigenous
lands in Brazil have yet to be approved by the
Brazilian Congress. It is also important to note that
some indigenous communities are more willing
than others to engage in mining operations. Thus,
it is important that these mining projects take into
account previous consultation with indigenous
communities, even to assess possible negative
externalities (Hariessa, 2011).
4.8. Designing Strategic Alliances
The creation of a strong and dynamic indigenous
entrepreneurship in the Brazilian Amazon region

Sustainability and Entrepreneurship
also demands the development and design of
strong strategic alliances with non-indigenous
enterprises. Over the past few years, several stra-
tegic alliances have been developed. For instance,
Petrobras, Brazil’s state oil company, sponsors the
program “Petrobras Ambiental” that promotes
sustainable development in the Amazon region.
Petrobras has worked with the Rikbaktsa and
Zoro indigenous communities to preserve their
local ecosystems and to harvest Brazilian nuts and
natural rubber from their reservations. Petrobras
is also developing other forestry projects with the
Kaxinawa and Ashaninka indigenous communities
in the state of Acre.
The “Empresa Brasileira de Pesquisa Agro-
pecuaria is also promoting the protection and
dissemination of indigenous seeds amongst Bra-
zilian indigenous communities. The preservation
of Brazil’s agribiodiversity has been the impetus
behind the Kraho Traditional Seeds Fair that allows
more indigenous communities to have access to
traditional seeds. This effort is also a component
of Brazil’s efforts to create a policy to manage
indigenous lands and ecosystems – PNGATI (Mei-
relles, 2010). Indigenous communities are also
helping local farmers to reforest areas that were
the subject of deforestation with native species.
For instance, the indigenous community Ikpenges
has turned the sale of seeds into a profitable
business for their community (Globoamazonia,
2010). The “Banco Nacional de Desenvolvimento
Economico – BNDES” is also developing a fund
called “Kayapo” aiming at assisting indigenous
communities that are developing sustainable
forestry projects (Gandra, 2011).
5. DESIGNING A QUADRUPLE
HELIX INDIGENOUS
ENTREPRENEURSHIP MODEL
This paper has made a stronger case for the close
cooperation between the four major actors in
promoting indigenous entrepreneurship in the
Brazilian Amazon region: a) government and
government agencies, b) NGOs, c) universities
and research centers; and the d) private sector.
The synergies that can be generated amongst these
different economic agents will play a crucial role in
shaping these indigenous entrepreneurial projects.
It is important to stress the need to build
strategic partnerships between indigenous and
non-indigenous companies. These partners can
speed up the learning process and transfer business
and management skills. Lower levels of business
knowledge in indigenous communities demand
assistance and training in the earlier stages of
entrepreneurial activity. These synergies can be
developed with government agencies at the fed-
eral, state and municipal level, with private sector
companies, multilateral organizations, and NGOs.
The existing Brazilian model, however, shows
a lack of a substantial participation by the private
sector and a lack of sufficient support from gov-
ernment agencies. Local universities do not show
a depth of indigenous business and management
programs that these communities need to fully
develop an indigenous business concentration or
minor. NGOs even though abundant in numbers in
the Amazon region, mostly ignore the promotion
of indigenous entrepreneurship.
The examples of indigenous entrepreneurial
projects discussed in this paper have illustrated
that there is an abundance of initiatives by dif-
ferent state level agencies and some by Brazilian
federal agencies. The lack of coordination between
these different agents inhibits and also results in
an overlapping of actions, leading to confusion,
waste of resources, and alienation of potential
participants.
Thus, the creation of an indigenous entre-
preneurship center in the Amazon region that
fosters and coordinates cooperation amongst all
these different agents and promotes the design
of sustainable business strategies for these indig-
enous communities is vital for the development
239

of indigenous entrepreneurship in the region.
This “Quadruple Helix Model” would promote
the fostering of indigenous sustainable entre-
preneurship in the region in a more productive
and efficient fashion. Universities and research
centers have an important role to play in offering
technical assistance, research, as well as business
and management courses that offer the necessary
training to indigenous entrepreneurs. In addition,
these educational programs must also reflect in-
digenous realities, demands, and take into account
their traditional knowledge, tradition, and culture.
Government agencies at the municipal, state,
and federal level also have a very important role to
play in providing a favorable and conducive envi-
ronment for the fostering of these activities. These
agencies also need to share information and design
initiatives together so indigenous entrepreneurs
do not have to face additional red tape and a lack
of consistent set of policies and guidelines. The
creation of the Raposa Serra do Sol reservation
is a good example of government action that did
not create positive synergies between the private
sector and indigenous communities. The creation
of the 1.7 million hectares in the indigenous res-
ervation resulted in a 60% reduction in the state
of Roraima’s rice production. Rice farmers were
also an important source of income for a number of
indigenous communities in the region. Many of the
17,000 indigenous’ population of Raposa Serra do
Sol have now migrated to urban centers in search
for economic opportunities. It is imperative that
government agencies are capable of understanding
the complexities of indigenous entrepreneurship
before they react to outside agents and propose
a “romantic” approach to the creation of these
enormous reservations. In addition, respecting
land titles will assist in designing positive syn-
ergies between indigenous and non-indigenous
communities. The Raposa Serra do Sol illustrates
Brazil’s antiquated dependency policies in which
so many indigenous communities in the region
are fighting against. There is a need to eliminate
240

Sustainability and Entrepreneurship
the passive dependency on the welfare system
that was designed for Brazilian natives. Brazilian
indigenous communities need to be economically
sustainable and self-determined.
The Brazilian private sector has been mostly
excluded from developing closer ties to Brazil’s
indigenous communities. Brazil’s cumbersome
and over protected environmental laws penalizes
companies that try to develop business projects
with indigenous communities that involve tradi-
tional knowledge. In addition, federal agencies
such as Funai, which is currently under the super-
vision of the Ministry of Justice, should be moved
to Brazil’s Ministry of Commerce reflecting the
land mass of these reservations and their economic
potential. It is imperative that government laws,
policies, and guidelines provide an incentive for
the private sector to develop closer ties to indig-
enous communities. A sole indigenous economy
will not prosper and will not be able to achieve the
levels of economic and social welfare aspired by
a number of Brazilian indigenous communities.
NGOs also play a very important role in fos-
tering indigenous entrepreneurship in the Ama-
zon region. The Amazon region has attracted a
number of foreign NGOs from around the planet,
many of them not present and active close to the
indigenous communities of their own countries
of origin. The introduction of foreign values,
customs, and languages in the midst of Brazilian
Amazonian indigenous communities, need to be
assessed carefully. The lack of transparency in the
allocation of resources should also be the object
of closer scrutiny by local policy-makers. There
is also plenty of Brazilian NGOs operating in
the Amazon region, many such as the “Fundacão
Amazonia Sustentavel – FAS,” that is funded by
Brazil’s largest Bank Bradesco. FAS has shown
the level of transparency that is necessary from
NGOs working with indigenous communities.
It is also important to point out that indigenous
communities have created their own NGOs, a
reflection of their dissatisfaction with a number

Sustainability and Entrepreneurship
of non-indigenous NGOs present in the region.
Indigenous NGOs such as the “Federacão das
Organizacões Indigenas do Rio Negro – FOIRN,”
the “Federação Indigena Brasileira – FIB,” the
“Coordenação das Organizacões Indigenas da
Amazonia Brasileira – COIAB,” the “Sociedade
de Defesa dos Indigenas Unidos do Norte de Ror-
aima – Sodiurr” are some examples of indigenous
NGOs that are promoting actions to increase the
indigenous communities’ social and economic
welfare. NGOs may play an important role in fos-
tering indigenous entrepreneurship in the region;
however, it is very important that these agents also
show transparency in their actions and also show
accountability for the resources they are receiving
from foreign sources, state agencies, and private
sector donations.
In addition, efforts have to be made to assess
the inventory of programs aimed at indigenous
Figure 1. Fostering indigenous entrepeneurship – a quadruple helix model
communities from government agencies, NGOs,
private companies, and universities. The ratio-
nalization and coordination of these efforts is
of paramount importance to use resources more
effectively. In addition, it is also important to
have a clear understanding of how many NGOs
are currently working with native communities
in order to have a better understanding of their
role in the Amazon’s indigenous communities.
As more native Brazilians migrate to large cities
in the Amazon region, the next step for the center
will be to develop programs and to coordinate
efforts to assist these indigenous peoples that so
far have not seen their needs addressed (Figure 1).
Brazilian indigenous communities are facing
globalization forces that are imposing additional
stress in their cultural and economic modus ope-
randi (Terena, 2008). Brazil’s quest to develop a
sustainable and inclusive society needs to take into
241

account all the contributions that indigenous com-
munities have made in the past few centuries and
will make to the future of Brazil. Today, Brazilian
indigenous communities are at the bottom of Bra-
zil’s economic and social pyramid. Efforts need to
be put in place to seriously address these commu-
nities’ aspirations and demands. The preservation
of indigenous traditions, traditional knowledge,
and cultural identity will strengthen Brazil’s
economy and society for future generations. The
development of true partnerships between Brazil’s
non-indigenous and indigenous society without
the traditional paternalistic approach will result
in a more productive and sustainable future for
the Brazilian society.
The promotion of sustainable indigenous en-
trepreneurship ventures in Brazil’s Amazonian
region offer these communities a strong incentive
to engage in sustainable practices and also pro-
mote the rebuilding of these communities while
strengthening these communities’ culture and
customs as well as social and economic welfare.
This is in addition to addressing the Amazonian
region’s pressing environmental issues. The cre-
ation of an indigenous entrepreneurship in the
region will bring together all the economic agents
that will play a decisive role in consolidating and
fostering indigenous entrepreneurship efforts in
Brazil’s Amazonian region.
The Brazilian government, universities, re-
search agencies, the private sector, and NGOs will
play an increasing role in the design and develop-
ment of indigenous entrepreneurship projects in
cooperation with indigenous communities. The
synergies created in these interactions will play
a crucial role in the sustainable development of
Brazil’s Amazonian region.
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 Section 2
Tools and Technologies
This section presents an extensive coverage of various tools and technologies available in the field of Economics that
practitioners and academicians alike can utilize to develop different techniques. These chapters enlighten readers
about fundamental research on the many tools facilitating the burgeoning field of Economics. It is through these
rigorously researched chapters that the reader is provided with countless examples of the up-and-coming tools
and technologies emerging from the field of Economics. With 14 chapters, this section offers a broad treatment of
some of the many tools and technologies within the Economics field.
248

Chapter 14
Enabling IT Innovation through
Soft Systems Engineering
Marcel Jacques Simonette
Universidade de São Paulo, Brazil

Edison Spina
Universidade de São Paulo, Brazil

ABSTRACT
In any Software Development process, and especially in innovation processes, the team responsible
for software implementation needs to acquire the necessary knowledge to implement the project and to
sustain innovation. However, the implementation team does not always convert innovative ideas into
the expected value. The Software Development Process has a complexity that is process-inherent. Soft
System Engineering is a response to address this complexity and to support the application of user-driven
methods in an open innovation environment. This approach allows the development of a systematic in-
teraction with users to generate new offerings and to improve previous products and services in order
to create value and differentiation.

INTRODUCTION Innovation in IT is motivated by the demand for

The actors involved in Information Technology
(IT) innovation activities are not only software
developers. Users of products and services are
increasingly present in the IT innovation process.
IT innovation is generated by a combination of
competencies, which promote advancement of
business, society, and wellbeing. The term ’users’
refers to individual end users, consumers, and
social organizations that have an interest in the
Software System.
efficiency and performance; a demand motivated
by the XXI century economic scenario. David and
Forey (2002) argued that innovation is becoming
the sole means to survive and prosper in highly
competitive and globalized economies.
IT professionals suffer pressure to innovate,
and, besides innovation possibilities being count-
less, these professionals must not forget that in-
novation depends on the correct understanding
of user needs. Although it might seem easy, the
activity of understanding user needs, and prob-

DOI: 10.4018/978-1-4666-8468-3.ch014

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Enabling IT Innovation through Soft Systems Engineering
lematic situations demanding a solution, must be
performed carefully; as stated by Brooks (1987),
the hardest single phase of building a Software
System is the activity of understanding the problem
to be solved. Another issue that brings complexity
to this environment is that there are several compa-
nies that do not have Software Development (SD)
as its core business, despite having some kind of
IT department. And, as argued by Govindarajan
and Trimble (2010) for companies in general, the
IT department of these companies is not built for
innovation; they are built to be efficient. Further-
more, they must deal with day-by-day demands
and business pressures to reduce costs and the
delivery time of their on-going activities.
Most companies have IT professionals with
creativity and the necessary technological knowl-
edge to implement an innovative idea. However,
the presence of good professionals is not sufficient.
It is necessary to manage this people in a way that
stimulates and motivates the combination of dif-
ferent IT disciplines and individual perspectives.
The management challenge is how to go beyond
the traditional SD processes to convert individuals’
capacities into an IT Teamwork, in which its mem-
bers work together to build up the understanding
of what is being demanded by users. Likewise,
this management process must also consider the
on-going activities and build an environment in
which innovative ideas about SD can emerge, to
deliver efficiency and innovation in IT processes,
and to support the company innovation process
(Tidd & Bessant 2009; Govindarajan & Trimble
2010; Ries 2011).
This chapter is about Soft System Engineer-
ing in IT innovation, with focus in a process that
is user-driven. It is an approach to interact with
users in a systematic way to generate new offer-
ings, and to improve IT previous products and
services, in order to create value, differentiation
and to contribute to organizational efficiency and
performance. The success of this approach also de-
pends on Teamwork management; a management
focused on the Socio-technical System formed by
Teamwork members, users and the Information
and Communication Technology (ICT) used to
support Teamwork practices of user-driven in-
novation in an open innovation environment.
TEAMWORK
Tidd and Bessant (2009) state that the growing
complexity of tasks in organizations is surpass-
ing the cognitive capabilities of individuals and,
consequently, asking for a team approach. In
Teamwork, people are interdependent and interact
with each other, teaming up to share information
and to achieve common goals.
IT professionals usually use ICT to interact.
Nowadays, ICT progress creates an environment
in which even when IT Teamwork shares the same
physical space, team members use technology to
interact with each other. When an IT department
has professionals that belong to the Digital Age
generation – the generation that was born and
grew up using computers, and is fascinated by
new technologies – the use of ICT reaches levels
of greater significance.
People interaction mediated by ICT brings
challenges to the management of SD, especially
because the technologies that are currently avail-
able do not recreate human work experience as
it occurs in physical spaces, which encourage
cooperative work, and also because there are open
issues about privacy (Bencivenga 1998; Birnholtz,
Gutwin, & Hawkey, 2007). However, ICT is
useful and necessary when there are Teamwork
members that are not in the same physical space at
the same time, or in SD processes in which there
are people who will never meet other members
of the Team in person.
Every SD methodology–be it Agile, Prototyp-
ing, Unified Process, or any other method–has
activities that are always present, such as Team-
work management and the management of the
knowledge that is acquired through the interaction
among IT Teamwork members, and between these
249

Enabling IT Innovation through Soft Systems Engineering
Software developers and the users that demand
a product or a process. The presence of people
throughout the SD life cycle brings complex-
ity to the System, due to the different interests,
desires, values and emotions of human beings.
Furthermore, there is the programming activity
that is executed by the Teamwork members, which
Weinberg (2011) remarks it to be a complex hu-
man behavior.
Even though people management is important,
the management of a Socio-technical System
should not focus only on the human agents, disre-
garding the role that technology plays in mediating
people interaction (Niederer & Dijck, 2010). The
intricate interrelationship between people must
not be alone at the core of the concerns of the
management process; it must be together with
the concerns about the interrelationship between
people and the ICT that supports people interac-
tion. This approach aims to improve the individual
performance of each Teamwork member and the
performance of the Team as a whole. It uses ICT
to transform the interaction between the Teamwork
members and to build an environment in which
both the activities of all the Teamwork members
and the knowledge generation of all members are
present (Shirky, 2008).
SOFT SYSTEM ENGINEERING
AND IT INNOVATION
The Cartesian way of handling problems is to
break it down into as many separate simple parts
as possible, which is the most successful tech-
nique used by Engineering. System Engineering
uses System Thinking to deal with problems the
Cartesian approach cannot cope with. Hitchins
(2008) states that System Thinking came to the
attention of Engineers that were facing difficulties
in applying the Cartesian approach to Systems
including humans.
Hitchins (2008) also argues that Soft System
Engineering uses System Thinking in a way called
250

Soft System, seeking to understand the nature of
the problem, looking for practical experiences
and interactions with the problem, trying to un-
derstand it and to propose solutions to improve
its understanding, to deliver solutions that are
those possible for the moment the problem is
being treated.
Soft System Engineering deals with situations
in which understanding the problem is as important
as finding a solution, situations in which rais-
ing issues and discussing them is fundamental
to understand and to get a consensus about the
System proposal.
IT innovation is a process that involves humans
to create new Software Systems, to improve exist-
ing Systems or to create and improve SD process.
It has implications both in the forms of business
organization, as in management tasks, and human
relations. An innovation process has an uncertainty
context challenging the scenario that managers
are not normally prepared to face (Ries 2011).
The complexity of interactions and combina-
tions between technologies and users means that
the System may not be seen only as the sum of
their components. These interactions and combina-
tions compose a kind of patchwork of technology,
humans and social institutions, and IT innovation
must fit this scenario; Soft System Engineering
may thus be used to help IT departments to man-
age its Teamwork to address user needs in an
innovative context.
APPLICATION DOMAIN AND
PRODUCTION DOMAIN
Both in user-driven innovation processes and in SD
processes, there is a transition from the Application
Domain - in which the innovation is conceived and
it will be useful - to the Production Domain – in
which there is the implementation of innovation.
In the Application Domain, when the Teamwork
starts to interact with users to understand their
needs, Teamwork members are dealing with the

Enabling IT Innovation through Soft Systems Engineering
interaction between reality and thought, and also
with the interaction between problem and solution.
From this two interactions exposed above, Soares
(1986) states that there are four actions that gener-
ate a cycle to resolve a problem (Figure 1). These
actions are as follows: (1) Understanding: When
the Teamwork members construct an understand-
ing, an abstract representation of a real problem;
(2) Design: When the Teamwork members create
a response to the problem concerning thought di-
mension; (3) Implementation: The construction of
the response to the problem in terms of reality; (4)
Use: Setting up an answer to the problem, in the
environment of the problem, in reality. When the
cycle composed by these four actions is finished,
there is a solution to the problem. However, this
solution can affect reality, because new scenarios,
not previously determined, may emerge with the
presence of the new System, and because, during
Figure 1. Evolution of actions and contexts to solve problems (adapted from Soares, 1986)
the cycle, Teamwork members and users developed
an understanding about the reality and about the
human and social needs; and new scenarios, not
previously determined, may emerge.
In the Production Domain, Teamwork members
make a concrete model of the innovation idea
that may be implemented as a Software System,
and they put it into effect. This transition from
Application Domain to Production Domain is
characterized as a Production Demand, in which
a Software System specification, developed by
part of the Teamwork members, creates a problem
to the Teamwork members that will implement
the System.
The transition from Application to Production
Domain has a dual characteristic; the same artifact
is both a Solution Model and a Problem to be under-
stood and resolved. This dualistic characteristic–a
kind of paradox–is related to knowledge transfer
251

Enabling IT Innovation through Soft Systems Engineering
between the Teamwork members that understand
the problem and the model of the problem, and
the members that implement this model. Figure 2
shows the transition between Domains, showing
the interaction between reality and thought, and
the interaction between problem and solution that
occurs in the Production Domain.
USER-DRIVEN INNOVATION
AND OPEN INNOVATION
Innovation in IT must deal with the diversity of
user visions to meet the demand for efficiency
and performance. This approach must not be a
simply requirement elicitation process, which
uses analytical methods and information given
Figure 2. Dual character, the same artifact is both solution model and problem (adapted from Soares,
1986)
252

by the users themselves. A systematic approach
is necessary, which promotes the understanding
of the problematic situation experienced by us-
ers, and also the development of solutions itself.
As stated by the Nordic Council of Ministers
(2006), this is what user-driven innovation is
all about: determining a more systematic way to
understand and to develop solutions that respond
to user needs. Von Hippel (2005) also argues that
the user-driven innovation process contrasts with
traditional models, in which users’ only role is to
have needs that technical people identify and fill
by designing and producing new products.
Open innovation in an IT scenario is a process
of continuous interaction between the internal
actors of an IT team and the external actors in
its periphery, the users. It is a paradigm in which

Enabling IT Innovation through Soft Systems Engineering
organizations can and should use ideas from us-
ers that are inside and outside the organization,
encouraging and exploring a wide range of internal
and external sources for innovation, integrating
this exploration with IT capabilities and resources
(Chesbrough, 2006; West & Gallagher, 2006;
Berthon et al., 2007).
Soft Systems Engineering can deal with the
integration of the complex set of the multiple
dimensions that are present in Software Systems
developed by IT departments. It is a kind of
framework that masters the interplay between
the user-driven innovation process and the open
innovation environment, to meet the needs of the
users that demands an IT System, according with
their intention and values.
Evolutionary Spiral
The Lean Startup cycle is a kind of development
cycle that starts with Building the minimum value
product, then Measure it–have feedbacks–and
learn about it with users (Ries 2011). From there,
build it again. This time, it is closer to users’ ex-
pectations than it was in the previous round. This
Startup cycle has similarities with the evolution
cycle of Figure 1. The evolution of actions and
contexts to solve problems is like the Lean Startup
cycle working backwards.
Soft System Engineering makes use of the
evolution cycle (Figure 1) following a Learning
– Measure – Build loop. And, in the second and
following cycles, “Learning” is the learning about
the solution, and about the interaction of users
with the product or service built in the previous
loop. This looping sequence constitutes an Evolu-
tionary Spiral that allows Teamwork members to
understand users needs and to develop solutions
that respond to these needs.
People-Centric Management and ICT
People and the technology that mediate human
interaction are complementary parts of the SD
process. The ICT that mediates Team members
interaction must be used by the management to
obtain social and human benefits from the people`s
interaction. However, an intensive research about
these interactions tools is still required in order
to be able to stimulate a broad participation of all
the Teamwork members.
A people-centric management is an important
concept in Teamwork management as the notion
of people as another component or resource of
the SD process does not make sense in a creative
work that deals with both information and knowl-
edge and the complexity of a SD process. This
development environment demands a leadership
that strives to share knowledge, project problems
and decisions with all the Team members, and
feedback is an important tool in this process. The
art of collaboration is about sharing experience
and thoughts, and the use of ICT to promote in-
teraction is fundamental to achieve these goals.
The management with people-centric vision
in an IT innovation process can promote a co-
operation through ICT resources that provides
experience exchange, and the learning from these
experiences enables the Teamwork to face the SD
complexity and, moreover, with the humanistic
approach promoted by the people-centric manage-
ment, people tend to work more productively and
to engage in collaboration with each other, which
promotes satisfaction and motivation. Asproni
(2004) states that there is an important relation
between individual motivation and Teamwork; the
latter strengthens the individual commitment and
willingness to achieve success for the whole Team.
Social Network
The interaction between users and Teamwork
members, and between Teamwork members them-
selves, leads to the formation of Social Networks.
These Networks are characterized by the interac-
tions among people and the interactions between
people and the technology support to both the
user-driven innovation process and the SD process.
253

Enabling IT Innovation through Soft Systems Engineering
When this Socio-technical System formed by the
interaction between people and technology is man-
aged using technological determinism, there is the
emergence of invisible processes that lead to the
formation of informal groups of people that are
not immediately identified by the manager of the
SD process, which can cause positive or negative
impacts on people interaction and motivation.
Social Networks that occur in Teamwork are
Systems at unstable equilibrium, especially when
there are Teamwork members that do not share
the same physical environment. Any problem due
to management activities, or some inappropriate
behavior by any Teamwork member, may cause
instability in the members’ relationship. It is up
to the Teamwork management to identify and
to troubleshoot these instabilities, dealing with
the fact that, despite the Team spirit, Teamwork
members have individual purposes and motiva-
tions, sometimes contradictory. Problems with
these characteristics demand the development of
mechanisms for disclosure and use of information,
and they are requirements for a communication
architecture that takes in account social and ICT
resources (Ahn & Dabbish 2008).
A key issue in Social Network within Team-
work is to understand the motivation of the dif-
ferent Teamwork members. This knowledge is
useful to build up interventions in the Teamwork
environment that respect social issues, such as
security, freedom, and privacy.
FUTURE RESEARCH DIRECTIONS
The relationship between the IT Teamwork and
users establish Social Networks to realize the
Evolutionary Spiral to conduct the user-driven
innovation. These Social Networks are developed
by the use of ICT, which creates in cyberspace the
relationships that could occur between people in
the real world. These Networks work as a platform
where users and developers interact with each
other. The ICT mediation allows these people to
254

share information in a way that is faster than the
classical communication tools such as e-mails,
documents, or portals. Social Networks that make
use of ICT have a transformation power that
goes beyond the simple access to information;
these Networks are increasingly associated with
contribution and collaboration.
The authors of this chapter are working in the
development of a comprehensive framework to
manage IT Teamwork as an online community
that shares proposals and activities in the imple-
mentation of innovation that involves SD. This
framework will use Social Network concepts to
allow the prediction of management decisions
effects, considering the dynamic of the inter-
relationship supported by ICT. This framework
will also deal with some social dilemmas, such
as privacy, freedom and identity, which must be
present in any human relation. Besides the support
to Teamwork management, this framework will
also help the management of knowledge transfer
that occurs in the innovation process, specially the
management of the dual character of the knowl-
edge, which occurs in the transition between the
Application Domain and the Production Domain
(Figure 2).
CONCLUSION
IT innovation processes can use Soft System En-
gineering and the Evolutionary Spiral to conduct
the application of user-driven methods in an open
innovation environment to interact in a systematic
way with their users. Through this interaction, IT
departments can offer new products and services,
and also improve the previous ones, in order to
create value, differentiation and contribute to
organizational efficiency and performance.
Users and IT professionals are organized in
departments in a company. They are groups, either
formal or not, with several purposes. During a
SD process, each group tries to impose its vision
about the needs and the problem to be treated by

Enabling IT Innovation through Soft Systems Engineering
the Software Systems. In several occasions, the
visions of these groups are contradictory, and the
process of understanding user needs becomes a
process to reach a consensus among these groups;
this is the case in which Soft System Engineering
and the Evolutionary Spiral contribute to reaching
a consensus.
The sequence of Learn-Measure-Build cycles
generates a lot of information: knowledge obtained
through interactions with users. ICT is present all
along this process; it supports the interrelation
between the actors involved in IT innovation, and
demands the manager’s attention. The manage-
ment of the knowledge, and the management of
the people that discover and deal with this knowl-
edge, are social challenges that have an inherent
complexity; Soft System Engineering and Social
Network analysis may provide an answer to this
complexity, and it will be the future research of
the authors.
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KEY TERMS AND DEFINITIONS
Information Technology Innovation: A
concept developed within the computer science.
The concept means invention, which is developed
and verified through the information technology
product implementation.
Learn-Measure-Build: An evolution cycle
allowing for the continuous and iteration im-
provements.
Open Innovation: An approach of innovation
development based on the use of external ideas
as well as internal ideas.
Software Development Process: A sequence
of activities to develop a software product. There

Enabling IT Innovation through Soft Systems Engineering

are several models for such processes, each de-
scribing approaches to a variety of tasks.
Soft System Engineering: A system approach
for tackling real-world problem situation.
Social Network: Network of actors, such as
individuals or organizations, the relations and com-
munications among actors is to create a synergy
effects as well as the individual goal achievement.
Teamwork: A work done by several individu-
als who are communicating in the process for
achievement of a joint goal.

This work was previously published in Frameworks of IT Prosumption for Business Development edited by Malgorzata Pan-
kowska, pages 64-72, copyright year 2014 by Business Science Reference (an imprint of IGI Global).

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Chapter 15
Collaborative Research (CR):
To Reduce Transaction Cost
in Open Innovation

Amiram Porath
College for Academic Studies, Israel

Hakikur Rahman
University of Minho, Portugal

Isabel Ramos
University of Minho, Portugal

ABSTRACT
As a conceptual study this chapter takes open innovation as a tool that has been considered from the
point of view of collaboration between the Industry and the Academy. However, if considered under the
framework of the Resource Based Theory, specifically regarding Transaction Cost, it can be revealed
that the two parties (Industry and Academy) are in fact compatible. Main focus of the discussion is on
the Transaction Cost in the aspect of the management resources that are available for managing core
activities and the cost incurred compared to other alternative management activities. It has been ob-
served that small and medium enterprises (SMEs) are faced with the ever increasing stress of intensive
competition and limited by their resources (for example, managerial capabilities, financial, and others)
in their abilities to deal with the transaction cost, and thus effectively turn to collaboration as a solution.
The study synthesizes aspects of open innovation based on a theoretical model and a case study of the
User Association of Advanced Technologies program in Israel, and emphasizes on collaboration as an
open innovation activity within the Resource Based Theory. Thereafter, it concludes that collaborative
research reduced the transaction cost in terms of utilizing open innovation in entrepreneurships, espe-
cially in case of SMEs, before providing a few research hints. The research piggybacks on the acquired
knowledge on open innovation and thus strengthens further the concept of reduction of transaction cost
through collaborative research based on the specific case study.

DOI: 10.4018/978-1-4666-8468-3.ch015

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Collaborative Research (CR)
INTRODUCTION
Collaborative research1 can be seen as any sort
of research in which two or more researchers
work in a team towards achieving a common goal
and in which all of the members of the team are
supposed to contribute equally, importantly and
substantially (Pimple, 2005). In recent years, this
form of collaboration has been accepted as success
regarding specific goals, such as cost reduction,
knowledge acquisition or value addition (Rahman
& Ramos, 2012), and globally many organiza-
tions are collaborating successfully, including
large corporate houses, research institutes and
academics (EU, 2006).
While open innovation, as a newly coined term,
includes collaboration as a main element of its
strategies to promote product, process, service or
organizational augmentation (Chesbrough, 2003;
Rahman & Ramos, 2010). This paper synthesizes
on utilizing collaborative research as a means
of open innovation in applying to the specific
business sector of the entrepreneurships, such as
the small and medium enterprises (SMEs), and
through a government sponsored program, namely
User Association of Advanced Technologies in
Israel, and from now on will be termed as User’s
Association (UA).
As mentioned, it is a conceptual paper that
is based on two recently published book chap-
ters (Porath, 2012a; Porath, 2012b), focusing a
governmental instrument for encouraging Open
Innovation via Collaboration between Industry
and Academy; one as a case study and the other
one as a model of this study that discusses the
effect of transaction costs in entrepreneurships
as a means of open innovation. The instrument
namely, the User’s Association (UA) is an asso-
ciation supported financially by the government;
which surveys, selects and helps SMEs, assimilate
technologies or technological solutions to solve
problems identified for specific sectors. The UA
recruits an academy to do the screening identi-
fication, and selection of the solutions, and later
to assist in the integration of the solutions by the
SMEs, including managing of the funds and the
activity relevant to this collaborative research on
behalf of the SMEs.
The UA is an ad-hoc activity defined by quanti-
fied goals, term and funds. It has been found to be
very successful and helps a large variety of SMEs,
ranging from sectors with little or no research and
development (R&D) to high-tech sectors. In the
next sections the paper provides the background
focusing on three main themes (Open innovation,
Economic theory and resource based theory, and
scarce resources). Next the methodology is being
put forwarded as per the discussion regarding the
main finding following the mentioned methodol-
ogy, and towards proceeding to summarize it gives
a few research hints.
BACKGROUND
The theoretical background focuses on three main
themes:
• Firstly it discusses about the Open
Innovation – describing the development
in research in specific field such as, with
recent developments regarding the SME
relevance within Open Innovation. Further,
a brief discussion on collaboration as a
source of innovation has been given;
• Secondly it covers the Economic Theory
and Resource Based Theory – focusing on
the transaction cost, and the impact of the
limitation of resources on the selection of
activities in entrepreneurships. However,
before discussing the resource based the-
ory, it discusses the Economic theory be-
hind the collaboration; and
• Thirdly and finally, it discusses about the
scarce resources of SMEs and their impact
on collaborative research in terms of trans-
action cost.
259

Open Innovation and Collaboration
Due to the economic crisis and increased global-
ization, the growing pressure on organizations
made them to innovate and the limitation on that
capability have pushed organizations towards
seeking to look for innovation out-side their
company boarders (Smith et al., 1991; Dodgson
et al., 2006; Rahman & Ramos, 2010; Lee et al.,
2012). Organizations are increasingly relying on
external sources of innovation (such as, research
centers or universities) via inter-organizational
network relationships (Perkmann, 2007). Thus
SMEs are viewing external innovation as a vi-
able alternative to that of the traditional internal
innovation (Rahman & Ramos, 2012). External
innovation for SMEs is the one, which is found
outside the boarders of the firm. Hence, redefining
the boarders of the firms due to the changes in
the environment of the firms has been going since
Penrose (1968) defined them. Furthermore, the
advent of collaboration in R&D and innovation
activities has been opening the definitions to be
further re-examined (Kirk, 1995; Spender, 1996,
Laursen & Salter, 2004). Significant developments
on this have been made in recent years, such as
the change in the perception of cooperation and
competition (Brown & Eisenhardt, 1998), and all
the way to collaboration in research (Porath, 2010).
Open innovation is seen as a phenomenon
that has become increasingly imperative to both
practice and theory since the 1990’s (Gassmann
& Enkel, 2004). As coined by Chesbrough (2003),
the open innovation paradigm introduced the
concept that firms can benefit from research and
innovation coming from external sources as well as
internal. That need is becoming important not only
to SMEs, but also to larger organizations (Ches-
brough, 2003). Further, the capability to manage
that knowledge and innovation on the outside as
well as on the inside is becoming an important
element of the firm (Naqshbandi & Kaur, 2010).
This study observes that open innovation and col-
laboration in research provide sustained impact
260

Collaborative Research (CR)
on specific sectors of entrepreneurships, which
is based on a knowledgeable operation (Porath,
2012a; Porath, 2012b) that has been practiced
since 1994.
Recent work has also shown that open innova-
tion is a critical source of innovation for SMEs
(Rahman & Ramos, 2012). There are claims that
it is not only a growth mechanism related to the
entrepreneurial phase of the firm, but it is also an
important innovation source for the SMEs (Po-
rath, 2012a; Porath, 2012b). Furthermore, it has
been observed that external innovation manage-
ment capability is important in order to maintain
competitiveness even in those sectors that are not
R&D intensive (Porath, 2012a).
Economic Theory
Economic theory provides important input regard-
ing the collaboration towards innovation. Since the
work of Katz (1986) many economic models have
been developed. Starting with early models (Katz,
1986; D’Aspremont & Jacquemin, 1988), those
dealt with simple symmetrical two sided coopera-
tion, in pre-competitive R&D, and tried to establish
its benefit, while assuring that the competition in
the market place was not reduced, or damaged in
any way with no breach of anti-trust. The preceding
models strived to describe the collaboration in an
ever more increasing detail and resemblance to real
world cooperation (D’Aspremont & Jacquemin,
1988; Kamien, Muller & Zang, 1992; Kamien &
Zang, 2000, Fontana, Geuna, & Matt, 2006). Such
models established the economic rationale for the
collaboration by showing that the collaboration
provided a benefit to the participants and to the
society (defined as the social benefit).
However, models developed at later stages
added asymmetry in the contribution and ability
to enjoy the proceeds, and added more lifelike
parameters (Kamien, Muller, & Zang, 1992; Yun,
Park, & Ahn, 2000; Pastor & Sandons, 2002; Mi-
yagiwa & Ohno, 2002; Fontana, Geuna, & Matt,
2006; EU, 2006). The economic models mentioned

Collaborative Research (CR)
above, also presented the benefits of performing
R&D for the firm and the value of different modes
of that R&D, not only in terms of collaboration,
and but also in different modes of collaboration
(Rosenberg, 1990; Audretsch & Feldman, 1996;
Katsoulacos & Ulph, 1998; Cabral, 2000). It has
been demonstrated that the firms benefit from
R&D (Rosenberg, 1990) and that they benefit
mostly from doing it in collaboration (Kamien
& Zang, 2000), and in this aspect, the mode best
described as Collaborative Research (Olk, 1991;
Doz, Olk, & Ring, 2000; Porath, 2008; Porath,
2010). The economic analysis started with col-
laboration stemming from free-will (Olk, 1991;
Doz, Olk, & Ring, 2000), and progressed towards
government supported collaboration (Porath,
2008). At this point authors like to mention that
the role of the government (local, national or
super-national) also evolved from a general discus-
sion, and the role of the government as analyzed
by Luukkonen (1998, 2000) claiming that the
government support was intended to induce the
firms to try riskier research that would lead to
breakthroughs, and in a more general way involv-
ing the Industry-Academy-Government Triple
Helix model that was introduced by Etzkowitz
and Leydersdorrf (1997).
Resource Based Theory
Another specific economic aspect is the scarcity
of resources, especially management resources
in SMEs causing decrement in their relative ca-
pacities (Naqshbandi & Kaur, 2010) in managing
external resources. In terms of open innovation,
the Transaction Cost includes the search for and
identification of the Innovation options, selection
of the most promising option and adopting it. That
activity would strain the management resources
in a small organization dealing in a small man-
agement team with various needs of the firm in
comparison to the ability of larger organizations
to either raise additional management resources,
or re-allocate existing ones.
The Resource Based theory and the Transaction
Cost point of view would recommend that firms
prefer paths of actions that would present the low-
est transaction cost, and that they prefer actions
with immediate and evident benefit (preferably
in the near and foreseen future or at least at the
current stage of the firm) to other more benefit
obscure actions in the distant future (Parkhe,
1993; Audretsch & Feldman, 1996; Kline, 2000).
Furthermore, Resource-based theory implies that
firm resources and capabilities influence the
growth, efficiency and the overall performance
of the firm (Park & Lee, 2011).
As described by Chen (2010), open innovation
archetype focuses on “technology uncertainty,”
while transaction theory focuses on “behavior
uncertainty” and resource-based theory focuses
on “demand uncertainty.” Hence, synthesizing the
transaction theory, open innovation theory and
resourced-based theory, one can get an integrated
analytical structure. However, as observed, these
different theoretical perspectives do not conflict;
they can be complementary to each other.
Therefore, while the limitation of resources
would drive SMEs to search for innovation ex-
ternal to them rather than utilizing their limited
resources to develop that innovation, the same
reason would drive them to seek paths of actions
with the lowest possible transaction cost to man-
age that external innovation
SMEs Limited Resources
and their Impact Analysis
The CR, thus seen as a partnership among techno-
logical partners each performing their compatible
research and gaining access to the results of each
other (with limitations in disseminating to third
parties), would seem to solve the technology un-
certainty problem dealt with by open innovation. It
would also seem to solve the demand uncertainty,
and in its government supported form (Porath,
2010) would rule that out, as well as the behavioral
uncertainty. The CR would seem like the perfect
261

solution, but there is one important point to bear in
mind that it is very resource draining, financially,
HR (human resources) wise and also management
wise. The problem becomes clearer when dealing
with organization that has no R&D management
capabilities. In such a case it has been observed
that the need to manage the firm’s own R&D and
liaise with the partners create enormous strain on
the management resources. Therefore, for firms
with no R&D management capabilities on open
innovation, where the innovation management is
done by partners or sub-contractors seem as the
optimal resource.
However, it has been observed that, in spite of
increasing interests in open innovation, discussion
about the concept and its prospective applica-
tion to the SME sector has been rather excluded
from the mainstream literature (Lee et al., 2010).
Furthermore, it has also been observed that, due
to the limitation on the resources firms compel
to consider the benefits derived from innovation
compared to the cost of transaction versus the
benefits and costs of transaction of other more
directly linked towards generation of income
activities (production, marketing, purchase etc.).
Another aspect is that the need for innovation
which, while evident and persistent (Ring & Van
de Ven, 1994; Audretsch & Feldman, 1996), is
rarely been considered as urgently evident as
other needs such as production marketing etc.
The lack of evident urgency makes it easier to
postpone acting towards innovation in favor of
other activities, while in parallel the innovation is
deemed more costly when compared to the benefit
(for example, a producer would always prefer to
promote the next batch order that he already sold
than search for new production technologies that
may or may not be suitable and that would cost
to implement, before any benefit could be seen).
The need for management resources expressed
as the availability of managerial capabilities, as
well as the allocation of these capabilities towards
specific needs of the firm is another important
constraint for SMEs. In sectors where R&D is a
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Collaborative Research (CR)
vital capability, the management of R&D projects
and their results is a vital managerial capabil-
ity without which firms in these sectors cannot
survive (such as, high-tech, biotechnology and
nanotechnology sectors), and in many cases the
firms in these sectors start with that capability
(start-ups or spin-offs) which stays with them for
the life of the firm. However, it has been observed
that the same managerial capability deemed of
less importance in sectors with little or no R&D
(for example, the jewelry industry) and would,
therefore, develop later in the firm life or not at all.
Other managerial capabilities, such as purchase,
finance or marketing would be deemed more
important in certain aspects.
There are various sectors, where the innovation
related managerial capabilities would develop at
later stage or not at all, even external innovation
would be difficult to manage. In those sectors,
managing external Innovation would require the
ability to search, identify and select the right in-
novation components required by the firm, assess
their cost and rate them according to a combination
of criteria, such as cost, benefit, time to market,
legal complexity etc., which would require man-
agement capabilities that are not often existing
in management teams that have never managed
such type of operation before. In fact as observed
in earlier work (Porath, 2012a; 2012b), without
that capability this type of SMEs find it hard to
assimilate innovation, even when most of the
work is performed on their behalf, as there is no
other choice than to be able to manage innovation
once the SME has reached the absorption stage.
Furthermore, the firms´ management team
need to have the ability to access management
resources, such as management capabilities and
human resources (Harison & Koski, 2010). Ac-
cessing such resources is difficult for SMEs,
especially when competition and market stress
are increasing (in the case study of Porath, 2012a;
2012b, the SMEs could not either access the expert
for the chemical industry case, or the large system
houses for their list of complains and problems

Collaborative Research (CR)
regarding local sub-contracting without the UA
help). This difficulty raises the transaction cost
of absorptive capacity and relative capacity and,
therefore, the gap widened between transaction
cost and the benefit derived from the activity. The
increase in the gap would drive SMEs, in such
times of increased stress, to concentrate their
efforts on other tasks (for example in marketing,
purchase, or efficiency) and eventually lowering
their innovation efforts.
In such cases, if the firm lacks the managerial
capacity to seek, identify and utilize financial
aid tools for innovation (such as, the Framework
Program-FP, Eureka, and others) their take-up
of such tools will remain low. It could be similar
to offering trade show services to a company not
able to complete its product development and
certification, which is of importance but may not
seem relevant to the need.
In order to improve the innovation manage-
ment capabilities, one could either increase the
attractiveness of innovation, thus increasing the
benefit derived from it, but usually that is already
taken care of by the market forces and the increased
competition. That increase in attractiveness may
lure some of the stronger SMEs that have at least
some of the capabilities but lacking the experience
make them be away from these activities. Further,
it would not help those that lack both the experi-
ence and the capabilities. The other option is to
try and reduce the transaction cost. The reduction
in transaction cost would increase the objective
ability of SMEs to participate, and they would
have enough resources, but convincing them to
do so would still need to be done.
Methodology of the UA Cases
The cases presented by Porath (2012a, 2012b)
regarding the open innovation scheme (User’s
Association) shows specific problems and relevant
answers. In these two case studies, one justifying
a generic business model and the second dealing
with a detailed case study, thus reviewing the finer
points of the case, the industrial partners, their
innovation needs, the operation of the UA and
the results and lessons to be learnt. In the cases
mentioned the UA served groups of SMEs without
the R&D capabilities or even the external innova-
tion management capabilities to seek, identify and
adopt existing solutions to predefined problems.
The UA managed to reduce the transaction cost
of managerial capacity required to allow SMEs to
manage innovation and even external innovation
expressed in making use of existing technologies.
The discussion in these two examples has shown
that transaction cost, especially in times of stress
makes the choice of allocating resources for in-
novation management more difficult, especially
for the SMEs.
DISCUSSION
Literally, firms are treated as economic organi-
zations, and therefore, they base their decisions
regarding actions, development of capabilities and
routines on economic basis. As Rosenberg (1990)
has shown they would even invest in generic R&D
which is not product oriented as it can assist them.
Therefore, it seems that the economic basis of firms
is broader than pure immediate finance. Hence, a
leading consideration for management decisions
would be the alternative cost of actions. The cost
of the management share (the team, or individual)
for specific activity can be described based on the
transaction or actions that the management can-
not perform due to the lack of the management.
It may have appeared that the main transaction
cost for innovation lay in the research infrastruc-
ture, and that it could be overcome by joint R&D,
especially utilizing the academic infrastructure
(such as, mechanical and human), but it would
now seem that at least for less R&D intensive
SMEs, the problem and solution lay somewhere
else (such as the transaction cost).
A potential solution of lowering of such trans-
action costs would be to find and allocate the tasks
to external sources or partners. An improved solu-
tion in view of the relative capacity required would
263

be to delegate the management of such activity to
external entities on behalf of the firms. This step
is not without complications like trust, avoiding
opportunism and others. These problems have
been overcome in the UA example by the long
term activity and the role of the governmental
agency financing and managing the UA as the
“Guardian.” In that role the “Guardian” acts as
supreme judge and reduces the fear from the above
mentioned challenges.
Earlier in this paper, it has been discussed with
the UA example that the dedicated share of man-
agement team that have been used for a specific
action, and thus removing a valuable resource
from the “available list” for other actions of the
management in the SME. Consequently, limiting
the number of actions the management can direct.
However, if one would like to discuss a situation
more pertinent to this case, one could deal with
the following situation. A 30 worker-based SME,
can sustain at most a management team of four
members. The four management members need
to dedicate at least one to manage the finance,
one to manage the production and one to manage
the sales, even if the CEO manages one of them
in addition to the overall management that still
leaves maintenance and purchasing, before legal
matters (this can be easily outsourced). The last
and fourth position can go to fulfill either of the
functions or it can be used to direct innovation. In
many cases of sectors that are below average or
low in innovation and research, the innovation is
often left unattended, in favor of more direct in-
come generating activities. Thus the management
groups lack the innovation capabilities, including
the ability to search, identify and acquire innova-
tion knowledge and ties, including the ability to
manage the process and to fund it.
In high-tech start-ups or other technology
oriented start-ups, the entrepreneurial process
demands that the management team becomes
an expert in innovation management acquiring
all the relevant skills from the very start. These
management teams are also constructed to grow
264

Collaborative Research (CR)
and transform, and add members and capabilities.
These SMEs, therefore, are different in their regard
for innovation and in many cases for strategic
reasons are content with closed innovation and
not with open innovation (Porath, 2010). How-
ever, these are not the topic of discussion here. In
these cases where the management team lacks the
ability to manage innovation, there are different
levels of tasks regarding the cost of transaction of
managing innovation and open innovation.
It is suggested that, for this type firms the
management of internal or closed innovation
would require management capabilities and the
establishment of internal routines for the manage-
ment and later absorbance of the innovation results.
Further, the innovation transaction incurs a cost,
in the share of the management team, especially
its resources, such as time and management skills.
In addition to that, in the case of open innovation,
the task is even more difficult and intricate. For
an SME to manage internal innovation would
require the ability to manage (fund and direct)
the innovation process, and to bring the results
to fruition. Hence, to manage it externally would
require more experience and more management
resources to monitor the external sources and lead
them into value addition.
Furthermore, in doing so, on a remote scope
would require remote management capabilities,
the ability to negotiate with the external innovation
partner and much more. Therefore, the challenges
would be greater. However, in the case of the UA
there are some mitigating aspects. The UA due
to its governmental authority umbrella (Porath,
2012a; 2012b) creates a framework that reduces
the needs for remote management skills, which
assists in the direction of the innovation process,
such as how goals are set, designed and managed.
The UA also creates “insurance” like routines in
the guise of the authority control and management
that help establish relational assets by reducing
the fear of opportunism, and thus the requirements
on the SME management side to deal with them.
The UA also supplies the funding for the process

Collaborative Research (CR)
and removes another aspect of the process from
the tasks allocated to the management. In this
case the members just have to manage the process
internally not remotely, or create a liaison func-
tion internally.
The UA establishes the rules of participation
and reporting. There is a central management facil-
ity that manages not only the input and output of
each partner towards the others, but also controls
the division of resources, makes sure the goals are
adhered to, and that the partners overcome dif-
ficulties. There is also often managerial support,
in many cases stronger on the financial side, but
usually also extended to the technical management
of the project.
The UA, therefore, presents a solution to
the increased transaction cost for SMEs and by
removing most of the managerial capacity require-
ments that allows the SME to participate in the
innovation process in much more convenient way.
However, that reduced transaction cost does not
come free. Further, the lack of demand for mana-
gerial capacity means that there is no incentive
for the SME to develop that managerial capacity
or acquire it in another way. Therefore, while the
results of the UA are mostly immediate, but they
are also short term. Hence, in order to innovate
again the SME will have to form another UA or
find a different solution.
FUTURE PERSPECTIVES
This research recommends that SMEs belonging
to low R&D sectors will become more interested
in adopting CR in their organic growth engine,
as the need to imbed innovation as an important
driver of economic growth. However, due to
various challenges and reasons described in this
study these SMEs may find the management of
innovation an intense burden regarding managing
the entire process. In those situations, available
tools such as the UA, and more improved versions
can be developed.
However, in the development of SME open
innovation assisting tools, one should bear in
mind about these the observations regarding the
management capabilities of the SMEs and strive
either to develop these capabilities within the
firms, or to remove them need for such capabilities
as is done in the UA. These require further study
on the behavior of SMEs, their internal culture
and their functional growth through a sustained
observation and orientation.
SUMMARY
It has been observed that the transaction cost can
influence the decision of SMEs in sectors with
low R&D, to mange an innovation process. The
cumbersome transaction cost for open innovation
as well as closed innovation, is a major restraint
for firms to deal with innovation in either form
(open or closed). Therefore, especially in times of
financial crisis, globalization, increased competi-
tiveness and market stress, when the transaction
cost of innovation also increases, and the imme-
diate benefit is somewhat obscure, SMEs forego
the need to innovation in favor of other activities.
In conclusion the study likes to mention that,
the lack in management resources can bring the
SME to the point, where it cannot even make use of
financial aid tools (lack of knowledge about their
availability and relevance, or lack of the manage-
ment ability to make use of them) for innovation.
In those cases, an effective tools like the UA, may
offer more than financial assistance, by removing
most of the collaboration risks and apprehensions,
but more importantly, the managerial capacity
demand. But, the assistance comes with a price,
and it does not encourage the SME to develop
the innovation related managerial capacities. It
provides the fish, but it does not teach the SME
to fish. Hence, the research concludes, in teaching
the SMEs to fish one should bear in mind their
limitations and needs at the ground reality.
265

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orative-research.htm
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270

Chapter 16
Social Media Crowdsourcing:
Supporting User-Driven Innovation
by Generating Ideas

Parul Singh
Indian Institute of Foreign Trade, India

ABSTRACT
This article makes an attempt to understand crowdsourcing and its increasing importance in organiza-
tions. It explores how crowd acts as a problem solver and crowdsourcing generates ideas that lead to
open innovation for an organization. The paper also throws light on how with the arrival and advance-
ment of digital technologies, the concept of crowdsourcing has gained popularity and has received well
acceptance in the organizations. This is followed by a detailed analysis on various researchers’ views
and thoughts on the subject. Based on the extensive literature review, this paper attempts to identify
knowledge gaps and research gaps. This study is an attempt to create concepts on social media crowd-
sourcing and provide research directions to further explore the subject.

1. INTRODUCTION munities, forums, etc. This unique feature of social

In recent times, there has been an inordinate
amount of adoption of the Internet and digital
technologies by organizations for their marketing
campaigns and strategies. These digital technolo-
gies and the Internet have impacted various aspects
of marketing. This new adoption has also impacted
the way the 4Ps are handled by the organizations
over the Internet. Internet and digital technologies
bring people together, and social media is one such
way. Social media brings in interactions among
people where they create, share, and exchange
information and ideas via different online com-
media makes it popular among organizations, and
its adoption by the organizations for reaching out
to the users or consumers is gaining attractiveness.
Social media is changing the way the organiza-
tions think about marketing their products and ser-
vices and reaching out to the consumers. It brings
in the tools and processes for participation from
the consumers. The presence of digital technolo-
gies differentiates social media from traditional
media in various ways, such as reach, usability,
frequency, and connectivity. Digital technologies
bring in the capacity to harness the power of the
crowd over the Internet. Organizations are finding

DOI: 10.4018/978-1-4666-8468-3.ch016

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Social Media Crowdsourcing
out ways to reach out to the masses, and adopting
social media over the electronic medium or digital
technologies is the best possible way because of
various reasons for organizations to bank upon.
This has persuaded organizations to move beyond
restricting themselves only to print media cam-
paigns. They have started exploring newer ways
to reach out to the customers for engagement.
Organizations are creating online communi-
ties to gather ideas for their products or services
from the crowd of consumers. Consumers on
this forum may easily be considered as creators.
Organizations are using digital technologies to use
various ways of social media, and crowdsourcing
is one of them.
Crowdsourcing is a phenomenon in which a
crowd turns out to be more powerful than any
individual within it. Crowdsourcing is about
milking the masses and brainstorming for gather-
ing different ideas. It is about using power of the
people which brings in the wisdom of the crowd,
where combined with the modern technology of
today’s scenario, it just becomes a powerful tool
for the organization. Crowdsourcing opens up
the boundaries of an organization for other and
different sources of innovation. In this process,
consumers can easily be seen as innovators
and value creators. E-crowdsourcing or digital
crowdsourcing, which is crowdsourcing over the
Internet platform, brings larger participation and
transparency in the process. This can be very
Figure 1. Literature study on crowdsourcing
easily seen from the examples of Dell, Kit Kat,
Netflix, Waitrose, etc. Crowdsourcing has moved
to the center stage.
Crowdsourcing is all about consumer cre-
ativity. By utilizing the creativity of the people,
multi-talent is deployed. Crowdsourcing on the
online platform helps in organizational learning,
saves money, and also brings people closer to
the organization. An organization can exploit the
power of masses via crowdsourcing for product
development, service development, or delivery.
It can fairly be considered as a problem-solving
tool, and a solution to distant search. The topic
of crowdsourcing is very much alive in the social
media world and will become more acceptable
and popular in the coming years. Crowdsourcing
remains interesting to both organizations and users.
2. LITERATURE STUDY
The literature on social media crowdsourcing is not
vast. Social media crowdsourcing is fairly a new
concept that has gained strength and acceptance
in recent times because of the emerging digital
technologies. The topic is not much explored, but is
gaining popularity among researchers and scholars
because of its wide applications by organizations
these days. The literature has been categorized as
depicted in Figure 1.
271

2.1. Understanding and Defining
Social Media Crowdsourcing
The use of Social media tactics and applications
has been widely accepted in organizations these
days. Social media’s effects are so far reaching that
they not only represent promotion but a revolution
in communication. If the voice of the consumer is
heard in the right way, it may increase the chances
of product’s success. The social media develop-
ments have made listening task of the organiza-
tions a bit easier because customers can easily be
found on social networking sites such as Facebook,
Twitter, and other online and virtual communi-
ties. They can share their ideas not only among
themselves but also with the organizations offering
product and services (Patino Pitta, & Quinones,
2012). Crowdsourcing is fairly a newer notion.
Although the term “crowdsourcing” is relatively
new, the concept has been in use since a long time
in various forms. One of the earliest instances of
crowdsourcing was in 1901 when Australia’s first
Prime Minister crowdsourced the design of the
Australian flag. Software companies often launch
beta versions of their products where they solicit
user feedback to remove any bugs or incorporate
improvements in the final release. Wikipedia can
also be categorized as crowdsourcing since it is
a result of the contribution of individuals across
the world. The concept has also been described
as peer production, user-centered innovation
and crowd-accelerated innovation, collaborative
manufacturing in the literature (Chwiałkowska,
2012). Crowdsourcing is the term which was used
in 2006 for the first time.
The term “crowdsourcing” was coined by Howe
(2006) in his article, “The rise of crowdsourcing.”
The article was published in “Wired,” an online
magazine. The term was created by keeping in con-
sideration the role of the Internet and technological
advances these days. The term crowdsourcing is a
combination of crowd and outsourcing. Brabham
(2010) defined crowd as “the collective of Web-
272

Social Media Crowdsourcing
users who participate in the problem-solving pro-
cess by posting solutions.” Howe (2006) defined
crowdsourcing as “Crowdsourcing is the act of
taking a job traditionally performed by a desig-
nated agent (usually an employee) and outsourcing
it to an undefined, generally large group of people
in the form of an open call.” With the advent of
Internet technologies and other communications
technologies, the concept of “crowdsourcing” has
got strength and has opened up myriad of oppor-
tunities (Afuah & Tucci, 2012). Busarovs (2011)
defined crowdsourcing as an online, distributed
problem-solving and production model. According
to Howe (2006, 2008) and Jeppesen and Lakhani
(2010), crowdsourcing is about outsourcing the
task to a crowd in the form of an open call. This
may be open for world. Table 1 presents various
definitions of crowdsourcing. Afuah and Tucci
(2012) categorized crowdsourcing into different
forms such as “tournament-based crowdsourc-
ing,” “collaboration based crowdsourcing,” and
others. Crowdsourcing is a type of co-creation,
which enables an organization to outsource its
internal business activities to a crowd over the
Internet. Organizations support a variety of
such co-creation activities to involve consumers.
These may be carried out for product develop-
ment process and value creation (Zheng, Li, &
Hou, 2011). Because of the new potentials of
Web 2.0, almost all crowdsourcing projects are
comprehended over the Internet (Busarovs, 2011).
Organizations with the help of crowdsourcing can
achieve external solutions and ideas to business
activities (Zheng, Li, & Hou, 2011). Organizations
engage customers with the help of idea competi-
tions. Such competitions seem to be a promising
tool for crowdsourcing, also a process of open
innovation (Leimeister, Huber, Bretschneider, &
Krcmar 2009). Wexler (2010) gave five stages of
crowdsourcing as – first, crowdsource decision is
made; second, crowdsourcer broadcasts a “call”;
third, inputs are collected from the crowd by
the crowdsourcer; fourth, filter is employed by

Social Media Crowdsourcing

Table 1. Definitions of crowdsourcing from select literature studies

S. No. Author (Year) Definition

1 Howe (2006)
2 Alsever (2007)
3 Brabham (2008)
4 Kleeman Voss, and Rieder
(2008)
5 Holley (2010)
6 Wexler (2010)
7 Mazzola and Distefano
(2010)
8 Dawson (2011)
9 Hammon and Hippner
(2012a)
10 Chwiałkowska (2012)
“Crowdsourcing is the act of taking a job traditionally performed by a designated agent
(usually an employee) and outsourcing it to an undefined, generally large group of people in
the form of an open call.”
“The basic idea is to tap into the collective intelligence of the public at large to complete
business-related tasks that a company would normally either perform itself or outsource to
a third-party provider. Yet free labor is only a narrow part of crowdsourcing’s appeal. More
importantly, it enables managers to expand the size of their talent pool while also gaining
deeper insight into what customers really want.”
“A strategic model to attract an interested, motivated crowd of individuals capable of
providing solutions superior in quality and quantity to those that even traditional forms of
business can.”
“The essence of crowdsourcing is the intentional mobilization for commercial exploitation of
creative ideas and other forms of work performed by consumer.”
“Crowdsourcing uses social engagement techniques to help a group of people achieve a
shared, usually significant, and large goal by working collaboratively together as a group.”
“Crowdsourcing can be understood as a focal entity’s use of an enthusiastic crowd or loosely
bound public to provide solutions to problems.”
“An intentional mobilization, through web 2.0, of creative and innovative ideas or stimuli, to
solve a problem, where voluntary users are included by a firm within the internal problem
solving process, not necessarily aimed to increase profit or to create product or market
innovations, but in generally, to solve a specific problem.”
“Implicit in the idea of crowdsourcing is the ability to create value that transcends individual
contributions, crystallizing collective insights through structured aggregation. For example
competitions, prediction markets, idea filtering, and content rating are all mechanisms by
which collective contributions can create better outcomes than individuals or small groups.”
“Crowdsourcing is defined as the act of outsourcing tasks originally performed inside an
organization, or assigned externally in form of a business relationship, to an undefinably
large, heterogeneous mass of potential actors.”
“Crowdsourcing is a Web based model that assigns the tasks of organization’s employees to
networks of people or communities what helps the company to solve its problems in more
efficient way than it could be done inside its structures.”

the crowdsourcer to separate valuable from the
valueless inputs; and fifth, future crowdsourcing
arrangements are decided by the crowdsourcer
and crowd.
2.2. Crowdsourcing Typologies
Literature discusses various typologies or clas-
sification of crowds and crowdsourcing. Authors
and researchers have tried to categories them on
the basis of various parameters such as type of
labour/crowd used in crowdsourcing, application
function of crowdsourcing, problem in hand etc.
Nicholas Carr discussed about different forms
of online crowd and categorized them as follows:
1. “Social production crowd”: comprises
people in a community who contribute in
their individual capacities to create a new
product; for example Wikipedia or Linux.
2. “Averaging crowd”: provides services of a
survey group to judge complex matter based
on the principle that crowd might provide
a better and more accurate view than an
individual; for example, stock exchanges
and prediction markets work on this model.

273

3. “Data mine crowd”: a group that serves as
a source to generate behavioural data and
insights often without explicit knowledge
of the participating individuals.
4. “Networking crowd”: a group which ex-
changes information and ideas using a com-
mon network; for example, a social network
like Facebook or even the telephone network.
A fifth type has been suggested by Clay Shirky,
that is, “transactional crowd.” “Transactional
crowd” is a group used to coordinate point-to-
point transactions; for example, the type of crowd
gathered by eBay, LinkedIn, etc.
Smith, Manesh, and Alshaikh (2013) orga-
nized the published research into three types on
the basis of the crowd type: Task-based public
crowd, information-exchange public crowd, and
employee-based crowd. These groups differ from
each other in terms of participants and function
of the crowds.
1. “Task-Based Public Crowd”: This type
of crowd performs a specific task or a set
of tasks. The crowd participants have little
or no relationship among themselves. The
members of the crowd contribute to the tasks
in their own individual capacities.
2. “Information-Exchange Public Crowds”:
This type of crowd consists of participants
looking for technical information and also
the participants providing technical infor-
mation. These two roles of the crowd are
interchangeable.
3. “Employee-Based Crowds”: This type of
crowd consists of participants employed by
the host company.
Ross Dawson discussed another classification
of crowdsourcing. The categorization is on the
basis of tools and platforms and is of the follow-
ing six types: Distributed innovation platforms,
274

Social Media Crowdsourcing
idea platforms, innovation prizes, content markets,
prediction markets, and competition platforms.
The brief of each is as mentioned below:
1. Distributed Innovation Platforms: This
platform is to support innovation process
that takes place outside an organization that
can provide the solution to the challenges
an organization is facing. Innocentive is an
example, just as several other sites.
2. Idea Platforms: Organizations use this
platform to aggregate, filter and leverage
the ideas proposed by the people inside
organizations. In some cases, these can also
be used in external context as well.
3. Innovation Prizes: This is used to encourage
innovation and provide support to break-
through ideas. Several prizes are offered to
provide a fillip to innovation.
4. Content Markets: These platforms enable
people to submit their content which is made
available for purchase.
5. Prediction Markets: People with diverse
opinions come together to predict what could
happen in the future based on the mechanism
that of “stockmarket-type.”
6. Competition Platforms: Competitions are
becoming very popular as a tool to get access
to talent and expertise in several sectors at
attractive costs.
Howe gave four types of crowdsourcing in
his book: Collective intelligence, crowdcreation,
voting, and crowdfunding.
1. Collective Intelligence: This typology as-
sumes that that collective intelligence of
the masses can produce better results than
individual effort. Companies ask people both
internal and external, to solve their problems
and also suggest new product development
ideas.

Social Media Crowdsourcing
2. Crowd Creation: Companies take advantage
of the crowd to generate new logo designs or
advertisements. Threadless and 99 Designs
are such sites where companies looking for
a new logo, website, or business card design
can post their requirements and various
participants submit their designs from which
the firm selects one winner and provides the
incentive. The advantage is that it offers a
lot of variety and choice to the organization
and can also be cost effective.
3. Voting: This type help organizations implore
public opinion or feedback on an existing
product or an idea. The products are rated
and therefore prospective customers as well
as the organization can understand the merits
and demerits of the product.
4. Crowdfunding: Entrepreneurs can also get
their projects financed by the online com-
munity. Various start-ups have been launched
by soliciting seed investment from people on
the web who found their idea interesting. An
example is Kickstarter, which has been used
to raise millions of dollars in order to fund
a variety of projects from different sectors.
Crowdsourcing can also be structured by type
of task and size of reward (Busarovs, 2011). The
types of tasks can be routine, complex, and cre-
ative (Schenk & Guitard, 2009). Type of reward
category could be: No reward, penny rewards, dol-
lars rewards, and millions reward (Borst & Ende,
2007, 2008). Brabham (2011) also discussed four
types of crowdsourcing: The knowledge discovery
and management approach, the broadcast search
approach, the peer-vetted creative production
approach, and distributed human intelligence
tasking. Stanoevska-Slabeva (2011) identified
two approaches to classify crowdsourcing in the
literature: one based on the type of task that is
crowdsourced, and the other based on the initiator
of crowdsourcing.
Figure 2 presents the summary of the various
typologies discussed for crowdsourcing in the
literature by various authors and researchers.
2.3 Importance of Crowdsourcing
for Organizations
Not only globalization but also various improve-
ments in technology have exposed organizations
to hard competition. In this changing era, orga-
nizations can no longer focus only on production
and selling. They are moving toward engaging
customers and asking them to co-create. These
days organizations’ top priority is to get closer
to the customers, and to do this, organizations
are creating social media programs. Social media
holds potential for organizations to get closer to
the customers. By being able to do so organiza-
tions facilitate increased revenue, cost reduction
and efficiency (Baird & Parasnis, 2011). Depend-
ing upon the nature or the kind of the problem,
an organization can utilize the power of crowd
via crowdsourcing to get the possible solutions.
Crowdsourcing has found its great potential in
marketing activities. As a marketing tool, crowd-
sourcing can not only be used for generating ideas,
but also for production such as video commercials
(Busarovs, 2011). Crowdsourcing can transfer the
distant search into local search in some of the situ-
ations. And hence, it improves the efficiency and
effectiveness in solving the problem as it may prove
itself as an enhanced way for solving some of the
problems than internally (Afuah & Tucci, 2012).
The various examples show that how organizations
have/are using crowdsourcing to gain competitive
advantage via innovative ideas/innovation (Afuah
& Tucci, 2012). Surowiecki (2005) in his book
“The Wisdom of Crowds” argued that large group
of people are smarter for a certain tasks than
individuals. In certain circumstances the groups
can be intelligent. To an extent an established
organization can also opt for crowdsourcing their
275

Figure 2. Typologies for crowdsourcing
activities which are explorative in nature (Afuah
& Tucci, 2012). Traditionally, R&D activities
carried by an organization were considered as
innovation activities. Hammon and Hippner
(2012b) discussed following as selected chances
of crowdsourcing: Access to a vast pool of com-
petence and knowledge, augmented relationship
between organization and customers, increase in
brand loyalty, anticipation of consumers’ needs,
innovative solution of problems, modular and flex-
ible processes and less time-to-market, potential
of cutting cost.
2.4 Crowdsourcing Supports
Open Innovation
Innovation process is critical for any organiza-
tion and is undergoing certain changes in many
industries. With the advent of digital technologies,
people connect and collaborate over the World
276

Social Media Crowdsourcing
Wide Web and helps in an innovation process. Vari-
ous terms such as crowdsourcing, open innovation,
peer production, Wikinomics, swarm intelligence,
etc. have become buzzwords in the recent times
(Bücheler & Sieg, 2011). These words explain a
form of collective intelligence. This is enabled by
new set of digital technologies (Bücheler & Sieg,
2011). Innovation is gradually becoming open, that
is, open innovation. And in order to adopt this,
organizations are exploring various ways such as
social media. One of the obvious use and advantage
of social mediais innovation which falls under the
broad umbrella of open innovation. Social media
leverage this effort of an organization to source
new and myriad of ideas, difficult to reach previ-
ously. Innovations are vital for any organization
to sustain and survive. Innovation is considered
to be positive for an organization. The concept
of innovation is broad. However, it has become
broader, as it now embraces new forms and ways

Social Media Crowdsourcing
of open innovation such as crowdsourcing (Agafo-
novas & Alonderiené, 2013). At the present time,
organizations have started adopting approaches to
involve customers in innovation process. Busarovs
(2011) suggested that crowdsourcing is the most
contemporary methodology to user-driven in-
novation. Organizations are increasingly seeing
potential in this new form of open innovation that
is crowdsourcing.
Open innovation consists of efforts to explore
beyond the walls of the organization. In an open
innovation, organizations use external ideas to
develop their technology, innovation, and capa-
bilities (Chesbrough, 2003.). Chesbrough (2003)
defined open innovation as
[…] the use of purposive inflows and outflows of
knowledge to accelerate internal innovation, and
expand the markets for external use of innovation
respectively. Open Innovation’ is a paradigm that
assumes that firms can and should use external
ideas as well as internal ideas, and internal and
external paths to market, as the firms look to ad-
vance their technology. Open Innovation combines
internal and external ideas into architectures
and systems whose requirements are defined by
a business model.
The collaboration with external resources can
increase the firm’s internal R&D competencies
(Hoboken, 2010). Organizations can improve
their performance by capturing and incorporat-
ing external knowledge which also decreases the
R&D cost of the organization (Chanal & Fasan,
2010). Schreier, Fuchs, and Dahl (2012) studied
consumer perception of firms that sell products
designed by users. The authors found that design
by users enhances consumers’ perceptions of a
firm’s innovation ability, and does not decrease
it. They mentioned that “innovation effect of
user design” leads to positive results in terms
of purchase intentions, willingness to pay, and
consumers’ willingness to recommend the firm
to others. They concluded that being user-driven
provides firm an ability to innovate because of
various reasons such as the capability of the crowd
to generate more ideas, diversity of the people in
the crowd, lack of company constraints, and as
the crowd are the users of the product, consumers
perceive ideas of the crowd as more applicable
(Schreier et al., 2012).
The terms crowdsourcing, user innovation,
and open innovations though define different
concepts, but the terms are often intermingled.
Stanoevska-Slabeva (2011) studied the relation-
ship among different concepts of Internet-based
collaborative Innovation such as open source
communities, user innovation communities and
crowdsourcing, and found many similarities
among these apart from differentiating features.
Crowdsourcing may be considered as a part of
open innovation, and also a part of other forms
Internet-based innovation (Stanoevska-Slabeva,
2011). Boudreau and Lakhani (2013) discussed
that crowds are becoming the partner of choice in
innovation. According to them, an organization
is losing an opportunity if it has not included
crowdsourcing in its corporate innovation tool
kit. Boudreau and Lakhani (2013) also mentioned
that the most common way to engage crowd is
via conferring crowd contests. In crowd contest
the organization has a problem in hand which it
broadcasts to the crowd to submit solutions or
ides in return of case prize. Conferring a contest
may be considered similar to running sequences
of independent experiments. This ideally provides
variations in results. They gave four approaches
the way crowd can be used for innovation powered
by the crowd: Crowd, collaborative communities,
complementors, and labour markets.
Figure 3 presents a summary of the discussions
in paragraphs 2.3 and 2.4. It explains the various
opportunities that crowdsourcing provides to an
organization. Crowdsourcing provides the follow-
ing benefits to the organization:
277

Figure 3. Benefits of crowdsourcing
• Contribution to product development
• Resolution for a specific problem
• Marketing tool
• Generating ideas/creative insights
• Conribution to open innovation
• Online word-of-mouth
• Cost reduction as it can be used as an alter-
natively to other costly marketing activities
• Communication and or collecting feed-
back, etc.
2.5 Motivation for Participation
Organizations find various benefits by opting for
social media crowdsourcing which gives them
the benefits of co-creation. Literature also sug-
gests various reasons that motivate the crowd to
278

Social Media Crowdsourcing
participate or contribute to crowdsourcing tasks.
These motivational factors can be categorized as
internal (or intrinsic) and external (or extrinsic)
or tangible and intangible. Both kinds of factors
play an important role in an individual’s decision
to participate or not-participate in crowdsourcing
activities. Leimeister et al. (2009) defined intrinsic
and external motivation as “Intrinsic motivation
occurs when an individual engages in a behavior,
such as a hobby, that is initiated without obvi-
ous external incentives. External motivation is
activated by external incentives, such as direct or
indirect monetary compensation, or recognition
by other.” Zheng, Li, and Hou (2011) in their
study found out that intrinsic motivation is more
important than extrinsic motivation in bringing
participation from the crowd. Factors of extrinsic

Social Media Crowdsourcing
motivation are to gain monetary rewards and rec-
ognition whereas factor for intrinsic motivation
is participation for one’s own sake (Zheng, Li, &
Hou, 2011). Leimeister et al. (2009) in their study
found out learning, direct compensation, self-
marketing, and social motives as the motivation
factors behind participation in idea competitions.
Hars and Ou (2002) found out self-determination,
altruism, and community identification as internal
motivation factors, whereas future rewards and
personal need as external factors. Antikainen,
Ma¨kipa¨a¨, and Ahonen (2010) in their study
identified that monetary rewards may not always
be the best way to motivate users to contribute to
collaborate in open innovation communities. The
other motivators are intangible factors such as
community cooperation, learning new ideas and
having entertainment. Brabham (2010) studied the
reasons which motivate crowds to participate in
crowdsourcing processes at Threadless. He came
across four motivators for participation- money
making opportunity, to develop one’s creative
skills, to take up freelance work, and the love of
community at Threadless. He also came across
another theme, the fifth one – “addiction” – de-
scribed as the activities of the interviewees on
the site.
Figure 4. Crowdsourcing motivators for participants
On the basis of the study of the literature,
crowdsourcing motivators may be classified as
depicted in Figure 4.
On the basis of the study of the literature, the
motivators for participation of crowd in crowd-
sourcing tasks or activities can be summarized
as given in Table 2.
3. CONCLUSIVE OF
CROWDSOURCING MODEL
There are certain success factors that have been
illustrated in the literature, for example it has
been pointed out by Leimeister et al. (2009) that
active participation of potential lead users is the
key to success for crowdsourcing and similarly
the motivation of participation has been illustrated
in the study of Zheng, Li, and Hou (2011) where
they say that motivation to gain recognition from
firms drives people to participate.
This paper has majorly focused on the area –
“Importance of crowdsourcing for organizations,”
which is indicative of why should an organization
engage in the activity of crowdsourcing and that
the motives of organization can be multifold and
two primary motives could be
279

Table 2. Motivation for crowdsourcing
Intrinsic/Internal/Intangible
Motivators for participation
Extrinsic/External/Tangible
1. Customer engagement
2. Getting ideas through open innovation
At the same time, the motive of the crowd or
respondents to participate in the crowdsourcing
activity initiated by the organization could be
clubbed as intrinsic and extrinsic, which is illus-
trated in the model stated in Section 2.5.
The above model can be tested empirically
to establish the factors that are important in
establishing the reasons why they engage in
crowdsourcing and at the same time factors that
motivate a participant to take part in the crowd-
sourcing activity. Empirical testing can be done
with the help of questionnaire development at
organizational level. This study can be carried
out for various sectors or industries to establish
their applicability. There is tremendous scope
to carry out additional studies at organizational
level to understand what motivates an individual
to participate or not participate in crowdsourcing
activities. Understanding the reasons behind crowd
providing their energy and talent, and engaging
themselves in crowdsourcing activities will help
280

Social Media Crowdsourcing
Hobby/fun/entertainment
Self-esteem/For one’s own sake
Learning/personal fulfillment
Altruism
Self-determination
Community identification
Social contact
Monetary reward or any other direct or
immediate compensation
Future benefits such as training skills
Recognition in the society
Self-marketing/self-advertisement
Social motives (eg: reactions of friends,
audience or significant others)
Prestige or status
to develop best practices for organizations. Fur-
ther qualitative and quantitative studies on the
concept will improve the knowledge base on the
domain. There is possibility of exploring motiva-
tion with crowdsourcing. The studies present in
his context cannot be generalized to all sectors
or industries. The other observation gaps identi-
fied and researched further could be – What type
of organization is likely to successfully pursue
crowdsourcing, what types of environmental fac-
tors (internal and external) favours crowdsourcing,
if an organization plans for crowdsourcing, how
it should go for it?
4. MANAGERIAL IMPLICATIONS
Social media crowdsourcing is participative in
nature. It makes use of organization–customer
relationship, which makes it an important domain
to be studied. Also, understanding factors that
motivate individuals to participate in crowdsourc-
ing activities has many academic and managerial
implications. In addition, understanding the way

Social Media Crowdsourcing
Figure 5. Firm and crowd motives
the crowd can be engaged and the type of crowd
engaged in crowdsourcing activities is important
for managers.
Crowdsourcing can be considered at an infant
stage as of now, but it holds a tremendous potential
in itself. With the digital technologies and related
infrastructure easily available, organizations can
levy on crowdsourcing activities to explore its vast
potential. It can not only be used as a marketing
tool but also for building customer relationship.
This study can be considered by organizations and
managers who are willing to explore the domain
of crowdsourcing.
5. CONCLUSION
Crowdsourcing is an emerging and online trend
which is expected to see the boom the way orga-
nizations are moving toward adopting it. Not only
organizations, even the government is using the
power of crowd. Indian government is one of the
good the examples as it also crowd-sourced the
design of the Indian currency symbol. Literature
suggests that crowdsourcing helps an organization
in open innovation, crowd creativity, distributed
knowledge, co-creation, new ideas, etc. The study
confirms that crowdsourcing is a ways to gener-
ate ideas which is a source of open innovation.
However, some of the challenges exist related
to the design of the crowdsourcing task. Both
monetary and no-monetary rewards can be used
to motivate crowd. The challenge related to this
could be to decide on rewards in a way that they
motivate the crowd. The study on crowdsourcing
is conducting from one facet and there lies other
facets as well which can be explored to study the
topic further.
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This work was previously published in the International Journal of Online Marketing (IJOM), 4(2); edited by Hatem El-Gohary,
pages 1-14, copyright year 2014 by IGI Publishing (an imprint of IGI Global).

283
284

Chapter 17
Crowdsourcing for
Transcultural Marketing
and Innovation
Rauno Rusko
University of Lapland, Finland

ABSTRACT
The contemporary information technology and changing habits of consumers using Web-based platforms
provides new possibilities for companies to exploit the innovativeness and technical abilities of consumers
in their research and development work. Because of international platforms, this kind of crowdsourcing
is a source for transcultural incremental and radical innovations for companies. The purpose of this
chapter is to introduce the concept and available literature of crowdsourcing and different international
practical solutions of companies in exploiting crowdsourcing. Finally, this chapter discusses and clas-
sifies various types of crowdsourcing activities in the context of incremental and radical innovations,
and innovation strategies of the firms.

INTRODUCTION company, research and development among others,

Due to tightening international competition and
structural changes of global economy, innova-
tions have increasing importance (e.g., Kohl &
Depner, 2010) among contemporary multina-
tional companies. Especially challenging is to
provide new products and services suitable for
the consumers from different cultures and coun-
tries. For example, according to Porter (2008),
most successful multinational companies have a
“home base” in a certain country. The existence
of home base also means several activities of the
are mainly produced or managed by one country.
Thus, there might be a contradiction between the
customership of the company and the practices in
developing the products for these customers: often
national research and development department of
the company plans and develops the products for
the international customers. In this situation, the
risk for unsuccessful converges between interna-
tional demand and supply of products is high.
There are a couple of practical, alternative
ways to change the situation:

DOI: 10.4018/978-1-4666-8468-3.ch017

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Crowdsourcing for Transcultural Marketing and Innovation
1. Keep Research and Development (R&D)
activities at the home base but recruit a trans-
cultural labour force for R&D departments
2. Decentralize R&D activities globally into the
different business units all over the world,
perhaps emphasizing the country in which
the demand for products is on the highest
level, or
3. Provide virtual (transcultural) platform for
innovations (Rusko, 2012).
This chapter is focused on the third alternative.
In addition, the chapter emphasizes the platforms
where the role of customer as an innovator is essen-
tial. The situation in which the business activities
are outsourced to the crowd, that is, to the consum-
ers, is called crowdsourcing. In crowdsourcing, a
consumer is in the role of a prosumer. Prosumer
is possible to define simply as a consumer in the
role of producer. (Rusko, 2012).
The Internet is a popular marketing channel.
Coherent multi-channel marketing is called the
marketing ecosystem (Hanna et al., 2011). Web-
based platforms which are provided for the inter-
national customers of the company are part of the
same marketing ecosystem as the other marketing
channels, despite the fact their main contribution
might be based on development of ideas and in-
novations of the products for the companies. In
other words, web-based platforms for customer
innovations are also part of the same family of
ecosystems in the company. The chapter discusses
and classifies various types of business innova-
tions such as incremental and radical innovations,
and open and closed innovation strategies in the
context of crowdsourcing activities. Thus, the
chapter also participates in the discussions about
the characters of innovations (cf. Chesbrough
& Appleyard, 2007; Pisano & Verganti, 2008;
Lampel et al., 2012).
This chapter consists of four parts. The first
part discusses the literature of Innovations and
crowdsourcing emphasizing their transcultural
perspectives. The second part considers the ex-
ploited methods of this chapter. The third part is
focused on the results and contribution of this
chapter basing on some case study examples. Fi-
nally, the fourth part contains concluding remarks
and the main findings.
LITERATURE REVIEW
This chapter is based on an understudied branch
of business activity: crowdsourcing as a source
for transcultural incremental and radical innova-
tions. Although the theme is nearly missing in
the extant research literature, there are several
publications focused on sub-themes such as open
internet as one possible source for crowdsourcing
innovations, closed innovations, incremental in-
novations, radical innovations, and crowdsourcing.
There are connective perspectives on all of these
sub-themes at the end.
The Internet as a Part of a
Marketing Ecosystem
This chapter generally emphasizes the role of the
Internet as a source and platform for different
kinds of transcultural innovations. In addition
to platforms for innovations, the Internet is one
particularly important channel of marketing. This
part of the chapter discloses the multifaceted roles
and possibilities of the Internet. Crowdsourcing
is even possible not only as a tool for presum-
ing, but also as a part of marketing channels and
marketing ecosystems.
The Internet provides various international
marketing channels and platforms to promote
different products and services, and motivates
customers to participate in constructing the brand
for the company and its products. Although the
Internet is an important channel for marketing,
it is only one part of the marketing ecosystem of
the company. While the company is announcing
its activities and new products via the mediums
of the Internet such as Facebook, Twitter, You-
285

Crowdsourcing for Transcultural Marketing and Innovation
Tube, and blogs, it is essential to remember that
in spite of the chosen channel of marketing, the
provided content and message to customers must
be uniform. That is, the different marketing ac-
tivities must be in part of the same ecosystem of
the firm. (Hanna et al., 2011) This is especially
challenging for multinational companies which
especially have transcultural customers. There is
a need to be both geographically-and culturally-
focused on local national advertising campaigns
and promotions, and international transcultural
campaigns and promotions in which the message
might be differentiated (e.g. Wendt & Pederson,
2006). National and transcultural ecosystems
cannot be contradictory. Contemporary global
business is already in the state of a borderless
world as defined by Ohmae (1999) in which
features such as education levels and consumers’
cultural tribes (e.g., Moisander & Valtonen, 2006)
are more important effecting characteristics in
consumption behaviour than national borders,
home language, or religions.
As an example, language is a naturally separat-
ing feature in consumer behaviour which provides
possibilities for market segmentation (see Štuikys
et al., 2003). Due to increasing speed and the devel-
Figure 1. Open and Closed Innovation. (Modified from Chesbrough & Appleyard, 2007:3; also see
Rusko, 2008).
286

opment of news service and communication, and
improving language skills, the distinctive effects
of language have diminished. For firms, these
phenomena even increase the need to have unified
transcultural marketing and marketing ecosystems
between different channels and mediums
Different Perspectives
on Innovations
In the extant management literature, there is a
strong dichotomy between two types of innova-
tions: open and closed. According to Chesbrough
& Appleyard (2007:58), value creation or value
capturing are important concepts also in the
context of open innovations. They classify open
and closed innovations by using the concepts of
“value creation” and “value capture.” In the case
of value creation, there are two types: In-house
and Community-driven, and in the case of value
capture the types are (business) Ecosystem and
Company. The most open innovations are based
especially on community-driven value creation
with the value capturing in the business ecosys-
tem (Figure 1). In the case of open innovation or
open strategy, there are several builders of open

Crowdsourcing for Transcultural Marketing and Innovation
innovation community; however, at the same time
the participants must be in positions in which they
have possibilities to win against the competition.
(Chesbrough & Appleyard, 2007; Rusko, 2008).
Actually, in the state where the value creation is
community-driven and value capturing is compa-
ny-based such as in YouTube or in Dell Computer
(Bayus, 2013), the crowdsourcing phenomena is
also present (c.f. Rusko, 2012).
The extant literature also contains several other
ways in which to classify innovations. For example,
West and Gallagher (2006) introduce three types:
proprietary (closed) innovation, pooled R&D, and
spinout. The last two are close to open innovations.
In the context of innovation in business cooperation,
pooled R&D is the more relevant form of open in-
novation than is spinout in which the benefits of
innovation are flowing more unlimitedly sometimes
even without any transactions. Spinouts are the most
open type of innovation, and they are often con-
nected with the R&D actions of public organizations
such as universities and research institutes (Rosa
& Dawson, 2006; Rusko, 2008). Open innovations
are often associated with crowdsourcing (Lampel
et al., 2012).
Another known dichotomy for innova-
tions is between incremental innovations and
radical innovations (Banbury & Mitchell, 1996;
Hurmelinna-Laukkanen et al., 2008), which is
actually following the analogy between two kinds
of creativity: adaptive creativity and innovative
creativity (Hogg & Scoggins, 2001). Furthermore,
the blue ocean strategy introduced by Chan and
Mauborgne (2005) is a popular tool among busi-
ness consultants to organize the strategic planning
of business and public activities. In contrast to the
blue ocean strategy is the red ocean strategy. In
the former, the firm seeks and even develops new
markets without prevailing competition. However,
red ocean strategy is a more traditional way to
conduct business focusing on competitive markets.
In the blue ocean strategy, the firm must possess
new innovations and emphasizes the divergent
features related to competitors.
Implicitly, the dichotomy between the red
ocean and blue ocean strategy have connections
with Ansoff’s (1957) matrix, containing four
alternative outcomes basing on two dimensions:
1. Whether the provided product for the cus-
tomers is old or new; and
2. Whether the product is directed in the pre-
vailing market or new market (industry).
New products to the new market are similar
to the blue ocean strategy to the same extent that
the red ocean strategy resembles the case of old
products provided to the old markets. Similarly,
it is possible to connect incremental and radical
innovation, and adaptive and innovative creativ-
ity to the same context – the Ansoff matrix. (see
Table 1).
According to Hurme-Laukkanen and her col-
leagues (2008:279), “while radical innovations
have the potential to transform entire industries,
incremental innovations have potential for product
upgrades.” This division is relatively parallel to
the content of Figure 2. They also mention the
following types of innovations: discontinuous
innovation, emerging technology, architectural
innovation, and disruptive innovation. Thomond
and Lettice (2002) define disruptive innovation
as a term to describe innovation which is of a
highly discontinuous or revolutionary nature –
the exact opposite of evolutionary or incremental
innovation. Although there several alternative
Table 1. Red ocean and blue ocean strategy, incre-
mental and radical innovation, and adaptive and
innovative creativity placed into the Ansoff matrix.
Old Market New Market
Old Red ocean strategy Incremental innovation
Product Adaptive creativity
R&D crowdsourcing
New Incremental innovation Blue ocean strategy
Product Adaptive creativity Radical Innovation
R&D crowdsourcing Innovative creativity
R&D crowdsourcing
287

Crowdsourcing for Transcultural Marketing and Innovation
Figure 2. The cases and context of the case study research in this chapter
interpretations in the extant literature, disruptive
innovation appears to mirror radical innovation.
According to Schumpeter (1942), in “creative
destruction” the most innovative actions are
provided by small firms and the large firms have
difficulties in their innovativeness due to expanded
organization structure and bureaucracy. Addition-
ally, Penrose (1959) has a similar message in the
most famous outcome known as the “Penrose
Effect”: the growth of the firm will finally cease
due to the lack of management capabilities which
will develop slower than the (innovative) growth
capability of the whole firm.
Crowdsourcing
The early forms of crowdsourcing are not new,
especially if we include design competition as a
part of crowdsourcing phenomena. According
to Lampel (2012:71), “As far back as the 18th
century, organizations and governments staged
‘design competitions’ which challenged innovators
to submit prototypes to competitive evaluation in
nonmarket settings” (Sobel, 2007). These competi-
tions and the features of crowdsourcing in general
resemble links with the features of prosuming
(Rusko, 2012). Ritzer (2010) defines prosumers
as those who are simultaneously involved in both
production and consumption. According to Ritzer
288

(2010), the concept “prosumer” is involved directly
or implicitly in several other perspectives such as
value co-creation, service-dominant logics, and
the phenomena called the “McDonaldization of
Society” in which the focus is on “putting the
consumer to work.”
For example, the consumer of fast food is also
a producer of that meal: “diners are expected to
serve as their own waiters carrying their meals to
their tables or back to their cars” (Ritzer, 2010:1).
Generally, Howe (2006:5) defines crowdsourcing
as “the act of a company or institution taking a
function once performed by employees and out-
sourcing it to an undefined (and generally large)
network of people in the form of an open call.
This can take the form of peer-production (when
the job is performed collaboratively), but is also
often undertaken by sole individuals. The crucial
prerequisite is the use of the open call format and
the large network of potential laborers.”
Empirical studies about crowdsourcing in man-
agement discipline are relatively rare. However,
Bayus (2013) has studied Dell’s crowdsourcing
activities and especially the features of the par-
ticipating customers. For example, he notices that
maintaining the level of innovations is problematic
in crowdsourcing platforms. In addition, Carmel
(2012) studies a small firm in the USA which
emphasizes the crowdsourcing platform in busi-

Crowdsourcing for Transcultural Marketing and Innovation
ness. This firm has difficulty in growing because
of the lack of a suitable labour force. Typically, the
agents (the members of a crowd) in crowdsourcing
self-select to solve problems without any ex-ante
contract. Afuah and Tucci (2012) emphasize this
character of crowdsourcing, and they view crowd-
sourcing as an alternative to the internal sourcing
and to the designated contracting in the context
of transaction cost economics.
There are a couple of forms for crowdsourcing.
Rusko (2012:167) introduces two of them:
1. Business practice which literally means to
outsource an activity to the crowd
2. A form of outsourcing not directed to other
companies, but to the crowd by means of
an open tender or open call via an Internet
platform (see Howe, 2006; Burger-Helmchen
& Penin, 2010; Schenk & Guittard, 2009).
Although both of these forms of crowdsourcing
are initially directed to the ICT sector and Inter-
net/social medium activities, the first definition
is larger: it will not exclude the possibility that
some crowdsourcing activities will take place
outside of branch of ICT and Internet in spite of
the fact that the current activities are focused on
these branches or mediums (Rusko, 2012:167).
This chapter emphasizes the role of the Internet
platform for crowdsourcing activities. Actually,
crowdsourcing serves the same interests as out-
sourcing: “Remember outsourcing? … The new
pool of cheap labor: everyday people using their
spare cycles to create content, solve problems, even
do corporate R & D.” (Howe, 2006:1). Crowd-
sourcing provides new solutions especially for
capable Small- and Medium-Enterprises (SMEs)
to plan the production and design of the products
with the help of customers in spite of the small
organization (cf. Rusko, 2012, 162). Crowdsourc-
ing enables large firms to achieve such a new
innovativeness for R&D activities, typical only
for promising start-ups.
In this chapter, the focus is on the innovations
in the context of crowdsourcing. This perspec-
tive is following the viewpoints of Lampel and
his colleagues (2012) who also consider (open)
innovations associated with crowdsourcing. In-
novations are often connected with blue ocean
strategy (e.g., Kim & Mauborgne, 2004; 2005).
We can assume that R&D crowdsourcing is, if
anything, following the blue ocean strategy - or
at least it is providing new products for the old
market or old products to the new markets. If the
innovativeness of the crowd is directed to R&D
activities, the outcome might be new products or
new features for the old products. In the case of
consumption innovations, the outcome might also
be a new use for a product, that is, new markets
for the same product (see Figure 2).
Reflections for Transcultural
Incremental and Radical
Innovations and Crowdsourcing
As previously mentioned, the extant literature
combining transcultural innovations and crowd-
sourcing is largely missing. However, this part of
the chapter concludes the literature review above
considering some of its underlying features for
transcultural innovations in crowdsourcing. Due
to open source platforms, web-based crowdsourc-
ing is available for all countries and nationalities.
Nevertheless, the chosen language(s) restrict
the transcultural applicability of the web-based
platform. English is a universal language which
is suitable for many international consumers, and
which is mostly used in these kinds of platforms.
However, this still restricts the potential population
base for crowdsourcing. These platforms are avail-
able for the most educated persons, which might
be, however, even appropriated. One possibility is
to provide several languages for these platforms,
but this will divide the platform into different
parts, and therefore restrict the cumulativeness
of innovations.
289

Crowdsourcing for Transcultural Marketing and Innovation
It might be reasonable to provide web-based
crowdsourcing platforms for the different lan-
guages. Then, the focal point of crowdsourcing
might not be in the R&D activities, but rather
in marketing for different segments. We must
remember that marketing solutions provided by
customer via this platform might be innovative and
promote the demand for products. Does web-based
crowdsourcing enables both incremental and radi-
cal innovations? This depends on the structure and
the target of the provided platforms. The starting
point for these platforms is in the open innovation
strategy of the firms.
There is a reason for directing radical innova-
tions which are based on crowdsourcing, towards
the status of closed innovation as soon as possible.
One alternative is initially to construct a partly
restricted platform. For example, it might be in
the form of an “elite circle” in a select group of
participants chosen by company which also defines
the problem and chooses the solutions (Pisano &
Verganti, 2008:82). Lampel (2012) emphasizes it
is possible that breakthrough innovations are less
likely to emerge from open innovation; instead,
they are more likely to derive from “deep search”
such as joint ventures and alliances (ibid, 83; see,
Dunlap-Hinkler, et al., 2010).
METHOD AND CASES
The research design of this chapter consists of
three parts. First, the literature review and its
applications to the chosen theme: transcultural
incremental and radical innovations in the context
of crowdsourcing. Second, case study examples
which concentrate on transcultural incremental
and radical innovations within the context of
crowdsourcing. Third, this chapter combines these
two to develop new outcomes to this theme of
transcultural incremental and radical innovations
within in the context of crowdsourcing.
The research design is gently based on the case
study strategy which enables several alternative
290

methods (Yin 2002; Eriksson & Kovalainen,
2008; Hirsjärvi, et al. 2000). For several reasons,
the research method in this chapter resembles the
multiple case study method, although the intro-
duced cases have mainly the role of examples about
crowdsourcing. Case study research is especially
suitable when researching objects in which the
phenomenon and context are not isolated from each
other (Woodside, 2010). Welch (2011) introduces
four methods of theorizing from case studies:
inductive theory building, natural experiment,
interpretive sensemaking, and contextualized
explanation. According to them, both interpretive
sensemaking and contextualized explanation are
based on strong emphasis of contextualization. In
addition, in interpretative sensemaking emphasis
on causal explanation is weak and in contextualized
explanation it is strong. This chapter is similar to
the study based on interpretative sensemaking
due to the role of cases as examples.
When focusing on crowdsourcing as a basis for
transcultural incremental and radical innovation,
the technical context in this case study research is in
the international, mainly web-based, international
platforms that enable transcultural crowdsourcing.
The case or research object/phenomenon is R&D
crowdsourcing in this defined context. To be pre-
cise, the case consists of transcultural incremental
and radical innovations within crowdsourcing.
There are several examples to transcultural R&D
crowdsourcing, and therefore this is mainly a mul-
tiple case study research. Crowdsourcing is also a
context for these innovations. Some crowdsourcing
activities are also possible without social mediums
and web-based platforms (Figure 2).
RESULTS
Case Study Evidence
The case examples of transcultural innovative
platforms and crowdsourcing consider (in Table
1) mainly the typologies and perspectives in-

Crowdsourcing for Transcultural Marketing and Innovation
troduced above. The cases are mainly the most
famous business solutions of crowdsourcing,
excluding the case of Transcultural Rovaniemi
(PORO-project) which is organized by the local
public sector unit. Due to its multidimensional
characteristics and novelty value, this case is
introduced in more detail.
Transcultural Rovaniemi (PORO –project) is
based on multifaceted crowdsourcing. Initially,
instead of web-based crowdsourcing, the project
started in one physical location in one of the meet-
ing halls of the City of Rovaniemi. The meeting
hall was made for the innovative place with interior
decorating (chairs and tables away and spacious
room with a couple of small bar tables, fruits and
flap boards on the walls). In this place, the steps
of project were publicly planned. As a result, the
team found five to six of the most essential themes
to assimilate immigrants in the City of Rovaniemi.
This initial step was not following actual crowd-
sourcing phenomena because of limited number
of participants in the innovation process. However,
the next step was following the traditional form of
crowdsourcing: (business) practice which literally
means outsourcing an activity to the crowd.
For two weeks, the City of Rovaniemi estab-
lished PORObar, citizens’ square into the entrance
hall of the City. The hall was full of statistics
and themes decided earlier in the groups. On the
tables there were brochures about themes for the
assimilation of immigrants, information about
transcultural training programs, the beautiful item
from various countries and fruits. (Kemppainen-
Koivisto, 2013). The crowd was called together
and asked what they want, what they should do,
and what they can do for transcultural immigrants
in Rovaniemi. simultaneously, the project opened
web-based pages into the nationally popular Finn-
ish platform otakantaa.fi, pages to the Facebook
and newspapers which contained changing daily
themes such as how to meet Russian customers,
and the role of the school as an assimilator (e.g.,
distance education for immigrants with photos
and interviews provided by project coordinators)
(Kemppainen-Koivisto, 2013).
The PORO-project is based on multi-channel
marketing and crowdsourcing. The case is excep-
tional because the provider of platforms is the
public organization seeking new innovations to the
benefit of transcultural immigrants. In this case,
the platforms were mainly in Finnish language,
partly in English. Furthermore, there was one
transcultural student group in the University of
Lapland, which also provided innovations about
the themes of PORO project. The PORO project
is a public-organized project focused on trans-
cultural incremental open innovations. However,
crowdsourcing also enables radical transcultural
innovations such as the crowdsourcing cases of
Amazon, Citroen or Picnic Green Challenge are.
Wikipedia is based on incremental (informative)
innovations or knowledge-sharing without any
significant commercial targets. The basic idea of
YouTube resembles that of Wikipedia, excluding
the fact that YouTube is a commercial company
(Table 2). Although web-based crowdsourcing is
a popular tool for design and innovations, there is
still newness associated with these platforms as
Citroen and its announcements prove. In all cases,
the role of web-pages is essential.
Actually, the cases show that crowdsourcing
provides possibilities for transcultural participa-
tion: especially Wikipedia with different languages
and YouTube with loaded transcultural videos
enable transcultural participation without any
significant national borders based on languages.
However, these cases are focused primarily
on incremental innovation. Radical innovation
might require a more unified platform (e.g., one
language as in the Citroen case). This outcome
raises the important question if radical innovation
is possible during open innovation platforms and
open innovation competitions as Dunlap-Hinkler
(2010) doubts.
However, there are clear gradations of radi-
cality of innovations between case examples,
especially Picnic Green Challange and MTurk
291
 
Crowdsourcing for Transcultural Marketing and Innovation

Table 2. The cases of innovative crowdsourcing. Sources: the web-pages of the crowdsourcing platforms.

Case Platform Incremental National or Open or Closed Short Description about the
or Radical Transcultural Innovation Case, e.g. the Principal.
Innovation Crowdsourcing
Inter-cultural Physical place and Incremental Mainly national Open innovation The city of the Rovaniemi
Rovaniemi social mediums innovations (Finland/Rovaniemi), established 2013 a project
(PORO- (Facebook, partly transcultural in order to promote the
project) web-pages and possibilities and assimilation
otakantaa.fi) of the immigrants.
Amazon Web-based Radical innovation International and Mainly closed Amazon: the target as to
Mechanical platform transcultural innovation construct a system of artificial
Turk (MTurk) intelligence basing on small
pieces of commissions for
each customers or participants.
Wikipedia Web-based Incremental International and Open innovation Dictionary in which the
platform innovation or transcultural (Several content is basing on the
knowledge sharing languages) knowledge of active
customers.
Citroen Web-based Incremental and International/National Open innovation Citroen launched a Facebook
platform, radical innovations (UK) application that invites to
Facebook choose design features for a
special edition model, that
it claims will be the first
crowdsourced car in the UK.
Youtube Web-based Incremental International Open innovation The main content of the
platform, Youtube innovations/ product is provided by
knowledge sharing customers.
Picnic Green Web-based Radical innovation International/National Open and closed Sustainable development
Challange platforms (Dutch), in English innovation business plan competition
with a prize.

of Amazon which potentially provide radical in-
novations. The first one because of very specific
theme of innovations and the last one because of
partly closed innovation platform of crowdsourc-
ing. Furthermore, these cases show the importance
of generally used languages (English) instead of
home language (especially PORO –project and
Picnic Green Challenge project).
Main Contributions
This chapter shows that crowdsourcing actually is
a source for transcultural incremental innovations
and possibly also for radical innovations. How-
ever, the emphasis appears to be on incremental
innovations. Typically, crowdsourcing is based
on knowledge-sharing, which is a relatively slight
versions for even incremental innovations which
often have transcultural elements. Wikipedia
and YouTube provide platforms which are not
restricted one or two languages. International
platforms for crowdsourcing are primarily based
on the universal language of English which forms
only limited borders for crowdsourcing; however,
for some nationalities these borders exist regard-
less of the language involved.
In spite of its relatively focused theme and loca-
tion, the PORO case concentrated ontranscultural
issues. Additionally, in this case the local language
(Finnish) was initially very important. Gradually,
the platforms of the project used English and
possibly also some other languages. This kind
of implementation emphasises national starting-
points and crowdsourcing widening later on also
towards transcultural crowdsourcing. Public
organized platforms for crowdsourcing are often

292

Crowdsourcing for Transcultural Marketing and Innovation
linked with democracy and political issues, such
as in this case with immigration. Therefore, it is
understandable to start the crowdsourcing process
among typical national inhabitants.
Table 3 organizes the studied cases into the
four-fold table in which there exist two dimensions:
open-closed innovations and incremental-radical
innovations. The literature review showed the
importance of these combinations for example
in management studies (Dunlap-Hinkler, et al.,
2010; Lampel et al., 2012) There seem to be
divisions between platforms and implementation
which are based on incremental innovations/open
innovations and closed innovation/radical inno-
vation. Although there is openness in the design
competition of Citroen, the benefits of the R&D
innovations are focused on and captured only for
the use of Citroen. In the case of Amazon, the role
of closed innovation was even stronger. Picnic
Green Challenge is a public mainly charitable
case for R&D crowdsourcing focusing on the
best sustainable business ideas. The competitors
obtain information from the Internet, but there
are private enrolments for participants and the
details of the business ideas are not public. The
Picnic Green Challenge has a Dutch background,
but the competition is international and the pages
are in English.
This chapter also contributes to the theme of
transcultural innovations. The public platforms
such as Facebook, YouTube, Twitter, and the Inter-
net in general do not discriminate against different
nationalities due to enabling transcultural innova-
Table 3. The case examples of crowdsourcing and
fourfold typology for innovatons
Incremental Radical Innovation
Innovation
Open Wikipedia Citroen
Innovation Youtube
PORO-project
Closed Amazon
Innovation (Citroen)
Picnic Green Challenge
tions. However, the language is one restrictive item
on these platforms. These web-based platforms for
crowdsourcing are primarily in English which is
also used in the solutions of crowdsourcing that
possess some national background – such as the
cases of Transcultural Rovaniemi and the Picnic
Green Challenge.
CONCLUSION
Main Conclusions
One important perspective for crowdsourcing is
based on the marketing ecosystem. The Internet
and its web-based solutions are only one, but an
extremely important, part of the marketing ecosys-
tem. Different R&D competitions and platforms
are part of the ecosystem of the company and its
marketing. If there are different (brand) messages
for each country and nationality in the company, it
is not necessary to have international transcultural
platforms in the form of crowdsourcing. Addi-
tionally, there is no need to have a totally similar
marketing ecosystem between different countries.
Language is one separating feature in crowdsourc-
ing. Nevertheless, the best known brands and their
“stories” are international; therefore, crowdsourc-
ing activities are also international based on the
same message of the brand, and the language used
is primarily English. The multi-channel marketing
must be similar in different channels.
Of course, many MNEs such as McDonald
or Coca Cola already possess a uniform brand
message and brand for transcultural customers
following the idea of Ohmae (1999) regarding the
borderless world. Surprisingly, there are efforts
to segment markets in crowdsourcing and gener-
ally in web-based solutions, or at least there is
often a visible home base, especially in platforms
organised by public sector.
This chapter contributes theoretically at least in
two-ways. First, it introduces a fourfold typology
for innovations in which one dimension is based on
293

Crowdsourcing for Transcultural Marketing and Innovation
open innovation vs. closed innovation, and another
is based on incremental innovation vs. radical
innovation. The different parts of this typology
have been considered in the previous discussions
of management discipline (Dunlap-Hinkler, et al.,
2010; Lampel et al., 2012).The robustness of this
typology is tested by crowdsourcing case study
examples and its applicability for these examples.
Earlier in the literature, connections between these
two dimensions of innovation have also been
interpreted (Philipp Herzog, 2011) without the
form of fourfold table.
Second, this chapter contributes by linking, in
addition to the two dimensions above, the Blue
Ocean and Red Ocean strategies, crowdsourcing,
and adaptive creativity and innovative creativity to
the same framework (Figure 2). Actually, the Blue
ocean strategy, Radical innovation, Innovative
creativity, and R&D crowdsourcing all possess
similar features. If crowdsourcing fulfils all of
these these characteristics, it is providing ideas
in which the business opportunities are at a very
high level. Due to the crowdsourcing feature, this
promising business is based on active customers
and their ideas. However, R&D crowdsourcing
does not necessarily provide radical innova-
tions. Often the innovations are incremental and
knowledge-based or information-based, such as
Wikipedia or YouTube.
International crowdsourcing platforms are
often based on one common language, English,
which is so widely used that it enables transcultural
innovations through the crowdsourcing platforms.
Web-based crowdsourcing is technically available,
and therefore transcultural as persons from dif-
ferent nationalities and countries can access the
platforms all over the world. The most important
threshold is the language and the substance of the
web-pages: whether the theme is transculturally
tempting for international customers to participate
in it. For example, the Picnic Green Challenge,
which is directed to business plans against Green-
house effect, is actually a Dutch platform also
enabling transcultural participants.
294

Although transcultural crowdsourcing mostly
requires a web-page platform, there is one example
(PORO-project) in which crowdsourcing was
implemented using a physical place: the Hall of
the City of Rovaniemi which was transcultural
in that it addressed the question of how to im-
prove the assimilation of immigrants in the City
of Rovaniemi. Because the crowdsourcing was
implemented by a public organization, the work
language was initially in the local language of
Finnish. Gradually, project coordinators estab-
lished English platforms to the different social
mediums. This might be typical for democratic and
political crowdsourcing: the local major language
is important also in local transcultural projects.
Themes for Further Research
There are several themes for further study in this
chapter. Two of the cases were organized by pub-
lic (or semi-public) organizations and four cases
by companies. Due to the focus particularly on
typologies and perspectives, the number of cases
was relatively small. On the Internet, there is an
abundance of examples for R&D crowdsourcing
platforms which enable an analysis of the mean-
ings, contents, and characteristics of crowdsourc-
ing. Therefore, it might be easy to concentrate on
either commercial or public cases of crowdsourc-
ing and their features and embodiments, or on the
main differences between these two categories.
One perspective could be to emphasize only incre-
mental or radical innovations in crowdsourcing.
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Chapter 18
Environmental Turbulence
and Complexity and the
Optimal Degree of Internal
Open Innovation for MNCs
J. Piet Hausberg
LUISS Guido Carli, Italy & University of Hamburg, Germany

Alfredo Valentino
LUISS Guido Carli, Italy

Luca Sabini
LUISS Guido Carli, Italy

ABSTRACT
In today’s knowledge economy, it is vital for Multi-National Corporations (MNCs) to leverage all their
globally dispersed knowledge resources. Extant literature argues that MNCs can be viewed as knowledge
sharing networks and that knowledge exchange within the group enhances performance. This explora-
tion of new knowledge through search among peer subsidiaries of the parent MNC can be regarded
as Internal Open Innovation (IOI). However, literature on Open Innovation is largely focused on the
external boundary of the firm, so that little can be said on whether openness towards corporate group
internal knowledge sources is either or both, beneficial and/or detrimental, and how this depends on the
difference of national industries and on the correct communication of these before the final transfer of
knowledge. The principal research question thus is: To what degree should MNC subsidiaries be open
to their intra-MNC peers given a common, evolving technological environment but different local market
contexts? In this paper, the authors contribute with new propositions regarding this issue developed
based on results from an agent-based model that is analyzed through computer simulation. The authors
explore the degree of openness of MNC subsidiaries together with their communication competence
in different organizational structures and environments, based on previous developments in theory of
knowledge transfer and complexity as well as international business.

DOI: 10.4018/978-1-4666-8468-3.ch018

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Environmental Turbulence and Complexity and the Optimal Degree
1. INTRODUCTION
The concept of knowledge transfer within the MNC
and its impediments have received increasing at-
tention in the international business literature since
the seminal work of Dunning (1981). In fact, the
MNC can be considered as a “knowledge based
entity,” where different units seek to transmit,
transfer, integrate and leverage knowledge across
national boundaries (Foss & Pedersen, 2004) and
its raison-d’être has been claimed to lie exactly in
its superior capacity to transfer knowledge across
national boundaries (Kogut & Zander, 1993). It
has been suggested that knowledge transfers within
the MNC take place within the context of an inter-
organizational “network” of differentiated units
(subsidiaries) (Bartlett & Ghoshal, 1990; Gupta
& Govindarajan, 2000; Hendlund, 1986). MNC
subsidiaries have been recognized not only as mere
exploiters of knowledge that is centrally held by
the MNC, but also as generators of knowledge in
their own right (Za & Spagnoletti, 2013) and a
way to tap locally the internationally distributed
knowledge (Kuemmerle, 1997). Increasingly, also
the lateral knowledge exchange, i.e. that directly
among the subsidiaries, is focus of studies of
intra-MNC knowledge transfer (e.g. Gupta &
Govindarajan, 2000). This follows in analogy to
the development of the concept of Open Innova-
tion on the overall firm level (Chesbrough, 2003).
Chesbrough – and large part of the literature fol-
lowing him – argues that knowledge has become
too complex and the environment to turbulent as
to continue to manage the innovation process in
a closed, stand-alone manner.
We assume that also subsidiaries that aim at
knowledge and innovation generation have to
open their search process to the expertise of the
very peer subsidiaries with which they compete
on resources, charter amplification, and head-
quarters’ attention. MNCs that incentivize or
else foster the opening of the innovation process
of their subsidiaries in this direction, i.e. towards
their intra-MNC peers, can be thus said to apply
298

“internal open innovation” (IOI). But necessar-
ily the questions arise whether this IOI is always
beneficial for the MNC and which factors could
constitute important contingencies.
As far as regards innovation as an adaptive
process, environmental uncertainty has been
found to be a major contingency co-determining
the efficacy of various approaches to innovation
(Eisenhardt & Tabrizi, 1995). Environmental un-
certainty is usually regarded as determined mainly
by the two factors “environmental complexity” and
“environmental dynamism” (Duncan, 1972). The
impact of environmental uncertainty on innova-
tion is in large part the result of the potential for
erosion or depreciation of the value of existing
knowledge in that becomes outdated. In so far,
environmental uncertainty, or concretely its dyna-
mism and complexity, can be deemed to be major
contingencies of the effectiveness of IOI as well.
On the one extreme, there are low complex-
ity, low dynamic industries and on the other one,
there are highly dynamic high-tech industries. In
between there are industries that are very dynamic
but not very complex, as for example a large part
of the so-called “fast moving consumer goods,”
which exhibit a large amount of fast fading trends
without being actually high-tech products in most
cases. Other industries present a considerable
degree of complexity, but exhibit–at least peri-
odically–little dynamism, as for example some
electronics industries. However, while environ-
mental uncertainty has been studied broadly with
regard to its impact on both innovation and firm
performance, it remains unclear how its two major
constituencies–complexity and dynamism–do
individually affect the appropriateness of intra-
MNC IOI in terms of innovativeness, particularly
considering that subsidiaries of an MNC might be
exposed to different market contexts even if the
technological environment with which they deal
is the same. This casts doubt on a simple linear,
positive relationship between knowledge integra-
tion and innovation performance.

Environmental Turbulence and Complexity and the Optimal Degree
This research gap is gaining relevance due to
the fact that today’s knowledge economies increas-
ingly augment in both complexity and dynamism in
a large variety of industries. This leads inevitably
to the question of what is the optimal degree to
which MNC subsidiaries should openly exchange
knowledge with their intra-MNC peers given a
common, evolving technological environment
but different local market contexts.
We approach this research question by means
of an agent-based computer simulation model.
This model permits us to get a clear picture of the
relations between IOI and the two environmental
contingencies, complexity and dynamisms. We test
furthermore whether our findings are altered by the
degree to which the local country market actually
is important to the MNCs, i.e. whether the MNC
is innovating in an international industry–char-
acterized by very different demands in different
countries–or in a global industry–characterized
by rather homogeneous demand worldwide. Fi-
nally, we check whether findings are robust for
different degrees of interdependence between
knowledge areas.
We find that environmental complexity
substantially alters the effect of environmental
dynamism on the generally positive effect of IOI.
The simulations suggest furthermore that there
are fundamental differences between international
and global industries and that the impact of IOI
on innovation performance is indeed not always
linearly positive, but can also be n-shaped in
several combinations of levels of environmental
complexity and dynamism.
In the following section we discuss the theo-
retical background of the concepts on which we
build our model that we describe in detail in the
subsequent section. Following the model descrip-
tion we present the results that than are discussed in
order to develop our propositions based thereupon.
In the concluding section, our contributions are
summarized and implications for future research
and management practice are discussed.
2. THEORETICAL BACKGROUND
2.1. Innovation in the MNC
Innovation has been defined at all possible levels
of analysis from the individual to transnational
organizations (Scott & Bruce, 1994; Wolfe,
1994). What is common to the vast majority of
the relevant literature though is that innovation
is understood not as a mere invention, but rather
as the commercially successful application of an
invention, be it in form of products, production
processes, services, or organizational procedures,
structures, governance mechanisms or else.
Firms are increasingly driven to internation-
alize both from the supply side as well as the
demand side, in that pressure to internationalize
their innovative activities comes from the fact
that knowledge has to be sought globally in an
increasing number of industries and pressure
to internationalize sales activities comes from
increasing competition maturing home-markets
and/or increasing growth opportunities in emerg-
ing market countries. However, the technology
underlying inventions–be it products, processes,
or services–might be universally the same, but the
value that is attributed to them is defined by the
market demand which can be rather heterogeneous
across national markets. In fact, the principal
difference between international industries vis-
à-vis global industries is that the former exhibit
considerable demand-side heterogeneity across
country markets, whereas truly global industries
do not (Ghoshal & Nohria, 1993). Firms that
compete worldwide in international industries
respond to this circumstance by investing more
in local subsidiaries in order to be closer to the
market and adapt their overall knowledge base to
the local requirements. Since the underlying tech-
nology might however still be globally the same,
an essential part of knowledge can potentially be
very valuable to peers.
In fact, in line with social capital theory, which
holds that the ties held by members of a network
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Environmental Turbulence and Complexity and the Optimal Degree
permit them to exchange social resources and thus
create value (Bourdieu, 1986), extant literature in
international business claims that the MNC as a
whole can be understood in terms of a network
in which various organizational sub-units (the
subsidiaries) can be more or less inclined to share
knowledge among each other (Bartlett & Ghoshal,
1990). The exchange of knowledge between orga-
nizational units has indeed become a main focus of
the resource based view in form of the Knowledge
Based View of the firm (Spender & Grant, 1996;
Grant, 1996). In fact, the higher ability of firms
vis-à-vis markets to transfer knowledge is seen as
one if not the raison-d’être of the MNC (Kogut
& Zander, 1993).
According to early theories on how knowledge,
or more generally firms’ intangible assets, can
influence the internationalization process, knowl-
edge is spawned at the home base and subsequently
diffused among the firm’s international business
units as new products or processes (Almeida &
Phene, 2004). On basis of a large number of case
studies it was found that the organization of inter-
national innovation can exhibit further schemes.
Bartlett and Ghoshal (1990), proposed four orga-
nizational approaches to international innovation:
(1) the classical ‘centre-for-global’, (2) its extreme
counterpart ‘local-for-local’, where internation-
ally dispersed R&D sites work on new products
and processes for their respective location, (3)
‘locally-leveraged’, where local R&D-resources
are used to develop innovations for the global
market, thus rather ‘local-for-global’, and (4)
‘globally-linked’, where resources and capabilities
of internationally dispersed R&D sites are pooled
to jointly innovate. Each organizational form has
its specific advantages and disadvantages.
Therefore, it has been noted that both, the
degree of innovation and internationalization,
can differ sensibly between different corporate
functions. It has been found, for example, that
commonly the R&D function is less international-
ized than production and sales (e.g. Zedtwitz &
Gassmann, 2002). Moreover, also in divisionally
300

structured MNCs the charters of the various sub-
sidiaries might have clear foci on either compe-
tence exploration or competence exploitation. This
has also been termed ‘home-base augmenting’ or
‘home-base exploiting’ (Kuemmerle, 1997) and
is closely related to the resulting predominant in-
novation behavior of subsidiaries, which has been
classified for example into local market, internal
market, and global market initiatives (Birkinshaw
& Hood, 1998).
To be able to manage a portfolio of subsidiaries
with different objectives means to have the op-
portunity to balance exploration and exploitation
(March, 1991) at the international corporate group
level. To achieve ambidexterity, i.e. equal ability
to explore and exploit knowledge, by means of
leveraging the hence globally dispersed knowl-
edge of subsidiaries requires intra-organizational
knowledge integration across national boundaries
(e.g. Gupta & Govindarajan, 2000).
In comparison to the literature on open innova-
tion, which is characterized by very high degrees of
collaboration and/or integration with firm-external
environment in the innovation process, in this work
we focus on the “internal” open innovation, in the
sense that the openness of the subsidiaries refers to
the degree to which subsidiaries seek knowledge
from their peer subsidiaries within the MNC to
which they belong in order to enhance their in-
novation performance. Therefore, we develop our
model as considering the MNC as a network of
knowledge based entities, where these different
units seek the most appropriate knowledge across
national boundaries (Foss & Pedersen, 2004).
MNCs are complex multi-dimensional entities,
in which knowledge flows occur not only along
multiple directions but also across multiple dimen-
sions (Gupta & Govindarajan, 2000).
2.2. Internal Open Innovation
Openness is generally understood as the willing-
ness to share knowledge (Albino, Garavelli, &
Schiuma, 1998; Chesbrough, 2004; Hamel, 1991).

Environmental Turbulence and Complexity and the Optimal Degree
Wathne, Roos, and Von Krogh (1996) argue that
“openness can be understood in terms of overall
perceived openness of dialogue, the degree to
which the partner representatives work closely
together on a common task, and the degree to
which the partner representatives perceive that the
others withhold their knowledge” (Wathne et al.,
1996). Research in Open Innovation is increas-
ingly considering different levels of openness.
Gassmann & Enkel (2004), underline the need
to transform “a company’s solid boundaries into
a more semi-permeable membrane to enable in-
novation to move more easily between the external
environment and the company’s internal innova-
tion process,” thus underlining the bi-directionality
of the concept. Furthermore, Chesbrough (2002,
2003), describes the need for a shift of organi-
zational innovation strategy into a more flexible
open innovation approach at different levels, thus
eventually pointing also to the consideration of
openness of subsidiaries.
In line with Jerez-Gómez, Céspedes-Lorente,
and Valle-Cabrera (2005), who consider indi-
vidual level openness, it can be argued that also
MNCs have to commit to a culture of knowledge
exchange–or even explicitly incentivizing it–in
order to build a climate of openness and avoid the
rejection of outside knowledge without consider-
ation of its actual value, i.e. avoid forms of the
not-invented-here syndrome (Katz & Allen, 1982).
This can be achieved by countering the forma-
tion of “egocentric attitude,” that is a potentially
detrimental inclination of considering the value
of the centrally developed knowledge, strategies
or culture as better than that of the rest of the
group (McGill, Slocum, & Lei, 1992). A similar
negative consequences of sticking too firmly to
the once developed own knowledge is the pos-
sibility that this previously valuable knowledge
changes its character from a core-competence to
a core-rigidity due to environmental dynamism
(Leonard-Barton, 1992).
We focus on the subsidiary level in the context
of internal MNC-networks, arguing that differ-
ences across industries regarding the heterogeneity
of their various national markets, i.e. the degree to
which a certain industry is rather global or rather
international, determines how the internal open-
ness of subsidiaries in an MNC-network structure
impacts innovation performance.
In particular, we define Internal Open Innova-
tion (IOI) as the behavior of subsidiaries to ac-
tively search for innovation partners amongst their
peer subsidiaries in other divisions and countries
throughout the entire MNCs and providing the
entire knowledge stock to their intra-MNC peers
if asked for1. Since subsidiaries in MNCs compete
with each other on resources, power, autonomy
and/or headquarters’ attention (Mudambi & Na-
varra, 2004), reasons similar to those theorized for
firms in general might thus drive them to apply
innovation strategies that are rather closed with
respect to the MNC or even prefer knowledge from
their local environment over that from their MNC-
internal peer subsidiaries as a particular variation
of the classic not-invented-here syndrome (Katz
& Allen, 1982).
2.3. Environmental Dynamism
and Complexity
Superior knowledge can constitute a resource
advantage, which has been recognized long since
in strategic management as a way to successfully
cope with hypercompetition although this kind of
advantage is also claimed to be not sustainable
(D’Aveni, 1994). Therefore, this fundamental as-
sumption of the RBV (Barney, 1991) might not
apply to very dynamic and complex environments,
while at the same time – seemingly paradoxically
– it might account as the reason for the develop-
ment of the KBV (Grant, 1996) since it is in this
environments that cutting-edge knowledge can
appropriate enormous value in the short period
before it depreciates.
To some degree, complexity and dynamism
are interwoven (Aldrich, 1979). Given that in
complex environments the different dimensions
301

Environmental Turbulence and Complexity and the Optimal Degree
depend in their effects on the states of a relatively
high number of other dimensions–as might be
expressed for example by interoperability also of
e-governance systems (Charalabidis, Lampathaki,
& Askounis, 2010)–a particular degree of change
in dimensions in complex environments will evoke
higher performance landscape changes than the
same degree of change causes ceteris paribus
in less complex environments. This might also
explain why they are often investigated together
in form of environmental uncertainty. Eisenhardt
and Tabrizi (1995) for example find a moderat-
ing effect of environmental uncertainty on the
effectiveness of two opposed product innovation
strategies. However, it is not further investigated
how the two principal components of uncertainty,
i.e. dynamism and complexity, interact to produce
such an effect nor whether this effect holds true
also for knowledge transfer across countries.
Moreover, it has been contested recently that
more knowledge transfer is always better, argu-
ing that it varies across firms and their respective
environmental contexts (Reus, Ranft, Lamont,
& Adams, 2009). Indeed, this intuition has been
long since theorized in form of the “interpretive
systems view” or sense-making (Daft & Weick,
1984). Consequently, Reus and colleagues theo-
rize, that firms might well over- and under-invest
into knowledge acquisition and transfer.
2.4. Knowledge Integration in MNCs
In international business literature, scholars have
given substantial attention to the knowledge
transfer process among different units (Bartlett
& Ghoshal, 1990; Gupta & Govindarajan, 2000;
Kogut & Zander, 1992; Mudambi & Navarra,
2004). Knowledge transfer can be understood as
the “process through which one unit exerts influ-
ence on other units” (Argote & Ingram, 2000).
Szulanski (1996, 2000) argues that transfer of
knowledge is best understood by identifying and
defining its various sub-processes or stages. This
302

process is divided in his framework into four
parts: initiation, implementation, ramp-up, and
integration. While acknowledging the merits of
this framework, we apply a somewhat more basic
one herein. In particular, we distinguish two steps,
the source evaluation stage and the knowledge
transfer stage. Both together taking place at the
level of subsidiary lead to knowledge integration
at the level of the MNC. In both stages knowledge
is transferred, but different one.
In the evaluation phase, organizational units
have to search among their contacts within (and
as possible beyond) their ego-network those
partners that are most probably able to contribute
to the searcher’s innovative activities. Therefore,
the knowledge that has to be transferred is such
that permits the searching subsidiary to evaluate
whether the source’s technological knowledge
might be fruitfully applied in the own market con-
text. Hence, market contexts have to be compared
and to this end knowledge has to be transferred
regarding each potential source’s market context.
In the transfer stage, the four stages initiation,
implementation, ramp-up, and integration can be
collocated. This requires a good fit between the
partners’ relevant environments. In fact, Szulan-
ski (1996) finds that the degree of performance
in sharing the knowledge between two entities
depends on how the distance between these two
entities (communicative gap) is bridged.
According to the knowledge based view, several
further very different reasons might inhibit suc-
cessful knowledge exchange, such as geographical
distance–particularly relevant in international
settings–and stickiness–particularly relevant in
knowledge intensive industries. These points
have been raised in RBV literature (J. S. Brown
& Duguid, 1991), in knowledge transfer literature
(Szulanski, 2000) and in MNC literature (Bartlett
& Ghoshal, 1990; Hansen, 1999; Kogut & Zan-
der, 1992, 1993). For example, the way in which
knowledge is transferred most successfully might
vary from case to case according to the repository

Environmental Turbulence and Complexity and the Optimal Degree
in which the knowledge is embedded. Several
classes have been theoretically distinguished in
that knowledge can be embedded. Walsh and
Ungson (1991), for example, distinguish organi-
zational members, physical and functional design,
routines, and culture, whereas Argote and Ingram
(2000) categorize more generally members, tools,
and tasks. However, it could be argued that the
principal difference is the degree of tacitness across
these categories. This might be justified by the
fact that in all instances organizational members
have to mediate the transfer of the knowledge, be
it the skills that are embedded within themselves
or the tools they use and the tasks they execute.
In all instances someone has to be aware of or
evaluate the performance characteristics of the
knowledge however embedded.
Hence, in both stages of knowledge integration
complexity might well influence the success of
knowledge transfer efforts. However, we want to
establish herein the utility of knowledge integra-
tion in relation to the environment independently
from issues of the ability to transfer knowledge or
absorptive capacity, because the question herein is
not how absorptive capacity influences innovation
performance, but whether it should be aimed at
absorption in the first place2. To this end we have
to abstract from these issues assuming perfect
absorptive capacity in both stages of knowledge
integration.
3. METHODOLOGY
In recent years, an increasing amount of stud-
ies could be witnessed that applied agent-based
computer simulations in management research
(e.g. Gavetti & Levinthal, 2000; Levinthal, 1997;
Marengo & Dosi, 2005; Rivkin & Siggelkow,
2003; Sakhartov & Folta, 2012; Siggelkow &
Rivkin, 2005). Herein, we explore the issue using
the classical NK model (Kauffman, 1993), which
builds the backbone of this research stream. This
model is useful to describe in a simple, intuitive
way an environment composed of several interact-
ing dimensions, where each dimension can be in
one of several possible states. The parameter N
indicates the number of dimensions that impact
on performance. The parameter K indicates the
‘degree’ of interaction between these dimen-
sions. Concretely, K determines the number of
other dimensions that impact its performance
contribution. For each of the N dimensions, it is
randomly determined which exactly are these K
other dimensions that influence its performance
contribution. Consequently, for each configuration
of any single dimension and its respective K dimen-
sions that co-determine its impact, a performance
contribution is randomly drawn from the uniform
distribution (0,1). Since all dimensions can take
the two states 0 and 1, for each single dimension
n there are 2K+1 distinct potential performance
contributions.
The great value of Kauffman’s (1993) model
lies in the possibility to easily tune both the
overall size of the landscape and the number of
its local “hills and valleys,” that is its complex-
ity, via changes to its two parameters N and K.
When the parameter K is high, landscapes are
called “rugged” (see Figure 1 for an example),
which refers to their characteristic of exhibiting
many local optima and “valleys of attraction”
that lead to them as opposed to a little complex
single-optimum landscape (see Figure 2 for an
example). The term “valleys of attraction” already
indicates that the performance of local searchers
in this setting depends crucially on their point of
departure. This is because the searching subjects
are assumed to be boundedly rational, or more
generally resource constrained, and therefore can-
not explore all possible combinations and take an
informed decision to move to the global optimum.
In our model, subsidiaries are likewise resource
constraint in that they search the landscape accord-
ing to a simple hill-climbing heuristic. That is, in
each period, subsidiaries choose randomly one
303
 
Environmental Turbulence and Complexity and the Optimal Degree

Figure 1. Example of a rugged NK-fitness landscape (Source: Based on Gavetti & D. A. Levinthal
(2000:119-120))

Figure 2. Example of a single-optimum NK-fitness landscape (Source: Based on Gavetti & D. A. Levin-
thal (2000:119-120))

variable for which they analyze whether a change 4. MODEL

in its state would have a positive effect on perfor-
mance or not. Thus we assume the subsidiaries are
boundedly rational in terms of analyzing capacity
and without memory, but they nonetheless possess
perfect information on the underlying relations of
the environment, i.e. their analysis is limited, but
within these limits flawless.
We base our model principally on the NK-model
elaborated by Gavetti, Levinthal, & Rivkin (2005)
(henceforth GLR). GLR build a very effective
model to analyze analogical reasoning. The
GLR-model permits to analyze in a still relatively
simple way relatedness of different optimization

304

Environmental Turbulence and Complexity and the Optimal Degree
landscapes. We will build on this for the model-
ing of different country markets and hence the
degree to which the industry exposes the MNC to
different local conditions in the varying markets.
This shall be the context in which we propose to
explore the impact of varying degrees of open-
ness of subsidiaries on organizational innovation
performance.
Each single landscape draws from a contribu-
tion matrix that determines the interrelatedness
of the various dimensions of the industry, just as
in the classic NK-model. We focus our analysis
on diversified MNCs, because most MNCs in fact
operate on average in as many as five different sec-
tors in terms of SIC codes (Habib & Victor, 1991).
Therefore, another element of the GLR-model is
adapted accordingly. The degree of diversification
is modeled as the degree to which different areas
of competence or technological fields in which
the MNC is active are coupled. Therefore, land-
scapes depend on P high-level policy decisions
(technological domains) and D detailed decisions
that have to be made within each policy decision,
such that P x D is the total number of decisions
each firm makes. Each decision can take the values
0 or 1 and a firm has thus 2PxD possible overall
decision combinations to choose from. Each high-
level policy is simply equal to the state of the
majority of the corresponding detailed decisions,
i.e. if {1 0 0} than this policy would equal zero
and for the configuration {1 0 1} it would equal
1. The parameters Kw and Kb regulate how much
the decisions within a high-level policy depend
on each other and how much they depend on other
high-level policies, respectively. Hence, while Kw
determines the number of other operative decisions
on which a focal operative decision’s performance
contribution is based and thus can be compared
to the parameter K in the original NK-model as
determining basic complexity, Kb determines how
much this focal decision depends on the state
of policy decision different from the own one.
Therefore, if Kb is high, this can be interpreted
as low, or closely related diversification, while
if Kb is low, this is comparable to a situation of
unrelated diversification.
Moreover, supplementing the traditional NK-
model, the GLR-model generates “families of
landscapes.” The performance contribution of
each decision of the distinct country landscapes
potentially depends on one or more of X observable
industry characteristics, which has been introduced
in the GLR model. Altogether this constitutes for
each country a distinct influence matrix. For each
of the X industry characteristics the parameter
XREL determines the probability that it influences
each decision’s performance contributions of each
possible configuration of its influencing factors
and its own state. Thus, while the factors Kw and
Kb determine the degree of complexity as in the
GLR-model, XREL determines the degree of local
dependence, that is whether the industry is rather
international (high local dependence) or rather
global (everywhere almost same conditions).
For a given set of the parameters P, D, X, Kw,
Kb, and XREL the computer hence initializes a new
influence matrix for each simulation run (see all
parameters in Table 1). Since the industry char-
acteristics can take two states, 0 or 1, there are
2X different local industry landscapes possible. In
the GLR-model the computer then generates one
target landscape and 2X-1 source landscapes to draw
analogy from. In our model, however, out of these
2X, one country landscape is chosen randomly for
each subsidiary. These country landscapes can be
thus more or less similar to each other as concerns
the state of the X industry characteristics. This
forces subsidiaries to get information on the local
contexts of the peer subsidiaries from which they
want to gather innovative knowledge before their
engagement in knowledge transfer to accelerate
innovation. Otherwise they would implement in-
sights valid for a totally different context, but not
in the own one, running the risk to considerably
worsen performance.
A further difference is the introduction of
dynamism as the rate of change in the industry
characteristics, EDYN, which determines the dy-
305
 
Environmental Turbulence and Complexity and the Optimal Degree

Table 1. Parameters of the modified GLR-model

Parameters related P* Number of policy decisions that the MNC faces on its industry’s technological landscape. Policy
to the industry decisions are equal to the value that is most represented among the operative decisions
characteristics
D* Number of operative decisions that the MNC faces on its industry’s technological landscape.
Kw Number of dependencies between operative decisions within each policy area
Kb* Probability that the performance contribution of a focal detailed decision is affected by the
resolution of each
EDYN Probability that the performance contribution for each operative decision for each possible
combination of influence factors changes.
Parameters related X* Number of market characteristics co-determining operative decisions’ performance contribution
to the MNC
XREL Probability that a focal market characteristic influences each operative decision.
characteristics
Parameters related to IOI Probability that a subsidiary absorbs the knowledge of an intra-MNC peer once identified as similar.
MNC’s subsidiaries’
Strictness The percentage of market characteristics that have to be equal in a potential source subsidiary to
search behavior
consider it sufficiently similar.
* Parameter as in the original GLR-model. Other parameters are additional or adapted.
(cf. Gavetti, Levinthal, & Rivkin, 2005:698)

namism of the environment. More precisely, the j(i) is the set of indexes of other decisions that
parameter EDYN indicates the probability for every influence the decision with index i;
single detailed choice’s performance contribution q(i) is the set of indexes of other policies that
to change for each possible configuration of its influence the decision with index i;
own state and all relevant other factors. a(i) is the set of indexes of other decisions that
Each subsidiary3 is initialized as an array of relate to pi;
detailed decisions in its local context. Its individual dkj(i) is the k-th element of the vector q of techno-
payoff resulting from this configuration of deci- logical areas’ policy decisions that influence
sions is determined by its individual landscape πi(.);
being a combination of the MNCs technological pqt (i) is the t-th element of the vector q of techno-
environment and the subsidiaries local market
characteristics. Given the thus elaborated model, logical areas’ policy decisions that influence
the payoff of any subsidiary s can be written as πi(.)
a function of the configuration of the operative x mr(i) is the m-th element of the vector r of market
decisions and environmental characteristics: characteristics that influence πi(.);
T(.) is the number of market characteristics that
πs ({d ,d , …, d }, x , x , …,x
1 2 PxD 1 2 X
,X ,K ,K ) =
 REL w b influence πi(.), which depends on the degree
PxD
of relatedness of diversification, the prob-
1
PxD i =1
( ( 1 Kw 1 Ti (Kb )
∑ πi di , d j (i) …d j (i), pq(i) … pq(i) , x r (i) … x r (i)
1 M i (X REL )
)) ability Kb;
i ∉ j (i ),i ∉ q (i ), i ∪ j (i ) ⊆ a (i ) M(.) is the number of market characteristics that
(1) influence πi(.), which depends on the rel-
evance of the local market environments,
where: probability XREL;

πi(.) is the performance contribution of a particular The overall MNC performance is the aver-
operative decision i; age of the performance levels of its subsidiaries

306

Environmental Turbulence and Complexity and the Optimal Degree

described in formula (1). Like this, performance subsidiary compares its own local environment
will always on all levels result between 0 and 1 to that of its peers and consequently–amongst
and be comparable. The performance of an MNC those that exhibit the same set of environmental
is thus given by the following formula (2): conditions as the searching one itself–chooses the
top-performer, in case there is any that performs
∑π at least as good as the searching subsidiary itself
(2)
s
πMNC = plus a risk margin of 20%. In the transfer phase
S
then, the states of all operative decisions of the
thus found top-performer amongst the peers are
where S is t number of subsidiaries and s is a
copied. The reason why we do not want to leave
given subsidiary.
out of the model a risk margin is that in cases
Our model constitutes a fundamental elabo-
where two subsidiaries perform equally well, no
ration of the GLR-model in that in its original
knowledge transfer should take place because
version, firms can choose only one time, that is
it would represent an unnecessary cost plus the
at the beginning of the exploration of a new land-
risk of integrating knowledge overestimated in its
scape, a certain starting point as an educated guess
value, thus suffering a reduction of performance.
based on analogy drawn from more or less broad
The exact choice of the risk margin is obviously
and deep experience of its managers, rather than
arbitrary. However, small scale sensitivity analysis
simply start anywhere at random. In contrast to
did not indicate any substantial influence of the
that, subsidiaries in our model constantly have the
exact value of this parameter on the results.
chance to jump out of valleys of attraction based on
We do specify the following additional as-
exchange of knowledge with peer subsidiaries of
sumptions that are fundamental for our research
their MNC group the knowledge of whom likewise
question. Firstly, subsidiaries can gather perfect
is not perfect but subject to optimizatioefforts.
information about the source’s environmental
Hence, there are two fundamental differences
state. Secondly, the searching subsidiary does
between our model and the original model. Firstly,
not limit its transfer to one policy area, but gath-
the experience of the subsidiaries co-evolves
ers the knowledge on all decisions. Thirdly, the
throughout the model and the performance that
communication between the source and receiver
any single one holds is not necessarily already
subsidiaries is flawless. All three assumptions
a local let alone the global optimum of the par-
help to focus on the key argument and allow for a
ticular local landscape from which knowledge
parsimonious model, but we might want to relax
is drawn. Secondly, this exchange of knowledge
them in future elaborations of the model.
on what is a valuable, innovative combination of
The parameters of the overall model are thus
decisions is not exchanged once, but might be
described by those that describe the industry, i.e.
exchanged constantly. More precisely, internal
whether it is global or international, high-tech or
open innovation (IOI) is modeled as the prob-
low-tech, dynamic or static, and those that describe
ability that a given subsidiary in a given period
the MNC, i.e. how many subsidiaries in differ-
would seek superior knowledge among its peer
ent country markets it counts and how open this
subsidiaries. However, even if a subsidiary eventu-
are towards knowledge of their corporate group
ally engages in seeking superior knowledge in a
peers’ knowledge. The overall process of knowl-
certain period, this does not mean that knowledge
edge integration within the MNC is illustrated in
transfer takes place. This is due to the division
Figure 7 in the Appendix. The model was coded
of the process into a pre-transfer phase and the
and run in NetLogo.
actual transfer phase. In the former, the searching

307

Environmental Turbulence and Complexity and the Optimal Degree
5. RESULTS
In order to analyze the influence of environmental
turbulence and complexity, we simulate various
scenarios. This allows us to analyze how sensi-
tive the effects of Internal Open Innovation (IOI)
of MNC subsidiaries in terms of overall MNC
performance are to changes in these factors. The
parameter values regarding the industry were set
to 3 policy decisions with 4 decisions each and
the country landscapes were modeled with 4 local
market dimensions, which are the same values as
chosen in the original GLR-model. For this analy-
sis, the parameter Kb was set to 0.2, which aims at
simulating diversified MNCs, i.e. such where the
different policies or technological areas are only
loosely coupled. We focus our analysis on diversi-
fied MNCs since these have been found to operate
on average in five different sectors according to
SIC classification (Chang & Park, 2005; Habib &
Victor, 1991) and in recent years the phenomenon
of diversified MNCs (DMNCs) has increased
dramatically (Doukas & Kan, 2006). Moreover,
the need for access and sharing information and
knowledge is higher in DMNCs, because one of
their main goals is to exploit synergies among dif-
ferent internal units (Benito, Lunnan, & Tomassen,
2010; Doz & Prahalad, 1991; Goold, Pettifer, &
D. Young, 2001).
The parameters for low, medium, and high IOI
were set to 0, 0.2, and 0.5, those for zero, low,
medium, and high dynamism (EDYN) to 0, 1, 5, and
10, while those for low and high complexity (Kw)
were set to 1 and 3, respectively. The number of
subsidiaries was set to 10. In order to distinguish
international industries, the parameter XREL was
set to 0.5. Hence, the probability that any given
decision’s contribution is affected by the state
of any given environmental factor X is 50%. For
global industries this was set to 0.24. In the two
comparison scenarios “Medium IOI” and “High
IOI” the percent change vis-à-vis the baseline
scenario is reported, together with an indication
of the one-tailed significance level. The static
308

simulation runs tend to stabilize between the 40th
and 70th period. Therefore, all scenarios have been
run for slightly the double amount of periods, i.e.
150. An example of the development of running
average overall MNC performance in a complex
and dynamic environment is given in Figure 8 in
the Appendix.
We present the results both in form of two
distinct tables for international (Table 2 and global
(Table 3) industries as well as in form of illustra-
tions (Figures 3 through 6).
As previously highlighted, the crucial differ-
ence between international and global industries
is the degree to which the local markets differ.
The fact that in international industries local
context may differ widely can be deemed one
of the principal reasons behind the significant
impact of distance on the success of knowledge
transfer (Davenport, 2005). This might be caused
by interdependences between local context factors
on the one hand and particular combinations of
operative and strategic decisions on the other. The
importance of the local market is also reflected in
the significant positive effect that has been found
from market orientation on business performance
(e.g. Verhoef & Leeflang, 2009). In other words,
it is both the demand-side environment and the
working environment, or culture, which can be
quite different from country to country. In effect,
knowledge developed locally by a given subsidiary
can be less functional for a subsidiary belonging
to another country and environmental complexity
and turbulence are generally understood as the two
major constituencies of (perceived) environmental
uncertainty (Duncan, 1972).
A first important finding is that the effect that
the environmental dynamism has on the conve-
nience of IOI (see the significance of relative
differences between the various levels of IOI) is
fundamentally different at various levels of com-
plexity. While in high complexity environments,
medium and high dynamism offers opportunities
to improve performance through the implemen-
tation of IOI in the MNC subsidiary network, in

Environmental Turbulence and Complexity and the Optimal Degree

Table 2. Innovation performance across different scenarios in international industries

Observations: 200 Global Industries (XREL = 0.5)

Simulations Per
Scenario
Complexity: Low Complexity (Kw = 1) High Complexity (Kw = 3)
Dynamism: Zero Low Medium High Zero Low Medium High
(EDYN) (0) (.01) (.05) (.1) (0) (.01) (.05) (.1)
Mean Zero IOI
.5927 .5905 .5932 .5916 .6007 .6004 .5994 .5999
Perfor- (0)
(.0118) (.0126) (.0139) (.0122) (.0100) (.0100) (.0105) (.0095)
mance (s.d.)
over 150
Medium
periods .5935 .5928 .5949 .5935 .6008 .6003 .6022 .6016
IOI (.2)
(.0149) (.0135 (.0141 (.0138 (.0116) (.0105) (.0103) (.0110)
(s.d.)
High IOI
.5889 .5888 .5942 .5933 .5994 .5996 .6014 .6004
(.5)
(.0128) (.0139 (.0144 (.0142 (.0122) (.0121) (.0112) (.0106)
(s.d.)
%-change from zero to 0.14% 0.39%* 0.27% 0.32%+ 0.01% -0.01% 0.47%* 0.28%*
Medium IOI (p-values) (.2671) (.0296) (.1253) (.0657) (.4846) (.4661) (.0049) (.0529)
%-change from zero to -.63%** -0.28% 0.16% 0.29%+ -0.22% -0.13% 0.35%* 0.08%
High IOI (p-values) (.0010) (.1016) (.2446) (.0954) (.1345) (.2220) (.0247) (.3142)
%-change from Medium -0.77%** -0.67%** -0.11% -0.03% -0.23% -0.12% -0.12% -0.20%
to High IOI (p-values) (.0006) (.0019) (.3213) (.4448) (.1329) (.2639) (.2356) (.1207)

Table 3. Innovation performance across different scenarios in global industries

Observations: 200 Global Industries (XREL = 0.2)

Simulations Per
Scenario
Complexity: Low Complexity (Kw = 1) High Complexity (Kw = 3)
Dynamism: Zero Low Medium High Zero Low Medium High
(EDYN) (0) (.01) (.05) (.1) (0) (.01) (.05) (.1)
Mean Zero IOI
.6437 .6459 .6428 .6470 .6463 .6463 .6470 .6459
Perfor- (0)
(.0285) (.0280) (.0261) (.0296) (.0213) (.0222) (.0233) (.0206)
mance (s.d.)
over 150
Medium
periods .6489 .6505 .6508 .6465 .6508 .6500 .6525 .6557
IOI (.2)
(.0298) (.0301) (.0284) (.0315) (.0219) (.0224) (.0230) (.0237)
(s.d.)
High IOI
.6481 .6454 .6514 .6509 .6474 .6517 .6521 .6512
(.5)
(.0289) (.0297) (.0323) (.0353) (.0241) (.0238) (.0239) (.0239)
(s.d.)
%-change from zero to 0.80%* 0.71%* 1.25%** -0.08% 0.70%* 0.58%* 0.84%** 1.52%**
Medium IOI (p-values) (.0364) (.0531) (.0019) (.4349) (.0234) (.0493) (.0095) (.0000)
%-change from zero to 0.68%+ -0.07% 1.34%** 0.60% 0.18% 0.85%** 0.78%* 0.82%**
High IOI (p-values) (.0603) (.4410) (.0011) (.1255) (.3041) (.0094) (.0162) (.0071)
%-change from
-0.13% -0.77%* 0.08% 0.68%+ -0.52%+ 0.27% -0.06% -0.68%*
Medium to High IOI
(.3942) (.0426) (.4317) (.0953) (.0689) (.2065) (.4348) (.0246)
(p-values)
Significance levels: +0.10 * 0.05 ** 0.01. Diversification high/unrelated (Kb =.2).

309
 
Environmental Turbulence and Complexity and the Optimal Degree

Figure 3. Interaction of IOI and dynamism in international low-tech industries

Figure 4. Interaction of IOI and dynamism in international high-tech industries

Figure 5. Interaction of IOI and dynamism in global low-tech industries

310

Environmental Turbulence and Complexity and the Optimal Degree
Figure 6. Interaction of IOI and dynamism in global high-tech industries
low complexity environments, it is the opposite.
However, at zero dynamism, excessive IOI can
actually be detrimental to innovation performance.
Results are illustrated for more intuitive compari-
son in Figures 3 and 4.
We find fundamentally different effects in the
case of global industries (see Table 3 and Figure
5 and 6). For high complexity environments, we
find that the impact of medium levels of IOI on
innovation performance increases with environ-
mental dynamism.
For low complexity environments, we find a
quite different effect of environmental dynamism
on the relationship between IOI and innovation
performance. First of all, in low complexity
environments, high levels of IOI are convenient
only in case of medium dynamism; but then its
effect is amongst the highest. Furthermore, in low
complexity environments, medium levels of IOI
appear to impact innovation performance in an
inverse u-shaped manner across increasing levels
of environmental dynamism. The highest effect
can be observed in both cases at medium levels
of environmental dynamism, where however the
difference between medium and high level IOI is
not significant.
6. DISCUSSION
One counter-intuitive result is that IOI might in-
deed even have a negative impact on innovation
performance. This could be explained by a too early
homogenization of the subsidiary network. That
knowledge heterogeneity has a highly significant,
positive influence on innovativeness has been
shown also empirically at the example of managers
and their ego-networks’ content (Rodan & Galunic,
2004). Subsidiaries decide at the first slow down
of their own innovation process to gather superior
knowledge from a similar peer in order to switch
to a currently higher performing innovation path
that, however, offers less long-term potential. In
the language of NK-landscapes, this means that
since the landscape is relatively smooth, valleys
of attraction are larger and thus chances are higher
that subsidiaries too early switch through IOI to
a valley of attraction that leads to a lower local
optimum. This happens in those cases where
the source subsidiary already reached a higher
performing point on its innovation path while the
maximal reachable performance of this current
path is actually lower.
311

Environmental Turbulence and Complexity and the Optimal Degree
Proposition 1(a): In international industries
exposed to low complexity environments
that are completely static, a high level of
IOI has, ceteris paribus, a negative impact
on innovation performance.
Absolutely static and predictable environ-
ments are a mere theoretic extreme. Therefore
it is important to note that this negative effect
of high levels of IOI is not significant anymore
even in only little dynamic environments. Also
the effect of medium levels of IOI, in this case,
becomes significantly positive. It appears that
in international, low complexity environments
dynamism plays only a very limited role as long
as it is not extremely low for medium levels of
IOI. Hence, subsidiary managers can foster their
innovation performance if they moderately source
knowledge from similar peer subsidiaries. In this
way they can acquire the benefits from jumping
to a currently higher performing development
path while still relying on own development from
thereon. This means to balance more exploitative
own innovation activities with exploration of more
distant knowledge from peer subsidiaries, which
is in line with previous suggestions in simulation
studies that argue for the necessity of a suchlike
balance (e.g. March, 1991). A high frequency of
knowledge sourcing by subsidiaries leaves little
time to further innovative based on the sourced
knowledge. This might explain why this option
depends on environmental dynamism. If dyna-
mism is low, exploration is more successful by
jumping on a currently well performing innova-
tion because there is little time to improve from
there on anyways.
Proposition 1(b): In international industries
exposed to low complexity environments, a
medium level of IOI has a positive impact on
innovation performance independent from
whether environment is little, medium of
highly dynamic.
312

Proposition 1(c): In international industries
exposed to low complexity environments,
environmental dynamism positively impacts
the effect of IOI so that the effect from IOI
on innovation performance changes the sign
from negative at low levels of dynamism to
positive at high levels.
In complex environments, IOI even at medium
levels depends on dynamism. That is, in complex
but static or low dynamic environments, IOI ap-
pears to have no impact at all whereas it has a
significant positive one at medium and high levels
of dynamism. This might be interpreted as an
indication for how high-tech companies can gain
competitive advantage by fostering IOI amongst
their subsidiaries. Since fitness landscapes in
complex high-tech industries are more rugged,
subsidiaries that apply common incremental
exploitative search will tend to finish early on at
a local optimum. This might appear to be a valu-
able competence at this point because the overall
structure of the fitness landscape is unknown, but
actually might be a rigidity detrimental to long-
term performance (Leonard-Barton, 1992). In
order to continue innovative activity, new input on
other, more explorative innovative combinations
of knowledge are needed. However, if there is no
dynamism, on average there is little to gain, since
in static environments also the other subsidiaries
run the same risk to be stuck in inconvenient in-
novation paths. At higher degrees of dynamism
though, chances are higher, that the current innova-
tion path of one subsidiary or another is revalued
and offers suddenly a higher value potential. In
this way, IOI permits subsidiaries to supplement
own exploitative search activity with exploration
of very different, innovative combinations.
Proposition 2: In international industries that
present high complexity environments to
the MNCs
Proposition 2(a): At medium and high levels of
dynamism, a medium level of IOI throughout

Environmental Turbulence and Complexity and the Optimal Degree
the MNC subsidiary network has, ceteris
paribus, the most positive impact on innova-
tion performance, while
Proposition 2(b): IOI has, ceteris paribus, no
significant impact at zero and low levels of
dynamism.
For global industries, the dynamics are intensi-
fied, since more subsidiaries exist that offer indeed
very similar environments. The great impact of
medium level of IOI for a high level of environ-
mental complexity can be interpreted as suggesting
that in global industries the subsidiaries have better
chances to jump actually to a valley of attraction
with a higher local optimum. This corroborates
early findings in the literature investigating the
phenomenon of R&D globalization, which show
inter alia that a major goal of global R&D is in
fact the access to globally dispersed knowledge
sources (Florida, 1997). In global industries, the
probability is higher for subsidiaries to actually
have a peer in a different country with almost the
same key environmental factors. Hence it is also
more probable to discover knowledge about a better
performing set of innovative knowledge amongst
peer subsidiaries. This is even more important in
cases where the value of once locally generated
knowledge erodes faster and only little time is
given to find a well performing new combina-
tion of knowledge before the next changes in the
environment erode also these insights. Qualitative
results of highly dynamic and complex industries
suggest that in this case it is very important to
explore contemporaneously diverse innovation
paths but yet maintain inter-project communica-
tion through “semistructures” at moderate levels
(Brown & Eisenhardt, 1997). This is particularly
corroborated by our results in form of the sig-
nificantly higher performance increase through
medium vis-à-vis high IOI.
Proposition 3: In global industries, which are
exposed to high complexity environments,
Proposition 3(a): The positive effect of medium
levels of IOI increases linearly with environ-
mental dynamism, while
Proposition 3(b): High levels of IOI increase in-
novation performance almost equally from
low to high levels of dynamism, exhibiting
a significantly lower positive impact than
medium IOI only in cases of high dynamism.
An intriguing result is that at very high degrees
of environmental dynamism there is no significant
effect of IOI at no level. This surprises because
intuition could lead to the conclusion that external
knowledge is helpful when the own knowledge
erodes very fast. However, the observed results
might be explained by a similar reasoning as in
case of international industries. In low complexity
environments, as e.g. low-tech industries, devel-
opment paths in the own environment are quite
foreseeable, i.e. there are few peaks and large
valleys of attraction. This makes it less attractive
to engage time and resources into knowledge
acquisition from outside with the peril to engage
on a new development path that might actually
lead to a lower local optimum.
Proposition 4: In global industries that are ex-
posed to low complexity environments,
Proposition 4(a): IOI has no significant effect
at no level in cases of high environmental
dynamism, while
Proposition 4(b): A medium level of ioi is mod-
erated by environmental dynamism in its
positive impact on innovation performance
in an inversely u-shaped manner and
Proposition 4(c): A high level of IOI impacts
positively on innovation performance only in
cases of medium environmental dynamism.
7. CONCLUSION
In this study we focused on the concept of open-
ness in the innovation process within MNCs’
313

Environmental Turbulence and Complexity and the Optimal Degree
subsidiary networks. We believe that the opening
of subsidiaries’ innovation process towards their
peers within the MNC network might not be posi-
tive per se, but highly contingent on the environ-
ment. Looking at the MNC as a network in which
different levels of openness can be implemented
we highlight how MNC subsidiaries in more or
less common problem contexts depend in their
joint innovation effort crucially on the interplay
between two major environmental characteristics.
We contribute to research in two fundamental
ways. Firstly, we develop the notion of Internal
Open Innovation of MNCs. Secondly, we develop
a model that integrates central contingencies of
the innovation impact of Internal Open Innovation
of MNCs. This helps to develop an intuition how
these factors could interact on the outcomes of
MNCs’ more or less open innovation strategies.
Based on very common and intuitive assumptions
and a simple agent-based model, we establish
several propositions, while the simulation ap-
proach permits us to disentangle the effects in
focus independently from other issues. This is
crucial because if in an empirical study the effect
of intra-MNC knowledge integration is not per
se positive this might have several other reasons
like e.g. erroneous beliefs (“false knowledge”) on
the part of the knowledge providers or inadequate
absorptive capacity on the part of the knowledge
receivers. Herein, we can show that even if ev-
erything else is perfect, intra-firm knowledge
integration might not have per se a linearly positive
effect on innovation performance.
We find that in case of MNC subsidiary
networks sensitive to the differences across
subsidiaries’ problem contexts, i.e. international
industries as opposed to global industries with a
single worldwide equal context medium to high
degrees of dynamism in the MNC’s environment
should encourage the implementation of internal
open innovation strategies in high complexity
industries. Moreover, IOI can proof beneficial,
314

ceteris paribus, in low but not too low dynamic
environments in case of low complexity industries.
We further find that this relation is ambiguous
when dynamism is at a medium level. Although
environmental complexity already alters sig-
nificantly the degree of the positive and negative
relation in low and high dynamic environments,
in cases of medium dynamic environments, com-
plexity is a strong moderator changing even the
nature of the relationship from positive to nega-
tive. In particular, we find support that in these
cases of medium dynamism, MNCs can profit
from medium levels of internal open innovation
if complexity is low, while there is no such effect
in cases of high complexity. On the contrary, high
levels of internal open innovation will result in
worse innovation performance.
Finally, it can be claimed that this research
could also have managerial implications once em-
pirically underpinned. If companies are unsure in
what category their environment falls, a moderate
level of IOI can hardly harm innovation perfor-
mance whereas in many cases it actually might
foster it. The intuition is that in stable environments
subsidiaries that exchange knowledge during the
innovation process can explore different strands of
research and adopt the one that yields better results
early on and these results remain valid. In instable
contexts a highly profitable innovation might be
adopted from heterogeneous subsidiaries, but does
not remain valid for long and from the point on
that the environment changes both restart their
search from the homogenized knowledge, which
exhibits less potential solutions than searching
with different knowledge backgrounds. This can
have a long term negative effect.
Generally, we argue that the analysis of sub-
sidiaries’ varying degrees of openness and the
contingencies that moderate its impact on in-
novation performance can contribute to a better
understanding of how MNCs should incentivize
their subsidiaries to collaborate in the innovation

Environmental Turbulence and Complexity and the Optimal Degree
process. However, the costs–in terms of loss of
diversity of knowledge bases and allocation of
resources to IOI instead of independent innovative
activities–have to be considered when pursuing
its benefits–in terms of higher yield knowledge,
faster adaption to changing and wider exploration
of complex environments.
However, in this model we assume that manag-
ers can perfectly understand and foresee whether
their problem context is similar to that of peer
subsidiaries or not. This assumption could be
relaxed in future studies elaborating the herein
developed model. Moreover, it seems promising
to investigate whether there is a potential trade-
off between internal innovation collaboration, i.e.
with peer subsidiaries, and external innovation
collaboration, i.e. with local sources from which
arrive knowledge spillovers and if so of what na-
ture. For both cases our simulation model provides
a sound fundament to theorize these potentially
complex relationships.
Moreover, a further limitation can be seen in
the fact that some studies have shown that cultural
differences can lead to problems when systems
built to share knowledge are deployed outside
the original cultural context, as e.g. the group
of Western countries (Ardichvili, Maurer, & Li,
2006; Marzo, Za, & Spagnoletti, 2013; Voelpel
& Han, 2005; M.-L. Young, Kuo, & Myers,
2012). Since a knowledge management system
can reflect the Western values of the designers
(Nonaka & Takeuchi, 1995), such cultural issues
can be important in the consideration of planning
and managing knowledge sharing. In fact, since
such cultural differences could influence the suc-
cess of knowledge transfer between subsidiaries
and therewith also that of IOI beyond the issue
of disseminative and absorptive capacities of the
involved units, it would be an interesting supple-
ment to our model that could be addressed in
future studies to investigate how the thus assumed
differences in communication approaches might
alter our findings.
ACKNOWLEDGMENT
This paper is part of the doctoral dissertation of
the first author at LUISS Guido Carli. The authors
gratefully acknowledge most helpful comments
by Professor Peter S. H. Leeflang, the editor of
IJESMA, Professor Alberto Francesconi, as well
as three anonymous reviewers. All remaining
errors are ours.
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ENDNOTES
1
In the following, we refer to IOI when we
intend the parameter of individual MNC
subsidiaries and to knowledge integration
when referring to this parameter on the MNC
level relating it to overall MNC performance.
This work was previously published in the International Journal of E-Services and Mobile Applications (IJESMA), 5(4); edited
by Ada Scupola, pages 1-24, copyright year 2013 by IGI Publishing (an imprint of IGI Global).
2
This does not mean that the influence of ab-
sorptive capacity was not important or should
be disregarded, to the contrary. In fact it has
found already a lot of consideration in the
context of intra-organizational knowledge
transfer (cf. van Wijk et al., 2008). However,
it was left out for parsimony, but this model
could easily be modified to investigate this
issue in a future study.
3
Herein, we do not model the role of HQs
for the impact of Internal Open Innovation
strategies of its subsidiaries. However, to
include the role of HQs as a knowledge
broker as well as studying the impact of
hierarchy in general and vertical knowledge
flows would be interesting extensions of the
proposed model.
4
It could be argued that 0 was a more ap-
propriate value for environmental relevance
(XREL) in order to simulate global industries,
but in reality even the most global industries
exhibit some minimum differences in how
to do business in different country markets.
However, the authors offer to perform further
runs with any other combination of parameter
values on request as far as resources permit.
319
 Environmental Turbulence and Complexity and the Optimal Degree

APPENDIX

Figure 7. Flowchart of simulated process of IOI

Figure 8. Example of development of MNC innovation performance in complex, high-dynamic, interna-

tional Industries (smoothed over 200 runs)

320
 321

Chapter 19
Innovation Network in IT Sector:
A Study of Collaboration Patterns
Among Selected Foreign IT
Firms in India and China

Swapan Kumar Patra

Jawaharlal Nehru University, India

ABSTRACT
Multinational Enterprises usually keep their crucial R&D close to their home base. However, recent
trends show that MNEs are increasingly offshoring their R&D activities. A couple of decade ago this
R&D offshoring phenomenon was mainly restricted in the developed countries. Since early 1990’s this
paradigm has changed and many Multinational firms prefer developing countries as their R&D desti-
nation. Among developing countries, India and China are favorable destinations for many MNEs. The
R&D alliance trends of foreign firms show that, in India they prefer Indian domestic firms and in China,
they prefer universities and government research institutes. Government of both these countries should
take policy measures to strengthen the linkages between foreign firms and local actor of innovation sys-
tem. Also, innovation is no longer restricted to or confined within a firm’s border. Firms are acquiring
knowledge from outside its boundary by “Open Innovation Mode.”

1. INTRODUCTION (Fors, 1997). To exploit home based strength firms

International business literatures have recognized
that there are close associations between Multina-
tional Enterprises (MNEs) and superior technol-
ogy generation (Zander & Sölvell, 2000). MNEs
play major role in production and dissemination
of new technology globally (Caves, 2007) and
usually exploit their home base Research and
Development (R&D) strength at offshore location
usually establish facilities close to existing manu-
facturing and markets (home-base-exploiting).
However, firms also acquire new knowledge and
capabilities from different knowledge centers dis-
persed globally (home-base-augmenting). These
units generally located close to universities and
other research institutions (Kuemmerle, 1999). To
drive further profit from innovations developed
at home and augment the product development,

DOI: 10.4018/978-1-4666-8468-3.ch019

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

firms invest in R&D in offshore location (Bartlett
& Ghoshal, 1989). However, R&D activity out-
side the home country is one of the least mobile
activities of MNEs because of its complex and
tacit nature (Pavitt & Patel, 1999; OECD, 2008).
Firms generally restrict and do not offshore R&D
due to fear of technological knowledge leakage
to its potential rivals. The study of technologi-
cal activities of large firms shows that firms are
firmly embedded in the condition of the techno-
logical strength in their home country. Even the
most internationalized firms rarely go abroad to
compensate for their weakness at home (Patel
& Vega, 1999). Also, R&D unit located close
to headquarter can easily be communicated and
coordinated (World Investment Report, 2005).
Beside this, firms can easily coordinate with the
government bodies (Niosi, 1997). Despite such
obstacles, off-shoring of R&D by MNEs are
increasing. Various empirical evidences show
that the top spenders on R&D have increasingly
invested in R&D outside their home country in
recent years. In a survey reported in World Invest-
ment Report (WIR) 69% firms stated that their
share of foreign R&D is going to increase in future
(World Investment Report, 2005). Nearly 70% of
the firms in a European Commission study have
said that they had increased their R&D off shor-
ing over the last couple of years (OECD, 2008).
Today, MNEs are not only exploiting knowl-
edge generated at home in other countries, but also
sourcing technology internationally from world-
wide centers of knowledge. MNEs are carrying out
cross-border innovation projects within globally
dispersed network close to specialized knowledge
hubs (Zander & Sölvell, 2000). Geographical
distribution of knowledge creation is based on the
fact that knowledge generation is not restricted to
the research lab (Fors, 1997). Knowledge hubs in
terms of excellent educational institute and gov-
ernment research institutes are dispersed globally.
Also, knowledge is not transferable because of
its ‘tacit’ and often ‘sticky’ nature. Knowledge is
embodied in location and persons and not easily
322

Innovation Network in IT Sector
transferable (Pavitt & Patel, 1999; Patel & Pavitt,
1991). This technology scouting process was more
prevalent among Triad region (US, Europe and
Japan) and among developed countries MNEs.
However, in recent years it is taking place in an
unprecedented manner and more pervasive. The
present internationalization of R&D is gathering
pace, it is all invasive and spreading to more and
more countries, including developing countries,
and it goes beyond adapting technology to local
conditions (OECD, 2008). Dunning & Lundan
(2009) has also observed that internationaliza-
tion of the knowledge-creating and knowledge
sourcing activities of MNEs are increasing at a
phenomenal rate beyond their national origin.
However, it is still a less preferred activity than
the internationalization of production.
2. FOREIGN R&D IN
INDIA AND CHINA
A new trend which may be called as the ‘second
phase’ or ‘new geography’ of innovation’ is being
observed in recent the decades. In this phase MNEs
from developed countries is increasingly extend-
ing their R&D activity to newly the industrialized
developing Asian countries. In 1990’s firms have
started investing in R&D in smaller Asian coun-
tries like Korea, Taiwan, and Singapore. This may
be regarded as initial ‘catch-up’ wave. However,
the more recent trend observed in the last two
decades, where both China and India, is entering
into the global R&D scene (OECD, 2008; Bruche,
2009). India and China are the two most favored
destinations for the MNEs to set up their R&D
center. Various newspaper reports and scholarly
articles have also highlighted this fact. China has
already attracted more than 1,200 R&D centers
(“Foreign firms hasten R&D establishment in
mainland,” 2006-02-13) while India is about 800
(Chandran, 2009). Although, there is persistent
concerns among MNEs about the intellectual
property rights (IPR) in these two countries, still

Innovation Network in IT Sector
MNEs have increased their investment in R&D
centers in India and China. Economist Intelligence
Unit (EIU, 2007) survey of 300 senior execu-
tives found that most of them favored India as a
future R&D location followed by US and China.
UNCTAD survey of the largest R&D spenders
worldwide, China ranked third and India sixth as
current locations for R&D. This phenomenon was
uninterrupted even in the period of global recession
of 2008-2009. UNCTAD World investment Pros-
pect Survey predicts that MNEs may increase their
investments in R&D in these countries in future
(World Investment Prospects Survey 2009-2011,
2009). Fortune 500 companies like, like Microsoft,
IBM, Motorola, Siemens, Nortel, General Electric,
General Motor, Volkswagen, and Honda and so on
have established R&D centers both in India and
China in last decade (Foreign firms hasten R&D
establishment in mainland, 2006). Researchers
have opinion that, emerging markets, availability
of low cost high skilled man power are among
the few possible reasons of their global business
strategy. Firms prefer India and China because
both the countries have vast reservoir of scientists
and engineers available at comparative lower cost
(Reddy, 1997). Also, both countries have started
high-tech upgrading programs like high quality
education, infrastructure, tax incentives, conduc-
tive national policies for foreign firms and so on
in their innovation system to be ‘knowledge-based
economies’. Knowledge workers, particularly the
science and engineering professionals, are rapidly
becoming part of the global talent pool ‘tapped’
by MNEs (OECD, 2008; Bruche, 2009).
Perhaps, the most important way to exploit the
benefits from FDI in R&D is through production
linkages between foreign affiliates and domestic
firms. Different empirical research shows that
various kinds of linkages among the foreign firms
with that of local institutions in host the host
country have the major impact on the capability
and resource development of these firms. Firm’s
capability building depends upon the scope,
quantity and quality of linkages formed with the
foreign–local interaction (Giroud & Scott-Kennel,
2009). Linkages can take several forms: back-
ward, forward or horizontal. Foreign subsidiary’s
procurement of goods or services from domestic
firms is called ‘Backward linkages’. Forward link-
ages are the process of selling goods or services
to domestic firms. Horizontal linkages involve
interactions with domestic firms engaged in com-
peting activities (World investment report, 2001).
Through the backward linkages a host country can
be maximally benefitted from MNEs. In broader
sense, these backward linkages, can involve non-
business entities like universities, government
research institutes and other private institutions.
Knowledge flows in National Innovation System
(NIS) through these kinds of linkages. Universities
and government research institutes play important
role in knowledge creation, generation and dis-
semination. Communication among government,
university and industry is the key to innovation and
sustainable growth. Perhaps, this is possible only
within a new innovation environment, based on
science, technology, and entrepreneurship culture
(Etzkowitz, 2008, 2011; Etzkowitz & Leydesdorff,
2000). A proper coordination between the public
research institutions and industry is the suitable
environment for supporting innovation. Usually,
government research institutes and universities
conduct basic research and the major sources of
valuable skills to the industries. The general abil-
ity of industry to access that knowledge through
formal and informal linkages is important (OECD,
1997). Although, informal linkages are very
important in innovation, it is very difficult to
measure. In present day globalized world, with
the development of information technology and
particularly web technologies, communication
is becoming very fast. With this development,
R&D collaborations between firms are increas-
ingly rapidly. R&D partnership is more evident
in high technology sectors such as biotechnology
and information technologies. In these sectors,
innovation cycle is very fast, R&D cost is very
high, also lots of uncertainty associated with the
323

R&D. Hence, MNEs collaborate to share skilled
manpower, expertise, technical resources and
even expenditure.
3. OBJECTIVES
Based on the above theoretical framework, this
chapter will study the linkage pattern of major
Information Technology (IT) MNEs for knowledge
scouting process. Linkage pattern of a few global
major IT firms with their R&D center in India and
China have been studied. Further the chapter will
study the latest trends in collaboration like open
innovation, consortium R&D projects in these
countries initiated by the foreign MNEs.
4. METHODOLOGY
Technical collaborations within industry can be
mapped using “literature-based alliance count-
ing.” In this method, information collected from
newspaper reports, firm’s annual reports, and
business directories and so on. The Co-operative
Agreements and Technology Indicators (CATI)
database developed at the Maastricht Economic
Research Institute on Innovation and Technology
(MERIT) is one of the famous examples of such
method employed in mapping research collabo-
rations among firms (Hagedoorn, 1995; 2002).
This study is based on the in-house developed
database of selected IT firms with R&D units in
India and China. R&D alliance information has
been collected thorough the scanning of major
newspapers from both India and China. The major
newspaper sources consulted from India are the
Hindu Business Line, Economic Times, Financial
Express, and Business Standard. For alliance in-
formation from China, China Daily and Xinhua
were consulted. Data has also been downloaded
from LEXIS-NEXIS database. Beside this, respec-
tive firms’ annual report and website consulted
to cross check the information.
324

Innovation Network in IT Sector
5. FINDINGS
As discussed in the previous sections there are
many reasons for firms to centralize R&D ac-
tivity in home country. However, decentralized
R&D activity is an inherent process in the MNEs
growth and evolution. The decentralization of
R&D units may happen through different way.
For example foreign MNEs establish their R&D
operations in China in three ways: wholly owned
subsidiary (autonomous) R&D centers; R&D
units (departments) within a branch of a Chinese
operation; co-operative R&D with Chinese uni-
versities or research institutes (Lundin et al., 2008;
von Zedtwitz, 2004). Håkanson & Nobel (1993)
identified three possible reasons for increasing
share of foreign R&D by firms over time. These
reasons are Acquisition, Greenfield investment,
Exploitation of foreign R&D resources. This
chapter is analyzing these three possible modes
of foreign R&D by MNEs.
5.1 Acquisition
Firms acquire technology either through internal
R&D or acquire it from external sources. Acqui-
sition of technological know-how is the main
motive for mergers and acquisitions. Among the
many other reasons, the most popular motives are
to enter into a new market quickly (Hagedoorn,
2002). Firms in in high-technology sectors prefer
mergers and acquisitions if the external knowledge
is related to its core business (Hagedoorn, 1995;
2002). MNEs usually acquire assets overseas
for the purpose of strengthening the company’s
technological competency in new product. After
acquisition firms usually maintain or expand
R&D in acquired company (Håkanson& Nobel,
1993). This hold true for these two emerging
markets also. For example; many foreign IT firms
in India acquire local small firms to enter into the
market. For example; Nokia has acquired Amber
Network in 2001, Broadcom acquired a small firm
Armedia in 1999; Citrix System has acquired

Innovation Network in IT Sector
PoerTel BOCA to begin their India operation in
1999. Cisco has acquired e-mail and web security
provider IronPort Systems, for setting up a cap-
tive R&D center in Bangalore in 2007. Analog
Devices has acquired Chiplogic India Pvt Ltd in
2000. Qualcomm has acquired Spike Technologies
in 2004. Table 1 shows few examples of acquisi-
tion of local R&D units by foreign MNEs to gain
entry into Indian market.
It is also observed after getting entry into the
market many foreign MNEs have acquired Indian
small software firms to enhance their R&D ca-
pability. This is particularly more pronounced in
the mid of last decade. For example Broadcom
acquired Athena Semiconductors in 2005, Toshiba
acquired SoCrates Software India in 2005. The
Table 1 briefs such moves by the foreign firms.
The similar trend observed in China also. Achievo
Corporation acquired Shanghai base outsourced
firm AcornSoft Inc. With this acquisition Achievo
will expand its capabilities, and infrastructure in
China. This enhanced capability may help the firms
to better serve its global customer base. Autocad
maker firm Autodesk, acquired Hanna Strategies,
to enhance its R&D capability in China. Table 2
gives few examples of acquisition and the purpose
of acquisition by foreign firms.
5.2 Greenfield Investment
It is observed that Greenfield investment hap-
pens only when a firm already has sales network
established market in a country. Initially the
newly established subsidiary is a simple tech-
nology transfer unit and exclusively depends on
technology generated at headquarter. The newly
established subsidiaries usually adapt products and
processes generated from the parent units into the
host country’s market. This kind of units has less
autonomy and employed very few people may be
termed as “small support laboratories” (Håkanson
& Nobel, 1993). Gradually, these kinds of units
become involved in more advanced design and
product development work. With the span of
time these kinds of units evolved as global units
depends on the host country’s market demand
and conditions.
Most of the foreign firms in India first started
as a small technology transfer units and later they
become global units. These units exploit the in-
novation potential of Indian NIS to exploit in the
global market. MMEs have been setting up their
R&D operations in India for more than 25 years.
It was Texas Instruments which had opened its
first R&D centers in India in 1985. Since then
more and more foreign firms have started their
R&D operations in India. Table 3 illustrates the
beginning of R&D units by few IT firms in India.
Mainland China has become a major destina-
tion of FDI since the mid-1990s. Deng Xiaoping
during his famous southern visit in 1992 recom-
mended the speeding up of economic reform and
encourages inflow of FDI. Because of this ‘open
door policy’ central government as well as various
local and provincial governments has formulated
various favorable policies for example net tax
break, IT parks and so on to attract more FDI.
Since then Multinationals’ investment in R&D
in China is increasing rapidly (Wen & Lin, 2005;
Li & Li, 2010). China’s recent economic census
data has confirmed that foreign R&D in China
has increased significantly (Sun, 2009). With the
opening of China’s market to the outside world,
many MNEs from developed countries established
manufacturing activities in China to take advantage
of low labor costs for manufacturing operations
(Lundin et al., 2008; Boutellier et al., 2008). Ac-
cording to various estimates thousands of foreign
firms are engaged in R&D in China and employed
about 150,000 R&D employees (Sun, 2009).
Nortel Network Corporation has established
the first foreign R&D center in China in 1994.
Nortel along with Beijing University of Posts
and Telecommunications (BUPT) have jointly set
up an R&D center in 1994. After that more and
more IT firms, such as Microsoft, Nortel, Ericsson
and Nokia started opening their R&D center in
China. The number of foreign R&D operations
325
 
Innovation Network in IT Sector

Table 1. Examples of acquisition by foreign IT firms to enter into India

Foreign Firm Local Firm Year Purpose

Broadcom Armedia 1999 To begin its India operations
Analog Devices Chiplogic India Pvt Ltd 2000 Acquisition
CITRIX Systems Inc. PowerTel BOCA 2000 To gain quick entry into the Indian market
Fujitsu Zensar Technologies Ltd 2001 Merger of ZTL with Fujitsu ICIM Ltd
Nokia Amber Networks 2001 R & D center established after acquisition
Mentor Graphics Ikos Inc. 2002 R&D facility established after the acquisition
UTStarcom CommWorks 2003 acquired its R&D facility in India
AZTEC Software & Technology Disha Technologies 2004 Acquisition of the software product-testing firm
Services Ltd
Cypress Semiconductor Arcus 2004 Acquisition
Qualcomm Spike Technologies Inc. 2004 To provide third-generation CDMA customers,
partners with design, sales, technical support
around the world
Broadcom Athena Semiconductors 2005 Broadcom added about 40 engineers in India by
acquiring Athena
Emptoris, Inc. Intigma 2005 entry into the Indian market through the
acquisition of Intigma
Toshiba SoCrates Software India 2005 To become a major hub in the software
development organization
Adobe Macromedia 2006 Acquisition
AMD ATI Technologies 2006 To enhance its R&D capability
Fujitsu Rapidigm Inc. 2006 Acquisition
Juniper Networks NetScreen 2006 Helped to establish presence in the security
segment
Tundra Semiconductor Alliance Semiconductor Corporation 2006 Entry into the Indian market by the acquisition
CISCO IronPort Systems 2007 Acquired by Cisco for setting up a captive R&D
center
AXIOM Design Automation SysChip Design Technologies 2008 Established its strong R&D presence both in
USA and in India
Freescale Semiconductor Prairie Comm 2008 Acquisition
Freescale Semiconductor Intoto Inc 2008 Acquisition
GlobalLogic Mantas India, Validio Software, Kewill 2008 To consolidate its presence in India
Software Solutions, Praedea Solutions
Hewlett-Packard Globalsoft Ltd. Mphasis 2008 Acquire majority stake in Mphasis
Brocade Foundry Networks 2009 Opened up new market opportunities
CA technologies Arcot Systems, Inc. 2010 Acquire technology for fraud prevention &
authentication
Adobe EchoSign 2011 Acquisition
Synopsys nSys Design Systems 2011 To serve the demand for ‘smart’ electronics

326

Innovation Network in IT Sector

Table 2. Examples of acquisition by foreign IT firms to enter into China

Foreign Firm Local Firm Year Purpose

Juniper Networks NetScreen Technologies 2004 Acquisition
Amdocs Longshine Information Technology Co. 2005 This acquisition expands Amdocs’ global presence and
marks its entry into mainland China
ECI Telcom Ltd. Eastern Communications Co. Inc 2005 Optical technology business
Autodesk Inc Hanna Strategies 2008 To combine the operations of Autodesk and Hanna
Strategies
GlobalLogic Dalian 3CIS 2008 To accelerate their product launching time into the
market
Achievo Corporation AcornSoft Inc 2005 to enhance expand service capabilities, infrastructure in
China and all over the globe

Table 3. Time line of major foreign R&D centers

in India
1985 Texas instruments open its R&D center in India
1989 Hewlett-Packard begins R&D work in India
1994 Oracle opens India Development Center in Bangalore
1998 Microsoft started its software development center in
Hyderabad
1998 Motorola started its design center in Delhi and
Bangalore
1998 Intel India Development Center started its operations
in Bangalore
1998 IBM research lab inaugurated in Delhi
1998 SAP Labs India starts operations in India
1998 Oracle established second development center in
Hyderabad
2001 Accenture establishes the Bombay technology
development center
2001 Dell inaugurated its R&D center
2003 Yahoo Inc launched R&D unit in Bangalore, its first
such outside the United States
2004 Google R&D center started in Bangalore, its first
ever outside the United States.
2005 IBM extends research lab to Bangalore.
2006 Cisco establishes Globalization Center in Bangalore.
2008 Accenture formally opens its Technology Lab in
Bangalore, its fourth such facility following sites in
the United States and France.
2009 IBM will invest $100 million in global mobile
services research over the next five years.
2009 SAP’s third Co-Innovation Lab inaugurated in
Bangalore, after such labs in Palo Alto, California,
and Tokyo, Japan. (Source: Jacob et al. 2009)
has increased dramatically since 2000. This trend
picked its height in 2001 when China entered into
the WTO. With the China’s announcement to enter
in WTO, it is observed that between November
2001 and May 2002, many MNEs have opened
R&D center or announced substantial raise in
investment or manpower (Prater & Jiang, 2008).
However, scholarly works and popular medium
like press release by firms and newspaper report
highlights that many of the ‘fortune 500’ firms
have opened their R&D centers in, major cities like
Beijing, Shanghai and so on (Motohashi, 2010).
With this trends China has advanced from “de-
sign it abroad, make it in China, sell it in abroad”
cycle to globally recognized R&D major (Prater
& Jiang, 2008). Major R&D investment trend is
being observed particularly in the computer and
telecommunications industries, because both
these industries are highly dependent on R&D
and, has fast production cycles (Walsh, 2003).
For example, Microsoft established its first Asia
Research Institute (its second overseas base) in
Beijing, in 1998. By 2010, Microsoft doubled
its R&D employees up to 3,000 and about 1,500
project-based researchers in China. Motorola
has about 25 R&D centers in China and invested
about 500 million dollars on the R&D (Li & Li,
2010). Although, there is a significant amount
of investment in R&D from Hong Kong and
Taiwan, however, majority of MNEs are from de-

327

veloped countries, particularly from triad regions
(Gassmann & Han, 2004). Above all, foreign R&D
has become a significant phenomenon in China.
Regarding the activity of foreign firms, few schol-
ars argue that most of them are ‘adaptive R&D’
and more towards the development than research.
This argument is supported by the fact that most
of the R&D employees from these foreign R&D
centers are bachelor degree holder and very few
of them have doctoral degrees (Walsh 2003, von
Zedtwitz 2004; Sun et al. 2006; Sun 2009).
5.3 Exploitation of Foreign
R&D Resources
These R&D partnerships are primarily related
to two categories, i.e. contractual partnerships,
such as joint R&D pacts and joint development
agreements, and equity-based joint ventures. Joint
ventures are organizational units created and con-
trolled by two or more parent-companies and they
increase the organizational interdependence of the
parent companies (Hagedoorn, 2002).
5.3.1 Joint Venture
MNEs prefer JVs who presently don’t have re-
gional operations. Through the JV foreign firms
get easy access to the market, local talent and
already established customer networks. The lo-
cal partner has already established distributor,
manufacturing, sales and even R&D network
and well versed with the local government and
its regulations and policies. Also, local firms
know the local business ecosystem better than the
foreign firms. So, forming joint venture entities
foreign firms can get the access to these networks
to supports not only local markets and nearby
business units but also subsidiaries and entities
elsewhere in the world. High technology sectors
particularly IT sector is very high R&D intensive.
So, joint venture is important for foreign firms
in order to maintain their technological capacity
and the ability to monitor global scientific and
328

Innovation Network in IT Sector
technological development. In India, besides be-
ing setting up of R&D centers through Greenfield
investment MNEs are using joint venture entry
mode to enter into Indian market. For example
3Com Corporation has opened its R&D center in
Hyderabad in 2004, through a strategic partner-
ship with MARS Telecom. Traian formed joint
venture with U&I Scotty Computers Ltd for joint
R&D in India. This strategy helps in enhancing
innovative capabilities in the local situations.
Also, there are examples of joint venture mainly
for production and marketing activity rather than
a true R&D. For example Barco NV formed joint
venture in 1997 along with Fusebase Eltoro Ltd.,
for the production and development of projectors
in India. Lucent Technologies jointly do manufac-
turing and marketing of telecom equipment with
Tata Industries in 2001. Table 4 has given some
examples of such moves of foreign firms in India.
Foreign firms perhaps prefer joint venture
entry mode to enter into the Chinese market.
Most R&D centers in China generally serve local
customer needs, but with the span of time a few
companies have also set up branches of global
technology-building networks. These networks
spanned beyond China to the regional markets in
the Asia Pacific regions. Through the joint venture
formation many firms are capturing both local and
regional market (Thorpe, 2008). Sometimes firms
formed a new entity after joint venture agreements.
For example; 3Com along with Huawei Technolo-
gies Ltd formed a new joint venture entity in 2003
with a new name ‘3Com-Huawei’.The new firm
will do R&D, manufacturing sales and marketing
of telecommunication equipment. Philips, Sam-
sung and Motorola along with local Chinese firm
Datang formed a joint venture firm in 2006. The
new joint venture T3G Technologies Co., Ltd. will
be major unit for TD-SCDMA technology research
in China for these firms. Texas Instruments Inc.,
Nokia Corp. and LG Electronics Inc. have formed
Commit Inc., based in Shanghai to develop multi-
media handsets for 3G (third-generation) mobile
networks. A number of firms both foreign and

Innovation Network in IT Sector

Table 4. Joint venture by foreign firms in India

Foreign Firm Local Firm Year Purpose

Barco NV Fusebase Eltoro Ltd., 1997 For the production and development of projectors in India
Lucent Technologies Tata Industries 2001 To manufacture and marketing of telecom equipment and
network systems
Traian U&I Scotty Computers Ltd 2001 Joint R&D center in India.
British Telecom MAHINDRA 2002 Established an Information Assurance Laboratory at its Mumbai
center, along with VeriSign Inc.,
IGATE Global Solutions CIBER, Inc 2003 Will work in the areas of software services, including
Ltd (IGS) applications development, enterprise application support and IT
outsourcing services
Novell Software (I) Pvt Ltd Onward Network 2003 Along with PricewaterhouseCoopers India to promote Novell’s
Technologies Ltd security identity management solutions for new and emerging
markets.
3COM MARS Telecom 2004 Strategic partnership to open its R&D center
Alcatel-Lucent C-DoT 2005 Research on WiMax based technology.
MobiApps Holdings Pvt Tata AutoComp Systems 2006 TACO MobiApps is a joint venture between Tata AutoComp
Ltd Ltd Systems Ltd, of the Tata group, and MobiApps Holdings Pvt Ltd
of Singapore.
Alcatel-Lucent Reliance Communications 2008 To provide managed network services

local have invested in this joint venture. Table 5
illustrates some examples of foreign firm’s joint
venture in China.
5.3.2 R&D Contracts
Recent studies have established that non-equity,
contractual forms of R&D partnerships, such as
joint R&D pacts and joint development agree-
ments, have become very important modes of
inter-firm collaboration. The recent global trends
show that the number of R&D alliances is more
than joint venture or acquisition.
5.3.2.1 Joint R&D by Foreign Firms in India
In the following section a foreign firms R&D
linkages have been discussed with some example.
Many foreign firms in IT industry in India carry
out significant R&D through R&D partnership
with leading universities, research institutes and
local firms. Motorola was among one of the first
telecom companies realized India’s potential for
software development. Motorola has undertaken
joint R&D initiatives with several Indian leading
institutions, like Indian Institute of Technology
(IIT). It has various level of R&D collaboration
with IIT-Chennai, IIT-Mumbai and Indian Institute
of Science (IISc), Bangalore. Motorola has signed
MoU with IIIT Mumbai for collaborative research
to develop cutting edge technology innovations
and solutions. The partnership will also enable
Motorola to effectively utilize the results of the
research efforts aimed at developing innovative
wireless broadband solutions for emerging markets
like India (“Motorola, IIIT-B Ink R&D Pact,”
February 3, 2007)
NORTEL Networks set up a R&D in India, after
the acquisition of Alteon Web Systems with an in-
vestment of $2 million. Nortel Technology Excel-
lence Center (NTEC) in Bangalore’s Knowledge
Park, focused on new product design, development
and testing. To enhance its competitiveness in the
Indian and global markets, Nortel has developed a
number of different types of linkages with many
Indian software firms like Infosys, Wipro, Tata
Consultancy Services and Sasken Technologies.

329
 
Innovation Network in IT Sector

Table 5. Joint venture by foreign firms in China

Foreign Firm Local Entity New Entity Year Purpose

ECI Eastern Communications 1995 Opens R&D Operation in China
Co. Inc.
Nortel Networks Guangdong Nortel 2000 Technology transfer agreement with
Guangdong Nortel
Motorola Leshan-Phoenix Motorolas Leshan-Phoenix 2001 To establish semiconductor manufacturing
Semiconductor Co. centers
AMD China Basic Education Beijing CBE AMD 2002 R&D joint venture agreement
Software Company, Ltd. Information Technology
Company, Ltd
Nokia Hang Xing Beijing Nokia Hang Xing 2002 To develop GSM switching equipment
Telecommunications Systems
Ltd (BNT)
Accton SVA Group SVA Accton Co. 2002 With SVA Group China’s existing
Technology distribution channels, Accton expands into
Chinese market
3Com Huawei Technologies 3Com-Huawei 2003 Data communications equipment joint
Ltd venture in China to carry out R&D,
manufacturing sales and marketing.
Intel Legend 2003 R&D for new generation communications
technology
NEC Corporation Beijing Tech Faith 2003 Joint venture with Beijing TechFaith the
mobile phone design company
LG Electronics Nokia & Texas COMMIT Inc. 2003 Joint venture, named COMMIT Inc.,
Instruments to develop the next-generation mobile
network.
Agilent Chengdu Qianfeng 2005 To develop and produce testing equipment
Electronics Ltd.
Philips, Samsung Datang T3G Technologies Co., Ltd. 2006 To research and development of 3G chip
Motorola (T3G),
Symantec Huawei Technologies Huawei Symantec 2008 To address the market needs in network
Corporation Co., Ltd., Technologies Co. Ltd. security and storage for enterprises
CORNING INC Shanghai Institute of 2011 Started its first joint venture laboratory in
Ceramics partnership

Nortel has even invested about US$10 million
in Sasken in 2006. The funding was mainly to
support its GSM digital wireless and enterprise
communications solutions (Nortel to establish
new R&D centre in Bangalore, 01 Sep, 2006).
Ericsson has identified India as an important
outsourcing location for R&D. Ericsson chose
Indian software firm Wipro because it has technical
depth, leadership and telecom domain expertise.
Recently; Wipro purchased the Ericsson software
development centers in Bangalore, Hyderabad
and New Delhi. Wipro will continue Ericsson’s
development work in India through outsourcing
(Wipro-Ericsson in total R&D outsourcing deal,
Oct 01 2002).
Korean semiconductor giant Samsung’s India
Software Center (SISC) in Bangalore employs 440
engineers and develops software technology for
digital media products. It has two subsidiaries in
India. One is consumer electronics division Sam-
sung India Electronics Ltd (SIEL) and the other
is IT and telecom products’ company Samsung
Electronics India Information and Telecommuni-
cations (SEIIT). SIEL has research collaboration

330

Innovation Network in IT Sector
with IIT Delhi for new designs of color televisions,
washing machines and air-conditioners accord-
ing local Indian market. It has also plan to set up
industrial designs laboratory for IIT students to
work projects sponsored by Samsung (Balakrishna
& Balakrishna, 2003).
Microsoft set up Microsoft India Development
Center (MSIDC) at Hyderabad in 1998. Now it
is one of Microsoft Corporation’s largest R&D
centers outside US. Microsoft has started I-Spark
programme at Anna University in Chennai that to
provide access to Microsoft’s latest software tools
to the students of Anna University. The program
comprises an `innovative platform’ which will act
as hub of collaboration among university, govern-
ment and industries (“Microsoft to directly hire
from Anna University,” July 22, 2011). Indian
Institute of Technology, Kharagpur, in association
with Microsoft India, launched the ‘icrosoft Centre
of Excellence in Intellectual Property Research
and Technology Policy (MSCIP). The center
will nurture professionals from technological
backgrounds in Intellectual Property law (Centre
of Excellence to Promote Intellectual Property
Research, February 03, 2009).
5.3.2.2 Joint R&D by Foreign Firms in
China
Wholly foreign-owned subsidiaries also conduct
joint research projects with local firm universities
and government research institutes. China-based
R&D centers can bring to a company’s global R&D
capabilities. Companies consider the potential for
further growth in not only the Chinese domestic
market but also the global market. The following
section deals with the few major IT firms and their
linkages China. From the following section it is
observed that most for the linkages are with the
universities and Chinese government laboratories.
These universities are concentrated in the first- and
second-tier cities. These cities are home to the
top universities that produce most of the skilled
manpower. Beijing; Shanghai; and Guangzhou
and Shenzhen, Guangdong are considered as
tier I cities. Nanjing, Jiangsu; Suzhou, Zhejiang;
Xi’an, Shaanxi; and Wuhan, Hubei are the tier II
cities (Thorpe, 2008).
Bell Lab launched a new research facility
in Beijing, in 2003 called Bell Labs Research
China (BLRC). This is the first time that Bell
Labs established a research laboratory outside the
United States. Now, Shanghai Bell R&D center is
Alcatel-Lucent’s one of three global R&D center.
Shanghai Bell’s R&D center develop product not
only for the Chinese market but also for the global
market. In China, Shanghai Bell has centers in
Shanghai, Beijing, Nanjing, Chengdu, Qingdao,
with more than 4000 R&D staff. Shanghai Bell
is actively participating in China Communica-
tions Standards Association (CCSA) and the
International Organization for Standardization
(ISO) communication activities to improve the
company’s domestic and international technical
standards. Beside the product development for
local Chinese market, Bell lab do basic research in
various fields. BLRC has collaborative agreement
with Chinese scientific, technological and educa-
tional communities. Bell Labs Research China
has established several joint labs with Tsinghua
University, Peking University, Fudan University
and Chinese Academy of Science.
Intel China Research Centre (ICRC) was
established in November 1998. This is Intel’s
first research lab in Asia-Pacific region. The
center mainly focused on advanced technology
research. The center works closely with other
R&D subsidiaries dispersed globally. ICRC has
two important research labs in China; one is
Communications technology lab and the other
is Microprocessors technology labs. Beside this
there are two centers, Technology Policy and
Standards Department and Advanced Platform
Development Center. ICRC sponsors advanced
research in many leading Chinese universities.
The university research program is a long term
strategic program sponsored by ICRC to develop
the research collaboration with universities. Beside
331

sponsored research, Intel also fund for PhD thesis,
visiting scholar, internship, and technical lecture
series. ICRC has collaboration with Beihang Uni-
versity, Peking University, Beijing University of
Post and Telecommunication, Fudan University,
Institute of Computing Technology, CAS, Institute
of Software, CAS, Tsinghua University, University
of Science and Technology of China and Xidian
University. The research collaboration areas are
in the emerging areas of wireless technologies,
high performance computing, and so on (Intel
China Research Centre, 2012).
The IBM China Research Laboratory (CRL)
was established in September 1995, located in
Zhongguancun Software Park in Beijing. It is
among one of the network of eight IBM Research
laboratories worldwide. In 2008, CRL opened a
new research facility in Shanghai to provide lo-
cal partners greater accessibility to IBM research
capabilities. CRL bridges the latest sciences and
technologies from IBM worldwide labs to China
and develop the collaboration with universities and
research institutes through the Shared University
Research project (SUR Project). CRL’s univer-
sity program (SUR) can be broadly categorized
into three types; joint research programs, human
resource development programs and Open col-
laborative research programs. CRL has a number
of programs to develop and nurture local talents
and expertise in China. CRL has collaborative
research agreement with universities and research
institutes in China through the joint research
labs. In the joint research lab IBM sponsored
cutting edge research areas. CRL also sponsored
or directly recruit PhD students under joint PhD
program. Young visiting Scholars are invited to
conduct research with IBM’s senior researchers
for short terms (IBM China University Partnership
Program, 2012).
Microsoft China has a number of collabora-
tion with universities and government research
institutes in China. Microsoft’s emphasis on
longer-term research keeping in mind the future
needs of users. Microsoft taps Chinese vast intel-
332

Innovation Network in IT Sector
lectual talent pool and form partnerships with the
renowned educational institutions. Microsoft has
opened the Greater China Regional Support Cen-
ter in Shanghai. Microsoft’s Vice President Rick
Rashid said in a press statement “We expect that
both Microsoft and China will reap great benefits
from the new technologies, new employees and
new partnerships that will stem from MSR China,”
(Microsoft Research, 1998).
Microsoft China has strong R&D collabora-
tions with Chinese universities and sponsored
more than 500 research projects. Microsoft China
has established partnerships with more than 30
leading Chinese universities and government
research institutes. The university relations pro-
gram is recognized by the Chinese Ministry of
Education under “The Great Wall Plan.” Under
the university relations programs, MSR China
promotes research collaborations with universi-
ties, curriculum innovation, talent development,
and academic exchanges. It also established joint
labs with top universities. Ministry of Education
recognized these labs as ‘Key labs’ in China (Table
6). The joint labs have conducted more than 100
joint research projects, more than 1,000 product
joint publications, and trained more than 1,000
Ph.D. students. MS China has also sponsored PhD
students program in different Chinese universities.
Under the ‘talent development’ program Microsoft
has trained more than 2,000 students in China. The
following table shows Microsoft’s collaborative
activity in China with different Chinese universi-
ties (Microsoft Research, 2012).
5.4 R&D Consortia
In present day globalized world, large firms are
no longer an isolated entity rather increasingly
forming consortia or alliances with other firms
or national laboratories. Closer ties are arranged
through “strategic alliances” or partnerships be-
tween two firms to acquire special capabilities of
both. These kinds of alliances carried out jointly
by firms which firms cannot do as effectively,

Innovation Network in IT Sector
Table 6. Microsoft joint Laboratories in collaboration with Chinese universities
Lab Name
Microsoft Key Laboratory of Visual Perception,
Microsoft Key Laboratory of Media and Networking Technology,
Microsoft Key Laboratory of Natural Language Processing and Speech,
MOE–Microsoft Key Laboratory of Information Technology,
Microsoft Key Laboratory of Multimedia Computing and Communication,
Microsoft Key Laboratory of Statistics and Information Technology,
Microsoft Key Laboratory of Human-Centric Computation and Interface Technologies,
Microsoft Key Laboratory of Intelligent Computing and System,
Microsoft Digital Cartoon and Animation Laboratory
Microsoft Intelligent Information Processing Laboratory
Source: http://research.microsoft.com/en-us/collaboration/institutes/#asia-pacific
cheaply, or quickly on their own (Etzkowitz,
2011). Many big foreign IT major firms along
with Indian firms are forming alliances to save cost
and share their resources in terms of manpower
and infrastructures to better user services. For
example; Satyam Computer Services Ltd along
with Microsoft and Dell, formed a consortium
which will work with Merrill Lynch in building
its next-generation research analyst workbench
on Microsoft’s technology platform (“Satyam
to work with MS, Dell,” 5th December 2003).
BEA Systems, Ericsson and MAP Venture
came together to promote innovative application
development on the IP Multimedia Subsystem
(IMS). In China IBM extended its global shared
university research program (SUR) to strengthen
collaborations with Chinese universities. Under
SUR project Microsoft provide hardware, soft-
ware and financial support to about 20 colleges
and universities in more than 80 joint research
projects. The research areas cover cutting edge
research in many latest technologies. In August
2003, IBM and the Ministry of Education signed
the “China Education and Research Grid Proj-
ect Memorandum of Understanding’ (MoU) to
jointly build a technically leading position in the
grid architecture. IBM has funded grid project of
University
ZheJiang University
Tsinghua University
Harbin Institute of Technology
The Hong Kong University of Science and
Technology
University of Science and Technology of
China
Peking University
The Chinese University of Hong Kong
Shanghai Jiao Tong University
Beijing Film Academy
of Xi’an Jiao Tong University
Tsinghua University, Huazhong University of Sci-
ence and Technology, Xi’an Jiaotong University,
and 15 other colleges and universities to promote
grid computing in China, particularly in the field
of education (IBM China University Partnership
Program Milestone Events. 2012).
Green computing: In India Sun Microsystems,
APC-MGE, Advanced Micro Devices (AMD),
Hitachi Data Systems and Wipro InfoTech formed
eco-consortium. The alliance formed to develop
eco-friendly enterprise solution which will be
cost effective and consume less power (“Sun
Micro forms ‘green’ alliance,” 2007). IBM under
its SUR project gives funds to Xi’an Jiaotong
University and South China University for green
technology research.
Cloud computing is the latest virtual computing
environment, where hardware interface usually
locate in a remote location. Service providers will
allow users to the particular service according to
their demand. In this model user may get access
to software, middleware and other computing
resources. The service can save cost of the comput-
ing in terms of equipment maintenance and other
administrative complexities in a firm. So, many
enterprises moving towards cloud computing as
their latest business model. IBM Corp. and Google
333

Inc. are tying up in India to jointly develop the
dominant software delivery model the so-called
‘cloud computing’. Yahoo! Indian R&D unit has
partnered with Indian Institute of Information
Technology (IIIT), Hyderabad to give researchers
a platform to share and gain knowledge and tools
in the area of cloud computing and encourage
IIIT-H students to take up research in this area.
Tata’s Computational Research Laboratories
(CRL) collaborated with Yahoo! for research in
cloud computing technologies that allow users to
run programme from remote data centers instead
of using a local computer. Alcatel-Lucent signed
a research memorandum with China Mobile Com-
munications Corp, in the areas of next generation
mobile networks and cloud computing. Yahoo,
Intel and Hewlett Packard are jointly developing
Cloud Computing Test bed from China R&D cen-
ter. Tsinghua University, in Beijing has received
funds from IBM under SUR project for cloud
computing research.
ZigBee Alliance is a wireless protocol, based
on the IEEE 802.15.4 standard. The alliance
started in 2004 to develop and promote the stan-
dard. Many big firms are the part of this alliance.
For example Intel, Freescale, TI, Honeywell and
MindTree have formed alliance to develop appli-
ance under this protocol. ZigBee is open standard
and allows small amount of data transfer within a
very short distances. The electronic devices used
in this protocol consume very low power. So it
will enhance battery life in the electronic devices
in comparison to other devices (Preethi, 2006).
5.5 Open Innovation
The closed innovation paradigm was popular
concepts in 20th century. The innovation was con-
sidered as ‘black box’, and industries were mainly
characterized by mass production. Firms were
usually, self-reliant and corporate strategy was to
invest more in R&D to achieve radical innovation.
In traditional or so called “closed model” firms’
use their own innovative capability to generate
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Innovation Network in IT Sector
and develop innovation to remain competitive
(Chesbrough, 2003; De Jong, et al., 2008). Firms
innovate, then perfect the technology and make
ready for commercialization. Like a funnel, the
concepts narrowed down to those useful or ben-
eficial concepts which best fits company’s need
(Figure 1). If innovation fails or resulted in ideas
that did not match the corporate strategy, the idea
often remains unused (OECD, 2008). Firms were
only interested with the innovations which were
‘radical innovations’. These innovations ultimately
give firms monopolistic advantages. Firms were
also cautious about the intellectual property (IP)
and usually kept it among themselves from the
potential rivals.
Open innovation argues that innovation para-
digm has shifted from a closed ‘inbound open
innovation’ to an open ‘outbound open innovation’
model (Chesbrough & Crowther 2006). Presently,
it has taken center stage with the recent debate
on globalization of R&D and the potential for the
R&D function outsourcing. Firms do not innovate
in isolation rather co-operate with external part-
ners in different steps of value chain. However,
the openness in innovation process is becoming
more prominent today as evidenced in popular as
well as scholarly literature. The concept gained
more popularity since 2003, with the term “Open
innovation” coined by Henry Chesbrough. The
concept, draws a great deal of attention among
researcher and business communities worldwide
(Chesbrough, 2003). Business management
professionals, scholars are emphasizing the need
of open innovation strategies in today’s global-
ized world as it is becoming an integral part of
global corporate strategy (Backer et al., 2008).
“Open innovation” stressed equally internal and
external knowledge sources of information. A
proper coordination of both the sources will yield
optimum benefit for a firm. Although, the latest
concept of “open” means technologies available
in the market free of cost, the open innovation is
based on fair share of intellectual property be-
tween innovator and the firm. However, the idea

Innovation Network in IT Sector
Figure 1. Closed Innovation. Source: Chesbrough (2003).
is still in germinating stage and primarily limited
to the organizational level, but it is increasingly
being discussed in the different level of innova-
tion systems and related government policies (De
Jong, et al., 2008). The open innovation model
is a more dynamic and less traditional and linear
approach. In this model firms search for ideas
and knowledge both from inside or from outside
boundaries of firms (OECD, November 2008).
Firms utilize both internal and external sources of
knowledge to advance their innovation processes
and quickly bring them to market (Figure 2). Open
Innovation paradigm argues that organizations can
make better use of their knowledge if they open
up their innovation process. Also, opening up of
innovation processes, means more knowledge
spillovers. According to Chesbrough (2003) the
present-day innovation paradigm is increasingly
shifting towards more open model. Open innova-
tion is defined as
…the use of purposive inflows and outflows of
knowledge to accelerate internal innovation, and
to expand the markets for external use of innova-
tion, respectively (Chesbrough, 2006).
OECD report observes
Companies’ innovation activities are increasingly
international, and they are embracing “open in-
novation” – collaborating with external partners,
whether suppliers, customers or universities, to
keep ahead of the game and get new products or
services to market before their competitors. At the
same time, innovation is being “democratized”
as users of products and services, both firms
and individual consumers, increasingly become
involved in innovation themselves (OECD, No-
vember 2008).
335

Figure 2. Open innovation model. Source: Chesbrough (2003).
In today’s highly complex competitive and
globalized market, MNEs have to innovate and
develop commercially viable products rapidly. It is
found that important innovation was increasingly
being done at small and medium size entrepreneur-
ial companies. University and research laboratories
are interested in forming industry partnerships to
commercialize their research. Even individuals are
today eager to license and sell their intellectual
property. Rapid development of IT particularly the
web technologies and the Internet has opened new
means to access worldwide talent. Even the largest
R&D spenders are not doing their entire R&D,
rather increasingly tying up with other. Like sales,
manufacturing, MNEs, have increasingly shifted
R&D activities across borders within their global
value chain and rely on outside innovation for
new products and processes. The world’s innova-
336

Innovation Network in IT Sector
tion landscape had changed. Firms are gradually
shifting their innovation model from centralized
model to globally dispersed but integrated model
(Bartlett & Ghoshal, 1989). New products and
services are not only developed by one company
but also in collaboration with partners such as
suppliers, research institutes, competitors or even
users (Hippel, 2005; Gassmann, 2006). Even the
major global MNEs like International Business
Machine (IBM), Eli Lilly Proctor and Gamble
(P&G) are doing research with the new concept
of open innovation (Huston & Sakkab, 2006).
In this context, corporate R&D function is also
changing rapidly. To meet the pressing challenge
to innovate quickly MNEs have changed their
innovation strategies and adopted new and open
approach.

Innovation Network in IT Sector
5.6 Trends in Global Innovation:
Open Innovation
As discussed in the above section, open innovation
is the latest corporate philosophy firms implement
to combine in–house research, expertise, and ca-
pabilities with external knowledge, expertise to
accelerate innovation in product and technology
development of the firm. More and more firms
are shifting their innovation policy towards ‘open
innovation model’ irrespective of the sector and
industry. With this latest trend open innovation
forms a unique foundation for Chinese academia
and industry to intensify their ties with western
scientific and industrial R&D institutions. Firms
realized that industrial value chain can possibly
be achieved with mutual knowledge shearing
with academic and also with industrial partners.
France Telecom (Orange Lab in Beijing), Nokia
Research Center (NRC), HP (open Innovation
office), Yahoo, Philips, tapping knowledge from
both institutes of scientific excellence (Universi-
ties, Government Research Institutes) along with
their own R&D centers across the world. The few
examples of open innovation strategies adopted by
MNEs both in India China are presented below:
France Telecom’s Orange Lab has set up
in 2004 in Beijing’s famous Zhonggguancun
high-tech Park known as the “Silicon Valley of
China.” As part of corporate strategy, Orange Lab
in Beijing is taking advantage of the huge talent
pool and to access the dynamic and rapid telecom
market growth in China. Through the open innova-
tion program, Orange Labs Beijing is developing
various types of informal and formal partnerships
with local universities, research institutes and
industries (http://www.orange.com/en/innovation/
an-open-innovation/a-collaborative-approach).
Nokia Research Center (NRC) is actively
engaged in open innovation. To expand its open
innovation activities, NRC in Beijing is collaborat-
ing with leading academic and research partners
across China. Although, NRC has an open innova-
tion network of more than 20 partners in China, it
has formal research agreements with two leading
universities in Beijing; Tsinghua University and
Beijing University of Posts and Telecommunica-
tions (BUPT). University teachers and students
collaborate with Nokia researchers on a wide
range of R&D topics for global and regional as
well (Nokia Research Centre, 2012).
HP (Open Innovation Office) is actively col-
laborating with various Chinese academic research
organizations. HP Lab in Beijing is tying up
with universities and other local R&D partners
to implement HP’s open innovation strategy. HP
Labs in China has developed collaborative re-
search engagements with a number of universities
including Tsinghua University, Peking University,
RenMin University, Beihang University, and Fu-
dan University and so on. Warren Greving, Global
Research Development Director at HP Labs, in
11th Computer Science Deans forum in October
2008 at Tsinghua University entitled “Globalized
Open Innovation – Local Color,” introduced HP
Labs’ research areas and open innovation model.
Greving’s speech highlighted the value of part-
nership in research collaboration where it is a
win-win situation for both the partners. With this
partnership both HP and universities are equally
benefitted (HP Labs China, 2008).
Philips believes Open Innovation is the best
innovation strategy. Philips cooperates with
Chinese universities (Tsinghua University, Zhe-
jiang University, Fudan University and Jiaotong
University) in building brain-bridge between the
China and Europe benefitting both the partner.
Our brand promise of Sense & Simplicity means
that we’ve now placed our Chinese stakeholders
- government officials, academia, research organi-
zations, think tanks, customers, industrial partners,
etc. - at the heart of everything we do. Yet, more
importantly, when you combine this brand promise
with our pursuit of creating a brain bridge between
China and Europe, then it becomes obvious that
Open Innovation is the future for Philips and the
future for China. We have been partnering with
337

China for twenty years, and we hope to remain a
trusted and respected partner for many more years
to come (“Press Conference Speech- Philips 20th
Anniversary in China,” April 20, 2005).
Yahoo! Global R&D center in Beijing, is
building strong partnerships with Universities
and research centers to promote a culture of
open collaboration and innovation. Situated in
Tsinghua University Science Park (TUSPARK) a
crucial location near Tsinghua University, Yahoo
has active collaboration with universities through
research grants, collaborations, and student’s
internships programs.
IBM India Research Lab develops new applica-
tion in many areas like the use of mobile phones
in India through open innovation mode. In open
collaboration mode IBM collaborate with dif-
ferent universities and researchers in India. IBM
has started Open Collaboration Research (OCR)
project with different Indian academic institutes.
For example it has collaboration with the Indus-
trial Design Centre (IDC) at the Indian Institute
of Technology, Bombay (IIT Bombay), National
Institute of Design (NID), Ahmedabad and many
other institutions. The main of this collaboration is
to develop new designs for mobile device interfaces
particularly for Indian people. These devices can be
easily used by Indian people who are semiliterate
or illiterate, as well as individuals with limited or
no access to information technology. According to
Dr. Manish Gupta, Director IBM Research India
and Chief Technologists, South Asia:
…collaborative innovation with world-class aca-
demic institutions such as IIT Bombay, is the key
to finally bridging the digital divide and putting
the power of information sources and services
in everyone’s hands, (“IBM and IIT Bombay to
Collaborate on Mobile Web Research,” 2010),
General Electric (GE) has opened John F
Welch Technology Centre (JFWTC) in 1999 in
Bangalore, India. The center is the largest center
338

Innovation Network in IT Sector
outside the US. It employed about 5,500 engineers,
4,000 of them in Bangalore, 1,200 in Hyderabad
and the rest in Mumbai. Till date JFWTC have
bagged 1,400 patents form its India center. Sukla
Chandra, director (legal, patents and analytics),
John F Welch Technology Centre (JFWTC) said
For example, under open innovation, we provided
$200 million to a small company for a smart-grid
technology along with a venture capital fund.
Later GE acquired it for the IP, (“India a focus
area for patents,” July 16, 2011).
Panasonic Research and Development Centre,
India (PRDCI) has recently opened, in Gurgaon,
Haryana, India. Keeping in view of Indian emerg-
ing market, Panasonic opened its R&D center in
India. This is among one of the 9th R&D center
in emerging economics. The major focus of the
center is to promote open innovation with Indian
universities and companies to create new business
opportunities. PRDCI Director Ron T Kakimoto
said
One of the focus areas for the center will be to
develop products relating to the future needs of the
Indian market. The PRDCI will also be looking at
developing energy management and AV products
toward business expansion in India and promote
open innovation with Indian universities and
companies to create new business, (“Panasonic
sets up first R&D subsidiary in India at Gurgaon,”
May 18, 2011).
6. CONCLUDING REMARKS
AND POLICY IMPLICATIONS
R&D activity for foreign firms in India and China
is increasing. Local R&D units of foreign firms
are getting importance because many of them
are working on global frontier of knowledge to
enhance their knowledge base at home. Firms
have developed their innovation network in these

Innovation Network in IT Sector
two countries. Many of them enter into Indian
and Chinese market through merger and acqui-
sition. However, Greenfield investment is the
most preferable entry mode into these emerging
markets. As collaboration partner for knowledge
scouting process, foreign firms prefer university
or government research institutes as their R&D
partner. Partnerships with universities are valuable
to companies’ R&D potential. Firms have chosen
universities which are capable to conduct coopera-
tive R&D projects. Foreign firms often contribute
training, equipment, and funding to the partner-
ship projects. Also firms can use partnerships to
educate potential employees and customers about
their products into the local markets. However,
linkages are restricted only within few premier
institutes. Policy measures require to strengthen
collaboration beyond these selected institutions.
Also, government should emphasize on the in-
frastructure and capacity building towards Tire II
cities. So that firms can move from Tire I to Tire
II cities. Perhaps both the countries should real-
ize the potential of foreign R&D and maximum
benefit should incurred by it.
Firms in IT sectors in these two countries
are participating in collaborative R&D projects
like “Cloud Computing” “Zigbee Network.” It
is also observed that foreign firms prefer other
foreign firms as their partner. There is very little
collaboration with local industries, institutes or
universities. Local firms’ capability building is
important in this case. Firms are emphasizing
more on open innovation rather than their own in
house R&D. With the present wave of globalization
open innovation is the latest global trend in R&D.
Perhaps a suitable venture capital environment is
crucial for both the countries to exploit spillover
from it. While India has venture initiatives like
‘angel networks’ China perhaps is lacking of such
initiatives. Government intervention is needed in
these cases.
International knowledge flows through MNEs
have potential benefit for developing countries to
learn and innovate. Earlier, industry and govern-
ment were recognized as the pillars of modern
society. Now university is taking an important
role in a knowledge-based society. Most countries
and regions realized the importance of university-
industry-government linkage. For a sustainable de-
velopment, an innovative environment is required
where university can take leadership followed by
government and firms. Government must encour-
age this interaction passing ‘Bayh–Dole’ type act
as the US government did. So, state government
has definite role to ensure the smooth function-
ing and coordinating all three entities by direct
or indirect financial support, or through different
policy measures.
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344

Chapter 20
The Development of
Mobile Service Applications
for Consumers and
Intelligent Networks
Rebecca De Coster
Brunel University, UK

Abdulrhman Albesher
Brunel University, UK

ABSTRACT
The enhanced capabilities of mobile handsets are starting to include activities previously associated
with traditional desktop computing capabilities. This extends the mobile handset from being used for
connectivity to a range of purposes in both consumer and intelligent networks. This chapter examines
the development of mobile service applications from current consumer telecommunication applications
including context based services (such as location based services) to mobile internet-based services
and the forthcoming applications for intelligent networks. Developments of both consumer and industry
services in sectors with complex operations are examined in terms of service interactions by reviewing
the adoption factors and the provision of services in terms of service characteristics and business models.
This chapter develops conceptual frameworks for better understanding mobile services and mobile use
in the context of intelligent networks along with emerging consumer applications.

INTRODUCTION of new mobile services has impacted MNOs

The increasing trend towards Internet connectiv-
ity by mobile users has altered the perceptions of
consumers in terms of their access to information;
applications and related services over their mobile
handsets. The increasingly interconnected nature
(mobile network operators) business structures,
operations and their interaction with customers.
The concept of a business model has evolved from
the work on value provision which identifies the
value-adding activities of a firm. Unlike the case
of manufacturing industries and adding value to

DOI: 10.4018/978-1-4666-8468-3.ch020

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The Development of Mobile Service Applications for Consumers and Intelligent Networks
the process by the transformation of the physical
materials through a sequence of manufacturing
processes, many scholars suggested that in some
industries (such as banking, insurance, advertis-
ing), Porter’s value chain (1980) cannot give a
clear picture of the impact of the different ways
firms and customers are connected to each other
(Funk, 2009 and Weiner et al., 1997).
Traditionally the mobile communications
industry value chain was influenced by the evo-
lution of digital communication systems, more
specifically, the transition from analogue to GSM
to CDMA communication system standards at
a global level (Funk, 2009). At that time the
value provision was limited to basic phone calls
text messages and limited data bandwidth. The
traditional business model of the phone industry
value chain is based around the Mobile Operator’s
service provision as shown in Figure 1 (Funk and
Methe, 2001; King and West, 2002; Lehenkari and
Miettinen, 2002; Lyytinen and Fomin, 2002 and
Steinbock, 2003). The subscriber not only sees
the MNO as the provider of wireless connectivity
(including internet access) but also their route for
downloading applications. The billing mechanism
is through the MNO for the entirety of the user’s
mobile provision.
The enhanced capabilities of mobile handsets
are starting to include activities previously associ-
Figure 1. Traditional business model for mobile services
ated with traditional desktop computing capabili-
ties. This extends the mobile handset from being
used for connectivity to a range of purposes as
shown in Figure 2. From the consumer’s perspec-
tive their contracted services is also part of the
overall package as shown on the right of the figure.
Consumers will assess their current package in
light of their perceived requirements which is based
on lifestyle and individual preferences. Further,
consumers will be aware of the alternatives as for
many demographics (such as youngsters) social
image is partly portrayed through their chosen
handset and services.
The significant improvement of hardware
capability in the mobile computing industry has
removed many of the barriers of mobile applica-
tions. Much improved processing power and better
wireless access coverage and bandwidth unlocked
the possibilities of rich content application as well
as a more effective information flow through web
gateways and distributed client-server applica-
tions (Holzer and Ondrus, 2011). This radical
change to rich content of mobile services has
impacted consumer data traffic by services such
as video-related services which include web video
streaming and video file sharing or downloading
(Krogfoss, Hanson, and Vale 2011). Yet it seems
that MNOs are a bit constrained in this new
ecosystem of mobile content market. Customers
345

The Development of Mobile Service Applications for Consumers and Intelligent Networks
Figure 2. Mobile applications and billing packages for consumers
(subscribers) do not look to mobile devices as
a basic communication device anymore, but as
another version of personal computers. The new
trends of tablets and cloud computing services
in parallel with the new capability of these smart
devices and the enhancement of data bandwidth
have also affected the level of usage possibilities
of these devices.
There are an increasing number of mobile user
devices which use differing applications – both
for industrial purposes and for consumers. There
has been a gradually evolving range of mobile
devices which is extending as different groups of
users see the benefits of wireless connectivity, for
example, healthcare for home patient monitoring.
The design aspects for each device, service and
application needs to address the service concept
aspects and the mobile user interface design to
ensure usability. The focus here is the nature of the
mobile service applications both current consumer
telecommunication applications ranging from
context based services (such as location based
services) to mobile internet-based services (Ovi
from Nokia for example) as well as the forthcom-
ing applications for intelligent networks.
346

DEVELOPMENT OF APPLICATIONS
FOR CONSUMERS
The key developments for users were identified as
working assumptions for fourth-generation mobile
project (Bria et al., 2001) including: telepresence
(in place of meetings); information anywhere,
anytime; intermachine communication; security
and one-stop shopping. Many consumer electronic
applications in the mobile networking sector arise
due to user demands for the convenience of wire-
less connectivity. For consumers, the internet era
has led to a world where devices are increasingly
connected to other devices or access networks.
Katz and Shapiro (1994) identified three issues:
expectations (such as costs of product develop-
ment), coordination amongst firms (for example,
formats for customer devices) and compatibility.
The starting point for innovation in telecom-
munications is the availability of technology (as
a communications enabler) and also appropriate
user content. A generic innovation chain for the
adoption of telecommunication applications is
shown in Figure 3. This shows the dual aspect of
technology (at the bottom) and consumer inter-

The Development of Mobile Service Applications for Consumers and Intelligent Networks
Figure 3. Adoption of telecommunications applications and services
est (at the top) that both need to be supported in
order for applications to be successfully adopted.
Several studies attempted to understand the
adoption of ICT at its early diffusion stage based
on the theory of reasoned action, TRA (Ajzen
and Fishbein, 1980), the technology acceptance
model, TAM (Davis, 1989), the theory of planned
behaviour, TPB (Ajzen, 1991), and the innova-
tion diffusion theory, IDT (Agarwal and Prasad,
1997). Other studies have focused on the adop-
tion of mobile technology services using TRA or
TAM (e.g., Bruner and Kumar, 2005; Hung et al.,
2003; Lu et al., 2008; Wu and Wang, 2005). Yet
the understanding of the evolution of the mobile
industry requires more than the understanding
of the consumer behaviour. The mobile industry
ecosystem has been redefined by the convergence
of traditional mobile telephone, Internet services
and personal computing signalled by the launch
of the original iPhone by Apple (Kenney and
Pon, 2011) resulting in an emerging industry of
“mobile Internet” (Ishii 2004 and Funk 2001).
According to Kenney and Pon (2011), the emerg-
ing smart phone industry provides an ideal case
study for examining firm strategy in a moment
of convergence.
The interest in new applications depends on
consumer lifestyles and user preferences such as
seen in SNS (social networking sites). Social net-
working is (Alam and Prasad, 2007): “a platform
where people from all walks of life come together
to express themselves by means of sharing videos,
pictures, contents, etc.. and it provides the ability
to collaborate using peer-to-peer applications and
services.” The trend towards social networking
is potentially a global one which could alter the
dynamics of capacity utilisation amongst resi-
dential users of broadband wireless access. The
use of SNS during the innovation process for
telecommunications applications is evolving as
demonstrated by consumer discussions on their
user experiences, for example, Skype is becom-
ing available on various mobile handsets. Skype
is a widely used VoIP (voice over IP) application
currently utilised by many consumers through
their desktop computers to provide a real-time
communications channel between participants
(Vaishnavi et al., 2010). Skype is one of the emerg-
ing multimedia applications that supports social
communications through video conferencing with
similar applications being made available by other
firms such as FaceTime from Apple and similar
347

The Development of Mobile Service Applications for Consumers and Intelligent Networks
applications from Google for use on smartphones
which are seeing a growth in the number of devices
(Kenney and Pon, 2011).
Consumer applications are starting to combine
a number of service characteristics such as multi-
media processing, connectivity and location which
together open up applications such as interactive
tours as you visit a museum. You can use touch
screen technology to access information on the
exhibits at your current location which can either
be provided through fixed terminals or wireless
connectivity to portable devices such as light-
weight tablet computers. These types of services
can be offered as miniaturisation improves in
other consumer devices such as digital cameras
and camera phones. Connectivity is an important
element as consumers are increasingly mobile in
their lifestyles in both work and leisure activities.
With the recent economic downturn rising
living costs are focusing consumer attention on
their domestic costs such as heating and electrical
costs. The potential for connecting remotely on
a real-time basis to the electronic devices in the
home has been recognised for a while; however,
implementation has yet to become widespread.
Advances in mobile handsets such as Google’s
plans to extend the capabilities of the Android
operating system to include wireless control of a
wide range of appliances and devices within the
home may facilitate the uptake of home networks.
Smart homes require low-power and low-cost con-
nectivity to a variety of electronic devices which
are easy for the consumer to manage (such as ‘plug
and play’). With wireless connectivity in the home
there is the potential for a more refined approach
to energy monitoring and usage in the home.
Asset tracking has clear potential in the work-
place, however, there is also the potential for
consumer applications to locate and track personal
possessions that are valuable (such as pets for
example). The associated potential of electronic
data logging provides the capability to recognise
348

‘normal patterns’ and deviations from these pat-
terns could then raise alerts. Usage of technolo-
gies to track possessions will need the impetus
of consumers to better improve their ownership
responsibility which requires an attitudinal change
which is arguably the hardest change to predict
(McBurney et al., 2002). Consumers are now used
to a relatively ‘use and dispose’ approach with
regards many of their lower cost possessions along
with the view that insurance will cover the loss
or damage of higher cost possessions. This could
change to a more proactive approach through the
use of personal wireless asset tracking.
The consumer applications which can make
use of embedded intelligence in consumer items is
currently unclear however this is likely to change
as the potential is designed into personal and
household items ranging from clothing to home
appliances to leisure related objects. The poten-
tial for information generation and the ensuing
exchange of information will be limited only by
the potential for applications that are perceived to
be beneficial. The trend of a wide variety of ‘apps’
(applications) which are downloadable for mobile
phone users is likely to extend to applications that
cover many aspects of our increasingly intercon-
nected life. As connectivity grows in a manner
that appears exponential to us as individuals then
there will be an increasing need for the filtering
and handling of information.
DEVELOPMENT OF APPLICATIONS
FOR INTELLIGENT NETWORKS
Advancements in electronics products have trans-
formed our environment since the introduction of
the transistor and the availability of computing
power resulting in advancements to our standard
of living. The next major technological evolution is
the aspect of mobility which has seen widespread
adoption of mobile phones but the mobile com-

The Development of Mobile Service Applications for Consumers and Intelligent Networks
munications sector is yet to move beyond voice
and data access to mobile networking. Many
consumer electronic applications in the mobile
networking sector arise due to user demands for
the convenience of wireless connectivity (for
example, hands free Bluetooth devices).
The move to “Intelligent Networks” will require
network nodes and devices that have M2M (ma-
chine-to-machine) connectivity. Home networking
is an area which has been recognised but has not
yet seen great diffusion. This will entail linking
devices together and exchanging information so
that a high level of automation is achieved. There
are also an increasing number of mobile user
devices which need to be supported – both for
industrial purposes and for consumer electronics.
Healthcare is an area where we are likely to see
a proliferation of “always-on,” battery-powered
devices both in the home and in hospitals.
The intelligent city is a new concept which
has emerged as an attempt to improve a nation’s
competitive advantage. Steventon and Wright
(2006) define intelligent cities (or knowledge cit-
ies) as: “intelligent cities are defined as intelligent
environments with embedded information and
communication technologies creating interactive
spaces that bring computation into the physical
Figure 4. Conversion of existing applications and services to mobile applications
world.” This and similar definitions emphasise
that information and communication technologies
(ICT) plays a critical role in innovation systems
as well as the development of intelligent cities.
Therefore, examination of mobile service offer-
ings (current and potential) is a strategic item that
affects the development of intelligent cities. Inno-
vation systems studies focus on the understanding
of how to best align the innovation environment
with the requirements of the innovation network
toward better innovation performance.
Given that intelligent cities are not wide spread
and even those that are recognised as ones vary
greatly in their capabilities it is apparent that the
potential applications and their capabilities are
not well understood. This section will develop a
conceptual framework for better understanding
mobile services and mobile use in the context of
intelligent networks many of which are derived
from existing corporate applications such as indus-
trial monitoring applications as shown in Figure 4.
The platform options shown at the bottom of
Figure 4 refers to the myriad of open and closed
platforms which range from open platforms
through to vendor produced through to proprietary
systems. There are inherent differences amongst
these platforms in terms of their architectures;
349

The Development of Mobile Service Applications for Consumers and Intelligent Networks
performance and characteristics which often arise
due to the specific requirements for supporting
business operations and functions which may
range from high capacity manufacturing for the
food and beverage sector through to assembly of
customised personal computers. The middle layer
of Figure 4 represents this operational perspective
which is imperative for many high technology
firms as their production systems (which are the
‘engine’ of their business) will have evolved and
extended over a period of time to support and
facilitate diverse operational situations.
The conversion options shown at the top of
Figure 4 refers to the approaches which can be
used to convert existing applications (running on
the platforms shown at the bottom) so that they
are available as mobile applications. A systemic
view is necessary to account for the requirement
for firms to both support their existing applications
which run on their corporate applications (which
their business processes depend on) and also to be
able to support their mobile workers. The focus at
this top level is on altering the applications such
that they fit in with constraints such as limited
screen size of a mobile handset (such as a vehicle
based PDA for example) compared to the screen
size of a computer for staff based on a corporate
site who may be accessing a corporate database
comprising many product details.
Firms need both good strategic and operational
planning to develop and grow as a business part of
which is that it utilises resources effectively. M2M
technologies are an enabler for firms to improve
usage of resources and process throughput such
that faster product time to market is achieved which
is key to meeting customer orders (particularly for
business customers). However, it is argued here
that the greater benefits of M2M is not the automa-
tion of operational processes and activities, rather
it is the strategic benefits which can be realised
given that there is the potential of greater visibility
of their internal business activities and hence more
refined value creation and provision which enables
them to counter changes of markets, competitors
350

and technological advancements. This is well
recognised in the extent literature on strategic
management and how firms compete which puts
significant emphasis on a firm’s capabilities. This
perspective is the resource based view (RBV) of
the firm and is based around the recognition and
development of core competences (Fahy, 2000).
The development of business strategies in-
volves evaluating the firm’s existing position
against the external environment of changing
market conditions and competitor activities. The
market understanding needs to consider all the
entities involved and the complex interactions
amongst them – these include the product, the task
and the application. There may be the potential
for M2M technologies to provide firms with the
opportunity to gain visibility of the way that cus-
tomers use their products. For example, Caterpillar
(a global manufacturer of construction equipment
and vehicles), has developed engine monitoring
systems which enable remote diagnostics. The
benefit for their customers is that they are alerted
to a potential equipment problem before it affects
their ongoing construction operations (and hence
causes costly on site delays). Further, the informa-
tion on usage patterns of the Caterpillar equipment
can provide invaluable insights which can assist
with improving future vehicle designs – this real
time data access is an enabler for learning about
their customers which can become a source of
competitive advantage.
The importance of M2M technologies within
the firm is more easily recognised in the strategic
context involving significant change such that
Enterprise Realignment is required. Enterprise
Realignment refers to the need to reconfigure
and extend the capabilities of a firm which may
require a level of flexibility in their operations that
is difficult to achieve without M2M technologies
in their production facilities. Enterprise Realign-
ment entails a review of current innovation man-
agement activities and their ability to maximise
key resources. The process starts by establishing
priorities for upgrading the resources required to

The Development of Mobile Service Applications for Consumers and Intelligent Networks
support the firm’s business plans. The resources
that need to be addressed have a broad scope
including manufacturing technology, product
architectures and the organisational processes
which support innovation.
DEVELOPMENTS IN
BUSINESS MODELS
Business models should address the following
according to Osterwalder and Pigneur (2002):
the value proposition of the proposed product
innovation; customer management; infrastructure
management and financial aspects. Many schol-
ars have attempted to better explain the mobile
phone industry using a value network rather than
a value chain (Li and Whalley, 2002; Peppard and
Rylander, 2006 and Tilson and Lyytinen, 2006).
As summarized in Figure 2, music, animation,
video, and gaming have become core offerings
of the mobile industry in most countries (Funk,
2009). The whole ecosystem is evolving by the
increase in number and diversity of firms offering
rich mobile content ranging from broadcasters
Figure 5. Vendor based business model
and publishers to retail outlets such as restaurants,
through to transport operators and other travel-
related companies and others (Funk, 2007).
The mobile application development and dis-
tribution was traditionally affected by multiple
factors such as payments models (Adrian, 2002);
mobile services platforms and the walled garden
approach (Ballon et al., 2008). The evolution of
mobile (m)-commerce is dependent on many other
factors including: devices capability (Barnes,
2002); the societal, technological and economical
recognition of the value of m-commerce (Buel-
lingen et al., 2004); the rise of interface standards
that enable mobile phones to be connected to other
industries (Funk, 2009; Maitland et al., 2002) and
the impact of utilizing mobile phones on business
models (Tsalgatidou et al., 2001).
Until recently the industry value provision was
traditionally managed by the mobile network op-
erator (MNO), however, phone manufacturers have
linked up with some mobile application providers
to offer service applications via a vendor platform
as shown in Figure 5 (Holzer and Ondrus, 2011).
Further, the structure and value chain have evolved
by the signification of the role of new actors such
351

The Development of Mobile Service Applications for Consumers and Intelligent Networks
as platform providers and developers community
(Piller et al., 2004; de Reuver and Haaker, 2009
and Feijóo et al., 2008). For instance, the plat-
form providers are now in a monopoly position,
which controls the mobile content markets, as in
the case of Apple’s iOS and Google’s Android
platforms limiting, the value provision by MNO
to connectivity access. There is a real need to bet-
ter understand the impact of the new factors that
affect key players in the mobile industry (Holzer
and Ondrus, 2011).
Open innovation is relatively well established
in the computing sector with developers able to
write Java based applications and this is now oc-
curring for mobile service applications. Platform
providers have attempted to incorporate innovative
applications developed from outside its boundaries
taking advantage of the new capabilities of smart
devices and wireless networks bandwidths. This
can be comprehended by the open innovation ap-
proach in two ways. Firstly, the platform providers
participate in the development stage of application
by providing a competitive Software Development
Kit (SDK) to the application developers’ com-
munity (Piller et al., 2005) and also provide them
with an excellent chance for their application to
reach the market through their portals.
The mobile application distribution process is
defined by Holzer and Ondrus (2011) as “a process
by which an application is developed, brought
to the market and purchased by customers, and
used on mobile devices.” Similar to application
downloads for other software applications, this
process involves three main components: publi-
cation of applications; download of applications
and payment accomplished through the applica-
tion portal which is acting as a mediated layer to
more practically deliver market mobile content
market. This mediated mechanism as advocated
by Adrian (2002) is recognized as a two-sided
market (Parker, 2005; Rochet and Tirole, 2003)
352

where the number of customers and number of
developers influence each other. Consumers are
increasingly influenced by the availability and ease
of access to the latest features and applications so
the solutions to providing this interconnectivity
will become competitive issues.
The distribution process of the mobile content,
such as application, music, movies, digital books
and digital newspapers is facing a change in dis-
tribution with the advent of open innovation. This
may introduce a dramatic shift from decentralized
portals to centralized portals exclusively managed
by the platform providers. In contrast to decen-
tralized portals, centralized portals have attracted
larger pools of developers benefiting from a more
effective channel of delivering their products
(Holzer and Ondrus, 2011). The potential of this
change in business model is one that is unclear in
a situation similar to that of the corporate market
which has been assessing the potential of Cloud
Computing to provide desktop services.
Figure 6 shows there is a high interdependency
between the platform provider and the applications
developers’ community which interact through
an Open Platform. Such interdependency has
its impact on the innovation capability and con-
sequently the value encapsulated in the mobile
content. Moreover, it crucial to stress the closed
feedback loops in this open innovation system. The
platform provider benefits from the feedback of
the application developers regarding its operating
system (OS) and SDK capabilities and also from
both developers and customers regarding its market
portals precipitation and effectiveness. As results
of such feedback the platform provides attempts to
be in a continuous improvement situation and to
leverage the capability and value of its OS, SDK
and market portals. According to Rufat-Latre,
Muller, and Jones (2010) open innovation has
helped Apple computers to grow dramatically by
utilizing its customers’ value of the content variety

The Development of Mobile Service Applications for Consumers and Intelligent Networks
Figure 6. Third party based business model
through the integration of its competency and the
content that is created both inside and outside its
organization boundaries.
As in the case of Apple’s App Stores, iTune
music Stores, iBook Stores the marketing and
administration effort are all taking care of by the
platform provider in exchange of a percentage of
any transaction taking place in these stores. In
fact, Apple has been affected with the transition
to this business model of open innovation as the
traditional value added mobile market benefiting
from a long tail strategy where high sales result
from selling a portfolio of low volume products
over an extended period of time (Anderson,
2006). Firms such as Apple need to decide their
strategy in terms of this latest business model
and whether or not they take a leading position
in the whole mobile content market. Recently
Apple has adopted what appears to be a long tail
strategy for the value added mobile market (Holzer
and Ondrus, 2011). Further, the future trend is
likely that radio interfaces in mobile Internet and
consumer electronic devices will support several
radio interfaces and possibly have the potential to
download upgrades (Ohmori et al., 2000) extend-
ing the Open Innovation business model to the
transmission channel.
The Integrated Value Network Model
(IVNM) of the Mobile Industry
Although each actor in this model has their own
innovation system and value chain, the model
depicted in Figure 7 simplifies and categories
the major actors in the evolving mobile industry
structure. It also adopts value provision at its core
in order to comprehend the impact of the integra-
tion of different possibilities of both closed and
open innovation.
The Platform Provider
The platform is a critical part in this model as
in addition to the OS that integrate with the
device hardware, it also represents the interface
that interacts with customers. Consequently, the
interface is literally controlling the contents that
reach the customer putting the platform provider
353

The Development of Mobile Service Applications for Consumers and Intelligent Networks
Figure 7. The IVNM model of the mobile industry
in a monopoly position. In addition to the inter-
face the platform provider is also responsible for
providing the SKD that enables application to be
developed. In addition, the platform comprises
the portals that represent the money flow gateway
from customers in an exchange to application and
mobile content. The platform provider is in control
of both application money exchange as well as the
advertising market inside a portal.
The Developers’ Community
The developers’ community is of increasing
importance as applications have become an at-
tractive value to customers when looking to buy
a specific device. The larger the number of ap-
plications then the larger the number of customers
which, in turn, leads to a larger market size. The
354

innovation of the developers’ community has a
direct relationship with the capability of both the
OS and SDK provided.
The Device Manufacturer
The device manufacturer has a significant impact
on the customer experience with the device. In
fact specifications like processor speed, power
consumption, screen quality, imaging module,
GPS module, and other factors took smart de-
vices functionality beyond basic communication
devices. Yet the optimization of the whole sys-
tem of the smart device requires a high level of
cooporation between the platform provider and
the device manufactures in order to achieve the
best possible system stability, functionally and
customers’ experience.

The Development of Mobile Service Applications for Consumers and Intelligent Networks
The Mobile Network Operator MNO
The MNO is the data gateway that connects cus-
tomers with switches and applications’ servers.
Rich mobile content demands higher bandwidths
making MNOs role critical to guarantee practical-
ity of on-demand services, such as web browsing,
video steaming, downloading and business trans-
action. However, enhancement of bandwidth as
in the transition from 2G to 3G to 3.5G to 3.75G
and recently to Long term Evolution (LTE) has
a high cost impact on the operation and business
strategy of the MNOs. Such improvement is crucial
to a richer mobile content that encourage further
innovative application of smart devices yet might
lead paradoxically to a situation with company
financial performance (Krogfoss et al., 2011).
FUTURE RESEARCH DIRECTIONS
Research into the development of mobile ser-
vices for consumers needs to better understand
the influence of consumer-to-consumer (C2C)
communications systems and their influence on
consumer perceptions and expectations. Further,
customer views and acceptance of mobile ser-
vices applications will depend on perceived ease
of service access (downloads) and use. Service
planning for mobile services that link network
nodes and devices in the Intelligence Age will
require “interrogation” of nodes for information
to facilitate monitoring systems (such as for home
use or industrial) in their evaluation of system
status. This extends the network node functional-
ity beyond generating mere status reports to being
able to perform partial processing of informa-
tion themselves. The implications for network
providers supplying wireless connectivity in the
Intelligence Age are that the nodes and network
controllers will perform greater functionality.
Research questions on open innovation
practices are around the factors that affect the
performance of open innovation, specifically the
four pillars of the smart devices value provision:
the system innovation, the access innovation,
the application innovation and the on-demand
innovation. Changes in business models also
have strategic implications for existing players
and research is needed to identify their options in
terms value provision as the sector moves towards
centralized portals.
CONCLUSION
The chapter started with a review of value creation
and provision in the mobile sector and the percep-
tion of customers in two respects: that of the mobile
applications and that of billing packages. In the
context of mobile service applications with its ben-
efits of wireless connectivity, a framework for the
adoption of telecommunications applications and
services has been introduced. This comprises two
aspects along which services need to be developed:
technological and consumer interest. The advent
of C2C (consumer-to-consumer) communications
platforms such as SNS (social networking sites) is
a new entity in the innovation of mobile services.
We recognise that the challenge for firms is the
integration of a number of service characteristics
such as multimedia processing, connectivity and
location when developing new mobile services
and applications for consumers.
With respect to the move to “Intelligent
Networks” that will require network nodes and
devices that have M2M (machine-to-machine)
capability. We argue that existing corporate
applications should be ones which are offered
wirelessly to support mobile workers and that
competitive advantages can be obtained through
the increased visibility of key business processes.
The developments in business models were dis-
cussed; the number of players offering rich content
for mobile services has increased dramatically
and this is likely to continue. A proposed IVMN
355

The Development of Mobile Service Applications for Consumers and Intelligent Networks
(integrated value network model) model was
developed which will aid in the understanding of
the different role of the major actors of the mobile
industry. Furthermore, the model also highlights
future mobile services direction by facilitating the
value network and where possible open innovation
between major actors takes place. The lesson for
mobile players is that value provision in the mobile
industry has become a combination of the value
provided multiplied by the interdependent actors
in the value network. The interdependency of each
actor on the performance of the other affects the
mobile industry towards a movement from closed
to open innovation.
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KEY TERMS AND DEFINITIONS
Business Model: The design or architecture of
a business including its resources; organizational
configuration and products/revenue streams.
C2C: Consumer-to-consumer services where
exchanges and transactions are made between and
amongst consumers.
Enterprise Realignment: To reconfigure and
extend the capabilities of a firm.
Intelligent Networks: Autonomous networks
comprising a variety of nodes and electronic
devices.
M2M: Machine-to-machine connectivity
refers to devices being linked up electronically
and networked.
Open Innovation: The development of new
products and/or services making use of external
resources.
SDK: Software Development Kit available
to develop new applications by the developers’
community.
 361

Chapter 21
Open Social Innovation
Teresa Cristina Monteiro Martins
Universidade Federal de Lavras, Brazil

Paulo Henrique de Souza Bermejo

Universidade Federal de Lavras, Brazil

ABSTRACT
Social innovation and open innovation are two concepts that have gained prominence in the last decade.
Small social innovations have the potential to change the global system, expanding through a collabora-
tive process. Furthermore, the collaborative process is the main characteristic of open innovation. Social
and open innovations are relevant and emerging; their relationship with each other has been neglected
in the literature. Based on the study of social innovation and open innovation, this chapter proposes a
framework about the “open social innovation” and demonstrates how it can be implemented through
examples in Brazil and the US. Based on the literature review and these examples, it is evident that
“open social innovation” is already a reality in many regions and is a combination of the two original
concepts converging in collaborative process.

INTRODUCTION the expansion of the public sphere, citizen par-

In the global context, the concept of innovation
has been considered highly important in economic
development. Initially linked to the economic
field and related to new technologies, in the last
decade, innovation has gained prominence in
new formats. These include social innovation in
order to meet social needs or cause changes in
social practices, and open innovation, to achieve
efficiency and effectiveness.
Studies on social innovation are relevant to
the current context in which theories on social
management, localism (Schaffers et al., 2011),
ticipation, and social movements have emerged in
public administration. Studies on open innovation
have accompanied the global demand for efficient
methods to generate effective innovations.
At the governmental level, both have been
discussed as means to stimulate new democratic
practices, such as the use of open innovation to
promote social innovation by the Obama admin-
istration (Parvanta, Roth, & Keller, 2013); social
innovation and the optimization of localism
(Schaffers et al., 2011); and various initiatives
like the European Commission’s Social Innovation
Europe and Innovation Union programs (Wobbe,

DOI: 10.4018/978-1-4666-8468-3.ch021

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

2012). Governments have realized that it is neces-
sary to innovate socially in order to confront crises
in the public sector, public budget cuts, and poor
policy performance (Murray, Caulier-Grice, &
Mulgan, 2010; the application of the PrizeIdea
Platform of the government innovation).
The themes of social and open innovation are
present in practical cases in which there is col-
laboration between public and private actors in
the pursuit of meeting the social needs of com-
munities. However, the relationship between the
two concepts is still neglected in the literature, as
there are few articles related to the topics. Further
studies on the applicability of open innovation
methodologies in various contexts are necessary
(Huizingh, 2011); on the other hand, the study
of social innovation is also necessary in order to
determine what effectively generates innovation in
social practices as well as the current mechanisms
for the resolution of social problems (Paulini,
Murty, & Maher, 2013).
Recently, Chalmers (2013) introduced the two
concepts together, proposing that open innova-
tion can reduce barriers to social innovation; the
author proposes the “Open Social Innovation”
concept, but this remains open for future discus-
sion. Examples are necessary for its consolidation
and the research problem persists: how can open
innovation contribute to social innovation?
Aiming to fill the gaps left by Chalmers (2013),
this exploratory qualitative study (Collis & Hussey,
2005) proposes to explore the “Open Social In-
novation” concept as a junction between social
and open innovation. To this end, we present a
literature review on innovation, social innovation,
and open innovation. Following is an “Open So-
cial Innovation” section, which synthesizes these
concepts in a comparative framework to explain
the concept while uniting the characteristics of
these two types of innovation. Examples of “Open
Social Innovation” concept techniques will be pre-
sented. In the next section, the concept of “Open
Social Innovation” will be discussed, as related
362

Open Social Innovation
to other work in the field. Finally, conclusions
are presented, including research limitations and
several assumptions to be tested in further studies.
INNOVATION
The ability to innovate is an intrinsic characteristic
of human beings (Simms, 2006). The concept of
innovation was initially linked to the economy,
especially in the work of Schumpeter (1961). The
author defines innovation as “the commercial
or industrial application of something new – a
new product, process, or method of production;
a new market or source of supply; a new form of
commercial, business, or financial organization”
(Schumpeter (1961), p. xix). This definition shows
the close link between innovation and the ability
of firms to develop processes that are appropriate
for the capitalist context.
The ability to innovate has also been consid-
ered in several other important fields, including
the technological and managerial fields. In 1996,
the European Commission, in the Green Paper on
innovation, showed that innovation is more than
an economic mechanism or a technical process;
it is also a social phenomenon, in which the indi-
vidual needs are combined with them creativity
for generate innovations. (Commission, 1996).
In the Green Paper, the innovation is” synonym
for the successful production, assimilation and
exploitation of novelty in the economic and social
spheres. It offers new solutions to problems and
thus makes it possible to meet the needs of both
the individual and society” (Commission, 1996).
Thus, the innovation aims of meeting needs
and, according to Schumpeter (1961) the innova-
tion is:
1. A new or improved product or process, and
2. A commercial or industrial application of
that product or process.

Open Social Innovation
Based on (Commission, 1996), it is possible
to divide the second category into the following
two subcategories:
2.1. The broadcast application of novelty in the
economic area, which corresponds to techni-
cal innovation, and
2.2. The diffusion of the novelty in the social
area, which corresponds to social innovation.
The distinction between technological and
social innovation will be clarified when the char-
acteristics of social innovation are presented in
the next section.
SOCIAL INNOVATION
Social innovation as a field of study is a relatively
new development; however, as a phenomenon,
social innovation has historically determined the
evolution of societies (Mulgan, 2006). Simms
(2006) differentiates technical innovations from
social innovations. Technical innovations range
from the stone ax up through instant communi-
cation, while social innovations include spiritual
belief systems, nations, and globalization. Fur-
thermore, technical innovations are crucial for
the generation of social innovation, while social
innovations are determinants for generating in-
novative techniques. Social innovations can also
take tangible form as a technology, since it meant
the welfare of communities and the public good
(Cloutier, 2003).
According to Cloutier (2003), the “innovative”
aspect of social innovation can be identified as
part of a context in which the individual seeks to
change the perceptions toward an unsatisfactory
situation, i.e., a social need or a problem that
compromises wellbeing and community. These
problems are triggersfor society to act to inten-
tionally remedy this situation and achieve the
desired result (Cajaiba-Santana, 2013; Murray
et al., 2010).
Who promote this kind of intentional action can
be one person that change the way to see the world
and develop different ways of solving problems
(Cloutier, 2003). This promoter of social inno-
vations is named a social entrepreneur. A social
entrepreneur is someone who develops activities
not only for personal gain, but to achieve social
objectives as well (Lettice & Parekh, 2010). The
social entrepreneur is one who based on social
values insert an innovation in the context of the
market, but not for profit. The entrepreneurship
social can culminate in a social innovation, if
it lead to systemic change in social practices
(Michele-Lee Moore, 2012).
There are a variety of actors capable of
promoting social innovation, including the fol-
lowing: policy makers, through the creation of
legal conditions for the promotion of innovation;
foundations, entrepreneurs, and philanthropists,
through funding or supporting innovation; and
social organizations, through their efforts to find
innovative solutions to meet social needs (Murray
et al., 2010). The government also can improve
its performance in society and support social
improvements that come from within society (Pol
& Ville, 2009). And the social organizations are
an important device to social innovation process
because they can play an important mediating role
between ‘sticky’ context-specific user knowledge,
and complex forms of technological knowledge
(Chalmers, 2013). Despite these social organiza-
tions are within the market context.
There are still problems with the performance
of governments in stimulating innovation and the
social mobilization of society (Baldwin & Von
Hippel, 2010; Chalmers, 2013; Neumeier, 2012;
Pol & Ville, 2009), but the examples in this chapter
shown initiatives from some governments and
communities work together to produce solutions
to social needs, through new technologies. How-
ever, it is also important for changes to occur in
the culture and values, i.e., putting the company
first, developing a democratic voice, and prioritiz-
ing the individual and relationships over systems
363

and structures (Murray et al., 2010). Thus, social
innovations do not start from a specific actor, but
can be made by individuals, communities, social
groups, organizations or groups motivated by
governments.
The “social” aspect of social innovation can
be identified in its socially constructed process
undertaken by the social groups affected by a social
need. The social innovations are distinguished by
alliances between creative individuals with ideas
and energy, on the one hand, and institutions with
power and money to make those changes a reality
on the other.
Authors like Cajaiba-Santana (2013), Brown
and Wyatt (2010), and Murray et al. (2010) pro-
posed conceptual models that assist in understand-
ing how this process occurs. Through detailing
the social innovation process proposed by these
authors, it is possible to assign characteristics
that are more tangible to what occurs within the
structure of society, from the time a problem oc-
curs until the time when a social change occurs
or a new product is created to solve the problem.
Brown and Wyatt (2010) and Murray et al.
(2010) have a more focused view regarding the
changes required to address a social need. Murray
et al.’s model (2010) is divided into the following
(not necessarily sequential) six steps:
1. Identification of the problem;
2. Generation of proposals and ideas regard-
ing how to solve the problem, which may
involve formal methods to attract ideas and
experiences from various sources;
3. Prototyping ideas and testing them in
practice;
4. Support, which happens during the everyday
implementation of that idea;
5. Scaling and diffusion stage in which various
strategies are used to promote innovation;
and
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Open Social Innovation
6. Systemic change, which is the end objec-
tive of social innovation and new models
involving or composed of several smaller
innovation architectures.
Considering that the aim of social innovation
is to meet a social need, the model presented by
Brown and Wyatt (2010) should also be considered
because it is based on the methodology of designer
thinking, which aims to incorporate consumer
insights for prototyping effective products that
meet consumer needs. According to the authors,
the processes of technological innovations should
be guided by the needs of the people who will
consume the product. Thus, the process of social
innovation must seek a way to consider the culture
and needs of all people living in a given community.
Another author explains how the Social Inno-
vation occurs is Cajaiba-Santana (2013), which.
Unlike Brown and Wyatt (2010), and Murray et al.
(2010), who believes that social innovation can be
observed from an institutional perspective? As a
result of the exchange of knowledge and resources
among the mobilized actors, social innovation
can also be observed from the point of view of
structure, or as a social process in which individu-
als collectively engage in intentional actions and
reflexively monitor the results of their actions.
In any of these models, it is important that there
is exchange of ideas and values ​​among the public,
private, and nonprofit sectors regarding invest-
ments in socially responsible projects; changes
in roles and relationships between companies,
government, and nonprofit organizations; and
the mixing of principles and mechanisms based
on market innovations that have public and phil-
anthropic support support (Murray et al., 2010;
Neumeier, 2012; Phills, Deiglmeier, & Miller,
2008) And seems that this collaborative approach
will continue to grow in this century due to the
success of recent innovations like Wikipedia,

Open Social Innovation
the Open University, microcredit, and consumer
cooperatives, all of which are examples of social
innovations that feature innovative forms of col-
laboration between individuals. However, it is also
clear divergence on the authors about the headline
target of social innovation.
As for the results, the authors expected them to
fall under two perspectives: structural, for chang-
ing social structures through new social practices,
and instrumental, for generating an instrument
that meets a social need. The first perspective
originates from Chombart de Lauwe (1976), as
presented by Cloutier (2003). “Social Innovation is
an action aimed at creating new social structures,
new social relations, new forms of decision.” As
well, Taylor (1970) argues, “Social innovations
are new ways of doing things with the explicit
purpose of responding to social needs.”
In this chapter, a structural perspective is con-
sidered that has a fundamental characteristic the
changes in social practices (attitudes, behaviors
or perceptions) that enable the improvement of
any service, process, or social necessity (Cajaiba-
Santana, 2013). This action can result in meeting a
social need, but this is a result of the construction
of additional changes in the attitudes, behaviors,
or perceptions of a group of people who gather
in a network of aligned interests to seek new and
better ways to act collaboratively inside and out-
side that group (Cajaiba-Santana, 2013). Thus,
social innovations manifest as changes in attitudes,
perceptions, or behaviors, resulting in new social
practices created collectively and intentionally tar-
geted to a desired social objective, causing social
change (Cajaiba-Santana, 2013; Neumeier, 2012).
Considered from a structural perspective, social
innovations are not material; instead, they focus
on building action (Howaldt, Schwarz, Henning,
& Hees, 2010; Neumeier, 2012). While technical
innovation occurs when a product or service is
broadcast by a commercial or industrial applica-
tion, social innovation occurs when a change is
socially accepted, widely diffused throughout
society or in certain sub-areas of society, and in-
stitutionalized as a new social practice (Howaldt
et al., 2010)
Thus, from a structural perspective, social
needs are met through social change, which is
the key feature of social innovation. From an
instrumental perspective, it is noted that social
innovation can also occur through technical
artifacts–new products, processes, or services–
provided they meet a social need and are geared
toward the public good.
Taylor (1970) pioneered the term social inno-
vation in the sense of new ways of doing things
with the explicit purpose of responding to social
needs. Among these needs, we can quote new
ways to combat poverty and crime, and we can
consider those leading to obtaining a product,
process, or program that profoundly alters basic
routines, resources, authority flows, or beliefs in
any system social (Westley, 2008).
The results of social innovation, from this
perspective, may be process metrics, models, and
methods used as forms of the social economy
(Murray et al., 2010). From this perspective, so-
cial innovations may be materials, activities, or
services generated to meet a social need; but they
differ from innovation businesses by engaging
institutions dedicated to social services and not
for profit (Pol & Ville, 2009).
This concept can be observed in practice in
institutions that promote social innovation, includ-
ing the Young Foundation, created in 2005 in the
UK, or the Social Innovation Europe Initiative,
which adopts the concept of Murray et al. (2010)
to seek resolutions to problems and create new
social relations. As well, the creation of the Social
Innovation Fund (SIF) by the U.S. Office of Social
Innovation and Civil Participation stimulates com-
munity solutions to solve social problems, which
is social innovation.
According to Pol and Ville (2009), social
innovation has several overlapping definitions
involving institutional change, social purposes,
365

and the public good. In a broad sense, is has been
suggested that social innovation can be defined as
new ideas with the potential to improve quality of
life. Using social innovation and new ideas that
generate social gains to change the direction of
society improves quality of life. According to Phills
et al. (2008), social innovation is any innovative
and useful solution to achieve a social good, to
meet a need, or solve a problem in a more effec-
tive, efficient, or sustainable way than existing
approaches from which benefits are generated
for society as a whole. This may be in the form
of a new product, process, or methodology, as
well as an idea, a law, a social movement, or an
intervention.
Thus, based on the authors cited above, main
features of social innovation are considered:
1. It is a novelty;
2. It is not motivated by profit;
3. It is motivated by an unsatisfactory social
situation;
4. It is initiated by an intentional action, aiming
for a specific result;
5. It is socially constructed by those affected
by social needs;
6. It is not directly linked to a specific sector
of society;
7. It generates changes in society or new prod-
ucts that enable us to meet a social need and
generate benefits to social structures.
OPEN INNOVATION
Henry Chesbrough’s definition of the term “open
innovation” is probably the most widely used
definition (Dahlander & Gann, 2010): “open
innovation means that valuable ideas can come
from inside or outside the company and can go to
market from inside or outside the company as well”
(H. W. Chesbrough, 2003, p. 43). The author also
provides a definition of closed innovation, refer-
ring to it as the old paradigm in which companies
366

Open Social Innovation
create their ideas and then develop, build, market,
distribute, and use them for their own benefit and
profit. As opposed to open innovation, closed in-
novation does not allow the use or marketing of
ideas from outside the company.
Although it is a concept that originates in the
business strategy and innovation literature (Seltzer
& Mahmoudi, 2013), open innovation cannot be
classified as technical or social innovation. Unlike
these two types of innovation, open innovation is
not differentiated by its results, but rather by its
construction process; that is, open innovation is
differentiated by a company’s conscious efforts to
share ideas with other companies and incorporate
ideas from outside the company into its innovation
processes (Seltzer & Mahmoudi, 2013).
Open innovation is mainly used in the context
of private companies in the following industries:
electronics, food, financial services, automo-
tive, and biotechnology. It is also used in other
contexts characterized by globalization and the
intensification and diffusion of technologies and
new business models (Huizingh, 2011). However,
some open innovation methodologies have been
applied in the field of public administration as a
way to integrate government and society. Examples
include initiatives using 1) crowdsourcing methods
in which a challenge is posted online and a prize
is offered for the best response to the challenge,
and 2) crowdstorming methods that are used to
gather the largest number of ideas about a topic.
These methodologies are found in initiatives
such as the Office of social innovation and Civic
Participation, in USA (The-White-House, 2014);
and in Brazil, the platform PrizeIdea (PrêmioI-
deia, in Portuguese)1, which is linked to Facebook
(“PremioIdeia,” 2014).
Dahlander and Gann (2010) argue that inno-
vations must not only be categorized as open or
closed, but as part of a continuum, ranging from
fully closed to fully open. Dahlander and Gann
(2010) categorize open innovation into four stages
of this continuum (according to the Table 1).

Open Social Innovation
Table 1. Types of social innovation according to Dahlander and Gann (2010)
Pecuniary
Output Companies market their inventions and
(internal to the external technologies through licensing or sale.
environment) “ Selling”
Input Companies acquire foreign expertise as sources
(the external environment to of innovation.
internal) “ Acquiring”
Beyond these categories, the open innovation
can be categorized by its processes, according to
Enkel, Gassmann, and Chesbrough (2009), the
following processes may occur:
1. From the Outside In: The innovation
process occurs with the entry of external
knowledge, obtained mainly from business
customers.
2. From the Inside Out: The process of inno-
vation is a source of profit for the company
in which some ideas are transferred to other
companies and advantages are obtained to
gain profit by licensing the idea as opposed
to developing the idea.
3. Coupled Process: The process of innovation
is developed jointly between companies and
consists of a mixture of the first two types
of processes.
Open innovation excels particularly in the area
of public administration. One example of open
innovation is crowdsourcing, which is a technique
used to seek outside contributions for solutions to
problems, offering rewards to participants (Seltzer
& Mahmoudi, 2013). As well, crowdstorming uses
the Internet to encourage people to brainstorm
online and provide ideas to resolve a problem
(Abrahamson, Ryder, & Unterberg, 2013). These
methodologies encourage citizens to engage in
finding solutions to a problem and to promote the
construction of knowledge between governments
and societies (Abrahamson et al., 2013; Seltzer
& Mahmoudi, 2013)
Non-Pecuniary
Companies reveal internal resources without
financial rewards, instead seeking indirect
benefits.
“ Revealing”
Companies use ideas available in the external
environment as sources of innovation.
“ Sourcing”
Common feature of all methodologies Open
Innovation is presented to encouraging collabora-
tion. According Baldwin and Von Hippel (2010),
a model of open and collaborative innovation must
include a process that allows user engagement
innovation and ensures that those who share the
work of generating the project can openly show
the results of their individual and collective efforts.
Thus, while open innovation is a set of practices
adopted by companies aiming to profit from inno-
vation, it is also a cognitive model for the creation,
interpretation, and research of new practices (H.
Chesbrough, Vanhaverbeke, & West, 2008).
The results of using open innovation include the
socially innovative way organizations distribute
and assimilate knowledge from multiple sources
(Chalmers, 2013), which impacts the effectiveness
of the innovation since the organizations interact
to form networks of innovation and provide col-
lective knowledge.
In the field of public administration, the hope
is that Open Innovation results in the construction
of more porous organizational structures capable
of absorbing the knowledge and the demands of
the various stakeholders in the process of Social
Innovation (Chalmers, 2013). Thus, the distributed
knowledge from various sources can be assimilated
and used in other processes of innovation.
‘OPEN SOCIAL INNOVATION’
Despite the relevance of the two themes, social
innovation and open innovation are two distinct
367
 
Open Social Innovation

concepts (Chalmers, 2013). However, there is
already a move towards adopting more open
practices in relation to solving social problems
by society (Chalmers, 2013), exemplified by
government initiatives mentioned in section 2.
Table 2 shows characteristics of Open Innovation
and Social Innovation, as its actors, objectives,
processes, and expected outcomes, to then relate
the concepts.
With respect to the actors, Table 2 shows that
both concepts focus on the individuals affected
by innovation or those who have some interest in
generating innovation. Social innovation involves
the interests of society as it works toward fulfill-
ing needs through the formation of new social
practices or by creating new products, services,
processes, or structures. In addition, acting gov-
ernments seek legitimacy for political actions by
focusing on the citizen; and yet, public and private
institutions and social organizations support the
resolution of social problems that affect their
institutional objectives (Seltzer & Mahmoudi,
2013). As originally proposed, open innovation
with economic purposes involves the interest of
users that assist companies in the production of
articles that meet their needs more effectively, on
the one hand (Baldwin & Von Hippel, 2010). On
the other hand, it involves the interest of companies
that pursue the effectiveness of their innovations,
thus maximizing profit. In both cases, there is
no quest for legitimacy. In the private sector, the
legitimacy of a product guarantees profit; in the
public sector, legitimacy is sought by governments
for the welfare of society and for political interests,
such as reelection (Seltzer & Mahmoudi, 2013).
Regarding the objectives, the concept of social
innovation is also divided among the authors who
consider it an instrument (product, process, or ser-
vice) that is generated to meet a social need, such
as the approach initiated by Taylor (1970). Other
authors who follow Chombart deLauwe (1976)
argue that the main feature of social innovation
is the structural changes in society and meeting
social needs. In both cases, social welfare is the
primary target.
According to its original objective, open inno-
vation is market-oriented and aimed at improving
the innovation process with profit as the main ob-

Table 2. Characteristics of social innovation and open innovation

Social Innovation Open Innovation

Actors Individuals (Lettice & Parekh, 2010),
policymakers, foundations, entrepreneurs,
philanthropists, social organizations (Murray et
al., 2010), and governments (Pol & Ville, 2009);
civil society organisations, local communities and
puclic servants (Europen-Commission, 2013).
Objectives Structural objectives: social change (Cajaiba-
Santana, 2013).
Instrumental: create technical articles that meet a
social need (Taylor, 1970).
Process Process: collective action (Neumeier, 2012) and
intentional innovation by stakeholders (Cajaiba-
Santana, 2013).
Expected results Results are expected to provide benefits to society
through products, processes or services that meet
a social need (Taylor, 1970), or social changes that
institutionalize a new social practice (Howaldt et
al., 2010).
Mainly private companies (Huizingh, 2011),
involving users of innovations (Baldwin & Von
Hippel, 2010).
Products, services, systems, and models aimed at
the users’ demand (Baldwin & Von Hippel, 2010).
Collaborative, using some methodology (Costumer
partner, Crowdsourcing, Crowstorming, etc.)
(Loren, 2011)
New products, services, systems, and more
effective models are developed in the context of
more porous organizational structures that feature
greater absorption capacity and involvement of
various stakeholders in the innovation process
(Chalmers, 2013).

368

Open Social Innovation
jective. However, literature issues exist regarding
its applicability to new contexts (Huizingh, 2011),
that achieve innovations beyond the boundaries
of the private sphere and even assist in overcom-
ing barriers in the development of other types of
innovation, such as social innovation (Chalmers,
2013). Thus, open innovation focuses on techni-
cal innovation aims of profit; social innovation is
aimed at meeting social needs.
When answering the particular social need of
collective action, rather than top-down decisions
or individually generated solutions, social and
open innovation converge around the collabora-
tive process, which is focused on the user. Social
innovation must occur in a process of exchanging
ideas and values ​​between the actors in society,
the public and private sectors, and non-profit
organizations (Phills et al., 2008). In addition, the
main feature of the collaborative open innovation
process between organizations that engage in dif-
ferent types of partnerships is acquiring ideas and
resources from the external environment (H. W.
Chesbrough, 2003).
In the public sector, it has been proposed that
public institutions–by assuming the characteris-
tics of open innovation as a more sensitive view
of societal structures–allow social communities
to overcome the barriers that prevent them from
innovating from the bottom up. Thus, when pub-
lic institutions are open, they provide means for
greater social involvement in finding solutions
then wellbeing and localism. Opening organiza-
tions responsible for public good allows society
to solve problems on its own, generating social
innovations.
Collaboration is an inherent characteristic of
open innovation; organizations need to be open
to various internal and external actors participat-
ing in the process of innovation, as it is believed
to be impossible for an organization to have a
team of the best people in several areas (H. W.
Chesbrough, 2003). Similar to open innovation,
the participation of various actors is desirable in
social innovation, as the citizens who live in so-
ciety best perceive social needs; therefore, public
participation is critical to finding solutions to
these problems ((Neumeier, 2012).
Aiming to achieve this collaborative process,
several methods of open innovation are being
proposed with strategies for establishing partner-
ships between organizations, involving consum-
ers in the production of innovations, or bringing
together various actors around the same issue
(Loren, 2011). Thus, open innovation works by
providing mechanisms that users of services and
public policies are able to create for themselves;
innovations are aimed at community welfare
through new practices and social mobilization to
solve problems.
From the analysis of the characteristics of social
and open innovation, it has been proposed that
open innovation is more than a means to achieve
social innovation. The two concepts converge
in the characteristic of “collaboration between
the actors” and form “Open Social Innovation.”
Social innovation meets open innovation when
using a methodology that promotes collaboration
among diverse stakeholders in the development
of innovation agents. In addition, open innova-
tion meets social innovation, as demonstrated by
non-profits that change the structure of society or
meet a social need.
Thus, this article proposes that “Open Social
Innovation” occurs:
1. Through collaborative processes of open in-
novation. The types of non-pecuniary open
innovation (Dahlander & Gann, 2010) are
used to generate benefits for the collective
good, as represented by new solutions to so-
cial problems or changes in social practices.
369

Figure 1. Conceptual model of the relationship between open innovation and social innovation
2. As public institutions become more perme-
able to absorbing citizen demands, structures
are sought to enable the self-organization of
society in the search of viable solutions to
their problems.
3. When open innovation aims to create in-
struments that cause changes in the social
structure or to collective social needs.
4. When open innovation promotes the spread
of new social practices or the replication of
new instruments without costs in other con-
texts; through the formation of collaborative
networks, it is possible to provide innovative
social ideas to be improved by the exchange
of knowledge and ideas of individuals in
other contexts and locations.
The next section illustrates the theory that was
presented in the previous section; it shows practi-
cal examples of what this article considers “Open
Social Innovation.” The following examples show
the use of a methodology for open innovation in
order to contribute to the emergence of social
innovations.
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Open Social Innovation
SOCIAL CHALLENGE IDEAS:
‘OPEN’ SOCIAL INNOVATION
IN BRAZIL AND USA
This literature shows that open innovation meth-
odologies can aid in the collaborative construction
of technical innovations as social innovations.
The examples below show the use of two open
innovation methodologies: crowdsourcing and
crowdstorming, which are used to promote social
challenges to ideas, generating social innovation
through public engagement. In the context of these
challenges, social innovation can be characterized
by new social practices, new policies, new social
organizations, and new services generated through
citizen participation in the challenge. In addition,
open innovation is characterized by encouraging
the exchange of ideas among citizens, govern-
ments, and private institutions as well as the
dissemination of these ideas in order to facilitate
the diffusion of innovation.
A social ideas challenge is an online chal-
lenge or inquiry into a social problem, such as,
“what can be done to improve the sanitation of

Open Social Innovation
the city?” The challenge is directed to a group
on the Internet, persons residing in the same city,
persons who belong to a certain community, or
the general public. This group should post ideas
to solve the problem and discuss the ideas of the
other participants. Challenges can be created by
various types of institutions and with different
motivations: governmental institutions can seek
social partnerships to encourage the participation
of society in solving complex social problems and
add legitimacy to their actions (The-White-House,
2014); politicians can generate ideas for their
policy proposals; organizations can seek private
solutions aimed at increased project sustainability;
and the community can seek self-organization to
meet their demands (Mindmixer, 2014). Aimed at
achieving greater engagement, whoever promotes
the challenge offers a prize to the participants. The
awards are generally given to the individual with
the most participation or the best idea.
Social challenges result in multiple ideas that
represent the demands of the community’s vision
of its own members, and they are usually intended
for agents and public bodies to inspire new public
policies and improve services. The ideas can be
exploited by private and public organizations,
Figure 2. ‘‘Open social innovation’’ in social challenges ideas
generating benefits for the authors of ideas and
innovative organizations. These benefits are in
addition to inspiring ideas that promote commu-
nity action and social entrepreneurship from the
participants of the challenge.
In short, the characteristics that classify chal-
lenges to social ideas as “Open Social Innovations”
are shown in Figure 2.
Figure 2 shows that citizens, institutions, and
governments are motivated by social issues and the
desire to change. In the case of citizens for prizes,
they are motivated to join social ideas challenges,
forming interactive online communities. One of the
founders of the Mindmixer software application
that houses these online communities, Bowden,
argues the objective of these challenges is to bring
together “a lot of people who want to get involved
in politics or decision making in their communi-
ties” (Casserly, 2013). Any organization–though
mainly public institutions and governments–can
hire these software platforms to launch challenges
that aim to solve social problems, initiate public
consultations, and formulate questions that allow
citizens to participate in public management and
find solutions to address a public problem. Be-
ginning this challenge on the platform, proposed
371

citizens submit ideas, after which they are evalu-
ated and opined. The other participants express
their opinions and perceptions regarding what
was proposed.
To illustrate the application of the concepts
associated with the implementation of “Open
Social Innovation,” two software application
examples that promote social ideas challenges
will be presented.
The first example is the Mindmixer platform,
available to citizens in the USA and parts of Can-
ada. The platform implements the methodology
of crowdsourcing open innovation. The builder
of the community creates a video introduction
to draw the attention of a group of participants.
People using Mindmixer via social networks like
Facebook, LinkedIn, or Google+ propose ideas
and collaborate by voting for or complementing
the ideas of other participants. The objective of
Mindmixer is to harness the power of the Internet
and social media through online engagement tools
that connect public organizations and community
members who might not be involved (Mindmixer,
2014).
Another innovative initiative using these con-
cepts is available in Brazil. Using the software
program PrizeIdeia, governments and third-sector
companies have submitted population questions
in search of ideas for innovation and social de-
velopment. Behind these interactions, PrizeIdeia
puts into practice the concepts of open innova-
tion with crowdstorming and social innovation.
The PrizeIdeia software also uses the concept of
gamification, which incorporates greater societal
involvement in the proposition, discussion, and
evaluation of innovative ideas for questions pre-
sented by governments and corporations. The users
who engage most in the challenge of ideas and
earn the most points by the end of the consultation
period are given awards.
372

Open Social Innovation
The following are some examples of online
communities using these two software platforms.
The communities are described as well as the
characteristics that identify them as “Open Social
Innovations.”
Example A: Park City, Utah, USA
Park City is a city in the state of Utah in the
U.S. Public officials in the city created an online
community using the Mindmixer platform, since
February 4, 2013 (http://www.letstalkparkcity.
com/activity). According to the platform informa-
tion, online communities are created as virtual
town halls, where community discussions around
reforms being carried out in the city could be
stimulated. Using the platform, prefecture agents
and community leaders pose questions about citi-
zen perceptions of city projects. This way, citizens
generate the best ideas for the development of
the project. As well, they discuss and evaluate
the ideas proposed by other participants, finding
solutions collectively. The ideas submitted make
up a report that is sent to community leaders who
consider the decisions regarding the community
and assign the ideas a status or either not feasible,
being revised, in progress, or implemented. This
status demonstrates how close the idea is to frui-
tion. The mayor and other agents that make up
the public administration of a city participate in
the platform as listeners, taking suggestions for
consideration at city hall and exploring the prob-
lems with new questions. Citizen participation is
encouraged through a rewards program. With ev-
ery participation, citizens accumulate a number of
points that can be redeemed for rewards in a small
shop. As a result, residents responding to promot-
ing economic development, quality of life, and
city sustainability proposed several ideas. Among
these ideas, one that stood out was in corporating

Open Social Innovation
the use of composting containers to reduce the
amount of waste. According to Bauters (2013),
the idea received support from the community
and it was passed on to the manager of municipal
environmental sustainability for consideration.
Example B: Military Policy of the
State of Minas Gerais, Brazil
The Military Policy of the State of Minas Gerais
has developed challenges of ideas represented
by its 8th Battalion located at the southeast of the
State of Minas Gerais. These challenges have
been realized evolving citizens of one city. These
challenges have used the PrêmioIdeia platform
and aimed to encourage citizens to participate in
generating ideas to solve a specific problem. The
challenges proposed by this public safety institu-
tion are grouped in an online community called
the Safe City Project. Its first challenge, in ques-
tion, was released on September 23, 2013 and is
justified by a growth in the quantity of property
crimes between the years 2012-2013. Bidders
Challenge is an institution of the State of Minas
Gerais that offers a prize throughout the challenge
to the participants that best contribute to the reso-
lution of the problem by sharing ideas as well as
commenting on and evaluating the ideas of other
participants. With Mindmixer, participants accu-
mulate points; however, points are not redeemable
for rewards but are added together to determine
the winner of the challenge. The results of two
months of online competition are 336 ideas, which
focus on initiatives that can be adopted by the
police, city hall, prosecutors, and citizens to fight
against property crime. These initiatives make
up a report on citizen perceptions regarding this
issue, which will support studies on the strategic
planning of local police. More than innovative
ideas, the police search community approaches
and the legitimacy of projects. With the Safe City
Project, several ideas have emerged in order to
create networks of communication between the
community and police to fight against property
crimes (“PremioIdeia,” 2014). These ideas ratify
a project launched by the police shortly after the
completion of the challenge, in which the Battalion
launched the “Network of Protected Republics,”
which, according to local media, is a unique proj-
ect in Brazil. This project, already implemented,
connects college students and police through
technologies such as WhatsApp and Facebook,
seeking cooperation of all in monitoring sites
and actions to curb property crimes. The results
of the application of this platform was presented
by Martins and Bermejo (2014). These authors
showed the government innovations generated by
the PrizeIdea Platform.
Thus, in order to be collaborative, social chal-
lenges to open innovation ideas seek solutions to
problems and improve these solutions by interact-
ing with participating agents. In addition, other
people should be allowed to access and use ideas
that apply to their communities. As the examples
demonstrate, new participatory practices spread
around the world and may constitute innovation
in the form of civic participation by bringing
together people in a virtual way. This is because,
according to Chong (2013), innovation promotes
online forums where communities come together
to discuss problems and solutions.
Thus, the main social innovation generated by
both platforms is a new model to generate audience
engagement, cooperation, and the exchange of
knowledge among citizens and officials in solving
social problems. In both examples, the community
is invited to interact with public officials and share
information about the local situation as well as
prospective improvements to social welfare. Social
innovation occurs through the new participatory
practices of citizens, as made possible by techni-
cal innovations, such as the Internet; software
applications that implement methodologies;
crowdsourcing; and crowdstorming.
The platforms have characteristics that relate
to “Open Social Innovation,” including: the aim
of generating new ideas to solve social problems;
actions that are geared toward the desired result,
373
 
Open Social Innovation

Table 3. Characteristics of “open social innovation” found in Examples A and B

Example A: Mindmixer Example B: PrizeIdeia Open Social Innovation

Actors Actors Community Leaders,
Mayor, public officials and citizens
interested in improving the public
policy of the city.
Objectives Receive suggestions on actions to
be implemented to improve the
community.
Process Use of process technologies
and open innovation as tools for
generating ideas outside the town
hall, to improve public management.
Outcomes Displaying Virtual Town Hall with
several ideas posted and a channel
of communication between society,
community leaders and city hall.
Public officials and citizens
affected by crimes against property.
Find solutions on how to tackle a
specific problem that are crimes
against property.
Use of technologies and open
innovation as tools for discussion
between public officials and
citizens on solving a specific
problem.
Opening a traditional institution
of the State, for community
participation and co-production of
solutions to a problem.
Focus in particular affected by
social necessity and supported by
institutions interested and motivated
individual for an unsatisfactory
situation.
Meeting a social need or change in
the practices of society
Collaborative with the participation
of those affected by social need.
New products, services, processes,
or changes in social practices that
generate social benefits.

which is the resolution of this problem; issues
raised in challenges aimed at meeting a social need,
not profit for the group; solutions that emerge from
collaborations between different actors involved in
innovation; and results that translate into changes,
leading to community improvements.
DISCUSSION AND PROPOSITIONS
This article introduced “Open Social Innovation,”
proposed by Chalmers (2013), as a social innova-
tion collectively constructed through interactions
between socially innovative organizations and
local communities. A social innovation with a col-
laborative approach–in which it is believed that the
opening of public institutions, governments, and
nonprofit organizations for citizen participation
adds greater effectiveness to innovations–has the
methodologies of open innovation to encourage
effectiveness in different areas of knowledge.
As demonstrated in the article, collaboration
is a characteristic of “Open Social Innovation,”
which, as cited by Cajaiba-Santana (2013), differ-
entiates from social innovation with agent-centric
perspectives, i.e., “Open Social Innovation” is not
created through actions taken by specific individu-
als; it differs from social innovation approaches
promoted by social entrepreneurs, as presented
by Lettice and Parekh (2010).
As several authors posit, social innovation is
a complex concept and viewed from various per-
spectives. Most applicants in the works surveyed
in this literature review are either structural or
instrumental prospects. This work does not in-
tend to create a new concept; rather, it proposes
a discussion on opening up the social innovation
process. Some authors attribute ‘social’ innova-
tion to meeting a social need, and others link
the ‘social’ to changes in social practices. This
article aims to highlight the ‘social’ in relation
to the opening of public institutions to society to
generate participation and innovation in public
services, public policy planning, structural dis-
cussions, and public administration in general.
Beyond the context of the public sector, openness
refers to the establishment of broad channels of
communication. This is characteristic of open
innovation, which aims to exchange knowledge
between communities to generate useful solu-

374

Open Social Innovation
tions to local social problems. These solutions are
disseminated and adapted within other contexts;
social practices are innovated, bringing benefits
to other communities.
The concept of open public institutions grew in
the last decade, especially with open government
initiatives as strengthened by the advancement of
technology in the public sector. These initiatives,
called government-to-citizen (Linders, 2012),
make available public information to citizens and
attach greater openness to government practices.
However, to innovate openly, initiatives are needed
that also allow a flow of knowledge to citizen
governments and citizen-to-citizen initiatives for
self-organization to solve social problems and
bring about change in their communities.
The examples can be studied long term to
indicate the contributions of open innovation in
meeting the demands of communities, ensuring
that innovation was opened by the participating
institutions, discussing ideas with citizens, and us-
ing these ideas to strategically plan. Nevertheless,
more than the results of open innovation use in the
long term, the examples demonstrate innovative
strategic planning of these proponents. Through
online communities, institutions now have a view
of society processes and innovations in the form
of a participative society.
CONCLUSION AND FUTURE
RESEARCH DIRECTIONS
It has been concluded that that open innovation
can contribute to social innovation through col-
laborative processes that encourage interaction
between different actors, the internal and external
public, and private organizations. When open in-
novation is used to meet a social need or change
community practices, innovation is also social.
Similarly, social innovation is also open innova-
tion when a collaborative process is employed in
which organizations are open to capturing societal
knowledge regarding the best courses of action
to solve their problems. Therefore, the common
feature is collaboration, since open innovation
can contribute to social innovation.
The examples illustrate how open innovation
can contribute to society participation in solving
problems and communicating between citizens,
public officials, and representatives of public and
private institutions. However, an in-depth study
of the cases cited is still needed. In this sense, the
characteristics of “Open Social Innovation” are
shown in this chapter. Some assumptions can be
tested through the in-depth analysis of the social
challenges of ideas and other open innovations
aimed at finding effective collaboration processes
for social innovation.
The first proposition is that open innovation
can create better solutions for social needs. As
Chalmers (2013) demonstrates, increasing the
number of users in the generation of social in-
novation through open innovation mitigates the
risks of introducing innovations because they are
generated from a wide range of expertise that
complement each other. To evaluate this proposi-
tion, social challenge ideas or other cases of open
innovation could be investigated with respect to
their impact in a specific area.
The second proposition is that the collaborative
process characteristic of open innovation can be
considered a means to generate social innovations.
According to the principles of open innovation,
an organization does not innovate in isolation, but
rather by engaging with different types of part-
ners and acquiring ideas and resources from the
external environment (H. W. Chesbrough, 2003).
As in open innovation, those hoping to innovate
socially should seek mechanisms for interaction
between the various stakeholders involved. Fac-
tors that determined certain social innovation and
check to see if any of these factors are related to
open innovation can be investigated.
The third proposition is that the network struc-
ture formed by the mechanisms of open innovation
contributes to the replication of innovations in
different social contexts. The long-term outcomes
375

of social challenge ideas in different cities can
be compared and the results can be presented
in future research. As was previously discussed,
the usage of open innovation methodologies and
the generation of social innovation spread in the
collaborative network in which it was created.
This resonates with Pol and Ville (2009) sugges-
tion that when an innovation is successful, other
people and communities can benefit from this new
idea; thus, the marginal cost of one more person
making use of the new idea is zero.
A fourth and final proposition is that the use of
open innovation methodologies by governments
is a means of capturing knowledge for public
management. As Neumeier (2012) observes, the
problems of a region and the necessary actions to
address them are better perceived by the citizens
of this region. The implementation of strategies
based on such local perceptions is beginning to
attract more attention from public administra-
tion officials. In the case of the social challenge
ideas, an analysis of what can be extracted from
the suggested ideas and how the government uses
this information may indicate how the knowledge
captured in a network can be used in collaboration
with public management.
This work contributes to the areas of social
and open innovation; “Open Social Innovation”
is presented as a junction of the concepts of social
and open innovation and presents assumptions
to be tested to question the concepts presented.
Next, examples were found of the open innovation
methodologies that contribute to social innovation.
The limitation of this study is a lack of present
empirical evidence of the long-term results of
the application of “Open Social Innovation” or
the effective use of open innovation methodolo-
gies to stimulate social innovation. Future work
may explore these assumptions or investigate
other examples that use other techniques of open
innovation and have generated changes in social
practices to benefit a social group. Case studies
that explore the considerations presented here can
376

Open Social Innovation
help to fill the main shortcomings of the research,
such as the need for an empirical validation of
the suggested relationships. The role of govern-
ments should also be explored in order to produce
more participatory public management through
techniques of open innovation.
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KEY TERMS AND DEFINITIONS
Crowdsourcing: “The act of taking a job
traditionally performed by a designated agent
This work was previously published in a Handbook of Research on Democratic Strategies and Citizen-Centered E-Government
Services edited by Cemal Dolicanin, Ejub Kajan, Dragan Randjelovic, and Boban Stojanovic, pages 144-163, copyright year
2015 by Information Science Reference (an imprint of IGI Global).
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(usually an employee) and outsourcing it to unde-
fined generally large group of people in the form
of open call” (Howe, 2006).
Crowdstorming: The ability to absorb ideas
from different sources, mainly external, conduct-
ing a brainstorming through the Internet.
Open Innovation: “Means that valuable ideas
can come from inside or outside the company and
can go to market from inside or outside the com-
pany as well” (H. W. Chesbrough, 2003, p. 43).
‘Open Social Innovation’: When social inno-
vation is seen from a collaborative point of view,
organizations become more porous structures
that make it possible to overcome the barriers
that prevent communities from innovating from
the bottom up.
Social Challenge Ideas: A challenge online
to encouraging participants to submit ideas in
order to solve a specific problem, which may be
useful to government and society. Citizens submit
ideas and a prize is offered for the best response
to the challenge.
Social Innovation: “An initiative aimed at
creating new social structures, new social rela-
tions, new forms of decision” (Chombart de Lauwe
(1976) cited from the Cloutier (2003)).
ENDNOTE
1
See www.premioideia.com.
 381

Chapter 22
An Empirical Analysis of
Innovation Success Factors Due
to ICT Use in Japanese Firms
Hiroki Idota
Kinki University, Japan

Teruyuki Bunno
Kinki University, Japan

Masatsugu Tsuji
University of Hyogo, Japan

ABSTRACT
ICT (Information and Communication Technology) has now become one of the most important sources
of innovation, and it contributes to share information on innovation within the firm as well as between
firms. The former is referred to as ICT use inside the firm, while the latter as ICT use outside the firm.
The objective of the chapter is to analyze how innovation is enhanced by two categories of ICT use based
on a survey conducted with respect to 2,260 unlisted Japanese industrial companies in January 2010.
This survey asked how ICT is used among respondents and the number of patent applications, which is
used as a proxy of innovation. After defining the index of internal innovation capability, how ICT use
promotes internal capability and innovation are analyzed using probit estimation. Moreover, the study
focuses on open innovation, and these analyses are applied for firms practicing open innovation.

INTRODUCTION by creating innovations such as developing new

Due to the long stagnation and the satiation of
markets, business environments surrounding Japa-
nese SMEs (small- and medium-sized enterprises)
have become increasingly severe. SMEs have
been struggling to survive in these circumstances
products and services, finding new markets, and
improving the efficiency of business processes.
Creating innovation is not easy task, and firms
have to enhance their capability for innovation.
The sources of innovation have been analyzed
from various aspects. Since innovation is mainly

DOI: 10.4018/978-1-4666-8468-3.ch022

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
related to technology, the technological level of
firms, such as in R&D capability, human resources
including engineers, and so on, are important. In-
novation is not solely a technological matter, but
is created by a firm as a whole, and the nature of
the firm’s organizational management, such as the
leadership capabilities of top management, the
structure of the organization, the business culture
oriented to managerial reform and renovation, is
also important.
These sources of innovation have been shifting
from one aspect to another in accordance with the
development of the economy, technology, and
social norms. In the contemporary stage of the
economy, information technology (IT) or infor-
mation and communication technology (ICT) is
greatly related to innovation; the Internet, comput-
ers and mobile phones have advanced dramatically,
and have become widespread not only in firms but
also in society as a whole. ICT has been regarded
as a tool that improves the productivity of firms
and enhances innovation activities. ICT contrib-
utes to firms in the following ways:
1. Improving the efficiency of management
and communication inside the firm;
2. Enabling networking and collaboration
among business entities and organizations
by reducing the time required for com-
munication and overcoming geographical
constrains; and
3. Creating new markets for business, such as
e-commerce.
As a result, ICTs have become one of the es-
sential bases for promoting innovation activities
(Dogson et al., 2006; Lee & Xia, 2006; Idota et
al., 2012a). Moreover, ICT has created new phe-
nomena related to innovation; ICT also activates
communication among employees or between
employees and the top management within the
firm, and accordingly strengthens the knowledge
creation process. It is reported that even the use
382

of SNS, Twitter, or blogs by employees promotes
innovation (Idota et al., 2011). In addition to ICT
use inside the firm, ICT use also supports col-
laboration with entities outside the firm, which
is referred to as “open innovation.” In particular,
cooperation with other firms, universities, and
local research institutions has been an important
focus (Chesbrough, 2003, 2006a, 2006b). In the
open innovation process, a strategy for sharing
information and resources with other firms, from
suppliers to customers, is required. The use of
ICT is, therefore, indispensable for the promotion
of open innovation, since ICT can connect firms
and expedite the sharing of information related to
innovation (Tsuji & Miyahara, 2010, 2011; Idota
et al., 2010, 2012a).
The simple introduction of ICT, however, does
not necessarily promote innovation. Firms which
succeed in innovation have already established
the basis for success prior to introducing ICT,
which is referred to as an internal innovation
capability consisting of managerial behavior and
organizational capability, which form the origin
of sustainable competitiveness. The internal in-
novation capability firms possess is enhanced by
the introduction and intensified use of ICT, and
the promotion of innovation activity. Thus firms
can employ ICT to further promote innovation.
From this view, Japanese SMEs are thought to be
not necessarily skillful in ICT use when compared
with large firms (Tsuji, 2005; Japan Small Busi-
ness Research Institute, 2008).
Although ICT is acknowledged as a factor in
promoting innovation, few empirical studies have
been conducted, but these include Lee & Xia
2006, Idota et al. 2010, 2012a, and Spiezia 2011,
for example. This study therefore aims to clarify
the relationship between ICT use and innovation
by examining innovative Japanese firms. In the
analysis, we examine ICT use not only inside but
also outside the firm. In so doing, we conducted a
mail survey with respect to 2,260 unlisted firms,
which are mainly SMEs, in industries such as

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
manufacturing, construction, and information and
telecommunication in January 2010., This paper
therefore attempts to examine the following:
• Which type of ICT use, that is, inside or
outside the firm, can promote innovation;
• How ICT use is related to managerial be-
havior and organizational capability;
• Who the partners of open innovation are;
and
• What kind of information is exchanged be-
tween the firm and those partners.
The methodologies used in this empirical
study are
• Factor analysis to identify factors of mana-
gerial behavior and organizational capabil-
ity which promote innovation and
• Probit analysis, in which the number of
patent applications in the period 2005 to
2008 is taken as the dependent variable,
while the characteristics of firms, such as
ICT use, factors of managerial capability
and organizational behavior, are employed
as explanatory variables. This study clari-
fies the factors required for ICT to further
enhance innovation.
DEFINITION OF INNOVATION
According to Schumpeter (1934, p. 47), innova-
tion is defined as a process of “carrying out new
combinations.” It contains the following five
elements:
1. Introduction of a new good;
2. Introduction of a new method of production;
3. Opening of a new market;
4. Acquisition of a new source of supply of
raw materials or intermediate goods; and
5. Carrying out new organizational forms.
The first element is termed product innovation,
while the others are referred to as process innova-
tion. As for other definitions, the Oslo Manual
describes, for example, four types of innovation;
product innovation, process innovation, organi-
zational or managerial innovation, and market
innovation (OECD & Eurostat, 2005).
There are two ways to create product and pro-
cess innovation; one is called closed innovation,
which is achieved by one particular company,
while the other is known as open innovation,
which is carried out by collaborating with other
firms or organizations. To date, Japanese firms
have successfully achieved innovation through
“the independence principle,” which implies that
firms have been accumulating knowledge and
knowhow for innovation within their own firm or
within group firms. On the other hand, Chesbrough
(2006a) mentioned that in the current environment,
closed innovation is not an efficient method of
innovation, since firms chasing closed innovation
cannot catch up with so-called economies of speed
brought about by ICT, such as quicker business
decision making or a shorter lifecycle of products.
This is one reason why Japanese firms have lost
competitiveness in the global market. On the other
hand, European or U.S. firms have initiated open
innovation by collaborating with other firms and
organizations, and have therefore became more
active (Chesbrough, 2003; 2006a; 2006b).
Chesbrough (2006a, p. 1) also asserted that
open innovation was the purposive use of inflows
and outflows of knowledge to accelerate internal
innovation and to expand markets for the exter-
nal use of innovation. That is, it enhances new
innovation by absorbing outside knowledge and
combining it with internal innovation resources so
as to create new and excellent business models by
collaborating with entities outside the firm. In this
case, a strategy is required for sharing information
and using resources with all firms from suppliers
to customers. The use of ICT is, therefore, indis-
pensable for the promotion of open innovation
383

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
(Gassmann and von Zedtwitz, 2003; Dogson et
al., 2006; Piller and Walcher, 2006; Dittrich and
Duysters, 2007; Idota et al., 2010; 2012a).
HYPOTHESES ON THE
INNOVATION PROCESS
In this study, we postulate the means by which
innovation is enhanced in the following way:
To achieve innovation, firms have to possess an
“internal innovation capability,” which consists of
sources of innovation such as technology, R&D
activity, human resources, leadership capabili-
ties of top management, business culture and so
on. Since we focus on the managerial aspect of
innovation, we assume that innovation capability
consists of the following two main factors:
1. “Managerial behavior” and
2. “Organizational capability.”
The former indicates the degree of action and
attitude of top management and employees toward
business objectives including innovation, or the
degree of risk-taking in challenging something
new. Top management exercises leadership to
achieve innovation in such a way as to determine
strategies or business plans regarding how to
allocate resources among different uses, and
employees are required to work in a harmonious
way in accordance with these plans or strategies.
Managerial behavior also includes whether firms
have a knowledge management system, such as
learning past data, or studying rivals, connecting
basic research and application research to develop
new products, or establishing communication
networks to discuss and exchange opinions and
ideas among colleagues or between superiors and
subordinates. Through the continuation of this
process, firms can accumulate and strengthen their
attitude toward innovation. The latter, on the other
hand, implies firms’ inner capability to utilize
resources related to innovation, which consist of
384

technological, R&D, production, and marketing
abilities for creating new products which meet
consumers’ demands. Absorptive capability is
also contained in this category, which is to obtain
or learn knowledge and information from outside
the firm, since absorptive capacity is defined as a
“firm’s ability to recognize the value of new infor-
mation, assimilate it, and apply it to commercial
ends” (Cohen & Levinthal, 1990, p. 128). Thus
firms’ own internal innovation capability tends
to create innovation more easily.
Next, ICT enters into this framework. As men-
tioned earlier, ICT promotes the efficiency of firms
by sharing information among employees and
employers, and activates communication, which
leads to the enhancement of knowledge manage-
ment activities for innovation inside the firm. ICT
also has another function, that is, it enables the
firm to share, exchange, and communicate with
agents outside the firm, which connects it more
tightly with other firms or universities, consul-
tants, or research institutes. Thus firms can absorb
technology, know-how, and information from
outside. This study refers to the former as “ICT
use inside the firm” and to the latter as “ICT use
outside the firm.” Taking the two ICT uses into
consideration, ICT influences the promotion of
innovation through the following two channels:
1. Enhancing internal innovation capability;
and
2. Supporting internal capabilities leading to
innovation.
In this study, examples of the former consist
of ERP (Enterprise Resource Planning) packages,
Knowledge Management Systems, and EDPS
which includes Sales Management Systems (in-
cluding POS and barcode), Management Informa-
tion Systems (accounting, payroll, and purchase),
Manufacture Management Systems, and Design
Management Systems (including CAD/CAM).
The latter consist of CRM (Customer Relation-
ship Management), CTI (Computer Telephony

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
Integration), and SCM (Supply Chain Manage-
ment). The functions of these two channels can
be hypothesized as in Figure 1.
Open Innovation System
The open innovation system can be defined as
the methods by which firms obtain technology,
know-how, and information from outside the
firm by collaborating with outside agents. That
is, open innovation indicates how firms promote
their managerial behavior and organizational
capability though channel
• As well as achieve innovation through
channel
• With the assistance of collaboration.
In particular, we have to identify the factors
that carry information and knowhow which outside
agents possess to firms. In this sense, this process
is called the transmission channel. In the case of
SCM (supply-chain management), for example,
SMEs can learn and accumulate knowhow related
to inventory management, which may lead to
process innovation. Or SMEs can obtain cutting-
edge technology by dispatching their engineers
to a university laboratory, and this leads to the
creation of product innovation.
This study does not, however, aim to verify
all of the above hypotheses shown in Figure 1 in
detail, but will focus on how ICT use influences
their achievement. In this sense, we attempt to
Figure 1. Innovation process and ICT use
analyze the role of ICT on innovation mainly in
relation to case (ii), that is, our research question
is whether ICT use directly promotes innovation,
not whether it enhances managerial or organiza-
tional behavior.
ICT Use and Management
The simple introduction of ICT does not necessar-
ily increase innovation. Firms have to establish be-
forehand the basis for ICT to function well, which
includes promoting IT literacy among employees
and the leadership of top management in order to
use ICT for innovation, renovating organizational
structure, and so on. In addition, the harmonization
of business, organizational and information strat-
egy, employees’ participation during the stage of
ICT introduction, and empowerment of employee
IT ability are necessary (Walton, 1989). In order
for firms to adjust themselves in the transforma-
tion of their environment toward innovation, they
have to renovate their business organization in a
timely manner, alter the business process when
ICT is introduced, and utilize ICT throughout the
firm. The ability to conduct the above is called
IT capability (Bharadwaj, 2000). ICT capability
is not related to the ability to utilize or operate
individual pieces of equipment, but to that of
integrating systems, building IT infrastructure,
and continuously renovating the organization or
the IT system. In other words, ICT can be made
fully functional only by integrating all resources
inside the firm for successful ICT use.
385

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
ICT Use and Productivity
Brynjolfsson and Hitt (1996) and Lehr and
Lichtenberg (1999) demonstrated that ICT in-
vestment contributed to the improvement of the
productivity of firms by using corporate data.
The former clarified that the rate of return on ICT
investment was far higher than that of non-ICT
investment using data on 367 U.S. firms in the
period 1987-1993. They also asserted that the
so-called “Productivity Paradox” disappeared in
1991. Lehr and Lichtenberg (1999) showed that
ICT capital contributed to higher labor produc-
tivity and that the profit structure of ICT capital
was of the increasing returns type compared with
other types of capital. Similarly, Boyton et al.
(1994) asserted that knowledge of organizational
management and effective control of ICT were
necessary to make ICT use successful. Deng et
al. (2008) clarified that the mixture of business
knowledge, ICT knowledge and problem solving
methods was required for engineers to enhance
innovation and productivity. According to Bryn-
jolfsson and Hitt (1998), Brynjolfsson, Hitt and
Yang (2002), the productivity of ICT investment
in decentralized organizations was higher than
that of centralized ones.
Previous studies unanimously agree that firms
cannot raise productivity without investing in ICT.
If firms have a high level of human capital, and
improve organizational structure and management
(e.g. introduce decentralized decision making),
they would yield better productivity by making use
of ICT. As mentioned earlier, ICT use improved
productivity by enhancing human capital and
reconstructing the organization.
ICT Use and Innovation
ICT stimulates innovation activities (Thomke,
1998a, 1998b, 2003; Henderson, 1999; Schrage,
1999; von Hippel, 2001; Debackere and Van Looy,
2003; D’Adderio, 2004). Some previous studies
have also mentioned that ICT was viewed as an
386

effective tool for innovation (Tsuji 2005; Dogson
et al., 2006; Lee & Xia, 2006; Tsuji & Miyahara,
2010; Spiezia, 2011; Idota et al., 2012b). Spiezia
(2011) highlighted the notion that ICT acted as an
enabler of innovation, particularly for product and
marketing innovation, in both the manufacturing
and service industries. He used the four categories
of innovation in the Oslo manual (OECD & Eu-
rostat, 2005) and used firm data from 11 OECD
countries. The study analyzed 19 hypotheses on
the relationship between innovation capability,
innovation trajectories and cooperation concern-
ing the four types of innovation and the intensity
of ICT use. From these results, Spiezia stressed
that ICT enables firms to adopt innovation, but
ICT does not increase their inventive capabilities,
such as the capability to develop new products and
processes. These results indicated that innovations
are promoted in the firms which owned innovative
capabilities based on ICT use.
Lee and Xia (2006) analyzed the relationship
between organization size and ICT innovation
through a meta-analysis of 54 correlations derived
from 21 empirical studies. They categorized the
following three types of innovation:
• Innovation of new ICT products and ser-
vices that were developed or bought ac-
cording to user needs;
• New process innovation by using ICT; and
• A mixture of these two achieved at the
same time.
The following were clarified from their
analysis:
• Process innovation and mixture type inno-
vation were more related to organization
size than ICT innovation; and
• The relationship between organization size
and ICT innovation in profit organizations
was more significant than that in nonprofit
organizations.

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
However, this research did not clarify how
ICT use was effective in innovation. ICT can be
categorized into the following two groups:
1. The use of ICT for renovation of business
processes for aiming at the efficiency of
business activities; and
2. The use of ICT for renovation of business
processes among firms and for obtaining
customer needs and information on technol-
ogy from outside of the firm.
Spiezia (2011) & Lee and Xia (2006), however,
did not clarify which type of ICT use could play
a role in promoting innovation.
Idota et al. (2012b) conducted a survey on
Japanese SMEs in order to identify factors af-
fecting the successful implementation of ICT in
businesses and to make policy recommendations.
The survey results suggested that there was a
clear discrepancy between SMEs that success-
fully promoted ICT and the policy makers who
designed the policies. In particular, among SMEs
with advanced ICT use, it was recognized that
their success lay in their capability to make full
use of ICT inside the firm, which can be referred
to as “ICT capability.” The survey was, however,
based on the assumption that ICT is indispensable
for innovation, and accordingly it did not analyze
the causal relationship between ICT use and in-
novation activities.
As for the relationship between open innovation
and ICT use, Dogson et al. (2006) clarified the
following two points from a case study involving
Procter and Gamble Co.: (i) ICT supports com-
munications for open innovation in the community
or between communities; and (ii) ICT use in data
mining, simulation, and designing prototypes and
virtual systems is useful for supporting open in-
novation. Their research, however, is a case study
of one leading enterprise, and thus they did not
conduct a general quantitative analysis.
Tsuji and Miyahara (2010, 2011) analyzed Jap-
anese SME innovation and identified partners in
innovation, including SMEs in the same industrial
clusters; large firms, called parent firms; suppliers;
customers; and local research institutions such as
universities and public experimental laboratories.
They examined how the distance between SMEs
and partners as well as the frequency of commu-
nication among them are related to innovation,
and obtained results indicating that these are
significantly related to innovation. They did not
mention the term ‘open innovation’ explicitly,
but focused on how distance and communication
frequency between collaborating firms leads to
open innovation.
Solutions and Recommendations
The objective of this analysis is to examine em-
pirically how ICT use is related to innovation
using survey data conducted by the authors. In
so doing, rigorous statistical methods are utilized.
In what follows, we explain the survey, data-set,
and estimation models, and results are presented.
RESEARCH METHOD
Mail Survey and Data-Set
A mail survey was conducted with respect to 2,260
unlisted Japanese companies in industries such as
manufacturing, construction, and information and
telecommunication in January 2010. This survey
targeted unlisted firms found in “The Kaisha (Ja-
pan Company Handbook): Unlisted Companies
in the Second Half of 2009” (2009) published by
Toyokeizai Shinpo, in particular, those listed here
were thought to be actively pursuing innovation.
The number of valid responses was 151 (6.7%).
Let us begin with responses to the major
questions of the questionnaire that are used in
the statistical analysis. As for the number of years
of operation, the number of replies to ‘over 51
years’ was 67 (44.1%). Most of the firms have
been in operation for many years. As for the size
387
 
An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

of firms in terms of capital, the number of firms ment information systems (accounting, payroll,
with less than JPY 300 million in capital was purchase), manufacture management systems,
100 (65.8%). The number of firms with less than ERP (Enterprise Resource Planning) packages,
300 employees was 109 (71.8%). The majority of knowledge management systems, while the latter
respondents were thus small-sized companies. As contains CRM (Customer Relationship Manage-
for type of industry, 98 (63.2%) of the firms were ment) CTI (Computer Telephony Integration)
in manufacturing, 25 (16.1%) were information SCM (Supply Chain Management). According to
and telecommunication companies, 19 (12.3%) Table 2, 92% of firms use a management informa-
were construction companies, and 13 (8.4%) were tion system. More than 50% of firms use a sales
others. Most of firms were in the manufacturing management system, a manufacturing manage-
sector (see Table 1). ment system, and a design management system.
This study categorizes ICT use into two groups; On the other hand, other the use of other kinds of
(i) ICT use inside the firm and (ii) ICT use outside software is not so common. In particular, few firms
the firms. The former consists of sales management use ICTs such as the ERP package, knowledge
systems (including POS and barcode), manage- management systems, CTI, or SCM (Table 2).
Innovation is categorized into two types,
“product innovation,” which is associated with
Table 1. Basic statistics the creation of new products and services, and
“process innovation,” associated with increasing
Freq. % productivity and efficiency of business activities.
Years of operation 51years over 67 44.1 Each type includes more detailed concepts. In
31-50years 36 23.7 empirical analysis, it is required to state which
21-30years 27 17.8 definition of innovation is used or to create an
11-20years 14 9.2 index as a “weighted average” of individual in-
less than 10years 8 5.3 novations by using factor analysis or AHP (Ana-
Capital (million yen) less than 50 43 28.3 lytical Hierarchy Process). In this study, we use
51- 100 32 21.1 the number of patent applications as a proxy of
101-300 25 16.4 innovation. Patent applications contain various
301-500 25 16.4 kinds of innovation, such as product and process
501 over 27 17.8 innovation, or a business model. Although it is
Number of Employees less than 50 38 25.0
better to use the number of patents obtained as
51-100 20 13.2
an index of innovation, this number is usually
too small to be used for analysis. The number of
101-200 23 15.1
patent applications from 2005 to 2008 is shown
201-300 28 18.4
in Table 3, which indicates that 30 firms (19.9%)
301-500 25 16.4
applied 1-5 times, and 13 (8.6%) 6-10 times, im-
501over 18 11.8
plying that their level of activity was low, while
Industries (multiple Manufacturing 98 63.2
answers) 67 firms (44.4%) did not make any applications
Construction 19 12.3
for a patent (see also Figure 2).
Information and 25
telecommunication
16.1 This study focuses on “open innovations,”
Others 13 8.4
which are created through collaboration with
other firms or universities. Table 4 indicates that
Source: Authors

388

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

Table 2. ICT use

Freq. Min Max Avg. Std.

Sales Management System (including POS and barcode) 151 0 1 0.58 0.495
Management Information System (accounting, payroll, 151 0 1 0.92 0.271
EDPS purchase)
Inside Manufacture Management System 151 0 1 0.58 0.495
the firm
Design Management System (including CAD/CAM) 151 0 1 0.50 0.502
ERP (Enterprise Resource Planning) packages 151 0 1 0.09 0.290
Knowledge Management System 151 0 1 0.10 0.299
CRM (Customer Relationship Management) 151 0 1 0.28 0.452
Outside the firm CTI (Computer Telephony Integration) 151 0 1 0.05 0.224
SCM (Supply Chain Management) 151 0 1 0.07 0.249
Source: Authors

Table 3. Number of patent applications in three ANALYTICAL METHOD AND

recent years RESULTS OF ESTIMATIONS
Numbers Freq. %
In order to analyze the relevancy between ICT
0 67 44.4%
use and innovation based on the above data,
1-5 30 19.9%
Probit regression analysis is adopted by taking
6-10 13 8.6%
the number of patent applications in the period
11-20 6 4.0%
2005 to 2008 as the dependent variable. As for
21-30 1 0.7%
explanatory variables, in addition to firms’ charac-
31-40 1 0.7%
teristics such as size, years of operation, industry,
41-50 2 1.3% and ICT use, factors of managerial behavior and
51-60 2 1.3% organizational capability are taken as explanatory
61-70 0 0.0% variables. Prior to Probit analysis, factor analysis
71-80 1 0.7% is conducted with respect to the questions relat-
81-90 2 1.3% ing to managerial behavior and organizational
91-100 0 0.0% capability so as to identify concrete factors. ICT
100 over 3 2.0% use is also categorized into two groups, ICT use
N/A 23 15.2% for inside and outside the firm.
Total 151 100.0%
Source: Authors Factor Analysis on Internal
Innovation Capability

102 firms (67.5%) replied that they conducted
open innovation (Table 4), and Table 5 shows the
open innovation partners, regarding which 113
(74.8%) replied that the partners were customers,
and 101 (66.9%) were suppliers (multiple answers
are permitted).
It is necessary to specify potential variables which
cause innovation, which are referred to as “factors”
in what follows. First we attempt to identify poten-
tial factors which influence innovation according
to the correlation with the questions. For this pur-
pose, factor analysis is applied and the maximum

389
 
An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

Figure 2. Number of patent applications in the period 2005 to 2008. Source: Authors

likelihood method (Varimax Rotation) was used.
Table 6 indicates the result of factor analysis on
managerial behavior, while Table 7 indicates that
on organizational capability. These related ques-
tions are answered using the five-point Likert
scale. Factor analysis identifies four factors as to
managerial behavior variables, which are shown
in Table 6. The first factor of managerial behavior
consists of questions such as “Past data was used for
management,” “Failure cases of other companies
are studied and they are used as precepts,” “There
is a system that accepts technical proposals from
other companies,” “Rivals are always analyzed,”
“Success and failure factors of the projects are
analyzed,” and so on. Accordingly we denoted
this first factor as “organizational learning orienta-
tion.” As for the second factor, questions such as
“Basic research and research related to product
development are coordinated,” “R&D results in
product innovation,” “Basic R&D is important,”
“Basic research and product development research
are coordinated,” and so on are extracted, and
therefore these are singled out and referred to as
“R&D orientation.” The third factor consists of
“Changes in the environment are thought to be
not a threat but a chance,” “The employees are
encouraged to challenge risks,” “New ideas and
methods are positively tried,” and so on, which is
named “challenge orientation.” The fourth factor

Table 5. Open innovation partner

Table 4. Number of firms achieving open in-
novation Freq. %
Supplier 101 66.9%
Freq. % Customer 113 74.8%
Yes 102 67.5% Firms in the same industry 79 52.3%
No 49 32.5% Parents company 83 55.0%
Total 151 100.0% University 91 60.3%
Source: Authors Source: Authors

390

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

consists of “Communication between superiors On the other hand, four factors are identified for
and subordinates is active,” and “Communica- organizational behavior. The first factor consists
tions are active in the section,” which is named of questions such as “Production and process-
“communication orientation” (Table 6). ing technology ability,” “Quality management

Table 6. Factor analysis on managerial behavior

Managerial Behavior Common Factors

Organizational New Challenge Communication
Learning Development
Past data used for management 0.662 0.008 0.114 0.009
Failure cases of other companies are studied, and they 0.625 -0.003 0.274 0.097
are used as precepts
There is a system that accepts technical proposals from 0.594 0.086 0.148 0.232
other companies
Rivals are always analyzed. 0.551 0.195 0.269 0.200
Success and failure factors of the projects are analyzed 0.540 0.125 0.273 0.187
There is a system for positively offering the firm’s 0.448 0.143 0.155 0.239
technology to other firms
Basic research and product development research are 0.086 0.835 -0.019 0.085
coordinated
R&D activities have resulted in product innovation 0.058 0.674 0.252 0.162
Basic R&D is important 0.307 0.624 -0.036 -0.030
Direction of R&D and business strategy coincide with 0.061 0.611 0.371 0.084
each other
The company does not rely on outside technology and 0.003 0.580 0.020 -0.008
sticks to its own technology
Sales are concentrated more on new products than 0.044 0.490 0.276 0.087
existing products
Changes in the environment are thought to be not a 0.267 0.059 0.728 0.099
threat but a chance
The firm encourages employees to challenge risks 0.247 0.084 0.588 0.141
New ideas and methods are positively tried 0.308 0.233 0.583 0.183
Practical training and job rotations are practiced to 0.356 0.136 0.438 0.273
raise employee expertise and special skill
There are places (“Ba”) where the development of new 0.229 0.377 0.438 0.223
products can be examined
A method of project management has been adopted 0.382 0.241 0.385 0.154
Communications between superiors and subordinates 0.388 0.081 0.267 0.878
are active
Communications are active in the section 0.381 0.147 0.337 0.591
Eigen value 2.936 2.885 2.492 1.576
Rotated Factor Pattern (%) 14.680 14.427 12.462 7.878
Cumulative Proportion (%) 49.447
Cronbach’s α .792 .814 .802 .877
Source: Authors

391
 
An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

ability,” and “Business improvement ability by
TQC and TQM, and so on.” This factor is then
termed “product technology orientation.” As for
the second factor, questions such as “Ability to
take the outside technology,” “Ability to combine
outside technology with internal technology,” and
“Network construction ability with outside firms”
are extracted, and therefore this factor is referred
to as “absorptive capacity orientation” (e.g. Cohen
and Levinthal, 1990). The third factor consists of
“Owning original technology and R&D ability,”
“Attractiveness of product and service,” “Prob-
lem solving and proposal ability,” “Efficiency of
R&D,” and so on, which is named “R&D ability
orientation.” The forth factor consists of “Market
research ability” and “Sales ability,” which is
named “marketing orientation” (Table 7).
Indices of ICT Use for Inside
and Outside the Firm
Here, indices of ICT use are constructed for em-
pirical analysis. Tsuji (2005) used simple weighted
averages of various ICT uses which are similar to
this study, and Tsuji et al. (2011, 2012) constructed
such indices by applying AHP (Analytic Hierarchy
Process). This study constructs the indices in a
simple way. As mentioned earlier, ICT use is cat-
egorized into two groups; inside and outside the
firm. ICT use for inside the firm consists of “Sales
management systems,” “Management information
systems (accounting, payroll, and purchase),”
“Manufacturing management systems,” “Design-
ing management systems,” “ERP packages,” and
“Knowledge management systems,” which are

Table 7. Factor analysis on organizational capability

Organizational capability Common Factors

Product Absorptive R&D Marketing
Technology Capacity
Production and processing technology ability 0.909 0.179 0.114 -0.035
Quality control ability 0.683 0.135 0.090 0.183
Business improvement ability by TQC and TQM, and so on. 0.584 0.176 0.102 0.279
Ability to take in outside technology 0.247 0.823 0.096 0.163
Ability to combine outside technology with internal technology 0.241 0.777 0.208 0.010
Network construction ability with outside firms 0.025 0.461 0.219 0.231
Firm’s original technology and R&D ability 0.103 0.104 0.859 0.054
Attractiveness of products and services 0.031 0.171 0.638 0.258
Problem solving and proposal ability 0.222 0.333 0.510 0.378
R&D efficiency 0.266 0.366 0.487 0.195
Market research ability 0.205 0.106 0.149 0.732
Sales ability 0.095 0.152 0.210 0.700
Eigen value 1.938 1.895 1.840 1.468
Rotated Factor Pattern (%) 16.146 15.790 15.337 12.237
Cumulative Proportion (%) 59.510
Cronbach’s α .790 .777 .786 .746
Source: Authors

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An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

already shown in Table 2. The first four systems,
Sales management systems, Management informa-
tion systems, Manufacture management systems,
and Design management systems, are related to
particular business activities, and in what follows,
these are referred to as “EDPS (Electronic Data
Processing Systems).” If firms utilize these sys-
tems, they replied “yes.” The number of positive
replies is then calculated, and these numbers are
divided by four for normalization. Thus the number
of systems used takes a value between 0-1, which
is referred to as a “score.” In addition to this, as
to “ERP packages” and “Knowledge management
systems,” the number of positive replies is also
counted and the numbers are taken as a score. Ac-
cordingly, the total score is a maximum of three,
which is termed the index of ICT use inside the
firm, abbreviated to “ICT inside use index.”
The “ICT outside use index” is also constructed
in the same manner, consisting of CRM, CTI, and
SCM. The number of positive replies to the use
of these systems becomes the score, and then the
index. The score thus takes a value of 0-3. The
distribution of these indices is shown in Table 8,
and the average values of the ICT inside use index
and ICT outside use index are 0.834 and 0.397,
respectively. It follows from these that the former
these concepts consist of various factors, which
are identified by factor analysis.
The problem related to the estimation is the
number of samples; the number of valid responses
is 151, which restricts the estimation model, that
is, all of the explanatory variables are not used
in the model. We therefore introduce one of two
internal innovation capabilities in the model. The
first estimation models are related to all firms,
and the second estimation models are related to
those which replied they conducted open innova-
tion, which is referred to as the open innovation
model. In this open innovation model, the kinds
of information exchanged are identified.
Result of Estimation (1) All Firms
In these estimation models, all 151 firms are used
as samples. Two estimation models are examined
depending on the “managerial behavior” and “or-
ganizational capability” in the internal innovation
capability. The dependent variable is the number
Table 8. ICT inside and outside use indices
Index ICT Inside Use ICT Outside Use

is more common than the latter, since the former 0 4 2.6% 99 65.6%
is much simpler than the latter. 0.25 20 13.2%
0.5 33 21.9%
0.75 35 23.2%
HYPOTHESIS AND MODELS 1 36 23.8% 45 29.8%
FOR ESTIMATION 1.25 2 1.3%
1.5 8 5.3%
As already described, the number of patents ap-
1.75 3 2.0%
plied for in the period 2005 to 2008 is taken as the
2 6 4.0% 6 4.0%
dependent variable. The underlying hypothesis on
2.25 0 0.0%
how innovation is determined is that it is deter-
2.5 1 0.7%
mined by internal innovation capability, ICT use,
2.75 2 1.3%
and other characteristics of the firm, such as the
number of years of operation, size of firm, and the 3 1 0.7% 1 0.7%

industry the firm belongs to. Internal innovation Total 151 100.0% 151 100.0%

capability is divided into two concepts, manage- Average 0.834 0.397

rial behavior and organizational capability, and Source: Authors

393
 
An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

of patent applications for the three years, 2005
to 2008, while explanatory variables consist of
“the period of operation (logarithm),” “capital
(logarithm),” “type of industry dummy,” “ICT
use,” and “managerial behavior.”
In the results of the estimation of the manage-
rial behavior model, “manufacturing industry”
(p<0.05), “ICT use inside the firm” (p<0.05),
“organizational learning orientation” (p<0.05),
and “new development orientation” (p<0.01)
became positively significant (Table 9).
Similarly, in the estimation of the organiza-
tional capability model, “manufacturing industry”
(p<0.01), “ICT use inside the firm” (p<0.10),
“ICT use outside the firm” (p<0.05), and “R&D
orientation” (p<0.01) became positively signifi-
cant (Table 10).
According to these results, ICT use inside the
firm is significant in both models, while ICT use
outside the firm is significant only in the orga-
nizational capability model. Factors of organiza-
tional capability are related to technology, R&D
and absorptive capability, which can be obtained
from outside the firm by collaboration, while the
factors of managerial behavior are related to ac-
cumulation through domestic effort and systems
such as the knowledge management process. As
a matter of fact, R&D-orientated activity, which
is only significant in Table 10, can be transferred
outside the firm via ICT use. On the other hand, it
is difficult to transfer learning orientation and new
development orientation, which are significant in
Table 9, by ICT, since they are deeply related to
the inner systems of firms.
Result of Estimation (2) Open
Innovation and ICT Use
This section analyzes firms which cooperate
with other firms or universities to develop new
products and services in the same way as in the
previous section. The number of samples is 102,
and the partners of open innovation are listed
in Table 5, which indicates suppliers (66.9%),

Table 9. Innovation and ICT use; Managerial behavior model

Number of Patent Applications in 3 Years Coef. Std. Err. z-Value p-Value Marginal
Effect
Period of operation (logarithm) 0 (omitted)
Capital (logarithm) 0.026 0.109 0.23 0.815 0.010
Manufacturing industry 1.407 0.627 2.24 0.025 0.488
Construction industry 1.152 0.776 1.48 0.138 0.418
Information and communication industry 0.091 0.731 0.12 0.901 0.036
ICT use ICT use inside the firm 0.419 0.192 2.18 0.029 0.165
ICT use outside the firm 0.292 0.225 1.30 0.194 0.115
Managerial Organizational learning 0.389 0.198 1.96 0.049 0.154
behavior
New development 0.826 0.214 3.85 0.000 0.326
Challenge -0.091 0.184 -0.50 0.620 -0.036
Communication 0.094 0.143 0.66 0.512 0.037
Constant -2.194 2.109 -1.04 0.298
Obs. 114
Log Likelihood -51.366
Notes: The period of operation (logarithm) is excluded from the regression due to closeness of the t-value to zero.
Source: Authors

394

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

Table 10. Innovation and ICT use; Organizational capability model

Number of Patent Applications in 3 Years Coef. Std. Err. z-Value p-Value Marginal
Effect
Period of operation (logarithm) 0 (omitted)
Capital (logarithm) 0.142 0.106 1.34 0.181 0.056
Manufacturing industry 1.616 0.628 2.57 0.010 0.540
Construction industry 0.798 0.690 1.16 0.248 0.307
Information and communication industry 0.541 0.754 0.72 0.473 0.213
ICT use ICT use inside the firm 0.358 0.185 1.93 0.054 0.141
ICT use outside the firm 0.425 0.217 1.96 0.050 0.167
Organizational Product technology -0.104 0.163 -0.63 0.526 -0.041
capability
Absorptive capacity 0.077 0.153 0.51 0.612 0.030
R&D 0.529 0.176 3.00 0.003 0.208
Marketing 0.196 0.172 1.14 0.254 0.077
Constant -4.639 2.137 -2.17 0.030
Obs. 119
Log Likelihood -58.428
Notes: The period of operation (logarithm) is excluded from the regression due to closeness of the t-value to zero.
Source: Authors

customers (74.8%), firms in the same industry
(52.3%), parent companies (55.0%) and universi-
ties (60.3%). Two models, a managerial behavior
model and an organizational capability model
are examined by Probit estimation in the same
manner as in the previous section. The result of
the managerial behavior model is summarized in
Table 11, in which “capital (logarithm)” (p<0.01),
“manufacturing industry” (p<0.05), “ICT for
outside firm” (p<0.10), “organizational learning
orientation” (p<0.05), “new development orienta-
tion” (p<0.01), and “communication orientation”
(p<0.10) became positively significant.
Similarly, the results of the organizational
capability model are shown in Table 12, in which
“capital (logarithm)” (p<0.05), “manufactur-
ing industry” (p<0.05), “ICT for outside firm”
(p<0.05), and “R&D orientation” (p<0.10)
became positively significant. It should be noted
that only ICT use outside the firm is significant
in both models; firms actually conducting open
innovation use ICT more than firms not practic-
ing open innovation, which coincides with reality.
Moreover, in the managerial behavior model, the
factor “communication orientation” becomes
significant, which is also reasonable, since open
innovation firms are more concerned with shar-
ing information by use of ICT. It should also be
mentioned that the size of firms in terms of capital
is significant in both models, which is related to
the tendency for larger firms to be able to afford
and have more need to practice open innovation.
OPEN INNOVATION, PARTNERS
AND INFORMATION EXCHANGED
This section aims to analyze the partners with
which Japanese SMEs are conducting open in-
novation. Again the samples are 102 firms which
replied that they are practicing open innovation.
The number of patent applications in three years
is taken as the dependent variable and the “period
of operation (logarithm),” “capital (logarithm),”

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An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

Table 11. Open innovation and ICT use; Managerial behavior model

Number of Patent Applications in 3 years Coef. Std. Err. z-Value p-Value Marginal
Effect
Period of operation (logarithm) 0 (omitted)
Capital (logarithm) 0.247 0.149 1.65 0.098 0.098
Manufacturing industry 1.417 0.674 2.10 0.036 0.501
Construction industry 0.806 0.909 0.89 0.375 0.301
Information and communication industry 0.537 0.803 0.67 0.504 0.210
ICT use ICT use inside the firm 0.065 0.213 0.31 0.759 0.026
ICT use outside the firm 0.457 0.262 1.74 0.081 0.182
Managerial Organizational learning 0.544 0.254 2.14 0.032 0.217
Behavior
New development 0.772 0.250 3.09 0.002 0.308
Challenge 0.003 0.248 0.01 0.989 0.001
Communication 0.307 0.175 1.75 0.080 0.122
Constant -6.201 2.894 -2.14 0.032
Obs. 79
Log Likelihood -34.296
Notes: ***, ** and * indicate levels of significance of 1%, 5%, and 10%, respectively. The period of operation (logarithm) is excluded
from the regression due to closeness of the t-value to zero.
Source: Authors

Table 12. Open innovation and ICT use; Organizational capability model

Number of Patent Applications in 3 Years Coef. Std. Err. z-Value p-Value Marginal
Effect
Period of operation (logarithm) 0 (omitted)
Capital (logarithm) 0.359 0.144 2.49 0.013 0.142
Manufacturing industry 1.794 0.708 2.54 0.011 0.583
Construction industry 0.776 0.834 0.93 0.352 0.296
Information and communication industry 1.331 0.876 1.52 0.129 0.468
ICT use ICT use inside the firm 0.198 0.223 0.88 0.376 0.078
ICT use outside the firm 0.584 0.256 2.28 0.022 0.231
Organizational Product technology -0.177 0.218 -0.81 0.418 -0.070
capability
Absorptive capacity 0.267 0.207 1.29 0.198 0.106
R&D 0.432 0.230 1.88 0.060 0.171
Marketing 0.328 0.273 1.20 0.229 0.130
Constant -8.896 2.880 -3.09 0.002
Obs. 81
Log Likelihood -39.591
Notes: The period of operation (logarithm) is excluded from the regression due to closeness of the t-value to zero.
Source: Authors

396

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

“industry dummy,” “ICT use,” and “partner” are
taken as explanatory variables for Probit analysis.
As a result, “capital (logarithm)” (p<0.01), “manu-
facturing industry” (p<0.01), “ICT for outside
the firm” (p<0.05), partner firms in the “same
industry” (p<0.10) and “university” (p<0.10)
became positively significant (Table 13).
Firms with an open innovation network have
firms in the same industry and universities as
partners. The former appear to be competitors who
hardly collaborate with each other, but this kind
of estimation result is often obtained (e.g. Tsuji
& Miyahara, 2010; 2011). In Japan, firms in the
same industry form an industry association, where
they can learn about trends in related technol-
ogy and send missions to study or participate in
tradeshows together. It should be noted that ICT
use outside the firm is also significant, and it is
expected that ICT supports contacts with partners
and achieving innovation.
RELATIONSHIP BETWEEN
OPEN INNOVATION AND
TYPES OF INFORMATION
The objective of this last section is to analyze the
kinds of information that are exchanged between
partners in open innovation. The estimation model
is basically the same as in the previous section,
and the variables of partners are substituted
with the kind of innovation. As a result, “capital
(logarithm)” (p<0.10), “manufacturing indus-
try” (p<0.10), “ICT for outside firm” (p<0.10),

Table 13. Open innovation and partners

Number of Patent Coef. Std. Err. z-Value p-Value Marginal Effect

Applications in 3 years
Period of operation (logarithm) 0 (omitted)
Capital (logarithm) 0.442 0.158 2.80 0.005 0.176
Manufacturing industry 1.591 0.611 2.60 0.009 0.548
Construction industry 0.592 0.640 0.93 0.355 0.230
Information and communication 1.025 0.783 1.31 0.190 0.377
industry
ICT use ICT use inside 0.020 0.213 0.09 0.972 0.008
the firm
ICT use 0.650 0.262 2.48 0.013 0.259
outside the
firm
Partner Supplier 0.322 0.336 0.96 0.338 0.128
Customer 0.448 0.351 1.28 0.202 0.176
Same industry 0.731 0.394 1.86 0.063 0.285
Parent 0.074 0.391 0.19 0.850 0.029
company
University 0.686 0.388 1.77 0.077 0.268
Constant -11.024 3.347 -3.29 0.001
Obs. 84
Log Likelihood -43.634
Notes: The period of operation (logarithm) is excluded from the regression due to closeness of the t-value to zero.
Source: Authors

397
 
An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

“Information on new products in rival firms”
(p<0.10), “Information on basic technology”
(p<0.01), and “Information on high technology”
(p<0.10) became positively significant (Table 14).
Information exchanged between firms in the open
innovation network is that related to technology,
particularly basic technology and cutting-edge
technology. Although they are interested in high
technology, this technology is of too high a level
for them, and thus they wish to obtain informa-
tion related to basic technology. Again, ICT use
outside the firm is also significant, implying that
ICT contributes to innovation in the open innova-
tion system.
Firms in this analysis can obtain information
such as on basic technology and on new products
and services in rival firms.
Traditionally Japanese firms tended to conduct
R&D activities by making use of their own mana-
gerial resources and information or by sharing
with firms within the group. This analysis shows
that for further open innovation, it is necessary
for them to establish systems for cooperating with
other firms and research organizations.
FUTURE RESEARCH DIRECTIONS
This study examines the role of ICT use in the
innovation process, in particular in the frame-
work of open innovation, by taking the number
of patent applications as the dependent variable.
We estimated six different estimation models,
and obtained results that indicate that ICT use,
particularly outside the firm, is significant in all
models. Accordingly, firms successfully utilize
ICT, but the following limitations need to be
solved in further studies.
1. Specification of the Model: The original
hypotheses are that ICT can contribute to
innovation through two channels, that is,

Table 14. Open innovation and kinds of information exchanged

Number of Patent Applications in 3 years Coef. Std. Err. z-Value p-Value Marginal
Effect
Period of operation (logarithm) 0 (omitted)
Capital (logarithm) 0.284 0.165 1.72 0.086 0.113
Manufacturing industry 1.235 0.646 1.91 0.056 0.450
Construction industry 0.775 0.807 0.96 0.337 0.288
Information and communication industry 0.630 0.811 0.78 0.438 0.242
ICT use ICT use inside the firm 0.158 0.222 0.71 0.475 0.063
ICT use outside the firm 0.529 0.280 1.89 0.059 0.211
Kinds of Customer needs 0.486 0.386 1.26 0.208 0.191
information
New products in rival firms 0.863 0.472 1.83 0.067 0.328
Basic technology 1.256 0.420 2.99 0.003 0.466
High technology 0.783 0.450 1.74 0.082 0.302
Development cost 0.125 0.436 0.29 0.775 0.050
Constant -8.144 3.271 -2.49 0.013
Obs. 80
Log Likelihood -34.412
Notes: The period of operation (logarithm) is excluded from the regression due to closeness of the t-value to zero.
Source: Authors

398

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
by promoting internal innovation capability
and by achieving innovation. We attempted
to verify these two hypotheses, but could not
obtain concrete results related to the former
process. This study demonstrated that ICT
use for connecting outside agents supports
the achievement of innovation. This failure
was mainly due to the lack of a sufficient
number of samples, and a larger scale survey
will be necessary. When considering ICT for
promoting internal innovation capability,
large-scale systems are usually imagined,
but handy systems such as SNS, blogs, and
Facebook have already been used (Idota, et
al., 2011). Social media is also one possibil-
ity for further research.
2. Method of Analysis: Probit analysis was
used for estimation, but what we were able
to do was to show the existence of a cor-
relation between innovation and ICT use.
The relationship might be “seemingly corre-
lated.” It is possible that the relationship this
study has uncovered is that firms with more
innovation make good use of ICT. Thus, an
estimation method that shows the causality
of ICT use in innovation is required, and
the instrumental variable (IV) method, or
Probit model with continuous endogenous
regressors could be applied.
3. Categorization of Innovation and ICT
Use: This study chooses the number of pat-
ent applications as the dependent variable,
but there are other variables which may be
better as proxies for innovation. The number
of patents is mainly related to product in-
novation, while process innovation is less
appropriate to patents. The same argument is
applicable to the ICT use index. The method
this study has used is simple, but it appears
to be arbitrary.
4. Hypothesis on Open Innovation: This
study did not concretely specify the open
innovation system. In order for Japanese
firms to transform by open innovation, it
is required to engage in an in-depth survey
on existing open innovation and clarify its
issues and limitations.
CONCLUSION
In sum, this paper verifies that ICT use is a key
factor for achieving innovation. However, the
relationship between innovation and ICT use is
not the same for all firms. In this paper, innova-
tion is categorized into innovation and open in-
novation. The result obtained showing that ICT
use outside the firm is significant for innovation
seems to be new, since traditionally most Japa-
nese firms are said to be either engaged in the
innovation process by themselves or obtained
necessary information from the industrial group,
organized by large firms such as Toyota, Honda,
Panasonic, and so on. These industrial groups have
established knowledge management processes,
such as labor participation in innovation or qual-
ity management, which became global standards
for firms in other countries to learn. In the age of
information, however, Japanese firms also have
been facing transformation from the traditional
way to a new innovation process which was cre-
ated in accordance with the development of ICT.
This study has demonstrated that innovative firms
have already entered the new era of innovation.
On the other hand, although open innovation
has gradually been practiced among Japanese
firms, there remain many problems for them
in practicing open innovation. As this study on
innovative firms shows, the success of open in-
novation depends on strengthening organization
capabilities, transforming to flexible managerial
behavior for innovation, and making further use
of ICT. It is well known that the current ICT is
a typical product of open innovation, and many
Japanese firms contribute to its success by manu-
facturing superb parts and components. Contrary
399

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms
to this fact, Japanese firms lag behind in open
innovation. Further research is required to answer
this question.
ACKNOWLEDGMENT
This paper is a part of the research outcomes to
“The Strategy of making Local Innovation System
by ICT Capability” (Grant number c-21530372)
and “Strategy of Enterprise Innovation by Using
Social Media” (Grant number c-24530435) con-
ducted by the authors and sponsored by the Japan
Society for the Promotion of Science. Financial
supports are gratefully acknowledged.
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KEY TERMS AND DEFINITIONS
ICT Use Inside the Firm: ICT introduced
for the purposes of internal use. For example,
it consists of information systems such as sales,
accounting, payroll, purchase, manufacturing,
design, and ERP (Enterprise Resources Plan-
ning). It also includes knowledge management
systems for sharing information and knowledge
within the firm.
ICT Use for Outside the Firm: ICT intro-
duced for the purposes of obtaining information
from outside the firm and sharing information with
others. CRM (Consumer Relation management),
CTI (Computer Telephony Integration), and SCM
(Supply Chain Management) are typical examples.
Innovation: To create new products and ser-
vices and to promote productivity by renovating
management. This mainly consists of product and
process innovation.
Management Behavior: The behavior of top
management and employees which characterizes
the management of the particular firm.
Organizational Capability: Generic capabil-
ity related to business organizations, which is the
basis for the persistent competitiveness of a firm.

An Empirical Analysis of Innovation Success Factors Due to ICT Use in Japanese Firms

Open Innovation: One method of innovation
in cooperation with other firms such as suppliers,
customers, and firms in the same industry, and
research institutions such as universities or local
research institutes.
Process Innovation: One type of innovation
which creates new production methods or new
marketing channels as well as methods.
Product Innovation: One type of innovation
for creating new products and services.

This work was previously published in Approaches and Processes for Managing the Economics of Information Systems edited
by Theodosios Tsiakis, Theodoros Kargidis, and Panagiotis Katsaros, pages 324-347, copyright year 2014 by Business Science
Reference (an imprint of IGI Global).

405
406

Chapter 23
A Case Study of Progressive
Formation of Accounting
Cloud Services in Japan
Yutaka Mizuno
Nagoya Institute of Technology, Japan

Nobutaka Odake
Nagoya Institute of Technology, Japan

ABSTRACT
The purpose of this study is to clarify the best practice of an accounting cloud service in Japan which
has two-sided markets and freemium structure and how to formulate its service. The authors studied
one specific accounting cloud service, as a case study. As results, the authors obtained the following
three findings. First, the best accounting cloud service adopted Open & Close strategy. The Company
specializes in accounting operations area and make open connections with other cloud services in non-
accounting operations area. Second, the best accounting cloud service has a specific service formation
along its market strategy. Third, the best accounting cloud service has an effective boarding strategy of
its users’ group onto its cloud service platform. Therefore, cloud service providers not only adopt Open
& Close strategy, but also build up the coherent market strategy to formulate self-reinforcing mechanism
before building up their business ecosystem in the two-sided markets and freemium structure.

INTRODUCTION In the past few years, new accounting cloud

A cloud service is an information processing
platform. It consists of end-users, players to
supply resources complementary, and players to
intermediate its services in a platform. Thus, a
cloud service builds a business ecosystem and
one of important social infrastructures.
services for both of individuals and small compa-
nies are growing rapidly in Japan. An accounting
cloud service is defined as a cloud service provid-
ing for a financial management service. Because
the taxation system was revised, individuals and
small companies have an obligation to create and
keep an accounting book. The new accounting

DOI: 10.4018/978-1-4666-8468-3.ch023

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
service help their customers to create and keep
accounting books cheaply. Users can register daily
cash transactions and manages daily income and
expenditure on the accounting cloud service. In
addition, the accounting cloud service associates
with the other cloud services such as, including
Internet-Banking, E-commerce Sites. Therefore,
customers can get their transaction records from
other could services and keep accounting books
automatically. Thus, customers can save their
resources and concentrate upon their business.
The new accounting cloud services are pro-
vided by Start-up Companies. It has two-sided
markets and freemium structure with both free and
paid customers on its service platform. Two-sided
(or more generally multi-sided) markets structure
is defined as markets in which one or several plat-
forms enable interactions between end-users, and
tries to get the two (or multiple) sides “on board”
by appropriately charging each side (Rochet and
Tirole 2003). Freemium is a kind of business model
of two-sided markets. The freemium model has
multiple sides group. One is a user’s group who
pay service fee on the platform, and the other
is a user’s group who does not pay service fee.
The freemium model can be used as an effective
go-to-market strategy of Start-ups. Despite its
popularity and clear benefits, freemium is still
poorly understood (Kumar 2014).
The purpose of this study is to clarify the
best practice of an accounting cloud service in
Japan and how to formulate the best accounting
cloud service which has two-sided markets and
freemium structure.
Outline of this paper consists as follow: theo-
retical framework related the topic; methodology;
market survey; case study; discussion of formation;
and conclusions.
LITERATURE REVIEW
We attempt to answer the following questions,
and thereby fill key research gaps in the existing
literature: a) organization management; b) market
strategy; c) Open Service Innovation; d) Open &
Close strategy.
Organization Management
Gawer and Cusumano define that “Platforms are
industry building blocks which attract other firms’
investment and innovation on add-on products
or services analyzed the competitive strategy of
major enterprises” in the viewpoint of the platform
formation and leadership with their case studies
of Intel, Microsoft, and CISCO (Gawer and Cu-
sumano 2002). Platform strategy discusses how to
manage and how to integrate internal resources of
enterprise. Iansiti and Levien examine competitive
strategy with the framework of business ecosystem
(Moore 1993; 1996) which connects seamlessly
with various enterprises. Business ecosystem
discusses how to manage and integrate external
resources of enterprises (Iansiti and Levien 2004).
Market Strategy
March classifies that market activity of enter-
prises has two types which are exploration and
exploitation (March 1991). Arthur established
theory of network economy and explains that
network effect is increasing returns to scale and
have characteristics of path independence (Arthur,
1994). In other words, network effects is that the
growth of users of a platform increases the growth
of profits that gain from the platform. Rochet and
Tirole established theory of two-sided markets and
describe platform competition that “Enterprises
tries to get the two (or multiple) sides on board by
appropriately charging each side onto their plat-
form.” The two end-users groups are attracted to
each other (Rochet and Tirole 2003). Eisenmann
et al state that “The platform value to any given
user largely depends on the number of users on
the network’s other side with two-sided network
effects ” and that “value grows as the platform
matches demand from both sides” (Eisenmann et
407

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
al 2006). In other words, two-sided network effects
is that the growth of one-side users on a platform
increases the growth of profits of other side users.
One model of two-sided markets structure is
freemium. Figure 1 indicates the two-sided mar-
kets and freemium structure. Term “Freemium”
combines two terms of “Free” and “Premium.”
Freemium is a business model by which a prod-
uct or service (typically a digital offering such
as software, media, games or web services) is
provided free of charge, but a premium is charged
for advanced features, functionality, or virtual
goods (JLM de la Iglesia and JEL Gayo 2008).
Freemium market strategy tries free charge users
group and paid users group on board onto one
platform. Anderson and Lincoln present overview
of freemium business on cloud computing in the
sight of commercial purpose (Anderson 2009;
Lincoln 2010). Lee, Kumar, and Gupta develop
an empirical microfoundations-based framework
to understand dynamics of consumer behavior of
plan choice, usage, and referral in the freemium set-
ting (Lee, Kumar and Gupta 2013). Kumar states
that free features are a potent marketing tool and
the model allows a new venture to scale up and
attract a user base without expending resources
on costly ad campaigns or a traditional sales force
(Kumar 2014). Over the past decade “freemium”
--a combination of “free” and “premium”-- has
Figure 1. Two-sided markets and freemium structure
408

become the dominant business model among
internet start-ups and smartphone app develop-
ers, but despite its popularity and clear benefits,
freemium is still poorly understood (Kumar 2014).
Open Service Innovation
Enterprises can use Open Innovation not only
to accelerate and deepen innovation but also to
make innovation less costly, less risky, and faster
(Chesbrough 2003; 2006). Chesbrough adverted
to the notion of the relationships between Open
Innovation, specialization and economies of scale
and scope (Chesbrough 2003; 2006). Cloud ser-
vice is defined as software as a service. Related
to service innovation, Chesbrough made up four
fundamental concepts of Open Service Innovation:
1) think of the business as a service business; 2)
invite customers to co-create innovation with the
business; 3) use Open Innovation to accelerate
and deepen services innovation; 4) transform the
business model with Open Service Innovation.
(Chesbrough 2011)
Open and Close Strategy
Open & Close strategy (Ogawa, 2014) is a method
of Management of Technology (MOT) which
combines internal “Closed” innovation and ex-

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
ternal “Open” innovation. MOT is defined that
companies and organizations understand the es-
sence of technology and management, and have
management capabilities that link the outcome of
research and development with economic value is
rising for sustainable development. At the Open &
Close strategy, term “Open” refers to a mechanism
to create the strategic technologies and products
of the company, while company utilizes the glo-
balization of manufacturing and collects the best
knowledge around the world. Term “Close” refers
to a mechanism to make for a pre-determined
technical area to protect as a source of value and
not to propagate the source of value out of the
company. The Open & Close strategy combines
these two mechanisms into one and realizes high
profits and mass dissemination at the same time
in the global market. On the other hand, there
is full-set integration strategy when developing
products and services. The full-set integration
strategy means that most of components of product
are made inside a company. Senoo points out that
Japanese companies conventionally develop their
all products and services inside of their closed
companies (Senoo 2009). This full-set integration
strategy which adopts only closed innovation in its
organization, takes a lot of time and management
resources to develop their products and services.
Most of studies of the Open & Close strategy
picked up a product innovation and innovative
activities in major manufacturers. Takahashi et
all discuss the Open & Close strategy by utilizing
Standardization in their case studies (Takahashi
et all 2011). Ogawa studies major manufacturing
companies such as Intel Corp and discuss their
platform strategies with intellectual property
rights strategy (Ogawa 2014). But there are few
case studies of service innovation and innovative
activities of cloud services that Start-ups provide.
In this paper, the authors focus on the Open &
Close strategy of service innovation and innova-
tive activities of Start-ups that provide a cloud
service of software as a service.
RESEARCH DESIGN
Research Setting
As previously discussed, Kumar (2014) states that
free features are a potent marketing tool and the
model allows a new venture to scale up and attract
a user base without expending resources on costly
ad campaigns or a traditional sales force. Despite
its popularity and clear benefits, freemium is still
poorly understood (Kumar 2014).
To date, few studies deal with early stage of
formation of an accounting cloud service which has
two-sided markets and freemium structure. This
study is a set within the accounting cloud service
in Japan. The purpose of this study is to clarify
the best practice of an accounting cloud service
in Japan and how to formulate a best accounting
cloud service which has two-sided markets and
freemium structure.
Research Design
Given the early stage of business formation litera-
ture and the limited theory on how to formulate an
accounting cloud service, we use an exploratory
case study research strategy, applying qualita-
tive methods (Eisenhardt 1989) and employ an
analytic induction approach (Znaniecki 1968)
to build explanations over the phenomena. Fig-
ure 2 indicates our analytical structure for case
studies. We examine business formation, market
strategy, and service formation which affect how
to formulate business ecosystem formation and
platform development. Finally, we examine Open
and Close Strategy which affect how to make the
business formation, the market strategy, and the
service formation.
Data Collection
This study relies on public archives that include
websites, financial reports, industry databases
and publications.
409

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
Figure 2. Analytical structure for case study
Data Analysis
We identify: (1) general market positions of ac-
counting cloud services in Japan; (2) the best
practice service among the accounting cloud
services which has two-sided markets and free-
mium structure; and (3) how to formulate business
ecosystem and platform of the best accounting
cloud service.
Market of Accounting Cloud
Services in Japan
In this section, we present market of accounting
cloud services and identify the best accounting
cloud service in Japan.
Background of Growth of
Accounting Cloud Services in Japan
The Japanese policy concerning small busi-
ness development started a new small business
promotion act in March 2014, which focuses on
individuals and sole proprietors. The goals are the
following two. First, it creates environment where
individuals and sole proprietors can start small
companies easily. Second, it provides continuous
410

support along their business stages until they can
succeed in their business as small companies.
On the other hand, income tax return in Japan
has changed in January 2014. Sole proprietors
must create an accounting book. Therefore, they
are forced to spend more resources to keep the
accounting book.
In January 2014, income tax returns in Japan
have changed. Table 1 shows income tax returns
in Japan.
Individual who files white or blue income
tax return has an obligation to make and keep an
accounting book. A system of bookkeeping is
how to register a journal record. A single-entry
bookkeeping system is a method of bookkeeping
relying on one-sided accounting entry to maintain
financial information. A double-entry bookkeep-
ing system is that every entry to an account requires
a corresponding and opposite entry to a different
account. Company is allowed a deduction from its
income tax assessment in case of filing the blue
income tax return. As tax deduction increases, it
becomes necessary for the accounting book to
keep records by a detail method. Therefore, they
are forced to spend more resources to keep the
accounting book.

A Case Study of Progressive Formation of Accounting Cloud Services in Japan

Table 1. Income tax returns in April 2014

User Individual Sole Proprietor/Company

Type of Income Tax Return Final White Blue
Obligation of Bookkeeping NO YES YES YES
System of Bookkeeping - Single-entry or Single-entry or Double-entry
Double-entry Double-entry
Tax deduction - No 100,000 JPY 650,000 JPY
Tax reduction - - 20,420 JPY 132,730 JPY

Market of Accounting Cloud ASP services before starting their cloud

Services In Japan
Table 2 shows list of accounting cloud services
in Japan. Figure 3 shows market positions of ten
accounting cloud services.
The appendix indicates detail data of account-
ing cloud services in Japan.
The market of accounting cloud services in
Japan is summarized as follow:
1. There are two conventional models of ac-
counting cloud services. One is accounting
cloud service for individuals and another is
service for companies.
2. Accounting cloud services for companies
are provided by system integrators who sold
accounting software packages and provided
services.
3. Accounting cloud services for individuals
are provided by Internet service providers
who provide a connection to the Internet
and have their own portal home pages on
the Internet. They provide accounting cloud
services as one of their services like blog on
their portal sites.
4. There are new accounting cloud services for
both of individuals and companies.
Identification of the Best Accounting
Cloud Service in Japan
Figure 4 shows a trend of search-volume of service
F and service H on Google Trends (Retrieved
July 15, 2014, from https://www.google.co.jp/

Table 2. List of accounting cloud service

Target User Pricing Service Service Release Platform

Companies Paid fee only A 2008/10 SaaS
    C 2011/06 SaaS
Individuals Paid fee only B 2011/04 SaaS/(Mobile)
  Freemium D 2011/07 SaaS/Mobile
  Free charge only E 2011/10 SaaS
    G 2013/01 Mobile
    I 2013/04 Mobile
Individuals Freemium F 2012/12 SaaS/Mobile
    H 2013/03 SaaS/Mobile
  Paid fee only J 2014/01 SaaS/(Mobile)

411
 
A Case Study of Progressive Formation of Accounting Cloud Services in Japan

Figure 3. Market position of the accounting cloud services

trends/). These two services were started almost
at the same time and were provided by almost
the same number of employees, but the trends of
these two services are quite different. The trend of
service F has two specific peaks. In our opinion,
the reason is that the service F have adopted a
two-phase service release.
The cloud service of service F grows more
rapidly than service F. Then, the authors identify
the accounting cloud service F as best accounting
cloud service in Japan.
CASE STUDY OF THE BEST
ACCOUNTING CLOUD
SERVICE IN JAPAN
In this section, we present a case study of the best
accounting cloud service F. Case study includes
background, business overview, service deploy-
ments, system developments of the platform,
and development of business ecosystem of the
accounting cloud service.

Figure 4. Comparison of trend of search-volume (Source: Google Trends)

412

A Case Study of Progressive Formation of Accounting Cloud Services in Japan

Business Overview are in the age of 30’s and have experience in IT

The case company specializes in accounting
cloud service. The company does not disclose the
number of users. According to a financial news-
paper (Nikkei Sangyo Shinbun, June 27, 2014),
it got more than one million users in June 2014.
Before CEO of the company had begun to start
this business, he had been studied an accounting
business for two years and had a degree of Master
of Business Administration at the United State
of America in 2011(Nikkei Sangyo Shinbun,
November 12, 2013). All of management officers
business or finance business. Table 3 shows the
company overview.
The accounting service has three pricing
categories. They are free charge course for indi-
vidual, premium course for individual, and course
for company. Table 4 shows these three pricing
categories. The free charge course has limited
functions and no warranty of record keeping.
The service fee for company costs 19.800 JPY
per year. Referring to Table 1, when customer
files the blue income tax return with 100,000 JPY
deductions, it can reduce the income tax by 20,420

Table 3. The company overview (Source: Company’s home page, retrieved in July 2014)

Company Money Forward

Established 2012/05
Capital 698,445,000 JPY
Employees 35 persons
Representative’s Career College graduate(Science), Major electronics manufacturers, Securities company, MBA (U.S), Starting this
business
Officers’ Career CTO: Graduate school(Science), Starting financial Start-ups, Join this business
COO: College graduate(Humanities), Securities company, MBA(U.S), Join this company
Technical Manager: Graduate school(Science), Major electronics manufacturers, Join this company
Address Minato Ward, Tokyo
Retrieved July 15, 2014, from http://corp.moneyforward.com/about_us/index.html

Table 4. Price table (Source: Company’s home page retrieved in July 2014)

User Individual Company

Category Free Premium  
Monthly fee(JPY) 0 800 1,800
Number of Journal registrations 15 records per month No Limit No Limit
Auto-synchronization of journal No manual operation of re- No Limit No Limit
records synchronization
Auto-learning of journal types Free charge until 5 patterns No Limit No Limit
Filing form Final/White/Blue Final/White/Blue Corporation tax report
Records exchange Only import Import and export Import and export
Addition of members Not Available Available Available
Triple data backup No warranty Warranty Warranty
SLA No warranty Warranty Warranty
Retrieved July 15, 2014, from https://biz.moneyforward.com/accounting/price

413
 
A Case Study of Progressive Formation of Accounting Cloud Services in Japan

JPY. Therefore, customer can pay the service fee
(=9,600 JPY) by the income tax reduction.
Figure 5 shows a trend of search-volume by
searching with the term of its service name on
Google Trends and the increase of the company’s
capital. Table 5 shows summary of business histo-
ries. Although its service was only Web Services
at the beginning of its business, the CEO decided
to develop Smart-Phone Applications. In the year
of 2013, the case company had released Smart-
Phone Applications of iOS version and Android
version (Nikkei Shinbun, June 27, 2014).
The characteristics of its business activities
are summarized next:

Figure 5. Search-volume and the increase of capital

Table 5. Business histories (Source: Company’s home page)

Index Date Business Histories and Events

  May , 2012 Establishment of a company
  Dec.10 Third-party allocation of shares
A Dec.15 A service of trial version for individuals was released.
  Jan.26, 2013 iPhone application of official version was released.
  Mar.14, Third-party allocation of shares(100million JPY)
  Mar.18 Service began to cooperate with third-party smart-phone application.
B Mar.28 Android application of official version was released.
C Jul.16, A service of official version for individuals was released.
D Oct. 8, A service for individuals was updated significantly.
  Oct.28 Third-party allocation of shares(500million JPY)
E Nov.29 A service and applications of trial versions for companies was released.
F Jan. , 2014 The white tax return program began.
G Jan.27 A service of official versions for companies was released.
  Feb.14 Third-party allocation of shares
  Mar. 7 The Cabinet decided small business promotion act.
H Apr. 1 Consumption tax in Japan was changed in tax rates up to 8%.
Retrieved July 15, 2014, from http://corp.moneyforward.com/news/

414

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
1. The company released several smart-phone
applications in March 2013. Then, the
company distributed its cloud service in the
market rapidly (Index B).
2. When the updated service for individuals had
released, the search-volume increased (Index
D). It is suggested that its service had been
keeping individuals’ users continuously.
3. After the official service for companies
had released (Index G), the search-volume
increased more than the volume of its service
for individuals (Index B). It is suggested
that its service has grown as the two-sided
markets structure.
4. The Company could increase its capital
at the each stage when it had released its
new services of trail-services and official-
services for individuals and companies.
Figure 6. Service diagram
Service Deployments
Figure 6 shows its service diagram. The account-
ing cloud service consists of a core technical area
and three open area. The open area consists of
local system, account aggregation process, and
associated services. Table 6 shows its associated
services. Service Index in Table 6 corresponds to
the index in Figure 6.
Local System Environment and
Local System Components
Customers can use its services from local sys-
tem such as Internet browsers and smart-phone
applications. Table 7 shows local system envi-
ronment of its services. The company pursued
user’s convenience. It built its local system as
an environment-independent and expanded its
network path.
415
 
A Case Study of Progressive Formation of Accounting Cloud Services in Japan

Table 6. Associated service connection

runs once a day and synchronizes the transaction
Category Service Index (Associated Date)
records in financial accounts with the accounting
book. Users of the accounting cloud service can
Privacy 2(2013/02), 29(2014/07)
Protection manage daily income and outcome.
Authentication 3(2013/03), 4(2013/03), 31(2014/07)
Smart-phone 5(2013/03), 6(2013/06), 8(2014/01), Associated Services
applications 15(2014/03)
Payment 13(2014/03), 16(2014/03), 17(2014/04), The case company is associating its core services
20(2014/05), 25(2014/06)
with other cloud services. Most of associated
POS Terminal 10(2014/02), 23(2014/05), 30(2014/07) services with other cloud services are specialized
Advertisement 14(2014/03), 18(2014/04) in supporting programs for accounting and new
E-COMMERCE 9(2014/02), 27(2014/06) business incubation. The company associated with
Cloud-Sourcing 11(2014/02), 22(2014/05) the similar multiple services that were categorized
Bill Management 21(2014/05), 28(2014/06) in the same service category at the same time.
Accounting & 7(2013/12), 12(2014/02), 19(2014/04), In our opinion, the company designs its services
Bookkeeping 24(2014/06), 26(2014/06) as a redundant configuration and avoids a single
Support
point of failure of its services. Moreover, this
strategy can avoid a technical lock-in from other
Table 7. Local system environment cloud services.

Category Strong Points Summary of Service Deployments

System • Supported Internet Browsers: IE, Safari,
environment Chrome and Firefox
on personal • Environment- independent with Operating-
Figure 7 shows summary of its service deploy-
computer System and Browses ments. The company is building its services step
System • Local application processes data input, by step; core service, local system, aggregation
environment browses accounting book, and imports process, and associated services. It is not only
on smart- transaction records into cloud service.
phone • Local applications operate on iOS, Android. necessary for its small and exceptional talented
• Environment- independent with Operating- engineers that they adopt a step by step develop-
System
ment, but also easy for these engineers that they
Other system • Special application for mobile-phone’s
environment network of NTT Docomo concentrates one theme of development domains
• Expansion of Network-path and secures the quality of its services.

Account Aggregation Process
An account aggregation process collects transac-
tion records of Internet-Banking accounts and
imports transaction records from the Internet-
Banking accounts into the accounting book on the
accounting cloud service. These financial accounts
include bank accounts, credit card accounts, secu-
rity accounts, pension accounts, electronic money
accounts, point card accounts, mail order site
accounts, etc. This account aggregation program
System Developments
The company adopted a two-phase development
and turned two cycles of its system development
process. In our opinion, its service for individuals
might be a prototype service for companies. The
roll of the prototype service was that trial users
as value co-creators evaluated validity and reli-
ability of its service in pre-market. Then, users
evaluated its service for companies in the sight
of quantities and qualities before its service was
officially released. In other words, its service could

416

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
Figure 7. Summary of service deployments
be evaluated two times and improved continuously
in the two-sided markets structure.
In fact, the trial-service for individuals took
about six months, but it for companies took only
about two months. In our opinion, the two-phase
development is as logical in the sight of the system
development. In the case that the system architec-
ture of its services for individuals and companies
were the same, it is possible for the company to
develop its services successively.
The accounting book for individuals can be
Single-entry bookkeeping and it for companies
must be Double-entry bookkeeping legally.
These two methods of bookkeeping are differ-
ent at the point of an entry of accounting. Every
entry to an account requires a corresponding
and opposite entry to a different account with
Double-entry bookkeeping. Therefore, journal
process of Single-entry bookkeeping is different
from Double-entry bookkeeping. If the company
adopted two different bookkeeping models at the
beginning of its development, it was impossible
to develop successively.
The company adopted Double-entry book-
keeping in its services for both of individuals and
companies. It was not logical in the sight of user’s
serviceability to adopt Double-entry bookkeeping
in the services for individuals. Most of individuals
are not accustomed to use Double-entry book-
keeping, and they need more operations and time
to input journal records. But, its service offers
sophisticated functions to deduce a corresponding
and opposite entry automatically in the account
aggregation process and the data entry process
in the smart-phone applications. Therefore, the
company can reduce users’ inconvenience and
establish the successive system development.
Development of Business
Ecosystem
The ecosystem of the accounting cloud service
is expanding its services into both horizontal and
vertical directions. Figure 8 shows the progressive
formation of the accounting cloud service such as
a hierarchical structure of the business ecosystem
based on the cloud platform.
417

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
Figure 8. Progressive formation of business ecosystem
Local System Environment
Because the accounting cloud service can be used
with local devices, customers can use the cloud
service anytime and anywhere. The local system
environment is environment-independent. Further,
the accounting cloud service can be used via Inter-
net, Wi-Fi network, and mobile-phone network. It
is expanding its network paths, and then attempts
to establish the neutrality of the network paths.
Accounting Cloud Service
The accounting cloud service invites multi-
sided users group to the platform sequentially.
The accounting cloud ecosystem consists of
the core service and complementary resources.
Complementary resources include the account
aggregation function and the accounting support
program. Thus, customers can keep accounting
book automatically and more sophisticate.
Grand Ecosystem
The term of “Grand” means as business activities
on the grand in contrast to the activities on the
network. The accounting cloud ecosystem is as-
418

sociating with human networks such as licensed
tax accountant network and business services that
include Payment services, POS Terminal services,
and Cloud-sourcing. These services support
individuals to create new small business on the
grand. Therefore, the accounting cloud service can
migrate from free charge users to premium users
and corporate users. Although, the accounting
cloud service is passive business, it can change
aggressive business with these strategies on its
business ecosystem.
PROGRESSIVE FORMATION
OF THE BEST ACCOUNTING
CLOUD SERVICE
In this section, we present a progressive formation
of the accounting cloud service. The progressive
formation includes business formation, market strat-
egy, service formation, and Open & Close strategy.
Business Formation
The case company uses two -sided markets and
freemium structure for an effective go-to-market
strategy. The premium and paid customers defray

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
all of its service cost. Then, it is necessary for the
case company to establish a substantial increase
in paying customers.
Figure 9 shows summary of its business strat-
egy and result of its business activities.
Step 1: The Company expanded user’s conve-
nience with environment-independent of its
local system and network-path to increase
its customer lead.
Step 2: It charged its service for free to gather its
customers as value co-creators.
Step 3: It expanded number of its interface of
aggregation process for migrating from free
customers to premium customers.
Step 4: It expanded its accounting and incubat-
ing services for migrating from premium
customers to cooperate customers. This
Figure 9. Growth mechanism of business formation
business path migrated its customer lead
to paid user and established its two-sided
markets structure.
Because the Start-up Company has limited
resources and knowledge, it is necessary that the
company has to co-create its services with its
customers groups. First, the company started to
co-create its service for individuals because of
unnecessary of high specialties in accounting. Step
by step, it co-creates its services with its customers
groups who need more specialties in accounting.
Market Strategy
The company established a specific market strat-
egy. Figure 10 indicates its market strategy.
419

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
Figure 10. Market strategy of the case company (Source: Authors, inspired by Kusunoki (2011))
As the result that the company forced its users of
service for individuals to use Double-entry book-
keeping on the platform of the accounting cloud
service, it established single system architecture.
The single system architecture realized successive
developments of its services. Therefore, total
cost of system developments could optimize in a
minimum at the two-phase development.
The company needed to realize low price
service for individuals. As the result that it pro-
vided its service as environment-independent and
charged its service for free, the company could
gather customer lead and free customers. Because
of the economies of scale, it was possible for the
company to realize low price services and gather
large scale of its customers.
The company needed to realize high quality
accounting services. As the result that it adopted
Open Service Innovation, it could accelerate and
deepen services innovation. It developed high
functional services such as account aggregation
process and associated services with other cloud
services onto its single platform. Because of the
economics of scope, it was possible for the com-
420

pany to realize high quality services and increase
paid customers.
The accounting cloud services as a platform
could match demands form both free customers
and paid customers. On single cloud platform,
both free customers and paid customers can be
attracted to each other. Because of the two-sided
network effects, the value of accounting cloud
services that depends on the number of users can
grow sustainably and cyclically.
Service Formation
This service formation to gather personal and
corporate users, lead to grow the accounting
cloud service sustainably. Figure 11 illustrates
this service formation.
In the two-sided markets and freemium struc-
ture, the company needed to force its users of
service for individuals to use Double-entry book-
keeping. It caused establishment of single system
architecture. The single system architecture caused
the realization of successive developments of its
services. Therefore, total cost of system develop-
ments successfully optimizes in a minimum.

A Case Study of Progressive Formation of Accounting Cloud Services in Japan

Figure 11. Service formation of the case company (Source: Authors, inspired by Ogawa (2014))

The company had to gather personal users. It
gave user’s convenience for free. It realized auto-
synchronization with accounts and auto-deduction
of account titles in Double-entry bookkeeping.
This innovation led that users were able to automate
and sophisticate their accounting processes. Free
charge with unlimited period led that users were
accustomed to keep Double-entry bookkeeping.
Therefore, users were able to reduce their account-
ing costs in case of Double-entry bookkeeping.
This strategy led to gather personal users
The company needed to gather corporate users.
It gave useful tax supports and associated services.
These supports and services help its users to be
able to create their small business. Therefore,
this led to migrate from free users to paid users.
Open and Close Strategy
It is logical for Start-up Company to adopt the
Open & Close strategy. Table 8 summarizes the
Open & Close strategy of the case company.

Table 8. Open & close strategy of the case company

Condition Closed Technical Area Open Technical Area

Case a. Case company selected niche market between personal a. Two-sided markets, effects of scale, and network effects
company and cooperate services. b. Migration programs from free charge user to paid user.
has a strong b. Auto-deduction of account titles c. Association with smart-phone
technology c. Auto-synchronization with accounts
Competitors a. Conventional competitors have rich intellectual assets in a. Case company release personal service at first.
have strong corporate services. b. Redundancy of associated services
technologies b. Case company does not release cooperate service at c. Neutrality of the network paths
first.

421

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
The conventional accounting cloud services
for companies are provided by the companies
which shifted from software package business
to SaaS services. These packages are the full-set
packages that covers too much functions. These
companies have rich accumulations of intellectual
assets inside of their companies.
In contrast, the best accounting cloud service
is provided by Start-ups. Start-ups has less ac-
cumulations of intellectual assets inside than the
conventional company. It is necessary for Start-
ups to develop software for its service alone or
purchase from other company. Because of lack
of resources, Start-ups cannot develop the full-
set services or purchase software. Then, Start-
ups must concentrate its core area of it business
domain and expand its service to associate with
other companies. It realizes that the company
can accelerate their development and release its
service earlier.
In the closed area, all of components of the core
service are inside of the cloud service. Competi-
tors cannot perform pressures for the independent
cloud service directly. Thus, the core service has
a closed structure and the service provider can
lead its service innovation in the core area alone
and keep intellectual assets inside of its services.
In the open area, it is risky for Start-ups to as-
sociate with other companies in open area. If the
associated company are influential in the market
or has a strong technical advantage, Start-ups may
receive pressures to adopt only the associated
company’s service, and Start-ups cannot keep its
independence. In this case, the best accounting
cloud service creates environmental independent
platform, associates with duplicated services as a
redundant configuration, and realizes neutrality
of the network paths. Then, the best accounting
cloud service can escape from single-point node
failure and technical lock-in by other companies.
Therefore, the company can manage its sustain-
able growth and keep independence of its business
activities.
422

CONCLUSION
This study clarified the best practice of accounting
cloud services in Japan and how to formulate the
cloud service which has two-sided markets and
freemium structure.
The Start-up Company has built up the self-
reinforcement mechanism of its business by the
coherent market strategy in the two-sided markets
and freemium structure. It dared to unify the sys-
tem architecture into Double-entry bookkeeping
of accounting book for its cloud service in spite
of personal users’ inconvenience. This market
strategy realized its successive development of its
services and established a good circulation of its
business development in the two-sided markets
and freemium structure.
The Start-up Company has specific manage-
ment of technology to expand its services. Because
of its limited management resources, it has adopted
two-phase system development and step-by-step
service development. It has concentrated upon the
core business domain and has been expanding its
services associated with other cloud services. This
Open & Close strategy can manage its sustainable
service formation.
Furthermore, the accounting ecosystem of the
Start-up Company has been expanding its ser-
vices into both horizontal and vertical directions.
Its ecosystem has been associating with human
networks and integrating as a Grand ecosystem.
Although the accounting cloud service is typi-
cally passive business, its service is changing to
aggressive business on the “Grand” ecosystem.
A Start-up Company that has a plan to cre-
ate new cloud service with two-sided markets
and freemium structure, has not only to adapt
the Open & Close strategy, but also build up
the coherent market strategy to formulate self-
reinforcing mechanism before building up their
business ecosystem in the two-sided markets and
freemium structure.

A Case Study of Progressive Formation of Accounting Cloud Services in Japan
ACKNOWLEDGMENT
The author would like to thank the two anonymous
referees for their valuable comments and sugges-
tions, which greatly improved the first version of
the paper.
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426

Chapter 24
A Guide to Online Applications
for User Involvement in
Living Lab Innovation
Asbjørn Følstad
SINTEF ICT, Norway

Amela Karahasanović
SINTEF ICT, Norway & University of Oslo, Norway

ABSTRACT
The use of Living Labs is gaining importance as an approach to involve users in innovation and develop-
ment, serving to make users active participants in the development of the networked society. However,
Living Labs are currently not taking full advantage of online applications to support user involvement,
even though such applications are gaining impact in other fields of innovation. The purpose of this
chapter is to: (i) present a framework to classify and relate online applications for user involvement
to the Living Lab context and (ii) present a set of guidelines for the usage of such applications within
Living Labs. The framework and the guidelines are the results of a collaborative process involving seven
Living Lab researchers from four Nordic Living Labs and are meant to guide Living Lab administrators
on whether or how to use online applications for user involvement. The framework and the guidelines
might also be useful for the designers of online applications.

INTRODUCTION contexts as part of medium- or long-term studies

The use of Living Labs is a relatively new ap-
proach to the involvement of users in innovation
and development processes (Schumacher &
Niitamo, 2008). In the field of ICT development,
Living Labs have been defined as environments
for innovation and development in which users are
exposed to new ICT solutions in (semi)-realistic
(Følstad, 2008a). Consequently, Living Labs are
of high relevance to innovation and development
in the networked society. The Living Lab ap-
proach has received much interest over the last
few years. This is particularly seen in the growth
of the European Network of Living Labs (http://
www.openlivinglabs.eu/), which now contains
more than two hundred Living Labs across Europe.

DOI: 10.4018/978-1-4666-8468-3.ch024

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

A Guide to Online Applications for User Involvement in Living Lab Innovation
An emerging trend is to see the Living Lab
as a way of tapping into the creative potential of
users and user communities. At the same time,
users are increasingly taking up the Internet as an
arena of participation, in which they provide feed-
back, share and co-create. In consequence, online
applications for user involvement are becoming
ever more relevant to Living Lab innovation.
Such applications may include what is typically
referred to as social software (Shirky, 2003), so-
cial media (Boyd, 2009), or social technologies
(Hagen & Robertson, 2010) as well as non-social
applications for user feedback. Examples of the
latter include applications for online questionnaire
surveys, cultural probing, experience sampling
and remote usability evaluation.
Early work has been conducted on how online
user involvement may be integrated into Liv-
ing Lab innovation and development processes
(Näkki & Antikainen, 2008; Følstad, 2008b;
Følstad, 2009). However, the uptake of online
applications for user involvement in the field of
Living Labs has been surprisingly low, given the
potential usefulness of such applications in this
field (Følstad, 2008b). One reason for this may be
that applications for online user involvement are
rapidly evolving, and it is challenging for Living
Lab administrators to obtain an adequate overview
of (a) existing tools and applications, as well as
(b) the high-level Living Lab activities that these
may support.
To support the uptake of online applications
for user involvement in Living labs, we, in this
chapter, contribute a framework for classifying
and understanding online applications for user
involvement in Living Labs and guidelines for
the use of such applications. The framework is
intended to support Living Lab administrators in
obtaining an overview of application groups and
the high-level activities supported by such appli-
cations, as well as Living Lab researchers in their
study of the performance and characteristics of
such applications in varying Living Lab contexts.
The guidelines are intended to help Living Lab
administrators when setting up their studies and
also designers of online tools that might be used
in Living Labs.
The framework was developed within the So-
ciaLL project (http://sociall.origo.no), which ran
from 2010 to 2012. As an introductory activity in
the project, we saw the need to establish a frame-
work to classify social software for co-creation
purposes. In order not to be unnecessarily restric-
tive and thereby possibly limit the relevance of
the framework, we scoped the process leading to
the framework to include both social and non-
social applications for online user involvement
in innovation processes.
The structure of this chapter is as follows: We
first present the existing background on online
user involvement in development and innova-
tion processes. Then, we specify the objectives
for the framework, describe the approach for its
establishment, and present the framework. This is
followed by the guidelines for using online appli-
cations within the Living Lab context. Finally, we
discuss needs and possibilities for future research
and development related to Living Labs and give
some concluding remarks.
BACKGROUND
Innovation and the
Innovation Process
Innovation has been considered to be one of the
cornerstones of prosperity. Its importance has been
recognised both by research funding agencies and
by companies all over the world. The European
Research Council put it this way:
Europe’s future economic growth and jobs will
increasingly have to come from innovation in
products, services and business models. This is
why innovation has been placed at the heart of
the Europe 2020 strategy for growth and jobs
(EU, 2012).
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A Guide to Online Applications for User Involvement in Living Lab Innovation
Innovation has been defined as “invention
implanted and taken to market” (Chesbrough,
2003) and as
…the creation of new products, processes,
knowledge or services by using new or existing
scientific or technological knowledge, which pro-
vide a degree of novelty either to the developer,
the industrial sector, the nation or the world and
succeed in the marketplace (Galanakis, 2006).
Much research has been done on understand-
ing innovation, its drivers and related processes.
Rothwell (1994) describes the innovation process
as sequential but not necessarily continuous,
consisting of the following stages: idea genera-
tion, research design and development, prototype
production, manufacturing, marketing and sales.
The stages are mutually dependent and create a
complex net, together with the technological and
scientific community and the marketplace.
The needs of society and the marketplace
are implicitly related to all of the stages of the
innovation process, indicating the possibility
of involving customers/users in the innovation
process. Galanakis (2006) considers a broader
innovation environment and proposes the Creative
Factory concept, consisting of five main subsys-
tems operating in parallel and influencing each
other: Knowledge Creation, New Product Design
and Development, Product Success in the market-
place, the international Factors that influence a
firm’s core innovation process, and the National
Innovation Environment. The first three systems
are seen as the core of the innovation process.
Chesbrough (2003) argues that innovation is
undergoing a fundamental change, shifting from
closed innovation, characterised by high control,
to open innovation, characterised by the usage
of both external and internal ideas and paths to
market. The shift in the nature of the innovation
process has also been characterised by involving
customers and their experiences. Chesbrough
presents IBM and its First of a Kind program as
428

a case of active involvement of users in an open
innovation process where advanced IBM cus-
tomers and IBM research staff collaborated on
developing new solutions to reflect the custom-
ers’ needs; solutions which could later be offered
other IBM customers. Moreover, within the field
of open innovation, West and Gallagher (2008)
discuss the role of users as innovators in open
source software.
The User in the Innovation Process
Bogers, Afuah, and Bastian (2010) show how the
perspective of the role users may play in innovation
has changed over the last decades, from being seen
as having an important, but peripheral, role in the
work of, for example, Burns and Stalker (1961),
to be described as a key source of innovation by
von Hippel (1988; 2005). For a range of fields,
such as software for printed circuit development,
surgical equipment, Apache server software and
extreme sport equipment, more than 10% of the
users are found to develop products for their own
use (Von Hippel, 2005). A case study from 3M
shows that lead user innovation may be superior
to innovation driven by market research, both with
respect to return on investment and the degree
of novelty in the innovations (Lillien, Morrison,
Searls, Sonnack, & von Hippel, 2002). It is argued
that lead user innovation helps enterprises to move
from incremental to breakthrough innovation (von
Hippel, Thomke, & Sonnack, 1999). Baldwin and
von Hippel (2011) argue that both user innovation,
as well as innovation in collaboration between us-
ers and producers, may displace company-driven
innovation in many areas and that such a change
will be beneficial from a societal perspective.
Another perspective on the role of users in
innovation is provided by Lundvall (1988) who
discusses the importance of the user-producer
interaction. Producers are argued to have strong
motivations to interact with users to identify and
appropriate users’ process innovations, under-
stand the users’ evolving needs, and benefit from

A Guide to Online Applications for User Involvement in Living Lab Innovation
“knowledge produced by learning-in-using” (ibid,
p. 352). Users, on the other hand, are motivated
to interact with producers to gain knowledge of
new products as well as provide requirements to
support the innovation of products more suited to
their needs. Lundvall (2010) also discusses how
the user-producer interaction is facilitated by low
cultural distance, implying that though interna-
tional user-producer interaction in innovation is
relevant, it is more challenging and costly than
the same interaction in the context of a national
research system.
The Internet as an Arena for User
Involvement in Innovation
The participatory nature of the Internet has be-
come increasingly visible during the last decade,
particularly with the spread and uptake of services
for user-generated content and social networking.
Online design feedback is made possible by the
spread and uptake of the Internet and Internet
solutions supporting participation. According
to the traffic ranking service Alexa (http://alexa.
com), four of the top ten visited websites in the
world, as of August 2012, were social media sites
(Facebook, YouTube, Wikipedia and Twitter).
Entering 2012, 61% of the European population
was online, and 27% was present on the world’s
most popular social network, Facebook (Internet-
worldstats, 2012). The similar figures for North
America were 78% and 50%. More than 40% of
the adults who are online in the US use a social
networking site on any given day (Madden &
Zickuhr, 2011). With such uptake rates, the Internet
gives broad access to user participants in online
studies of user involvement.
Some of the striking attributes of the participa-
tory Internet are the ease of connectivity and group
formation (Shirky, 2009) and users’ willingness
to share openly and freely (Leadbeater, 2009),
implying that the Internet is a promising arena
for user involvement in development and inno-
vation processes. Examples of such free sharing
include users’ uploads to content platforms, such
as YouTube and Flickr, as well as the sharing of
opinions and discussions in blogs, discussion
forums and social networking sites. In reference
to the tremendous uptake of the Internet as an
arena for participation, the term social media (Ki-
etzmann, Hermkens, McCarthy, & Silvestre, 2011)
has become a household term almost overnight.
Much attention is given to the upsurge of online
sharing and co-creation of user-generated content
generated through such social media (Kaplan &
Haenlein, 2010); the most well-known example
of co-created content arguably being the online
encyclopaedia, Wikipedia, which contains more
than 23 million entries; the result of the co-writing
and -editing process of about 100,000 contributors
(Wikipedia, 2012).
Within the general field of innovation manage-
ment, innovating enterprises have already begun
utilising general purpose online applications, such
as blogs and social networks, as well as special
purpose applications, to involve users in innovation
and development processes, examples of the latter
being My Starbucks Idea (http://mystarbucksidea.
force.com/) and Dell’s IdeaStorm (http://www.
ideastorm.com/), where users openly and collab-
oratively contribute and develop ideas for product
and service innovation. To give an impression
of the success of these two applications, in 2012
more than 100.000 ideas had been contributed in
My Starbucks Idea, and more than 10.000 ideas in
IdeaStorm. To aid filtering and selection of ideas,
participants’ votes and follow up comments are
used as indicators of the general popularity of an
idea. UserVoice, presented as one of the identified
online applications for user involvement, support
companies in the easy set-up of idea collection
sites following the model of IdeaStorm and My
Starbucks Idea.
However, the online involvement of users also
requires an active and contributing pool of user
participants; an online solution for user involve-
ment is not enough in itself. Important work has
also been done on understanding what motivates
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A Guide to Online Applications for User Involvement in Living Lab Innovation
users to contribute to innovation communities
(Ståhlbröst & Bergvall-Kåreborn, 2011). The
main findings of the study conducted among
users of the Botnia Living Lab indicated the im-
portance of intrinsic motivators, such as learning,
stimulating curiosity and being entertained. Dif-
ferences among motivational factors in different
categories of innovation communities have also
been discovered. In a similar study, conducted
among participants in three so called innovation
intermediaries, Antikainen, Mäkipää, and Ahonen
(2010), found that user motivation in part depended
on being recognised as contributing members of
a community, and that such recognition may be
more important than, for example, small monetary
incentives.
The Living Lab Approach to User
Involvement in Innovation
Living Lab is an approach to innovation where
users are involved in development and innovation
processes within the context of their everyday
life. As such, Living Labs are an instantiation of
the increasing user orientation towards innova-
tion processes over the last few decades. The
particular characteristic of the Living Lab as a
user-oriented approach is that the users, to the
greatest possible degree, should be involved as
part of their daily life, rather than being brought
to a laboratory or a workshop setting. This ap-
proach to user involvement aims to benefit from
the insight that is gained when new technology
is seen in its actual context of use.
The Living Lab approach has seen a surge of
interest only in the last decade in Europe. It has a
history within academia dating back to the early
nineties (Lasher, 1991). Particularly within the
field of ubiquitous computing (Abowd, 1999;
Kidd et al., 1999), where a key goal has been to
augment peoples’ everyday life with computing
technology, the Living Lab approach has been
used to gain insight into emerging usage patterns
and innovative uses of technology as users have
430

been given access to such technology in their
daily lives (Beigl, 2002; Schmidt et al., 2002;
Intille et al., 2005).
In Europe, the Living Lab approach has been
taken up as a general vehicle to support innovation;
in particular innovation in which multiple stake-
holders are involved in collaborative processes
(Eriksson, 2006) and the focus is on value creation
through innovation involving new digital products
and services (Eriksson, Niitamo, Kulkki, & Hrib-
ernik, 2006). Within the European approach, the
Living Lab is consequently seen as
…a user-centric innovation milieu built on every-
day practice and research, with an approach that
facilitates user influence in open and distrib-
uted innovation processes engaging all relevant
partners in real-life contexts, aiming to create
sustainable values (Bergvall-Kåreborn, Ihlström
Eriksson, Ståhlbröst, & Svensson, 2009).
Users may be involved in Living Lab innova-
tion at any phase of innovation. For the purpose of
user involvement, current Living Labs have mainly
adopted methods for user involvement from other
fields, such as user-centred design. In a review of
Living Lab literature, Følstad (2008a) identified
observation, focus groups, ethnographic research
and automatically collected data on user behaviour
as the most frequently described methods of user
involvement in the Living Lab literature. Subse-
quently, a wider range of methods has been taken
up, such as cultural probes (Bergvall-Kåreborn,
Howcroft, Ståhlbröst, & Wikman, 2010), future
workshops and prototyping (Svensson, Esbjörns-
son, & Eriksson, 2010).
Although traditional offline methods have
mainly been used to engage users in Living Lab
activities, some Living Labs have applied online
user involvement to some degree. At the Finnish
Open Web Lab (OWELA, http://owela.vtt.fi), an
open source blog software program (Word Press,
http://wordpress.org) is utilised as an arena for
idea generation and user feedback (Näkki & Anti-

A Guide to Online Applications for User Involvement in Living Lab Innovation
kainen, 2008). At the Norwegian RECORD online
Living Lab (http://livinglab.origo.no), an open
source media management program (OS Tube,
http://ostube.de) serves as a platform via which
users can provide feedback on ideas and designs.
Online questionnaire surveys have been used to
capture Living Lab data on the users’ contexts and
needs (Lievens, Van den Broek, & Pierson, 2006;
Hess & Ogonowski, 2010). Experience sampling
methods implemented as self-reporting question-
naires that are automatically triggered during the
use of a given application have been suggested as
a particular mobile Living Lab setup (De Moor
et al., 2010).
ONLINE APPLICATIONS IN
THE LIVING LAB CONTEXT
Understanding Online Applications
in the Living Lab Context
Research in the area of innovation provides a
solid foundation for understanding innovation, its
drivers and its processes. The research done in the
area of Living Labs provides several approaches
for user involvement and experience reporting.
Given the large number of existing Living Labs,
it is surprising to find only a few reports of Living
Lab studies substantially utilising applications for
online user involvement (Følstad, 2008b). The
modest attention given to applications for online
user involvement in the Living Lab literature,
as well as the rapidly evolving offer of such ap-
plications, indicates that we need to improve our
understanding of the various groups of applications
for online user involvement and their usage. To
increase our understanding of such applications,
and their potential benefit for user involvement
in Living Lab research, we set out to develop:
1. A framework for the understanding of online
applications in the context of Living Labs.
The framework should enable the identifica-
tion of online applications that are potentially
useful in Living Labs.
2. Guidelines for using online applications in
Living Labs. These guidelines should help
researchers and Living Lab administrators
to select the online applications that best
suit their needs and to integrate traditional
and online approaches to user involvement
in Living Labs. The guidelines should also
be useful to the designers of online applica-
tions for user involvement.
The framework and guidelines were estab-
lished through a collaborative identification and
reflection process, with the active involvement of
seven researchers from the SociaLL project. All
of the researchers have participated in multiple
Living Lab projects and have a deep knowledge
of Living Lab innovation. Four of the researchers
are affiliated with academic institutions, two with
research institutes and one with an SME consul-
tancy. Three of the researchers have participated
in the establishment of online platforms for user
feedback in Living Labs.
The identification and reflection process was
conducted in four steps. Firstly, relevant applica-
tions were identified through a collaborative effort
over eight weeks. All the researchers presented the
applications that they found potentially useful to
the other researchers by adding comments to an
open online discussion thread. Thirteen applica-
tions were proposed. Some applications, such as
the questionnaire survey application Survey Mon-
key, and the wiki application Wikispaces, were
proposed as representative of a larger group of
similar applications. Secondly, one of the research-
ers, the first author of this paper, separated the
identified applications into the following tentative
groups: Applications to (1) capture inspirational
material, (2) collect and discuss ideas, (3) get
feedback, and (4) run usability evaluations, as well
as (5) general purpose Living Lab applications,
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A Guide to Online Applications for User Involvement in Living Lab Innovation
and (6) general purpose social software. Thirdly,
each researcher familiarised him or herself with
the applications they did not know beforehand;
this they did on the basis of general descriptive
material and demonstrations available on the
webpages of the application providers. Fourth,
the researchers met in a face-to-face workshop.
The workshop lasted four hours and was
structured as a series of intervals of individual
note-taking and discussion. Each application
was briefly presented by one of the researchers.
The researchers then took individual notes on its
potential uses, strengths and weaknesses. Fol-
lowing individual note-taking, the researchers
engaged in plenary discussions to reach a common
understanding of those potential uses, strengths
and weaknesses. The results of the plenary discus-
sions were then summarised in an initial version
of the framework. The authors of this chapter then
established the final version of the framework and
a set of guidelines for the usage of online applica-
tions in Living Labs.
The steps of the collaborative identification
and reflection process are laid out in Figure 1.
The Framework
The framework should enable the identification of
online applications that are potentially useful in
different phases of the innovation process and for
various innovation activities. Further, it should en-
able the accumulation of lessons learned about the
usage of online applications within Living Labs.
Figure 1. Overview of the four steps of the collaborative identification and reflection process
432

During the workshop we first identified the
following requirements for our framework:
• It should provide support for innovation in
general without considering a particular
type of product or service.
• It should consider innovation process-
es where designers and developers are
involved.
• It should identify the main properties of the
innovation process relevant for the usage of
online applications in Living Labs. These
properties should enable identification and
categorisation of the potentially useful ap-
plications. The identified categories should
facilitate lessons learned about the usage
of online applications.
Through a detailed discussion of the reviewed
applications we identified the framework consist-
ing of (a) innovation process phases and major
application groups, and (b) high-level Living Lab
activities that could benefit from such applications.
Innovation Process Phases and
Major Application Groups
We included the following innovation process
phases in our framework: Ideation, early develop-
ment and late development. By ideation we mean
the process of generating and elaborating on ideas.
By early development we mean concept develop-
ment and early prototyping. By late development

A Guide to Online Applications for User Involvement in Living Lab Innovation

we mean the implementation of functional proto-
types and solutions. These phases are motivated
by the core classical sequential process model
described by Rothwell (1994).
The models proposed in the area of innova-
tion such as those proposed by Galanakis (2006)
and Rothwell (1994) also consider the broader
innovation environment. However, we wanted the
framework to particularly concern the innovation
phases of highest immediate relevance for Living
Lab administrators working directly with users.
We therefore delimited the framework so as to not
include manufacturing, marketing and sales, or
factors outside the Living Lab organisational con-
text such as the national innovation environment.
The applications are grouped according to the
following groups: applications for idea captur-
ing and management, applications for capturing
feedback on early visualisations, applications for
capturing feedback on running sites, applications
for usability evaluation, applications for feedback
management, questionnaire surveys and applica-
tions for social content management.
Table 1 describes the application groups, as
well as their mapping relative to the innovation
phases.

Table 1. Groups of applications for online user involvement of relevance for Living Lab innovation

Innovation
Application Groups Example Applications
Process Phase
Idea capture and management: Users are invited to contribute suggestions or UserVoice
ideas, typically as texts and possibly as images. Participants are encouraged to rate (uservoice.com)
and comment on one another’s contributions. Brand representatives may respond Get satisfaction
Ideation
to contributions. Applications can be framed as general purpose idea portals (getsatisfaction.com)
(UserVoice and Get satisfaction) or as innovation challenges of limited scope Induct software
(Induct software). (inductsoftware.com)
Feedback on early visualisations: Users are invited to contribute feedback on Notable
Early images/screenshots showing concepts, wireframes or webpage layouts. Feedback (notableapp.com)
development is given as annotations or notes on the image and may be contributed by user Notebox
participants, clients and the design team. (noteboxapp.com)
Feedback on running websites: Users are invited to contribute feedback as Critique the site
comments in discussion threads located in a panel adjacent to the website. Users (critiquethesite.com)
can navigate the website while having the commenting facility available. Fivesecondtest
Unmoderated usability evaluation: Users are presented with the website and (fivesecondtest.com)
Late
asked to perform tasks such as reporting on their understanding of the webpage Chalkmark
development
(Fivesecondtest), clicking on a particular location in the UI (Chalkmark), or using (optimalworkshop.com)
specific functionality and finding specific content (Loop 11). Applications may Loop 11 (loop11.com)
include functionality for participants’ reporting of task outcomes or measurements
for the time spent on a given task.
Revelation
Feedback management: Users are involved as long-term participants in
(revelationglobal.com)
innovation or development projects. They contribute feedback on ideas, concepts
Survey Monkey
and designs at different levels of sophistication.
(surveymonkey.com)
Questionnaire surveys: Typically, these applications allow qualitative and
Polldaddy
quantitative data collection from a large number of respondents. Participants may
(polldaddy.com)
be presented with images and video in addition to text-based questions. Group
Multiple phases WordPress (wordpress.com)
interaction is typically not supported, though exceptions exist.
of the innovation VIMP
Social content management: Application categories include blog platforms (such
process (vimp.com)
as WordPress), media platforms (such as VIMP), discussion thread solutions (such
Disqus
as Disqus), wiki services (such as Wikispaces), and social network platforms
(disqus.com)
(such as Ning). Users may contribute by commenting, rating others, uploading
Wikispaces
images or videos, writing posts or adding to content provided by others. Due to
(wikispaces.com)
their general purpose character, applications for social content management may
Ning
support co-creation in all phases of the innovation or development process.
(ning.com)

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A Guide to Online Applications for User Involvement in Living Lab Innovation
The phases of ideation, early development and
late development are broad enough to avoid com-
plexity, while at the same time they help us point
out important characteristics of user involvement
at these different phases – which has a bearing on
the choice of online applications.
The ideation phase is characterised by an aim
to identify a broad range of ideas, and to get some
initial reflections on their viability and possible
refinement. Involving users in idea generation
can potentially help the Living Lab administrator
broaden the set of product or service ideas, which
is clearly beneficial as it increases the range of
opportunities identified in the ideation process.
Furthermore, involving users can help the Living
Lab administrator discuss the strong and weak
sides of the ideas, as well as their market appeal.
In consequence of the potential benefits of user
involvement in ideation, online solutions tailored
to this phase in the innovation process are typi-
cally designed for easy overview and submission
of ideas, to support idea contribution, and easy
voting and commenting on ideas to support idea
refinement and assessment of market appeal.
In early development, the Living Lab admin-
istrators need feedback that supports the develop-
ment of high-level concepts and early prototypes.
User feedback may be useful to point out weak-
nesses in the current concept and prototypes but,
more importantly, user feedback should serve as
constructive input in this highly creative part of
the innovation process (Følstad & Knutsen, 2010).
Online applications to be used in this phase should
clearly communicate the notion that the involved
users are contributing their feedback as input to
a creative process. For example, by providing a
close visual connection between the contributions
and the concepts and prototypes they refer to, as
in the applications Notable and Notebox, where
the participants comment directly on concept or
prototype visualisations.
In late development, the Living Lab administra-
tors need feedback from users who are interacting
with prototypes or nearly finalised solutions, to
434

make smaller changes in design or functionality.
For this purpose, it is important that the online
application provides the user participants with
immediate access to the prototype or solution in
question, while at the same time supporting easy
input of feedback. Such functionality is supported
both by applications for unmoderated usability
evaluation, such as Chalkmark and Loop11, as
well as applications for user feedback on running
websites, such as Critique the site.
Online applications supporting multiple phases
of the innovation process include different types
of general purpose applications such as question-
naire surveys and applications for social content
management. As an example of how such applica-
tions can be tailored to support different phases,
consider blog platforms. Through, for example, a
WordPress blog, user participants can be invited to
(a) contribute their ideas as comments to posts on
various innovation challenges or (b) provide early
design feedback on concepts or visual prototypes
presented in blog posts. Setting up a blog platform
to support such user feedback may require some
degree of adaptation. However, it may be beneficial
for both Living Lab administrators and users to be
able to relate to the same online application, for
example, throughout long term studies.
High-Level Living Lab Activities
Two high-level Living Lab activities that are
relevant across multiple process phases and are
supported by various groups of online applications
were identified and detailed in the workshop.
These are:
• Conducting short-term campaigns.
• Maintaining long-term relationships.
Short-term campaigns are characterised as
activities aimed at getting user input in a par-
ticular innovation phase; for example, a cultural
probing or ideation activity. Such activities typi-
cally involve a large number of participants and

A Guide to Online Applications for User Involvement in Living Lab Innovation
may share characteristics with a crowdsourcing
(Brabham, 2008) approach to innovation. Large
numbers of participants are believed to improve the
chances of obtaining valuable input. Furthermore,
large numbers of participants may improve the
reliability and validity of findings; for example,
when using online applications for user feedback
or unmoderated usability evaluation.
In many ways, maintaining long-term relation-
ships has the opposite characteristics of engaging
in short-term campaigns. Living Lab studies often
aim at involving a group of users over a longer
period of time. In such studies, the users may
participate in both traditional face-to-face user
involvement activities and online participation;
however, the applications to assist online user
participation need to support a deep involvement
and engagement in the user group. The number of
users involved in long-term relationship studies is
typically low compared to those involved in short-
term campaigns. Additionally, the participating
users need to be highly motivated.
Short-term and long-term Living Lab activities
clearly have different implications for the choice
and set-up of online applications for user involve-
ment. Consequently our first six guidelines (G1-
G6) presented below concern these two high-level
types of Living Lab activities.
Guidelines for Using
Online Applications
Our workshop discussion revealed the following
guidelines for using online applications for user
involvement in Living Lab innovation processes:
• Guidelines for selecting appropriate on-
line applications for conducting short-
term campaigns (G1-G3) and maintaining
long-term relationships (G4-G6) describe
the properties of online applications that
are important when conducting these two
high-level activities.
• Guidelines for integrating online and tra-
ditional approaches to user participation
(G7-G9) describe how to successfully in-
tegrate these two approaches.
• Guidelines for considering trade-offs when
choosing online applications (G10-G12)
describe some general considerations that
should be taken into account when choos-
ing online applications.
Conducting Short-Term Campaigns
Short-term campaigns allow for the involvement
of moderately motivated participants. The duration
of user participation is to be short, and the level of
participant commitment may be low. Applications
for idea capture and management, questionnaire
surveys, and unmoderated usability testing are
assumed to be particularly suitable for short-term
campaigns. Feedback applications may also be
adapted to short-term campaigns.
The following has been considered as particu-
larly important:
G1 Enable Easy Access when Conducting
Short-Term Campaigns: Easy access to
the study is critical because participants
cannot be expected to comply with access
procedures requiring them to remember, for
example, usernames and passwords. Easy
access may require direct access through a
link, as is typical for online questionnaires
or the ability to comment and vote without
having to go through an extensive process
to establish a user profile.
G2 Provide Simple Interaction when Con-
ducting Short-Term Campaigns: The
participants in short-term campaigns cannot
be expected to prioritise learning a complex
application. Interaction mechanisms need to
be intuitive and easy to use. All needed func-
tionality should be immediately visible and
understandable. The user’s options should
be few and self-explanatory.
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A Guide to Online Applications for User Involvement in Living Lab Innovation
G3 Enable a Simple Setup when Conducting
Short-Term Campaigns: In short-term
campaigns, the study administrator will
typically need a fast and simple setup and
configuration for a particular study. Highly
targeted applications typically require less
modification for the individual study, the
price to pay for this being limited flexibility.
Maintaining Long-Term Relationships
Long-term relationship studies allow for the
creation of in-depth knowledge of the users
and their experiences and may be part of an
ethnographically-oriented (Hoving, 2003) or
social construction approach (Pierson & Lievens,
2005) to innovation. Applications for feedback
management and social content management were
considered to be particularly suited to supporting
long-term relationship building, but it was also
considered that some applications for idea capture
and management could be used to support long-
term relationships. In particular, the following may
be the key to supporting long-term relationships
in a Living Lab context:
G4 Enable Participation through User Profiles
when Maintaining Long-Term Relation-
ships: The participants need to be identifi-
able to each other in the online environment;
participants need to establish profiles prior
to contributing. Profile setup should be easy
and fast, but cannot be excluded as it is in
the case of short-term campaigns.
G5 Support Interaction with Participants
when Maintaining Long-Term Relation-
ships: Fine-grained interactions between
researchers/moderators and participants, as
well as among participants, need to be sup-
ported. The applications need to be social,
supporting comments on contributions and
messages between participants and also
study administrators. Due to the asynchro-
nous nature of the interaction, notification
436

mechanisms, such as e-mail notifications,
are needed to alert participants to relevant
new contributions.
G6 Provide Good Management of Activities:
The participants are likely to engage in
several tasks or activities during their par-
ticipation. In consequence, managing and
guiding the participants through the various
activities should be easy and efficient for the
study administrator.
Integrating Online and Traditional
Approaches to User Participation
On the basis of the identified framework, how
to successfully integrate online and traditional
practices was considered. In particular, the fol-
lowing is judged to be important:
G7 Define a Clear Purpose: As seen from the
previous sections, applications for user
participation may be used for a range of
activities spanning the entire innovation
process. In consequence, it will be critical
for Living Labs taking up such applications
to establish a clear understanding of the
particular Living Labs activities they aim
the applications to serve. Some applications
are more flexible than others, but no current
applications were found to cover the entire
spectrum of possible activities. As a Living
Lab administrator, in the long run, it may be
useful to look for a set of applications that
match your varying needs rather than trying
to identify one multi-purpose application.
Living Lab researchers comparing applica-
tions between cases need to be aware that
the performance of a given application will
depend on the match between the application
and the activities it is assumed to support in
the given Living Lab context.
G8 Provide Needed Resources: User partici-
pation may be resource-demanding with
respect to study moderation, particularly

A Guide to Online Applications for User Involvement in Living Lab Innovation
when using social rather than individual
applications. In order to be active and cre-
ative, participants engaged through social
software will typically need feedback to stay
motivated. Particularly in the early phases
of studies involving social applications, it
will be important to facilitate participant
activity by responding to participant input
and supporting discussions and exchanges
between participants.
G9 Identify the Relationship between Online
and Face-to-Face Activities: Online appli-
cations for user participation may be seen as
a vehicle for communication between partici-
pants that also interact through face-to-face
activities, for example, to facilitate online
discussion between face-to-face workshops.
The online application may thereby serve to
augment the participation already conducted
by traditional methods. This is particularly
true for social applications. However, there
is no guarantee that the social applications
will have this effect. First, the participants
in face-to-face activities are likely to be few
in number, making it difficult to continue
the social exchange started in the online ap-
plications. Second, these participants may
already be satisfied with the contributions
they have made in person and therefore may
be less motivated to participate online. In
consequence, Living Lab administrators
should consider whether it is useful to involve
other and/or larger numbers of participants
in online and face-to-face activities in order
to improve the chances of successful user
participation through the online application.
Trade-Offs When Choosing
Online Applications
As is evident from the framework and the dis-
cussions above, choosing online applications for
user involvement implies trade-offs. This is not
unique to this kind of applications; the design and,
subsequently, the choice of an application will
always involve making judgments on opposing
forces (Van Duyne, Landay, & Hong, 2007). The
following was addressed during the collaboration
and reflection process:
G10 Consider the Usage of Targeted vs. Flex-
ible Applications: Some of the discussed
applications are highly targeted, while others
may serve multiple purposes. Highly targeted
applications, such as some of the applica-
tions for idea capture and management,
include only the minimum of functionality
needed to fulfil their purpose. Flexible ap-
plications, such as applications for feedback
management, include a broader spectrum of
functionality and may, to a greater degree,
be configured to meet individual Living
Lab requirements and to support multiple
Living Lab activities, which in turn may
reduce participant and administrator over-
head because they do not have to learn to
use several applications. The adaptability
of a flexible application, however, comes
with the price of increased implementation
overhead. In addition, a targeted applica-
tion may be able to serve the one particular
activity that it is designed for better than a
flexible application would.
G11 Consider Deep Involvement vs. Short-Term
Participation: The two key Living Lab ac-
tivities to be supported by online applications
for user participation were held to be short-
term campaigns and long-term relationships.
The distinction between these two purposes
implies important choices that are to be made
with respect to whether the applications
should support deep involvement or short-
term participation. Short-term participation
requires easy access and simple interaction
for participants, whereas long-term rela-
tionships require the establishment of user
profiles, rich functionality for interaction
between study participants and support for
437

A Guide to Online Applications for User Involvement in Living Lab Innovation
managing user activities. The differences in
requirements between applications for deep
involvement and applications for short-term
participation imply that this trade-off should
be critical to the choice of an application for
a particular high-level activity.
G12 Consider the Usage of an Application as
a Service vs. the Usage of Software on the
Premises: A final trade-off to be mentioned
relates to the hosting of the application.
Typically, applications for online user par-
ticipation are set up as services, rather than as
software to run on a server that is controlled
by the Living Lab; however, exceptions to
the rule exist, such as general purpose ap-
plications for social content management,
such as blogs (e.g., WordPress) and media
sharing (e.g., OS Tube). Applications as
services will typically be easier to set up
and configure. At the same time, the study
administrator needs to rely on a third party
for control of the user data, which may
compromise privacy regulations or client
requirements. Furthermore, applications
as services may not be as configurable as
software to be implemented on the premises,
limiting administrators’ abilities to adapt to
a given study context.
FUTURE RESEARCH DIRECTIONS
Innovation remains one of the major factors in
economic growth and wealth. We believe that
involving users in the ICT innovation process
through online Living Lab applications both
accelerates innovation and helps to evolve the
networked society. We foresee two major trends in
Living Labs: the development of special purpose
applications and the widespread usage of widely
adopted services and applications, such as social
network applications on smartphones.
The framework and guidelines that we have
presented in this chapter contribute to the estab-
438

lishment of a common platform for further theo-
retical and empirical research and development
in the area of Living Labs. However, our results
have some important limitations. The collabora-
tive reflection process on which the framework is
based only involved seven researchers from four
Living Labs. Consequently, the identified needs
and requirements cannot be seen as represent-
ing a comprehensive overview across all Living
Labs. In addition, although many relevant online
applications were identified by the researchers
participating in the study, it may well be the case
that other existing applications were not identified.
This implies a limitation in the comprehensiveness
of the identified application groups.
Future research is needed in order to utilise
the framework as a basis for theory development
and empirical studies on the implementation of
online applications in Living Labs. In particular,
we foresee case studies on Living Lab innovation
processes that integrate online applications, allow-
ing for user participation. Such studies would help
to provide deeper insight into the potential benefits
and challenges involved in online applications that
concern Living Lab innovation.
As future case studies extend our theoretical
basis and allow for the formation of new hypoth-
eses, experiments or quasi-experiments should
be designed that compare different approaches to
online user participation, in order to gain insight
into their relative performance and fit with given
Living Lab activities.
CONCLUSION
Involving users in the innovation process remains
an important challenge. In this chapter, we have
presented a framework that was established to
provide an overview of application groups and
related Living Lab activities. We believe that this
framework may serve as a basis for the develop-
ment of future theory and empirical research, and
that it may support Living Lab administrators in

A Guide to Online Applications for User Involvement in Living Lab Innovation
understanding and relating to online applications
involving user participation. The framework re-
lates innovation phases and high-level activities
to applications for online user involvement. The
chapter further proposes a set of guidelines for
using such applications in Living Lab innovation
processes. These guidelines address the conduct of
short-term campaigns, the maintenance of long-
term relationships, the integration of online and
traditional approaches to user participation, and
the trade-offs that are a part of choosing online ap-
plications. The guidelines might be useful not only
for the Living Lab researchers and administrators,
but also for designers of online applications and
services that can be used in this context.
Online applications for user participation are
clearly beneficial for Living Lab innovation. We
believe that the work presented in this chapter
will motivate future research that will improve
knowledge of this important field.
ACKNOWLEDGMENT
The work presented in this chapter was done as
part of the SociaLL project, supported by the
NordForsk LILAN program, a Nordic-Baltic
research and innovation program on Living Labs
(http://lilan.org). An initial version of the frame-
work presented in this chapter was presented at
the eSociety 2012 conference. We are grateful
to the chairs and participants of this conference
for their input. Furthermore, we are grateful to
our fellow researchers in the SociaLL project for
their collaborative contributions to this research,
through the process that led to our framework.
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KEY TERMS AND DEFINITIONS
Innovation: Innovation has been defined
as “invention implanted and taken to market”
(Chesbrough, 2003) and as “the creation of new
products, processes, knowledge or services by
using new or existing scientific or technological
knowledge, which provide a degree of novelty
either to the developer, the industrial sector, the
nation or the world and succeed in the marketplace”
(Galanakis, 2006).
Living Lab: In the ICT literature the term is
typically used in reference to environments for
innovation and development in which users are
exposed to new ICT solutions in (semi)-realistic
contexts as part of medium- or long-term studies
(Følstad, 2008a). Within the European approach,
the Living Lab has been defined as “a user-centric
innovation milieu built on every-day practice
and research, with an approach that facilitates
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A Guide to Online Applications for User Involvement in Living Lab Innovation

user influence in open and distributed innova-
tion processes engaging all relevant partners in
real-life contexts, aiming to create sustainable
values” (Bergvall-Kåreborn, Ihlström Eriksson,
Ståhlbröst, & Svensson, 2009).
Online Applications for User Involvement:
Internet applications including (a) what is typically
referred to as social software (Shirky, 2003), social
media (Boyd, 2009), or social technologies (Ha-
gen & Robertson, 2010) as well as (b) non-social
applications for user feedback. Examples of the
latter include applications for online questionnaire
surveys, cultural probing, experience sampling
and remote usability evaluation.
User Involvement in Innovation: The engage-
ment of users as contributors in the innovation
process. Motivations for such user involvement
can be as sources of requirements, feedback or
creative input. The value of user involvement in
innovation is accentuated in approaches such as
lead-user innovation (von Hippel, 2005) and the
European approach to Living Labs (Bergvall-
Kåreborn, Ihlström Eriksson, Ståhlbröst, &
Svensson, 2009).

This work was previously published in Information Systems and Technology for Organizations in a Networked Society edited by
Tomayess Issa, Pedro Isaías, and Piet Kommers, pages 34-52, copyright year 2013 by Business Science Reference (an imprint
of IGI Global).

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 445

Chapter 25
Incremental and Radical Service
Innovation in Living Labs
Seppo Leminen
Laurea University of Applied Sciences, Finland & Aalto University, Finland

Mika Westerlund
Carleton University, Canada

ABSTRACT
Living labs provide a new, under researched form of open innovation. Although open innovation is
increasingly popular in service development, extant literature lacks knowledge of different open service
innovation strategies, which companies can employ. This chapter focuses on strategies that firms can take
in co-creating service innovations through living labs. The authors found nine open service innovation
strategies based on an analysis of 26 living labs in four countries. Understanding of strategies and their
links with incremental or radical innovation outcomes aid managers to set up an efficient innovation
management. Knowledge of various strategies helps companies to succeed in service development and
innovation novelty assessment based on the characteristics of the living lab.

INTRODUCTION any alternatives between these two (cf. Almirall

Open innovation is ever more popular and even
companies in the traditional industries are seeking
benefits of the external sources of knowledge and
the user-driven approach in product and service
development (Calanstone & Stanko, 2007). The
endeavour is motivated by the fact that firms
which increasingly rely on external Research &
Development (R&D) activities have better inno-
vative performance (Berchicci, 2013). However,
most studies consider a firm’s innovation devel-
opment options as either closed or open without
& Casadesus-Masanell, 2010). Therefore, many
companies with little experience of the new para-
digm encounter severe problems in understanding
what is required to make the open innovation
model work (Chiaroni et al., 2011).
A firm’s transformation into an open innova-
tor may take a long time, although profiting from
innovation through the product market calls for
faster product development cycles and effective
organizing for new technological opportunities
(Gans & Stern, 2003; Chiaroni et al., 2011).
The challenge is even more prominent regarding

DOI: 10.4018/978-1-4666-8468-3.ch025

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Incremental and Radical Service Innovation in Living Labs
services, as there is a lack of theoretical and em-
pirical contributions for innovation in the service
sectors. Only a few studies address co–production
of services – rather, the focus in service literature
is on co-creation of value (Chen et al., 2011).
There is a need for more research on open ser-
vice innovation (Chesbrough, 2011), especially
in the living labs context which provides a well
suited environment and under researched area for
studying services (Pascu & van Lieshout, 2009;
Leminen et al., 2012).
This chapter explores different service in-
novation strategies and their links with the type
of innovation outcomes in living labs. We follow
the view of Wooder and Baker (2012) who de-
scribe service innovation as the combination of
a value proposition, a delivery mechanism, and a
customer’s experience. We distinguish between in-
cremental and radical service innovation outcomes
in concordance with the view of Hipp and Grupp
(2005). Furthermore, we apply the definition by
Leminen and Westerlund (2012) according to
whom living labs are “physical regions or virtual
realities, or interaction spaces, in which stakehold-
ers form public-private-people partnerships (4Ps)
of companies, public agencies, universities, users,
and other stakeholders, all collaborating for cre-
ation, prototyping, validating, and testing of new
technologies, services, products, and systems in
real-life contexts.”
In particular, our research problems are:
• What are the different strategies for open
service innovation through living labs?
• What are the characteristics and outcomes
of these open service innovation strategies?
The chapter is divided into three main sec-
tions. After a brief introduction to this study, we
review the theoretical foundations for living labs
and create a framework for analyzing incremental
and radical service innovation strategies in living
labs. Then, we describe our research methodology
as well as data collection and analysis. Further-
446

more, we offer empirical findings of different
open innovation strategies for services through
living labs. Finally, we discuss our findings and
conclude on incremental and radical service in-
novation in living labs.
SERVICE INNOVATION
IN LIVING LABS
Today’s competition is increasingly based on
services instead of products and technologies.
Hipp and Grupp (2005) argue that innovations in
the service sector use technological developments
merely as a means of creating new and improv-
ing existing products and processes rather than
just offering pure technological progress. Chen
et al. (2011) define such service innovation as “a
new or significantly improved service concept or
process,” which is based on some technology or
systematic method. Furthermore, according to
Chen et al. (ibid.) customers are main sources of
creative ideas, as well as product and service in-
novations, and co-production strongly influences
service innovation.
We draw on the definition provided by Wooder
and Baker (2012) and view service innovation as
an innovation applied to one or more of the follow-
ing areas: new concepts and/or value propositions;
new delivery mechanisms and/or business models;
and new experiences. This definition is also in line
with Van Ark et al. (2003), who viewed service
innovation as “a new or considerably changed
service concept, client interaction channel, service
delivery system or technological concept that indi-
vidually, but most likely in combination, leads to
one or more (re)new(ed) service functions that are
new to the firm and do change the service/good
offered on the market and do require structurally
new technological, human or organizational ca-
pabilities of the service organization.”
The complexity of services suggests firms
can adopt diverse service innovation strategies.
Paswan et al. (2009) linked service innovations

Incremental and Radical Service Innovation in Living Labs
with environmental uncertainty, strategic orien-
tation and market orientation, and found eight
service innovation strategies. Similarly, Möller
et al. (2008) suggest three distinct strategies:
established services with competitive working
markets; incremental service innovation targeting
value-added offerings; and radical service innova-
tion producing completely novel offerings. Most
improvements to service activities are incremental
and only rarely does a company develop a service
that radically creates an entirely new market or
so reshapes a market that the company enjoys
unforeseen profits for a considerable length of
time (Berry et al., 2006).
Living labs provide a new context and a method
for user innovation in services (Edvardsson et al.,
2012). Living labs integrate users to learn from
and with them in the service innovation process,
and users act in interaction with other users or
stakeholders. Such customer participation is par-
ticularly prominent and useful in creating service
innovations (Matthing et al., 2004). A living lab
movement continues to emerge and many living
labs join large regional or global networks of living
labs. For example, there are currently more than
300 living lab members at the ENoLL (European
Network of Living Labs) (http://www.openliv-
inglabs.eu/). However, no commonly accepted
description of living lab exists; rather, living labs
cover variety of activities initiated by different
stakeholders (Leminen et al., 2012).
Innovation scholars have differing views on
the definition of living labs. Ballon et al. (2005)
propose that living labs are experimentation envi-
ronments in which stakeholders form multiparty
partnerships to create, prototype, validate, and test
new products, services, and technologies. Kusiak
(2007) argues that living labs are physical or virtual
regions, where products, services, and technolo-
gies are developed and tested, and where users
act as informants and co-creators of innovation.
However, living labs are different from test beds
for controlled testing in a laboratory environment
and field trials for testing in a limited real-life
environment (Schaffers et al., 2007). We define
living labs as “physical regions or virtual reali-
ties, or interaction spaces, in which stakeholders
form public-private-people partnerships (4Ps) of
companies, public agencies, universities, users,
and other stakeholders, all collaborating for cre-
ation, prototyping, validating, and testing of new
technologies, services, products, and systems in
real-life contexts.”
Many living labs differ from each other by
their nature and characteristics. Almirall et al.
(2012) acknowledged there are significant differ-
ences between active and passive role of living
lab users as well as between real life and lab life
settings. According to Stewart (2007), the distinct
types of living labs include: (i) narrow but sizable
communities of expert users; (ii) whole bounded
populations; (iii) living labs for technical service
development; and (iv) living labs for non-technical
research using a service platform. Consequently,
Leminen & Westerlund (2012) categorized differ-
ent types of living labs by identifying participants’
roles. They (ibid.) argued a living lab is actually
a real-life test and experimentation environment
where users and producers co-create especially
service innovations and which connects them
with utilizers and enablers.
INCREMENTAL AND RADICAL
INNOVATION OUTCOMES
The complexity and heterogeneity of services and
the types of living labs are affected by different
options in expected service innovation outcomes.
Incremental and radical innovations are widely
accepted innovation classification both in product
and services (Johnson et al., 2000). Incremental
innovation refers to minor step-by-step changes
in products or services, processes, or marketing
and technology continuity, whereas radical in-
novation refers to extreme, long-term changes in
marketing or technology discontinuities (Garcia &
Calantone, 2002). Only a minority of innovations
447

Incremental and Radical Service Innovation in Living Labs
can be classified to be radical (Berry et al., 2006).
Therefore, Robertson et al. (2012) argue that open
innovation literature concentrates on incremental
innovation. Nevertheless, sophisticated develop-
ment strategies are needed especially for radical
innovations because they cannot be planned, but
evolve through innovativeness and creativeness of
innovators (Garcia & Calantone, 2002).
March (1991) introduced exploration and
exploitation as alternate focuses of innovation.
These two strategic orientations reflect system-
atic ways of seeking and pursuing innovation.
Exploration refers to capturing, discovering,
generating, and creating of new competences and
knowledge through variation, risks, experiments,
plays, flexibility, and innovation. Conversely,
exploitation stands for capitalization of current
resources, competences, and knowledge (Gupta
et al., 2006). Exploratory innovations are usually
radical innovations, while exploitative innovations
are incremental innovations (Benner & Tushman,
2003; Jansen et al., 2006). New service develop-
ment requires both exploitation and exploration,
and it is vital to balance between them with am-
bidexterity (Raisch et al., 2009).
Additionally, the emerging living labs research
fails to highlight innovation outcomes or innova-
tion focus as crucial research areas. Rather, it
addresses activities and functions of living labs
which reveal chosen innovation strategies implic-
itly. The majority of extant literature on living labs
identifies exploration through different types of
development activities such as user participation
(Almirall and Wareham, 2008) and co-creation
(Katzy et al., 2012; Tang et al., 2012). Furthermore,
the exploitation is found by stressing activities
related to testing and founding information from
user (Gall & Burn, 2008). Ambidexterity is a rare
topic in the current living lab research with the
exception of living labs definitions (cf. Almirall
et al., 2012). However, Pallot and Pawar (2012)
demonstrate four concurrent innovation phases
taking place in living labs: co-creation, explora-
448

tion, experimentation, and evaluation, suggesting
that ambidexterity is prevalent throughout the
development work.
THEORETICAL FRAMEWORK
Based on the literature review on services and open
innovation, we established a framework to analyze
service innovation in living labs (Figure 1). The
dimensions in the framework include ‘innovation
focus’ in terms of exploitation, exploration, and
ambidexterity as their combination (cf. March,
1991; Smith & Tushman, 2005; Morgan & Ber-
thon, 2008), and intended ‘innovation outcome’
in terms of incremental innovation and radical
innovation (cf. Johnson et al., 2000; Garcia &
Calantone, 2002; Morgan & Berthon, 2008). We
deem these dimensions suitable for analyzing
innovation in service industries that have ad-
dressed sparsely the links between strategies and
their outcomes in innovation activity (Menor et
al., 2002; Groysberg & Lee, 2009). The resulting
theoretical framework provides a 3*2 matrix that
includes six cells, each representing an alternate
combination of innovation focus and innovation
outcome (Figure 1).
METHODOLOGY
This study is based on an analysis of a multiple-case
data that were collected between 2007 and 2011.
The data include 103 semi-structured interviews
with participants in 26 living labs in four coun-
tries: Finland, Sweden, Spain, and South Africa,
and are focused on the characteristics of living
labs. Furthermore, we draw on secondary data
including project documentation, memorandums
from workshop participation, and relevant content
from web sites. The investigated living labs were
chosen based on the criteria according to which
they should have originated as open innovation

Incremental and Radical Service Innovation in Living Labs
Figure 1. A theoretical framework for analyzing service innovation in living labs
projects that made use of the living lab model and
took place in a real-life innovation environment.
The interviews were conducted with different
living lab participants via face-to-face meetings
and by phone. We could not interview each actor in
every living lab due to the large number of actors
in some living labs and the substantial amount of
time and resources needed for the interviews. All
interviews were audio-recorded for transcription
and analysis, and they were supplemented with
field notes from researcher participation in the
living lab’s operations when applicable. We are
unable to reveal the identities of the interviewees
due to confidentiality reasons, but they are by and
large people from different organizational levels
representing both small and large organizations
and also include private individuals in the role
of users.
The main unit of an analysis was innovation
dynamics in living labs. First, we classified in-
novation outcomes with the help of our theoreti-
cal framework. The transcribed interviews were
coded and analyzed by using a coding method in
which we sought words that depicted the inno-
vation outcome in each living lab case. Second,
we categorized the underlying innovation focus
by seeking indicators of whether the living lab
is characterized by exploration, exploitation, or
ambidexterity as their combination. Third, we
synthesized the results, identified different service
innovation strategies in the data, and mapped them
into the framework. Fourth, we concluded the
analysis with the characteristics of each service
innovation strategy.
FINDINGS
According to our analysis service innovation
strategies vary among different living labs. We
apply a framework proposed in this study to reveal
those strategies. The framework provides a field
for service innovation strategies, and it reflects
innovation focus in terms of exploitation, explo-
ration and ambidexterity as their combination.
Furthermore, it reflects innovation outcome. After
reviewing our findings, we were able to identify
nine types of innovation strategies in living labs.
We labeled them as:
1. Abstemious strategy;
2. Focus strategy;
3. Capitalization strategy;
4. Ambidexterity strategy;
5. Regional development strategy;
6. Emergent strategy;
7. Alliance strategy;
8. Experimenting strategy; and
9. Learning strategy.
These strategies are explained and illustrated
in Figure 2.
449

Incremental and Radical Service Innovation in Living Labs
Figure 2. Different service innovation strategies in living labs
Abstemious Strategy
A company applying ‘abstemious strategy’ un-
derstands the importance of the open innovation
network and its business potential, particularly
when the company is searching for new ideas or
benchmarking its activities and processes against
other participants. However, the company with-
holds knowledge rather than shares it with other
participants in the network. The company in our
Case 1 is characterized as abstemious, because
it keeps its own ideas and considers the open
innovation network predominantly as a tool for
peeking into the others’ tangible and intangible
resources, activities and processes, which are oth-
erwise difficult to reach. The company attempts
to learn from other participants without sharing
its own service ideas or opening its activities to
others in the network. It applies traditional closed
innovation procedures by trying to control the
innovation network and not sharing its expertise
or knowledge.
We have a well-defined service development
process with several user interaction points. We
innovate iteratively, case-by-case according to
the principles of user innovation, using those
methodologies… But we don’t tell anyone about
450

our [service] development process or its stages…
It’s our own internally described process model
(Case 1)
The abstemious company is overly cautious
when developing its own processes and proce-
dures. The company is dependent on the open
innovation network, while it cannot reach radical
product or service innovation alone without the
help of the others in the network. However, the
development work only leads to an incremental
innovation outcome because of the lack of intense
and interactive co-development activities required
for radical innovation.
Focus Strategy
A company applying ‘focus strategy’ in living labs
aims to test and commercialize products and ser-
vices in real-world environment or an environment
simulating real life. Cases 5, 17, and 23 represent
examples of companies relying on the focus strat-
egy. Characteristics of such companies include
that they have a strong confidence in relying open
innovation as a part of their operation. They also
deem knowledge sharing and learning important
in the open innovation network. The company
in our Case 5 produced incremental innovation

Incremental and Radical Service Innovation in Living Labs
when it improved the clients’ product and service
innovation processes and involved end-customers
at a closed and monitored living lab.
It’s twofold. The top management team has confi-
dence in open innovation. We believe your innova-
tion becomes stronger if you share your ideas with
others at any stage of the development process,
rather than keep it all secret and, as a result, come
up with something that can be completely wrong...
The other thing is the real innovation environment…
That’s why we spotted Helsinki area as one of the
innovation hotspots. We said: that must be a very
suitable area for our business (Case 5).
Case 23 depicts a health center in which em-
ployees and customers test health care products
and services, while Case 17 is concerned with
developing and testing mobile technologies and
services in an authentic environment. The goals
are to produce effective testing and commercial-
ization services. Activities, processes and actor
roles in the open innovation network are selected
in advance, and operation of the network follows
a predefined pattern. It does not mean network
operation always follows the same pattern; rather,
the living lab network explores its pattern portfolio
and chooses the most suitable model case-by-case
to solve customer problems and meet their needs.
When a customer contacts about a product or ser-
vice solution, we first evaluate how it fits with our
daily work, how we can embed it into our systems
for testing purposes. If the product [or service]
is suitable for us – for testing purposes – we talk
to our staff and discuss how to best integrate it to
our concept. We build up a small project group
and prepare a testing plan for the customer, and
make a price offer. We establish a final plan,
including roles of different actors; who will do
what, when, and how after the customer accepts
our offer… For example, after an intense 2-month
testing period we will collect experiences about
the solution from our staff (Case 23).
It is worthwhile to note that users’ roles and ac-
tivities are clearly predefined in the focus strategy.
They act as testers and informants of new products
and services in their everyday life. The driver of
the operation in the open innovation network is to
produce services that originate from clients’ needs
(i.e., the need to solve problems or conduct testing
in an effective manner). Focus strategy in living
labs ultimately leads to a stepwise development
process and incremental innovation.
Capitalization Strategy
In a living lab with the capitalization strategy, users
are considered and utilized as inexpensive service
and system developers. Cases 3 and 6 are examples
of this strategy. In the earlier case, concepts for
electronic service payments are developed within
the health care sector with municipalities and
private companies. In the latter case, incremental
improvements in mobile ticketing services for
public transportation are developed and tested in
cooperation with end-users. The driving actor’s
role in living labs is to make the best use of users’
resources for service and systems development. Its
operation and activities are firmly characterized
by available resources and the planned schedule.
We woke up for the lack of resources… we were
unable to get municipalities to participate in the
living lab, because the effectuation of the new law
was postponed … A small company [such as ours]
cannot afford constant research and development
activity unless there is an evident opportunity to
make money in the near future (Case 3).
Nevertheless, benefiting from user knowledge
necessitates that users are motivated and commit-
ted to the operation of the living lab. Fu (2012)
argues that monetary incentives are less important
in open innovation than in the traditional closed
innovation mode. In the closed innovation mode,
participants are rewarded with monetary incen-
tives, but open innovation is based on participants’
451

Incremental and Radical Service Innovation in Living Labs
voluntary action and willingness to provide in-
formation and co-create knowledge. The living
lab offers development resources and knowledge
resources, as well as freedom of operation, which
could otherwise be difficult to achieve.
What also matters is that [in the living lab] we
have more freedom [to do things], because there
is a boost to make money later… in a traditional
[customer] project, conceptualization and us-
ability testing are strictly controlled, in terms of
how much time we can use for them… We could
never assign this many people and spend this much
effort in a traditional customer project [than we
did in the living lab] (Case 6).
Capitalization strategy is useful for both large
companies and start-up firms using living labs in
their innovation development. However, it only
leads to incremental innovation.
Ambidexterity Strategy
Ambidexterity strategy refers to integrating ex-
ploitation and exploration in living labs. We actu-
ally found three variations of the ambidexterity
strategy. The first of them integrates development
and testing of new service concepts; the second
integrates exploitation, learning, and competence
development; and the third variation integrates
service development and education.
The first variation of the ambidexterity strategy
integrates new service development and testing.
Case 2 illustrates this strategy as the living lab is an
effort to collect ideas of new healthcare and welfare
services and products, create new concepts, and test
these concepts. Users contribute by providing feed-
back and identifying problems and development
needs, and the development and testing take place
simultaneously. The activity takes place within
user community in a closed and monitored living
lab environment. It is characterized by step-by-step
development activity which leads predominantly to
incremental improvements in services and products.
452

From my perspective, a living lab is a controlled
environment or a space in which real end-users
can test early prototypes or work-in-progress ser-
vice and product concepts. We can observe users
in that space, and collect their feedback, as well
as identify problems and emerging development
needs… Our emphasis in on that whatever we do
[in living labs] must be effective and result in use-
ful outcomes that we can exploit rapidly (Case 2).
The second variation of the ambidexterity
strategy integrates exploitation, learning, and
the development of competences. We found five
examples: Cases 11, 12, 13, 19, and 22 combine
service development and production operation
which leads to incremental innovation. The op-
eration in these living labs makes efficient use
of physical space in which users develop and
learn of new products, services and systems, and
where their competences and skills are enhanced.
These living labs are affiliated with educational
institutes whose students participate in living lab
operation as part of their studies to develop and
test ICT products or services, to produce restaurant
services, or to develop future learning environ-
ments, in which special focus is laid on lighting,
audiovisual elements, technology, and the space
used for creating a learning environment. In this
manner, these living labs combine development
activities and the exploitation of learning. Students
represent all educational levels from elementary
school students to Master’s degree students.
We realized that a living lab is a lab and it is about
living. There are real people, real customers there
[in the living lab], with real customer needs…
We then piloted and tried all these things….We
developed new food recipes and tested new foods
and meals for Company X [a large foods manufac-
turer]; we did all sorts of fun stuff…” (Case 13).
The third variation of the ambidexterity strat-
egy integrates service development and education.
We found two examples: Cases 15 and 16 illustrate

Incremental and Radical Service Innovation in Living Labs
that knowledge as well as tangible and intangible
competences accumulate even if the participating
service developers are replaced by others. Case
15 depicts a case where a user community tests
digital services which they have developed in a
living lab environment, and the living lab aims
to study users’ behavior. Case 16 illustrates a
case in which users develop and test prototypes
and incrementally improved concepts in retail
business, as well as improved concepts and use
experiences in mobile and e-business.
How do you create new services in a real-life
environment?...You have a [user] community
and you will start creating new services that ad-
dress their problems and needs, so new service
is created when you try to help users… and it
does not only solve user problems in that com-
munity but problems in ten thousand communities
worldwide. There is no single operator or device
manufacturer that would develop the kind of
service, because they have never thought about
it… They don’t talk to people [about user needs]
or participate in people’s lives [to understand
user needs], but when they talk to people they
are marketing (Case 15).
Regional Development Strategy
A regional development strategy pursues services
for a specific geographical region or area. The
development work is driven by the needs of local
habitants and organizations, distinctive regional
characteristics, and area development goals. For
example, regional development strategy could
attempt to provide basic services for citizens and
companies in rural areas. Cases 24, 25, and 26
illustrate this strategy and indicate that regional
development strategy is often realized through
projects. The role of enabler is to collect and
develop ideas suggested for the needs of locals
in the area, such as members of agriculture co-
operatives, farmers groups, individual workers,
and manufacturers of agricultural products. The
strategy results in incremental innovations, such
as a location based GPS system for agricultural
needs in a rural area.
We have had regional living labs, that is, thematic
living labs, but we haven’t had locally situated
living lab…and ‘local’ is a more problematic
concept as compared with ‘regional’. Locality
is linked to experiences, [user] experiences, and
to the context more strongly than a local living
lab. For example, District of Metropolitan area
has started to become a local lab, which means
that you are able to begin understanding local
dynamism (Case 26).
Emergent Strategy
An emergent strategy empowers people to de-
velop their everyday activities. It is based on
the development of social innovations with the
people living in a certain area. Users’ competence
development is vital as emerging user needs are
diverse by nature. Cases 9, 10, and 18 represent
this strategy in which a living lab encourages mar-
ginalized groups such as immigrants to improve
their everyday activities in an urban area. In Case
9, the endeavor resulted in incremental innova-
tion to improve users’ social welfare. In Case 10,
the living lab aimed at co-creating services with
local communities in socially deprived areas in
developing countries.
Someone that’s specially wanting to make a change
in the community and basically giving him the
skills to do this… So I’m just going… to give you
a bit of an idea about reconstructing communities
through innovation, because that’s basically what
it’s all about. That’s how… we are reconstructing
communities through innovation… The people will
manage to find a solution, collaboratively find a
453

Incremental and Radical Service Innovation in Living Labs
solution for it… We basically want to create that
kind of culture of innovation. Now, when you talk
about 70 percent unemployment and poverty and
gangs and violence [in this area], you need to be
innovative (Case 10).
Emergent strategy can also take place when a
group of people launches a temporal event, such
as a journey abroad for developing, ideating, and
learning of new services. Case 18 describes an
innovation journey where more than 100 people
developed novel service concepts and product
ideas during a train trip from Helsinki, Finland
to Shanghai, China. The journey was over 10,000
kilometers and took a week on tracks. Similarly
to previous examples of the emergent strategy,
innovation outputs of this temporary living lab
were incremental by nature.
Alliance Strategy
An alliance strategy focuses on forming alliances
between different living labs. Cases 14 and 21
represent the strategy in which two or more liv-
ing labs are integrated in a functional meaning
and are dependent on each other. Living labs
are specialized in terms of different roles such
as ‘user’, ‘provider’, ‘enabler’, or ‘utilizer’. Case
14 depicts a living lab, which has a role of pro-
vider and that develops methods, platforms, and
technologies for organizations in the process of
establishing or having established living labs. Case
21 is another living lab which takes the role of a
user community; it develops the daily well-being
of people in the community, new communication
and information technologies for a medical center,
and proof of technology for the provider, as well
as social space for research and innovation in a
city environment. The innovation outputs from
the collaboration between these two living labs
are incremental in terms of improved well-being
solutions for the ‘user’ living lab and user-centric
research knowledge for the provider living lab.
454

The local community is a living lab itself [Living
Lab A]. It provides a real scenario with users,
local authorities, and other components and
participants of a real environment that is, can be
a city or an example or scenario of a poor vil-
lage… The initiative to create Living Lab A was
an idea of the local citizens. They heard what a
living lab is and they said we want to be a living
lab, and we know we need some organization or
some help to create a living lab. Living Lab B
is an organization managing these living labs. I
started in Living Lab B coordinating all the ac-
tivities developed in Living Lab A because I’m a
local, so we took profit of the synergies; me living
in the Living Lab A and being able to coordinate
with Living Lab B all the activities, because you
need a person who is directly involved with the
citizens, who has the direct contacts with the
people to arrange everything (Cases 14 and 21).
Experiment Strategy
An experiment strategy focuses on experimenting
and piloting with users to gather further under-
standing on how to apply living labs. Cases 4
and 8 exemplify two living labs that apply this
strategy. The underlying assumptions of the
strategy are to conduct experiments with users
and observe the outcomes; however, the results
are not important per se, rather experimenting
that leads to incremental innovation is the focus
of interest. The experimenting may be initiated
by a company or a user group. Case 4 illustrates
how a media company developed and tested media
services and new service concepts in cooperation
with end-users in their own home environment.
It was among the first pilot for the company to
directly work with their end users.
The experiment showed us that a living lab requires
lots of resources. Allocating enough resources for
the living lab and justifying it [for the others] in
the company are quite challenging. On the other
hand, users’ feedback and ideation can be a big

Incremental and Radical Service Innovation in Living Labs

surprise, so a firm should be open to any results Learning Strategy

and prepare for even unexpected results. Also,
technical problems related to new technology
required for testing purposes affect users’ con-
centration and their service experience (Case 4).
A new electric car and interrelated concepts
were developed in cooperation with a user com-
munity in Case 8. The endeavor was initiated
from the perspective of climate change and what
people can do to tackle with it. One of the key
persons knew all participants in the early phase
of the experiment and gathered people as users
together to discuss about the issue. The user
community ended up discussing electric cars and
related challenges, such as building and modifying
a modular electric car.
At some point it turned out that discussants’ moti-
vation to participate in the [living lab] collective
included a strong interest in technology, economy,
or health and environment. They were also moti-
vated by the open source ideology, possibility to
invent something new as some of them were active
inventors, and citizen activism. As to the users, we
had to first encourage them to join the collective,
because they felt somewhat insecure about their
skills and competences (Case 8).
A learning strategy in living labs pursues becom-
ing a radical innovator, the winner of service
development rivalry. Cases 7 and 20 represent
this strategy, illustrating two living labs that are
capable of creating radical service innovations
based on accumulated knowledge. They are rec-
ognized to be at the forefront of development, but
they act as learners who continuously adapt and
learn to better use knowledge and competences
from the living lab network. Users are involved
intensively into all co-development activities with
other participants. In one case, this led to radical
innovation in augmented mobile reality services,
and in another case, to radical innovation in
health and wellness sector, more specifically the
development of wellness-TV and related services
for the elderly.
To produce superior ideas [we need to continu-
ously learn], because our process, our methods
to find and deal with the ideas are not as good as
our capabilities to make people committed and to
make them co-create new ideas with us (Case 7).
The identified service innovation strategies in
living labs are summarized in Table 1.

Table 1. Different innovation strategies in living labs

Strategy Description Case #

Abstemious strategy
Focus strategy
Capitalization strategy
Ambidexterity strategy
Regional development strategy
Emergent strategy
Alliance strategy
Experiment strategy
Learning strategy
Hold knowledge and information, do not share 1
Test and commercialize products and services 5, 17, 23
Utilize users as service and systems developers 3, 6
Integrate development and testing of new service concepts; Integrate exploitation, 2, 11, 12, 13,
learning, and competence development; Integrate service development and education 15, 16, 19
Develop basic services for citizens and organizations in rural areas 24, 25, 26
Empower people to improve their everyday activities 9, 10, 18
Form alliances between different living labs 14, 21
Experiment and pilot with people to gather understanding how to apply living labs 4, 8
Aim at radical innovation, learn and adapt to become better in using knowledge and 7, 20
resources in the living lab

455

Incremental and Radical Service Innovation in Living Labs
CONCLUSION
This study brought new understanding of innova-
tion in living labs that represent a rising form of
open innovation. The chapter illustrates there are
different service innovation strategies in living
labs and the characteristics and outcomes differ
between each type of strategy. We established a
framework to investigate various strategies based
on exploitation, exploration, or ambidexterity.
Moreover, we anticipated they differ by their in-
novation outcomes in terms of incremental and
radical innovation. After reviewing our data on
26 living labs in four countries, we identified nine
innovation strategies labeled as:
1. Abstemious;
2. Focus;
3. Capitalization;
4. Ambidexterity;
5. Regional Development;
6. Emergent;
7. Alliance;
8. Experiment; and
9. Learning.
The results indicate that service innovation
strategies differ between each other. The outcome
of a living lab depends on the chosen innovation
strategy and managing the strategy is a complex
task.
Our study has some contributions to theory and
practice. Although service development through
open innovation is increasingly popular, extant
literature lacks knowledge of service innovation
strategies that companies can employ. In this
vein, the study supplements emergent research
on service development with new knowledge of
the user innovation context and its effects on the
strategies and outcomes of innovation. Appar-
ently, previous innovation literature tends to link
exploitation mainly with incremental innovation.
Our results support this argument as we were un-
able to find evidence that by applying exploiting
456

strategy living labs could produce radical service
innovations. Rather, the innovation outcome for
exploiters seems to be incremental by nature. It is
notable that not even a combination of exploitation
and exploration can produce radical innovation.
Based on our data, it seems that radical innova-
tion in living labs requires a focus on exploration.
The findings also imply that managers con-
templating service development through living
labs need to consider the intended outcome and
reframe their innovation strategy accordingly. The
intended outcome may be incremental or radical
service innovation, and they differ from each other
in terms of required mindset, resources, actors,
and activities. Managers should adopt the most
suitable strategy in regards to expected outcomes
to benefit from living labs in an effective way.
However, they should not valuate living lab strat-
egies per se, but consider them as opportunities
to use living labs to co-develop and test services
with user communities. A thorough understand-
ing of different strategies aids managers to set an
efficient innovation management. It helps them to
succeed in implementing their service innovation
strategy through living lab collaboration.
LIMITATIONS AND
FUTURE RESEARCH
Every research has its limitations. Although this
study covers 26 living labs in four countries, we
could not include each living lab actor’s view
because of the limited resources. Some living
labs include thousands of participants, making it
impossible to interview all of them. This may af-
fect the results. Moreover, we argued that radical
innovation is rare and requires exploration. How-
ever, the study does not eliminate the possibility
that incremental step-by-step improvements may
ultimately lead to radical innovation over time. We
only studied living labs in regard to one assignment
over a relatively short time period. Nevertheless,
a living lab is not a project, but a systematic way

Incremental and Radical Service Innovation in Living Labs
of joint innovating with users and other actors
time and again (Westerlund & Leminen, 2011).
In addition, Leminen & Westerlund (2012) argue
that participants in a living lab share a common
goal but their motives vary. Therefore, we recom-
mend additional research on service innovation
strategies in living labs. Future research should
focus on the development and links between mo-
tives and strategy from the perspective of different
participants over a period of several assignments.
It could offer a notable research avenue for open
innovation scholars.
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460

Chapter 26
Chaos-Based Cryptography
for Voice Secure Wireless
Communication
Sattar B. Sadkhan Al Maliky
University of Babylon, Iraq

Rana Saad
University of Babylon, Iraq

ABSTRACT
Chaos theory was originally developed by mathematicians and physicists. The theory deals with the
behaviors of nonlinear dynamic systems. Chaos theory has desirable features, such as deterministic,
nonlinear, irregular, long-term prediction, and sensitivity to initial conditions. Therefore, and based on
chaos theory features, the security research community adopts chaos theory in modern cryptography.
However, there are challenges of using chaos theory with cryptography, and this chapter highlights some
of those challenges. The voice information is very important compared with the information of image and
text. This chapter reviews most of the encryption techniques that adopt chaos-based cryptography, and
illustrates the uses of chaos-based voice encryption techniques in wireless communication as well. This
chapter summarizes the traditional and modern techniques of voice/speech encryption and demonstrates
the feasibility of adopting chaos-based cryptography in wireless communications.

INTRODUCTION voice signal information is commonly used in

Due to the increased demand for wireless com-
munications by military and civilian applications,
there are studies oriented towards the protection
of information from eavesdroppers and attackers.
This information is transmitted through commu-
nication channels between users. It can be text,
image or voice signal (Lawande et al., 2005). The
the applications of wireless communications. It
needs protection more than text/image information
against eavesdroppers through wireless channel.
The reason for such need arises from the fact that
voice encryption process must encrypt all parts
of signal information to get on indistinguishable
voice (Mosa et al., 2009) (S. Sridhan et al., 1993).
Cryptography algorithms must evolve with the

DOI: 10.4018/978-1-4666-8468-3.ch026

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Chaos-Based Cryptography for Voice Secure Wireless Communication
development of wireless communication technolo-
gies. The reason for this development is to give
higher security. Cryptographic techniques can
utilize number theory and Chaos theory. One of the
new multidisciplinary approaches for designing
and implementing a new cryptosystem is based
on Chaos Theory (Jian et al,. 2010). It is found
that the ideas of chaos have been very fruitful in
such diverse disciplines as biology, economics,
chemistry, engineering, fluid mechanics, physics,
just to name a few. Chaos is a multidisciplinary
science, and this is reflected in the fact that the
members of the group are affiliated with diverse
disciplines such as: Physics, Mathematics, Elec-
trical Engineering, Physical Sciences and Tech-
nology (IPST), Electronics and Applied Physics
(IREAP), Systems Research (SR), Applied Math
and Scientific Computation (AMSC).
The deterministic property means that ev-
ery next state of chaos function depends on the
previous state. The irregular property shows the
behavior of chaotic system has irregular continu-
ity. Nonlinear property means that chaos function
has nonlinear transformation. The sensitivity to
initial conditions property means that some small
changes in the initial state of chaotic systems could
result dramatically in various behaviors at the final
state. The long term prediction means that when
achieving irregular and sensitive to initial condi-
tions properties, then the prediction of the system’s
behavior will have obstacles (Munakata, 2008).
The aim is to show the techniques of three
main objectives of this chapter. The objectives
are chaos based cryptography, secure wireless
Figure 1. Different disciplines (fields) used within the chaos applications
communication and voice encryption. Also this
aim makes the reader know how to use chaos
in cryptography, what the generations of secure
wireless communication, which use the chaos
based cryptography.
MULTIDISCIPLINARY IN CHAOS
BASED CRYPTOGRAPHY
Multidisciplinary is composed of several separate
branches of learning or fields of expertise. These
different disciplines (fields) can use chaos theory
in their applications as illustrated in Figure 1
(David et al., 2012).
Figure 2 gives the schematic presentation of
the chaos behavior. It shows the detail of these
applications that exploit the chaos behavior. The
behavior of chaos can be seen in the labs, in the
nature, in an economics (Kyrtsou & Labys, 2006),
in finance (Hristu-Varsakelis & Kyrtsou, 2008),
in different other studies such as medical studies
(White, 1999), quantum chaos theory study (Berry,
2003), electrical engineering and computer sci-
ence chaotic systems as well as numerical analysis
(Strang, 1991).
Chaos theory is an area of study in the com-
petence of mathematics. It is formulated in 1961
(Berry. and Mainieri, 1996). Chaos is short of
the term “chaotic system.” It is a dynamic system
because each outcome depends on one or more of
its previous outcomes (Kellert, 1993) (Chesnes,
2001).
461

Chaos-Based Cryptography for Voice Secure Wireless Communication
Figure 2. The different applications use chaos
The following two examples show the behavior
of chaos. The purpose of these two examples is to
exhibit that chaos is a dynamic system, and also
has high sensitivity feature.
Example 1: Pseudo Random Number Generator
(PRNG)
Pseudo random number generator (PRNG)
shows the chaos behavior in the computer science.
The following simple generator is used to show
chaotic behavior. This generator has the form:
xn+1 =cxn mod m, where (c) is initial condition,
(xn) is initial state when n = 0, (xn+1) is the next
state and n = 1,2,3,... N. If (mod m) function is
removed, this equation becomes linear equation
and no chaotic behavior in it. On the other hand,
if (mod m) function is not removed, this genera-
tor has nonlinear behavior and also has chaotic
behavior (Munakata, 2008). Any change in the
initial condition (c) or in the initial state (x0),
will give various sequences of random irregular
numbers. For example, an equation has (c = 29)
and (m= 997), xn+1 = 29xn mod 997. If we apply
x0=117 and x0=118 (Note that there is a little dif-
462

ference between them), The result of this equation
will give two different sequences as presented in
Figure 3 (Munakata, 2008). Figure 3 illustrates
that this PRNG has chaotic behavior. Also it has
high sensitivity feature. Since any changes of the
initial state x0 will give different sequences, this
PRNG is a dynamic system.
Example 2: Logistic map
The another example of chaotic behavior is
logistic map, xn+1=rxn(1-xn.) Any change in the
initial parameter (r) or in the initial state (x0),
will give various sequences of random numbers
and irregular.
1. Change of parameter r
The map has (r = 2.5, r=3.2, r=3.5, and r=3.8).
If we apply x0=0.6, the result of this equation will
give four different sequences as presented in Fig-
ure 4, which illustrates the application of 4 initial
parameters (r) with one initial state x0=0.6, the
randomness can occurr from this equation when
r is increased to 3.8. Figure 4.a shows r =2.5 then

Chaos-Based Cryptography for Voice Secure Wireless Communication

Figure 3. Chaotic behavior of PRNG example with a small changes in intial state values (x0 and a)

the values of xn are equal to 0.6. Figure 4.b gives
r = 3.2 then the values of xn are increased in the
range [0.5, 0.8]. Figure 4.c illustrates r = 3.5 then
the values of xn are increased in the range of [0.4,
0.9] with few randomness. Figure 4.d shows r = 3.8
then the values of xn are increased in the range of
[0.2, 1] with more randomness. (Chesnes, 2001)..
2. Change of initial state x0
The map has (r = 3.8). If we apply x0=0.7
and x0=0.8 (Note that there is a little difference
between them), the result of this map will give
two different sequences as presented in Figure 5.

Figure 4. Chaotic behavior for logistic map when changing the parameter r

463

Chaos-Based Cryptography for Voice Secure Wireless Communication
Figure 5. Chaotic behavior for logistic map when
change the initial state (x0)
These sub-examples show that logistic map has
chaotic behavior. Also thry have high sensitivity if
there is any change of initial states or parameters.
This map is a dynamic system. Since each outcome
state (x (n+1)) depends on previous input (xn). The
result of xn sequence is random and irregular.
From the above two sub-examples (a and b), it
is clear that chaos has high sensitivity to its initial
state xn, to its initial condition (c) or to its param-
eter (r). They can be considered as secret key and
must be kept secret between two shared parties
of communications (Kanso, & Smaoui, 2007).
DIFFERENT CHAOS MAPS
In early 1950s, Shannon mentioned that the
mechanism of stretch and fold can be exploited
in cryptography. Hence it is clear that Shannon
actually discussed a typical route to chaos via
stretching and folding, which is well-known in
today’s chaos theory (Alvarez & Li, 2006). There
was a silent period about this fact until the late
1980, chaos theory becomes popular and cryp-
tography becomes more important (Blackledge,
2010). From 1990, the publications started to
suggest various cipher methods, used chaos in
464

synchronization and in cryptography to provide
secure communication (Yang, 2003). This sec-
tion will list the types of chaos map used with
cryptography. Also it will illustrate the literature
review of chaos based cryptography. And finally
it gives the advantages and disadvantages of using
chaos theory with cryptography.
Chaos map: The desirable features of chaos
are Deterministic, nonlinear, irregular, long term
prediction, and sensitivity to initial conditions.
These features attracte many researchers to use
the chaos in cryptography and synchronization to
provide secure communication. This section shows
some types of chaos maps used in researches into
chaos based cryptography.
Logistic map: This map is famous and used
more in nonlinear system. This map can be de-
scribed in Equation (1):
Xn+1=rxn(1-xn) (1)
where: xn (0,1), and r ∊ (1, 4).
This map becomes chaotic when the parameter
(r) has value in the following range (3.57 < r ≤
4). And it is used in cryptography by (Patidar
et al., 2008) to design pseudo random number
generator (PRNG).
Standard map: One of standard map types used
in cryptography can be as shown in Equations (2):
Xn+1 = Xn + k sin yn mod 2π (2.a)
yn+1 = yn+ Xn+1 mod 2π (2.b)
where: Xn and yn ∈[0,2π]
This map is considered as chaotic when the
parameter k has value larger than or equal to 18.9
(k ≥ 18.9). This map was used in cryptography by
(Patidar &, Sud, 2009) to design pseudo random
number generator (PRNG).
Picewise linear chaotic map (PLCM): This
map has a different style of equations. These types
of equations are used in different researches. And
they expressed as:

Chaos-Based Cryptography for Voice Secure Wireless Communication

The type 1 of PLCM : This type of PLCM can on the unit cube [0; 1]×[0;1]×[0;1]. It can be as
be described in Equation (3): shown in Equation (6):

( )
x (t + 1) = F x (t), p = x(n) = |1 -|(2.x(n - 1) + y(n - 1) + z(n - 1)/2 - 1||
(6.a)
x(t) / p, 0 ≤ x(t) ≤ p,

(x(t) - p) / (1 / 2 - p), p < x(t) < 1 / 2, y(n) = |1 -|(2.y(n - 1) + x(n - 1) + z(n - 1)/2 - 1||

F(1 - x(t), p),1 / 2 < x(t) ≤ 1, (6.b)

(3)
z(n) = |1 -|(2.z(n - 1) + y(n - 1) + x(n - 1)/2 - 1||
(6.c)
where: 0 < p < ½
x serves as an initial condition, and p is the
where the initial conditions are x0, y0, z0 ∈ [0,1].
control parameter for the map F.
This map was used in cryptography by (Zaibi
This map was used in cryptography by (Asim
et al., 2010) to design a Subtituation box (S-box).
& Jeoti, 2008) to design a Subtituation box (S-box)
Lorenz map: This map can be described as
(Xingyuan et al., 2011).
three dimensional as shown in Equations (7):
The type 2 of PLCM (Tent map): This map can
be one dimensional. It is one of piecewise linear
x 1 =σ(x2 – x1) (7.a)
map types. It can be described as in Equation (4):

f(x , µ) = µx , if x < 0.5 x 2 =rx1 – x1x3 – x2 (7.b)

x i+1 =  i i i
(4)
f(x i , µ) = µ(1 - x i ), otherwise

x 3 =x1x2 – px3 (7.c)
where:
where: x1(0), x2(0), x3(0) are initial conditions,
f:[0,1]→ [0,1] and ó, r, ñare positive constants
This map can be chaotic when (r>24.74),
xi∈ [0,1], (5) (σ=10) and ( ñ = 8 / 3 ). This map was used in
cryptography by (Ahmad et al., 2012) to design
for i≥0, and ì can be a positive real constant ∈[0,2]. keystream generator for voice encryption.
The initial value x0 and ì considered as initial Chen map: This map can be described as three
condition and control parameters of the map. dimensional as shown in Equations (8):
This map becomes chaotic when the parameter
1<ì<2 has fully chaotic behavior at ì=2. This map x 1 =a(x2 – x1) (8.a)
was used in cryptography by (Kanso, 2010) to
design pseudo random number generator (PRNG).
The type 3 of PLCM: This type of PLCM is one x 2 =(c – a)x1 – x1x3 + cx2 (8.b)
dimensional. It can be described as in Equation (5)
This map was used in cryptography by (Zaibi
x 3 =x1x2 – bx3 (8.c)
et al., 2010) to design a Subtituation box (S-box).
The type 4 of PLCM (affine map): This type of
PLCM is three dimensional. This map is defined where: x1(0), x2(0), x3(0) are initial conditions,
and a, b, c are parameters

465
 
Chaos-Based Cryptography for Voice Secure Wireless Communication

This map can be chaotic when (a=35), (b=3) A  A 

 n+1   n
and (20≤c≤28.4). This map was used in cryp- B  B 
 n+1   n
tography also by (Ahmad et al., 2012) with a  .   . 
   
Lorenz map to design keystream generator for   = x   mod (1) (10.c)
 .   . 
voice encryption.    
Henon map: This map can be two dimensional  .   . 
   
map to generate two chaos signals as in Equa- H n+1  H 
   n
tions (9):
where: aij, bij are integers in [0,2L-1], L is number
x n +1 = 1 + byn − ax n2 (9.a)
of bits (e.g. L=16)m is the number of tables that
are used for encryption of (e.g. m=8)
yn+1=xn (9b) Baker map: This two dimensional map can be
expressed as in Equation (11):
This map can be chaotic when a=1.4 and b=0.3.
This map was used in cryptography by (Liu et   y 1
al., 2008) with logistic map to create database of  2x,  if 0 ≤ x <
  2  2
chaotic model for voice encryption. F (x, y) =  (11)
 y + 1 1
Cat map (Arnold map): This map can be two 2x − 1,  if ≤ x < 1
 2  2
dimensional map and is also called Arnold cat
map which can be described as shown in Equation
(10.a) (Chen et al., 2004). This chaotic map converts two dimensional
(2D) square into itself chaotic square by dividing
 x   1a   x  it into two halves and each half is stretched and
 y  bab + 1  y  mod (1)
 n+1  =    n (10.a) compressed to obtain an interval of horizontal
 n+1     n 
width 1 and vertical height 1/2 and then put on
top of each other as shown in Figure 6. This map
where a and b are control parameters. was used by (Mosa et al., 2009) for permutation
This map can be reformulated as in Equation to encrypt the voice signal.
(10.b), which was used by (Ashtiyani et al., 2012) Chebyshev map: Chebyshev map is a chaotic
to encrypt the voice signal. map. It is defined as in Equation (12.a)

 x   1a   x  Tn+1(x)=2xTn(x)-Tn-1(x) (12a)
 y  bab + 1  y  mod (N)
 n+1  =    n (10.b)
 n+1     n 

Figure 6. Baker map

Furthermore, this two dimensional map is
extended to be three-dimensional as in Equation
(10.c) (Chen et al., 2004)):
Also it can be extended to higher dimensional
(N D) cat map as in Equation (10.c). It was used
th

by (Gnanajeyaraman et al., 2009) to generate look-

up tables to perform voice encryption.

466

Chaos-Based Cryptography for Voice Secure Wireless Communication

where: n ≥2 CHAOS BASED CRYPTOGRAPHY

T0(x)=1 and T1(x)= x The well-known techniques of cryptography are

symmetric key algorithms (stream cipher and
This equation was used by (Kocarev et al., block cipher), and asymmetric key algorithms
2004) and by (Prasadh et al., 2009)) to design (public key cryptography) and cryptographic
Public Key Cryptosystem. In (Kocarev et al. 2004) hash function.
rewrote this equation to be Equations (12.b) and Chaos based Stream cipher: There are re-
(12.c). searches which use one chaotic map as random
generator. And the other researches use two chaotic
 x   01   x  maps. Figure 7 illustrates the researches that use
 y  −12k   y  (mod1)
 n+1  =    n (12.b) chaos- based random number generator for stream
 n+1     n 
cipher applications.
(Li et al, 2001), presente a pseudo-random bit
 X   01   X  generator. This generator is based on a couple of
 Y  −12k   Y  (mod N)
 n+1  =    n (12.c) chaotic systems called CCS-PRBG. This generator
 n+1     n 
can be used in stream ciphers. (Kanso & Smaoui,
2007)) presente two generators to generate pseu-
where X, Y and N are integers. dorandom binary sequence. These generators are
Beta-transformation map AAâ(X(m)): This based on the logistic map. This map is shown in
function can be defined in Equation (13). This Equation (1). The first generator depends on a
equation used by (Ariffin & Abu, 2009) to design single one-dimensional logistic map while the
public key cryptosysetm. second generator depends on a combination of
two logistic maps. Both generators use threshold
( )
X (m + 1) = AA β X (m ) = (0.5) to generate a binary sequence. On the other
 X (m ) + aX (m − 1) (mod1), b = 0 hand, (Kanso, 2010) presente another keystream
  (13)
i
generator by applying the technique of self shrink-
 β X (m ) + X (m − 1) (mod1),b = 1
   i ing to the chaotic tent map. This map is shown
in Equation (4). (Patidar et al., 2008), presents
a pseudo random number generator (PRNG) to
where: β>0 and a≠β, and bi is binary bit.
generate a binary sequence. This generator based

Figure 7. Chaos in stream cipher systems

467

Chaos-Based Cryptography for Voice Secure Wireless Communication
on compariison between the outputs of two cha-
otic logistic maps. On the other hand, (Patidar,
& Sud, 2009) presente another pseudo random
number generator (PRBG). It gave good results
of (National Institute of Standard Statistical Tests)
NIST statistical tests. This generator is based on
comparison between two chaotic standard maps.
These maps are shown in Equations (2). (Xingyuan
et al., 2011)) presente an encryption algorithm.
This algorithm uses Picewise linear map (PLCM)
to design two pseudo-random number generators.
This map is shown in Equation (3). The designe
of this generator is based on the research by (Li
et al., 2001)). The generated pseudo-random
number is applied to choose which encryption
mode is to be used. Encryption mode is either
stream cipher mode or block cipher mode. This
algorithm is used to encrypt/decrypt files (such
as TXT, DOC, WMA, and JPEG). (Ahmad et
al., 2012) have designed keystream generator to
protect voice bitstreams over insecure transmis-
sion channel. This generator utilizes the features
of high dimensional chaos like Lorenz and Chen
systems. The equations of Lorenz map are shown
in Equation (7). The equations of Chen map are
shown in Equation (8).
Chaos based block cipher: There are researche
which used chaotic map to improve the design of
S-box for block cipher applications. Figure. 8 il-
lustrates the researches that use chaos-based S-box.
(Asim & Jeoti, 2008) present a method to design
S-boxes by using a mixing property of piecewise
linear chaotic maps. This map is shown in Equation
(3). The main idea of this research is to construct
Figure 8. Different chaos used in block cipher for design of s-boxes
468

S-box based on the property of chaotic nonlinear
dynamic system. (Wang & Zhang, 2009) present
two methods to encrypt the image. These two
methods are based on the theory of S-box in AES
and on the chaotic logistic map. This map is shown
in Equation (1). The first method uses different
S-boxes which are selected by using a random
sequence of chaos to do substitution for each
byte. The second method uses different chosen
S-boxes and applies multiple rounds of S-boxes
to do substitution for encryption. The S-boxes are
chosen by using achaos random sequence.
(Zaibi et al., 2010)) present the S-box that is
based on one and three dimensional piecewise
linear maps. These maps are shown in equation.
(5) and Equation (6) in sequentially. This research
uses NIST statistical test to study the statistical
properties of these two maps. The result of this
test verifies that these two maps have random
like behavior. (Jeyamala et al., 2011) use chaos
theory to generate new elements of P-arrays and
S-boxes for blowfish block cipher. This research
depends on logistic map. It is shown in equatin
(1). This design of S-box can be tested with blow-
fish block cipher algorithm for text and image
encryption. The result shows that a high quality
of encryption, minimal memory requirement and
low computational time.
(Ashtiyani et al., 2012) propose voice signal
encryption using chaotic symmetric cryptography.
This research uses chaos cat map to scramble the
signal. This map is shown in Equation (10.b).
And also it uses Lorenz map for design the S-box
to do diffusion. This map is shown in Equations

Chaos-Based Cryptography for Voice Secure Wireless Communication
(7). The designed chaotic S-box is applied with
a Simplified version of Advance Encryption
Standard (S-AES).
Chaos based public key: There are researches
which use chaotic map with public key for asym-
metric encryption applications. Figure 9 illustrates
the researches that use chaos based public key.
(Kocarev et al., 2004) presente a public-key
encryption algorithm. It uses the property of
semi-group in Chebyshev maps. This map is
shown in Equation (12.a) and rewritten to (12.c).
Also (Prasadh et al., 2009), presente a public
key encryption based on chebyshev polynomi-
als as shown in Equation (12.a). The (Ariffin &
Abu, 2009) presente a public key cryptosystem.
This cryptosystem is built by using chaotic beta-
transformation mapping. Beta-transformation is
shown in Equation (13).
Advantages and Disadvantages of
Using Chaos Theory in Cryptography
Chaos theory can be implemented in cryptogra-
phy. Table 1 explains how to use each of these
features in cryptography. Chaotic system can be
implemented in cryptography as pseudo-chaotic
system. Pseudo-Chaos has a finite number of
states. It involves approximation of continuous
chaos with floating- or fixed-point arithmetic.
This leads to discrete chaos-like system with
low cycle lengths. The initial condition(s) and/or
parameter(s) of chaos can be used as key in cryp-
tography. The sensitivity to the initial condition
and parameters of chaos can be used as diffusion
Figure 9. Chaos based public key cryptosystems
in cryptography. The initial state of chaos can be
used as plaintext in cryptography. Final state can
be used as ciphertext in cryptography. An asymp-
totic independence of initial and final states in
chaos can be used as confusion in cryptography
(Blackledge, 2008),(Blackledge, 2010).
Chaos based cryptography has other advantage.
It is the encryption of the continuous waveforms
of signal without sampling and quantization. Since
the algorithms of chaos based cryptography can be
defined over continuous number field compared
with traditional cryptography algorithms, it can be
defined over integer number fields (Tenn, 2003).
Table 2 shows the comparision between cryptog-
raphy and chaos. There are some disadvantages
compared with the conventional cryptography
such as slow, used floating point numbers, cycle
length is low, and data are redundant.
Table 1. Chaos theory and cryptography
Chaos Theory Cryptography
Chaotic System Pseudo-Chaotic
System
Nonlinear Transform Non-Linear
Transform
Infinite number of states Finite State
Infinite Number of Iterations Finite Iterations
Initial state Plaintext
Final stste Ciphertext
Initial condition(s) and/or parameter (s) Key
Asymptotic independence of initial and Confusion
final states
Sensitivity to initial condition(s) and Diffusion
parameter(s) mixing
469
 
Chaos-Based Cryptography for Voice Secure Wireless Communication

Table 2. Comparison between two techniques

iterates. The other researches use algorithm that
Chaos Based Conventional Cryptography
depends on perturbance to make the cycle length
Cryptography high. This research is presented by (Tao et al.,
Floating point arithmetic Integer arithmetic 1998). While the research presented by (Li et al.,
Computationaly slow Computationally fast 2003) discusse some of the problems faced by the
Based on any nonlinear Usually based on the “Mod” chaos based cryptography, it gives solutions and
function function recommendations to overcome these problems.
Coesnt require prime Usually based on prime number And also it encourages the researchers to take
numbers
these solutions and recommendations as future
Low cycle lenths High Cycle Lenth trends to improve the conventional cryptography.
Statistical Bais No Statistical bais
Data Redundant Data compatible
SECURE WIRELESS
COMMUNICATION BASED
Although chaos based cryptography has these ON CHAOS THEORY
disadvantages, researches found solutions to over-
come these problems. One of these researches is Communication security that depends on chaos can
presented by (Blackledge, 2010). This research be considered as a new approach which provides
describes multialgorithmic cryptography using protection and security of communications and
deterministic chaos. Thus the essential advantage maintains confidentiality. Communication secu-
of chaos is that provides the potential for develop- rity that relies on chaos started 1992 and so far
ing an unlimited number of algorithms that can through four generations. (Yang, 2003) describes
be used to produce a multi-algorithmic solution. the evolution of chaos based secure communica-
The use of different algorithms for encrypting dif- tion. The first and second generations use chaos
ferent blocks of data provides an approach called in synchronization only while the third and fourth
‘multi-algorithmic’. This also leads to overcome generations use chaos in both synchronization and
low cycle lengths which are associated with chaotic cryptography as shown in Figure 10.

Figure 10. Generation of chaos based communication system

470

Chaos-Based Cryptography for Voice Secure Wireless Communication
The first generation of secure communication
system: There are two methods of this generation:
they are additive chaos masking and chaotic shift
keying.
Additive chaos masking method: This method
is shown in Figure 11. The transmitter uses cha-
otic system to generate sequence of states c(t).
This sequence is added to signal of original mes-
sage m(t) to give new signal s(t). This new signal
can be transmitted through channel to the re-
ceiver. The receiver gets the received signal r(t),
and tries to get sequence of chaotic states c (t) by
applying chaotic synchronization and using the
Figure 11. First generation additive chaos masking
Figure 12. First generation: Chaotic shift keying
same chaotic system at transmitter. After that
subtraction process is applied between r(t) and c
(t) to get the recovered message signal m  (t).
Chaotic shift keying method: This method is
shown in Figure 12. The message signal is digital.
The transmitter uses two chaotic systems to gener-
ate two attractors which are switched by depending
on message signal m(t). These two systems have
an identical structure and various parameters. These
attractors are used to encode the bits of the message
signal (0 and 1), and try to get the received signal
r(t). The reciever tries to get sequence of chaotic
states c (t) by applying chaotic synchronization
471
 
Chaos-Based Cryptography for Voice Secure Wireless Communication

and using the same chaotic system at transmitter.
The subtraction process is applied between r(t) and
c (t) to get the error signal of synchronization e(t).
After that the low pass filtering (LPF) and thresh-
old are applied to get the recovered message signal
 (t). This generation was proposed in 1993 and
m different trajectories of the same chaotic attractor.
has some weak security points.
The second generation of secure communica-
tion system: This generation is called chaotic
modulation. Two modulation metods are chaotic
parameter and non-autonomous modulations. In
the first method, the message signals modulate
the parameters of the chaotic system. This method
is illustrated in Figure 13. In the second method,
the message signals modulate the attractor of the
chaotic system directly in the phase space as il-
lustrated in Figure 14. To compare between these
two modulations types, the transmitter in the first
modulation can switch between different trajecto-
ries of the different chaotic attractors. In the second
modulation, the transmitter can switch between
The receiver in the first modulation uses adaptive
controller. And also to get free synchronization
error and recover message signal. While in the
second modulation, because it is free of error,
there is no use to adaptive controller at receiver.
Note that this generation created since 1993 to
1995 to overcome some weak points of the first
generation. It still needs improvement of some
security points.

Figure 13. Second generation: Chaotic parameters modulation

Figure 14. Second generation: Non-autonomous chaotic modulation

472

Chaos-Based Cryptography for Voice Secure Wireless Communication
The third generation of secure communication
system: This generation can be called chaotic
cryptosystem. It uses the classical techniques of
cryptography with chaos to improve the security
of the second generation. This generation was
proposed in 1997 as shown in Figure 15. The
transmitter uses chaotic system to generate key
signal c(t). The input message signal m(t) can be
encrypted by this key signal c(t) with using en-
cryption rule e(.) to give the encrypted signal y(t).
This encrypted signal y(t) can be used to drive
the chaos. The output states s(t) are transmitted
through channel. The receiver gets these states
s(t) with the addition of noise n(t). The chaotic
system used in the reveiver is the same as the
transmitter. From this system we will get the key
signal c (t) and the decrypted signal y (t). These
two signals will be used with the decryption rule
d(.) to recover the message signal m  (t).
The fourth generation of secure communication
system: This generation shown in Figure 16 to
provide secure communication for cellular phone
system. The transmitter uses chaos to generate
the sequence of keys c(t) to do stream encryption,
and also to generate the sequence of synchroniza-
tion x(t) for the synchronization purpose. This
generation uses synchronization impulse method.
The encryption stream s(i) is generated. The
composition and coding processes will be applied
to this encryption stream s(i) with the existing of
digitized synchronization impulse to give new
stream d(i). The modulation process will be ap-
Figure 15. Third generation of chaos used for secure communication
plied to this result stream d(i) and transmitted
through channel. On the other hand, the receiver
uses demodulation, decoding and decomposition
to get synchronization sequence x  (t). The se-
quence will be needed by chaos to generate se-
quence of keys c (t). These keys will be used to
decrypt stream and recover the voice signal. Many
researches use chaos based cryptography which
are described in section 3 of this chapter. The
other researches uses chaos based synchronization
such as (Abid et al., 2009). This research presents
a method of a synchronization by using chaos
based Pseudo-True Random Bit Generator
(PTRBG). Also there are other researches which
present chaos based cryptography without using
synchronization such as (Jian et al, 2010).
This research presents a secure wireless com-
munication illustrated in Figure 17. This secure
communication use three types of encryption
algorithms which are AES, RSA and Chaos
Pseudo Random sequence (CPRs), where AES is
used for terminal protection and to provide confi-
dential communications, RSA is used for identity
authentication, and CPR is used for encryption.
To provide secure communication between two
parties there must be encryption card for each one.
This encryption card contains startup password
such as (AES cipher key) and user’s identity such
as (RSA cipher key). Each one uses AES cipher
key to decrypt the source program of system.
This program is encrypted by AES algorithm.
After successful decryption process. Each one
473
 
Chaos-Based Cryptography for Voice Secure Wireless Communication

Figure 16. Fourth generation of chaos used for secure communication

Figure 17. Secure communication system

uses RSA cipher key to get the authentication
from each other to establish the communication.
After they get the validation of authentication
then they use the CPRs to encrypt the data flow
(Jian et al., 2010).
VOICE SECURE WIRELESS
COMMUNICATION
Voice encryption system in wireless communica-
tion became very important. The advancement
of modern wireless telecommunication and

474

Chaos-Based Cryptography for Voice Secure Wireless Communication
multimedia technologies makes a huge amount of
sensitivity voice information travel over the open
and shared networks. Voice-based communication
becomes prominent in the application areas of mili-
tary, voice over IP, e-learning, voice-conferencing,
telephone banking, telephone services of market
securities, etc. These applications are critical
broadcast regarding the protection of data integrity
and authorized user privacy (Ahmad et al., 2012).
There are two ways to encrypt the voice sig-
nal: digital and analogue encryptions. In case of
digital encryption, at first the analog signal must
be digitized. The resulting signal is compressed
to produce stream of bits at an adequate bit rate.
Then this stream is encrypted and transferred by
channel (Sridharan et al., 1990). The analogue
encryption, is also known as “voice scrambling”
or “speech scrambling.” This way operates on
the samples of voice themselves without the need
for digitization and compression. The purpose
of voice encryption is to convert the voice signal
from the original form into unintelligible voice
signal, making it difficult to decrypt this signal
when the key is unknown (Sridharan et al., 1990)
(Sadkhan.& Abbas, 2011). Note that this chapter
will use “ Voice” and “Speech” interchangeably.
The voice encryption can be used in wireless
communications which include high frequency
(H.F), satellite communications and mobile com-
munications to protect the contents and privacy
from the eavesdroppers and attackers (Sadkhan
Figure 18. Secure voice communication
& Abbas, 2012) (Su et al., 2012). Figure 18 il-
lustrates the main secure voice communication
between two humans.
Secure communication means that two autho-
rized parties (transmitter and receiver parties) are
communicating and do not want a third (unau-
thorized) party to listen (Agrawal & Zeng, 2005)
(Kurose & Ross, 2003). Encryption is a process
which is done by authorized party (Transmitter)
to encrypt the information with using secret key
and encryption algorithm. Decryption is a process
done by authorized party (Receiver) to decrypt the
information with using secret key and decryption
algorithm (Goldreich, 2004).
Figure 18 illustrates the parameters are the
voice, the Encryption system with using secret
key at transmitter part, the Decryption system
with using secret key at receiver part, and the
public channel. For the voice parameters, the voice
is simply a sound signal generated by a human.
Every human has different anatomy from another,
so that the sound signal is never the same from
one to another.Then there are different frequen-
cies of three classes of humans: men, women
and children (Brandau, 2008). The key parameter
is a security measure. It can be considered as a
piece of information that determines the output of
encryption/decryption algorithm. The encryption
system uses the key to turn data into unreadable
cipher (Yuksel et al., 2011). The length of key
must be long enough that an attacker cannot try
475

Chaos-Based Cryptography for Voice Secure Wireless Communication
all possible keys. For a symmetric algorithms,
which use the same secret key at encryption and
decryption processes, a key length can be 80 bits
at minimum for strong security and also can be
128 bits for very strong. The choice of key is
important to prevent an attacker guesse that keys
which need to be generated truly randomly and
contain sufficient entropy (Barker et al. 2007).
The encryption algorithm is a process where
data is hard to read by an unauthorized party
over public channel. Secure communication is
obtained by providing an encryption algorithm
correctly programmed, and sufficiently powerful.
The keys cannot be intercepted. The encryption
process protects the content of the conversation
from eavesdropping (Stallings, 2011).
Different Evaluation Parameters
for Voice Encryption
In the previous sections it is mentioned that there
are two ways of voice encryption: analoge and
digital encryption. The encryption algorithm
must have the efficiency to give an ambiguous
voice signal when hearing it. The effectiveness
of voice encryption algorithm is evaluated by the
following evaluation parameters:
Residual Intelligibility (R.I.): R.I. is an amount
of redundant information in the encrypted voice
signal. The R.I. of encrypted voice and the qual-
ity of recovered voice can be evaluated by using
subjective tests. These tests require a large number
of trained and untrained human listeners to listen
to the encrypted voice. These tests have three
levels of intelligibility which are word, sentence
and digit. Intelligibility scores can be between
(0-100) percent. When (R.I=0%) this represenrs
the ideal intelligibility, when (R.I=(1-10)%) this
is lower intelligibility, when (R.I=(11-30)%) it is
medium intelligibility, and when (R.I=(31-50)%)
it is higher intelligibility (Sridharan et al., 1993)
(Srinivasan & Selvan, 2012). Disadvantages of
these tests are: they take much time and they
require a large number of listeners (Sridharan
476

et al., 1993). The other tests are called objective
tests as indicator for R.I. of the encrypted voice
and the corresponding quality of recovered voice.
The commonly used tests are Linear Predictive
Coding (LPC) distance, Cepstral Distance (CD),
and Segmental Spectral Signal to Noise Ratio
(SSNR) (Sridharan et al., 1990). The greater value
of distances (LPC and CD) with small value of
SSNR is that give the low R.I. The greater value
of distances (LPC and CD) is considered as the
more spectral distortion in the original voice
signal. The cause of small value of SSNR, is that
the human ears are in sensitive to phase errors.
That SSNR is defined in the frequency domain
as a useful indicator of voice quality or loss of
intelligibility (Sridharan et al., 1993).
Key space: The security of encryption algo-
rithm depends on the number of keys used in the
algorithm. That is when the key space is large then
the level of security is increased. This space must
have properties such as uniform distribution of
keys, appropriate length of key and key sensitivity
(Srinivasan & Selvan, 2012).
Encoding delay: Encoding delay is the number
of times that requires encrypting one segment.
When the number of segments, length of each
segment and the number of samples in each seg-
ment increase then the number of permutation
samples increase. This causes the increase of
encoding delay. That is the appropriate length of
segment is 256 samples per frame (Srinivasan &
Selvan, 2012).
Voice Encryption Techniques
This section classifies the Voice encryption tech-
niques into four categories which are conventional
methods, orthogonal transformation, blind source
separation, and chaotic system as illustrated in
Figure 19.
Conventional methods technique: This cat-
egory can be a single dimension or two dimensions
as illustrated in Figure 20.

Chaos-Based Cryptography for Voice Secure Wireless Communication

Figure 19. The classification of voice encryption techniques

Figure 20. The conventional voice encryption techniques

Single dimension method: The single dimen-
sion is a traditional analog encryption that manipu-
lates voice signal in the time domain, frequency
domain and amplitude domain.
Amplitude domain techniques: There are
four techniques to do encryption of voice in the
amplitude domain. Figure 21 illustrates these
four methods with their evaluation (Srinivasan
& Selvan, 2012).
The first technique is sample interchange was
proposed in 1971 which includes interchange or
permutation of voice samples. This technique
can be implemented by three methods. The first
method is “reordering of individual samples by
using delay networks.” This method has medium
R.I. (22%). The second method is “reordering
of sample sequence by reverse sequence.” This
method has low R.I. (2%). The third method is
reordering of samples of different segments.” This
method has lower R.I (R.I. < 2%) compared with
first two methods (Phillips et al., 1971) (Srinivasan
& Selvan, 2012).
The second technique is permutation proposed
in 1977. This technique can be done by two
methods, they are “Uniform permutations” or
“Pseudo-Random Permutations.” Both of these
two methods have high R.I. (30-50)% (Kak &
Jayant, 1977) (Srinivasan & Selvan, 2012).

Figure 21. Amplitude voice encryption techniques

477

Chaos-Based Cryptography for Voice Secure Wireless Communication
The third technique is masking also proposed
in 1977. This technique can be realized by “linear
addition of PR noise.” This method has low R.I.
(6-10)% (Kak & Jayant, 1977) (Srinivasan and
Selvan, 2012).
The forth technique is “chaotic encryption
with using lookup tables” proposed in 2006.
This technique is based on chaotic encryption
in conjunction with lookup tables. The lookup
tables are created by using Arnold map is shown
in Equation (10.b). This table contains index
number and iterated decimal value.
In this method, the input quantized audio
data varies between 0 and 19512. These data are
converted to the amplitude values by depending
on lookup table. These resulting amplitude values
vary between 0 and 65284. This method has lower
R.I. (1-5)% since there is higher dynamic range
and randomized amplitude values (Ganesan et
al., 2006)
Time domain techniques: There are two
methods to perform the voice encryption in the
time domain as illustrated in Figure 22 with their
evaluation.
• The first method is permutation of samples
in each block proposed in 1981. This meth-
od has low and high R.I. (99-100)% since
it gives poor quality of descramble signal
Figure 22. Time domain voice encryption techniques
478

(Beker & Piper, 1985) (Jayant et al., 1981)
(Bopardikar,1995)
• The second method is permuted of seg-
ments of one sample in each block. This
method has six techniques:
The first technique “time inversion” proposed
in 1981. In this technique, the order of samples in
each block is inverted. The R.I. of this technique
depends on segment size. To have the lower R.I.,
the segment size is made larger (Jayant, 1982).
The second technique “Time Segment Permu-
tation (TSP)” proposed in 1982. It is implemented
by two types. One type is (block TSP also called
hopping window), and the other type is (sequential
TSP also called sliding window). In the Block TSP
type, all the Segments in each block are scrambled
and transmitted before the segments of the next
block are brought into the scrambler memory.
But in a sequential TSP, individual segments are
transmitted instead of waiting for the block. This
technique has high R.I. (45-100)% (Jayant, 1982).
The third method “time shifting of voice sub-
bands” was proposed in 1982. The time segment
corresponds to the lower frequency signal and is
delayed by time interval τ. The result of this delay
is added to the time segment corresponding to the
higher frequency signal for transmission. This
method has medium R.I. (30%)(Jayant, 1982).

Chaos-Based Cryptography for Voice Secure Wireless Communication
The fourth method “ reverberation” proposed
in 1982. It can be implement by mixing multiple
numbers of fixed interval discrete time echoes
with the current voice amplitude to give the
encrypted output. This method has medium R.I.
(20%)(Jayant, 1982).
The fifth method “scrambling uses filter” was
proposed in 1993. This method uses a time vary-
ing transversal filter. The incoming time-samples
are selected randomly by this filter and multiplied
by constant values. This method has medium R.I.
(12%) [Huang & Stansfield, 1993).
The six method “blind source separation by us-
ing mixture form” proposed in 2004. This method
uses unknown and mutually independent source
signals. These signals are in the mixture form as
pseudorandom key signals. It also uses masking
method to do scrambling of each segment. This
method has medium R.I. (11%) (Lin et al., 2004).
Frequency domain techniques: There are four
methods to do voice encryption in frequency
domain as illustrated by this chapter in Figure 23
with their evaluation (Srinivasan & Selvan, 2012).
The first method “frequency inversion” pro-
posed in 1977. it involves flipping the sign of
samples. It has medium R.I. (30% for digit and
word levels) since the experienced eavesdroppers
can recognize the parts of voice (Cox et al. 1987)
(Bopardikar, 1995) (Srinivasan & Selvan, 2012).
The second method “band splitting” proposed
in 1982. This method splits the block into M-bands
of frequency. These bands are shuffled between
Figure 23. Frequency domain techniques
themselves and re-synthesized to get the scrambled
signal. This method has medium R.I. (25%) (Beker
& Piper, 1985).
The third method “band splitting with fre-
quency inversion” proposed in 1982. This method
realizes frequency inversion on a particular
frequency sub-bands. This method has high R.I
(70% for word level) (Srinivasan & Selvan, 2012).
The fourth method “frequency inversion fol-
lowed by cyclic band-shift” proposed in 1982. It
shifts each sub-band by the factor (n modulo k).
It has high R.I. (55% for digit level) and medium
R.I. (30% for word level) (Jayant et al., 1983).
Two dimension method: The previous tradi-
tional analog encryptions do not provide adequate
security against cryptanalysis. The number of
permutable elements by these encryptions is not
large enough. The two dimension category is in-
troduced to strengthen the security. This category
which is analog encryption manipulates voice
signal in both time and frequency domains (Jayant
et al. 1983), (Sadkhan.& Abbas, 2012). There are
three methods of this category as illustrated by
this chapter in Figure. 24 with their evaluation by
(Srinivasan & Selvan, 2012).
The first method “ frequency inversion with
block TSP” proposed in 1982 and it has low R.I.
(20% for digit level). The second method “ fre-
quency inversion followed by one of cyclic band
shift type with time manipulation.” The types of
cyclic band shift are: “dynamic time reverberation”
which has low R.I. (18-28% for digit level) and
479

Chaos-Based Cryptography for Voice Secure Wireless Communication
Figure 24. Two dimensional voice encryption techniques
(0-1% for word level), and “time shifting between
two frequency sub-bands” which has medium
R.I. (25-38% for digit level) and low R.I. (2-3%
for word level). The third method “Time –Fre-
quency segment permutation (TFSP)” proposed
in 1982. It has low R.I. (25% for digit level) and
(0-1% for word level) (Jayant, 1982),(Srinivasan
& Selvan, 2012).
Orthogonal Transformation Technique: To
more enhance the security of the voice encryption,
the second technique (orthogonal transformation)
was proposed (Sridharan et al., 1990) (Bopardikar,
1995) (Sadkhan.& Abbas, 2012), (Srinivasan
& Selvan, 2012). This technique can be “single
transformation” or “many transformations” as il-
lustrated in Figure 25. That means in case of single
transformation, one of orthogonal transformations
is used, and in case of many transformation, two
orthogonal transformations are used. Orthogonal
transformations are Discrete Prolate Spheroidal
Transform (DPST), Fast Fourier Transform (FFT),
Discrete Cosine Transform (DCT), Modified dis-
crete cosine Transform (MDCT), Walsh Hadamard
Transform (WHT), Karhonen loeve (KLT), Circu-
lant Transformation (CT), and Wavelet Transform
(WT) (Sadkhan.& Abbas, 2012).
480

Single Transformation
1. Using of Prolate Spheroidal Transform
(PST): PST was used in 1979 to perform
a simple encryption scheme. This encryp-
tion can be done by the permutation of the
coefficients of the transform sequence.
Becuase the input sequence of band-limited
is encrypted, the output is the encrypted
sequence of band-limited (Wyner, 1979))
(Srinivasan & Selvan, 2012).
2. Using of Fast Fourier Transform (FFT):
(Sakurai et al, 1984)), propose a voice en-
cryption using Fast Fourier Transform (FFT)
techniques. Fast Fourier algorithm is well
known Discrete Fourier Transform (DFT).
The selected FFT coefficients are encrypted
using a permutation matrix which is either
stored in the ROM memory or generated
instantaneously from a key value. (Tseng &
Chiu, 2007), presented a technique based on
the combination of Quadrature Amplitude
Modulation (QAM) mapping method and an
orthogonal frequency division multiplexing
(OFDM). An OFDM needs only two FFT
operations instead of the four as required by

Chaos-Based Cryptography for Voice Secure Wireless Communication
Figure 25. Orthogonal transformation techniques for voice encryption
the FFT-based voice encryption technique
in the system structure. The signal of voice
in Pulse-Code Modulation (PCM) format
is converted by using QAM mapping to
complex value of frequency components.
These components are permuted and then
inverse transformed to get the encrypted
signal (Srinivasan & Selvan, 2012).
3. The Comparsion among KLT, PST, WHT,
DCT and DFT: (Sridharan et al., 1990)
made a comparison among five discrete or-
thogonal transforms (KLT, PST, WHT, DCT
and DFT). This comparison shown in Figure
26. By using four objective measures (LPC
distance (dLPC)), the cepstral distance (CD),
the segmental spectral signal to noise ratio
(SSNR), and the frequency variant spectral
distance (FVSD)). The result shows that DCT
is the best transform and has better residual
intelligibility of the encrypted voice and the
recovered voice quality. Although DFT has
inferior results with DCT, DCT offers speed
in implementation compared with DFT.
On the other hand, (Theberge, M. (1996)) made
a coparison as illustrated in Figure 26 between DCT
and DFT. The DCT gives encrypted voice with
lowest residual intelligibility and a closely followed
by DFT (Sridharan et al, 1993). This comparison
uses: 1) subjective tests (Jayant Number test (JN),
and Modified Caplan Sentence test (MCS)), and:
2) objective tests (Log Spectral distance (Logs),
LPC distance, Cepstral distance, segmental spec-
tral signal to noise ratio (SSNR), and frequency
weighted log spectral distance (FWLogs)). Also
cryptanalytic attacks (Known plaintext attacks and
ciphertext attacks) are applied to the encrypted
voice. These tests would be performed between 1)
the original voice signal and the encrypted voice
signal, 2) the original voice signal and the decrypted
voice signal, and 3) the original voice signal and the
cryptanalyzed voice signal. The results of these tests
show that transform domain based voice encryp-
tion techniques are all vulnerable to cryptanalytic
attacks. And they also show that the DCT based
voice encryption technique was found to be more
secure than DFT based voice encryption technique.
481

Chaos-Based Cryptography for Voice Secure Wireless Communication
Figure 26. Comparison of orthogonal transformations based voice encryption
But both of DCT and DFT based voice encryption
techniques are equally susceptibile to cryptanalytic
attacks (Theberge, 1996).
In contrast with (Sridharan et al, 1993) claimed
that DCT based voice encryption techniques have
more strength against cryptanalysis than the DFT
based voice encryption techniques. Since (Srid-
haran et al, 1993) used the same length of both
DCT and DFT then that means DCT has double
coefficients to permutation. Therefore (Theberge,
1996) compares between DCT and DFT based
voice encryption techniques based on the same
number of coefficients to permutation (Theberge,
1996). While (Theberge, 1996) proposed using
the noise addition modulo with transform domain
voice encryption technique to defeat the crypt-
analytic attacks. This modulo will be applied to
a certain constant to quantized the spectrum of
voice signal. This method encrypts voice in such
a way that it resembles white Gaussian noise, and
thus traditional cryptanalysis techniques cannot
be used to attack it. As it is, this encryption is
relatively prone to failure in very noisy channels,
since additive white Gaussian noise increases the
quantization errors. It was also found that very
482

tight channel equalization is needed in order
to obtain decrypted voice of acceptable quality
(Theberge, 1996).
4. Using of Wavelet Transform (WT): (Ma
et al., 1996)) presented an analog voice
encryption based on Wavelet Transform
(WT) to do encryption of the voice signal
for both time and frequency domains. In
this method the voice signal is converted
into wavelet-analyzed signal by means of
the filter banks which are based on wavelet
basis. These wavelet signals are multiplexed
and collected as frames with constant length.
The encryption involves permutation of
these frames. Then the spectrum of signal
becomes irregular.
(Sadkhan et al., 2011) presented another system
of voice encryption based on wavelet transform
and permutation. This system uses four types of
wavelets, they are (Haar, Daubechies 3 (db3),
Symlets 2 (sym2) and Symlets 4 (sym4)). And
each one is used with decomposition levels 1, 2
and 3. This system is examined against the actual

Chaos-Based Cryptography for Voice Secure Wireless Communication
Arabic speech signals. This system is evaluated by
using distance measures with different assumed
channel noise.
5. Using of Circulant Transformation (CT):
(Manjunath & Anand, 2002) presented an
encryption of voice by using circulant trans-
formations. In this method the voice signal is
submitted to Circulant Transformation (CT).
Then the phase distortion is used. The signal
energy redistributed by this phase distortion
to the entire frame. The order of circulant
matrix depends on the frame lengths. Such
that the order of circulant matrix increases
when the frame length becomes high.
6. Using of Modified Discrete Cosine
Transform (MDCT): (Wang et al., 2010)
presented a technique that depends on MDCT
to provide a method of audio encryption to
be applied to wireless sensor networks. In
this technique, the sampled audio signal is
transformed by MDCT. The results of trans-
formed samples are sorted and packetized
according to their importance by an index. A
Figure 27. The comparison between all orthogonal transformations based voice encryption techniques
subset of the important packets is selectively
encrypted and the rest of the packets is either
discarded or left in its original form.
Many transformation: (Sadkhan et al, 2007).
presented a technique that uses two wavelet trans-
forms andare combined as parallel structure. These
two transforms must be different in types with
the same levels of decomposition. They used the
following combinations of two different wavelets
which are Daubechies 1 (Db1) with Haar wave-
lets, Daubechies 2 (Db2) with Symlets 2 (Sym2)
wavelets and Daubechies 4 (Db4) with Symlets
4 (Sym4) wavelets.
The comparisons of using all orthogonal
transformation techniques: (Srinivasan & Selvan,
2012)) made residual intelligibility comparison
of all orthogonal transformation techniques as
shown in Figure 27. The R.I. of voice encryption
that uses PST and FFT is low (9-10) %. The R.I.
of voice encryption that uses DCT is low (7-8) %.
The R.I. of voice encryption that used WT is low,
(4-6) %. The R.I. of voice encryption that uses CT
is low, (7-10) % and dependent on the order of
483

Chaos-Based Cryptography for Voice Secure Wireless Communication
the circulant matrix and frame length. The R.I. of
voice encryption that uses QAM based FFT plus
OFDM is low, (5-7) %. The R.I. of voice encryp-
tion that uses two parallel wavelet transforms is
low, (1-3) %. The results show that using wavelet
transform as a single dimension or many dimen-
sions is preferred. The rest of techniques will be
arranged in order of preference of using transforms
which are QAM by FFT plus OFDM, DCT, CT,
FFT, PST and MDCT in sequentially.
Blind source separation technique: The third
category of voice encryption techniques is blind
source separation. The term “blind” means that the
source signals are not observed and no information
is available about the mixture used in encryption
process. This statistical strength of this approach
is often physically plausible assumption of in-
dependence between the source signals (Amari
& Cichocki, 1998) (Cardoso, 1998) (Hyvarinen,
1999). This is shown in Figure 28.
• Using of Mixtural Form for Time
Element and Masking Method: (Lin et
al., 2004) presented an algorithm of voice
encryption based on blind source separa-
tion. In this algorithm, unknown and mutu-
ally independent source signals which are
in the form of mixtures are used. The al-
gorithm proposes combining the time ele-
ment for encryption and masking methods,
Figure 28. Blind source separation voice encryption techniques
484

wherein segments of voice signal are mixed
with equal number of pseudorandom key
signals. (Srinivasan & Selvan, 2012) com-
pared the R.I. of this algorithm with time
domain techniques as illustrated in figure
22. This figure shows that the time domain
techniques have lower residual when using
blind source separation method.
• Using of Independent Component
Analysis (ICA): (Sadkhan & Abbas, 2006)
present a technique called the Independent
Component Analysis (ICA) technique.
This encryption technique is based on
techniques of adaptive signal processing.
Decryption algorithm uses JADE algo-
rithm. The objective test uses LPC and
SNR which are applied to evaluate the pro-
posed system.
• Using of Principal Component Analysis
(PCA): (Abbas, 2009) proposes the ap-
plication of analog voice encryption us-
ing statistical method called Principal
Component Analysis (PCA). Decryption
algorithm uses traditional PCA algorithm.
The objective test uses LPC and SNR
which are applied to evaluate the proposed
system. It was shown via simulation that
the proposed technique is more robust in
the case of 8KH frequency samples.

Chaos-Based Cryptography for Voice Secure Wireless Communication
The comparison of using ICA and PCA: (Sad-
khan & Abbas, 2011) made a comparison as illus-
trated in Figure 28 between ICA and PCA based
voice encryption techniques by using objective
tests (LPC and SNR). These tests applied to the
original, scrambled and descrambled forms of the
tested signals. The results showed that the PCA
algorithm is better than ICA (JADE).
Chaotic based Voice
Encryption Technique
The fourth category of voice encryption techniques
useschaotic system as illustrated by this chapter in
Figure 29. There are three methods for chaos based
encryption. These methods are chaos encryption in
amplitude domain, chaos encryption in transform
domain and chaos symmetric encryption.
2. Block Encryption by Chaos: (Liu, J., Gao,
1. Chaos in Amplitude Domain: (Ganesan
et al., 2006) presented a technique based on
amplitude domain technique. This technique
used chaotic encryption in conjunction with
lookup tables. The lookup tables are created
by using Arnold map is shown in Equation
(10.b). This table contains index number and
iterated decimal value. In this method, the
Figure 29. The fourth category using chaos based voice encryption techniques
input quantized audio data varies between
0 and 19512. This data is converted to the
amplitude values depending on lookup
table. The resulting amplitude values vary
between 0 and 65284. Thus the randomized
amplitude value is generated with a higher
dynamic range. (Srinivasan & Selvan, 2012)
compared the R.I. of this technique with
amplitude domain techniques as illustrated
in Figure 21. The result shows that this
technique has lower R.I. (Gnanajeyaraman
et al., 2009) presented audio encryption
based on a look-up table. This table gener-
ated by using chaotic cat map. This cat map
can has high dimension (Nth D) as shown in
Equation (13). The variables of this table can
be treated as keys of encryption to protect
the audio signal through transmission.
F. and Ma, H. (2008)) present an algorithm
to encrypt the digital voice. This algorithm
depends on block encryption with chaotic
sequences. These sequences can come from
database of chaotic model by using logistic
map and henon map as shown in Equations
(1) and (9) sequentially. This algorithm
solves the problem of loss of some data pack-
485

Chaos-Based Cryptography for Voice Secure Wireless Communication
ages at receiver when it is decrypted during
real time transmission. (Su et al., 2012).
3. Chaos in Transform Domain: (Mosa et
al., 2009) presented an encryption of voice
signals in transform domain by chaos. This
algorithm, divides the segments of voice
into two blocks each with fixed size. The
elements of these blocks are permuted by
using baker map as shown in Equation (11).
The DCT used to substitute these permuted
elements to different values. Then the result-
ing values are permuted again. (Mosa et al.
2010) presented another cryptosystem. This
cryptosystem uses DCT or DST, AES and
baker map. It uses permutation and mask.
This mask works by circular shift which is
calculated from key bits.
4. Chaos and Symmetric Cryptography:
(Ahmad et al., 2012) designed a keystream
generator. This generator utilized the features
of high dimensional chaos like Lorenz (as
in Equation 7) and Chen (as in Equation 8)
systems to generate highly unpredictable and
random-like sequences. These sequences
considered as encryption keystream and cre-
ated from the pre-processed chaotic mixed
sequences. This keystream applied to encrypt
the voice bitstream for the integrity protec-
tion of voice data. (Ashtiyani et al, 2012)
presented the encryption of voice signal
by using chaotic symmetric cryptography.
The encryption based on chaotic cat map
(as shown in equation. (10.b) to perform
the encryption of voice signal. And also it
is based on a modified form of simplified
version of Advanced Encryption Standard
(S-AES) to provide a security of voice. This
modification is made on the design of S-box
by using cat map.
486

CONCLUSION
The development aspect of cryptographic algo-
rithms is considers as an mportant and necessary
aspect, since there are various developments of
wireless communication techniques and multime-
dia technologies (Su et al., 2012). The voice signal
encryption (scrambling) is very important disci-
pline compared with the image and text encryp-
tion. The design of voice encryption (scrambling)
algorithm is requested to investigate the fast, low
bandwidth expansion, very lower Residual Intel-
ligibility (R.I.) and large key space. Chaos theory
has desirable features. It attracts the researchers
to use it with cryptography. Although there are
problems in using chaos theory with cryptogra-
phy, there are researches who tried to solve these
problems and encourage the researchers to use
chaos based cryptography as current future direc-
tions. Such trend in cryptography (Chaos based
Cryptography) considered as one of the important
approached in multidisciplinary application with
the cryptography field.
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KEY TERMS AND DEFINITIONS
Advanced Encryption Standards (AES):
Is a specification for the encryption of electronic
data established by the U.S. National Institute
of Standards and Technology (NIST) in 2001. It
is based on the Rijndael cipher[5] developed by
two Belgian cryptographers, Joan Daemen and
Vincent Rijmen, who submitted a proposal to
NIST during the AES selection process. Rijndael
is a family of ciphers with different key and block
sizes. For AES, NIST selected three members
of the Rijndael family, each with a block size
of 128 bits, but three different key lengths: 128,
192 and 256 bits. AES has been adopted by the
U.S. government and is now used worldwide. It
supersedes the Data Encryption Standard (DES),
which was published in 1977. The algorithm
described by AES is a symmetric-key algorithm,
meaning the same key is used for both encrypting
and decrypting the data.
Block Cipher: In cryptography, a block ci-
pher is a deterministic algorithm operating on
fixed-length groups of bits, called blocks, with
an unvarying transformation that is specified by
a symmetric key. Block ciphers are important
elementary components in the design of many
cryptographic protocols, and are widely used to
implement encryption of bulk data.
Chaos: Chaos theory is a field of study in
mathematics, with applications in several disci-
plines including meteorology, physics, engineer-
ing, economics, biology, and philosophy. Chaos
theory studies the behavior of dynamical systems
that are highly sensitive to initial conditions–an
effect which is popularly referred to as the but-
terfly effect. Small differences in initial conditions
(such as those due to rounding errors in numerical
computation) yield widely diverging outcomes
for such dynamical systems, rendering long-term
prediction impossible in general.
Chaos Maps: In mathematics, a chaotic map
is a map (= evolution function) that exhibits some
sort of chaotic behavior. Maps may be param-
492

eterized by a discrete-time or a continuous-time
parameter. Discrete maps usually take the form
of iterated functions. Chaotic maps often occur
in the study of dynamical systems. Chaotic maps
often generate fractals. Although a fractal may
be constructed by an iterative procedure, some
fractals are studied in and of themselves, as sets
rather than in terms of the map that generates them.
This is often because there are several different
iterative procedures to generate the same fractal.
Chaotic Shift Keying: Uses fluctuations in
wavelength to encode and hide a communications
signal. In an optoelectronic implementation, a
laser is configured so that its output fluctuates
chaotically–that is, in a deterministic way that
nevertheless looks random. To change from one
bit value to another (1 to 0 or vice versa) the
chaotic mechanism is altered slightly. Because
the output is still chaotic, an eavesdropper should
not see any change in the transmission. However,
the receiver detects that the chaos is sometimes
synchronized, sometimes not, allowing the signal
to be extracted.
National Institute of Statistacal Standards
(NIST): The NIST Statistical Test Suite is the
result of collaborations between the Computer
Security Division and the Statistical Engineering
Division at NIST. Statistical tests in the package
include the: frequency, block frequency, cumu-
lative sums, runs, long runs, Marsaglia’s rank,
spectral (based on the Discrete Fourier Transform),
nonoverlapping template matchings, overlapping
template matchings, Maurer’s universal statistical,
approximate entropy (based on the work of Pincus,
Singer and Kalman), random excursions (due to
Baron and Rukhin), Lempel-Ziv complexity, linear
complexity, and serial. Additional information
may be found at http://www.itl.nist.gov/div893/
staff/soto/jshome.html.
Pseudorandom Number Generator (PRNG):
Also known as a deterministic random bit gen-
erator (DRBG), is an algorithm for generating a
sequence of numbers that approximates the prop-
erties of random numbers. The sequence is not

Chaos-Based Cryptography for Voice Secure Wireless Communication
truly random in that it is completely determined
by a relatively small set of initial values, called
the PRNG’s state, which includes a truly random
seed. Although sequences that are closer to truly
random can be generated using hardware random
number generators, pseudorandom numbers are
important in practice for their speed in number
generation and their reproducibility. PRNGs are
central in applications such as simulations (e.g.
of physical systems via the Monte Carlo method),
in procedural generation, and in cryptography.
Cryptographic applications require the output
to also be unpredictable, and more elaborate
algorithms, which do not inherit the linearity of
simpler solutions, are needed.
Secure Wireless Communicatin: The Na-
tional Institute of Standards and Technology,
Information Technology Laboratory, has pub-
lished recommendations to improve the security
of wireless networks in NIST Special Publication
(SP) 800-48, Wireless Network Security, 802.11,
Bluetooth, and Handheld Devices. Written by
Tom Karygiannis and Les Owens, NIST SP
800-48 discusses three aspects of wireless se-
curity: security issues associated with wireless
local area networks (WLANs) that are based on
Institute of Electrical and Electronics Engineers
(IEEE) standards 802.11; security issues related
to wireless personal area networks based on the
Bluetooth specifications, which were developed
by an industry consortium; and security of wire-
less handheld devices.
Speech Scrambling: In telecommunications,
a scrambler is a device that transposes or inverts
signals or otherwise encodes a message at the
transmitter to make the message unintelligible at
This work was previously published in Multidisciplinary Perspectives in Cryptology and Information Security edited by Sattar
B. Sadkhan Al Maliky and Nidaa A. Abbas, pages 97-132, copyright year 2014 by Information Science Reference (an imprint
of IGI Global).
a receiver not equipped with an appropriately set
descrambling device. Whereas encryption usu-
ally refers to operations carried out in the digital
domain, scrambling usually refers to operations
carried out in the analog domain. Scrambling is
accomplished by the addition of components to the
original signal or the changing of some important
component of the original signal in order to make
extraction of the original signal difficult.
Stream Cipher: Is a symmetric key cipher
where plaintext digits are combined with a pseu-
dorandom cipher digit stream (keystream). In a
stream cipher each plaintext digit is encrypted
one at a time with the corresponding digit of
the keystream, to give a digit of the ciphertext
stream. An alternative name is a state cipher, as
the encryption of each digit is dependent on the
current state. In practice, a digit is typically a bit
and the combining operation an exclusive-or (xor).
Voice Encryption: Secure voice (alternatively
secure speech or ciphony) is a term in cryptography
for the encryption of voice communication over
a range of communication types such as radio,
telephone or IP.
Wireless Communication: Wireless com-
munication is the transfer of information between
two or more points that are not connected by an
electrical conductor. The most common wireless
technologies use radio. With radio waves distances
can be short, such as a few meters for television
or as far as thousands or even millions of kilo-
meters for deep-space radio communications. It
encompasses various types of fixed, mobile, and
portable applications, including two-way radios,
cellular telephones, personal digital assistants
(PDAs), and wireless networking.
493
494

Chapter 27
ICT:
A Resource for Bricolage in
Social Entrepreneurship

Preeta M. Banerjee
Brandeis University, USA

ABSTRACT
This chapter highlights the use of ICT as a resource for making do with what is on hand (bricolage) in
social entrepreneurship. A growing proportion of social entrepreneurs are starting in fundamentally
resource-constrained yet dynamic and uncertain environments. This chapter investigates the role of
ICT as a bricolagable resource that provides malleability and scalability for social entrepreneurship.
However, findings suggest that implementing ICT alone is a resource model set for failure. Such a tac-
tic ignores the need for co-evolution with complementary human capital of the entrepreneur(s). These
insights are valuable not only for the building of social entrepreneurship ventures, but more broadly
for resource-constrained firms in dynamic and uncertain environments that are required to leverage
resources for competitive advantage.

INTRODUCTION maximize improvements in human and environ-

The main difference between entrepreneurship in
the business sector and social entrepreneurship
has been identified as the relative priority given
to social wealth creation versus economic wealth
creation (Mair & Marti, 2006). In business entre-
preneurship, social wealth is a by-product of the
economic value created (Venkataraman, 1997),
whereas in social entrepreneurship it is the main
focus (Mair & Marti, 2006). In other words, social
entrepreneurship is the creation and growth of an
organization that applies commercial strategies to
mental well-being, rather than just maximizing
profits for external shareholders. Therefore, social
entrepreneurial firms must create value and obtain
competitive advantage as much as and even more
so than pure business firms (Porter, 1995; Porter
& Kramer, 1999). In order to capture value, the
resource-based view of the firm encourages firms
to invest in those inputs that are seen to provide
sustainable competitive advantage (Wernerfelt,
1984). Such strategic resources should be VRIN
resources: valuable, rare, inimitable, and non-
substitutable (Barney, 1991).

DOI: 10.4018/978-1-4666-8468-3.ch027

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

ICT
However, the environment in which social en-
trepreneurial firms operate is resource-constrained
as well as dynamic and uncertain. New social
entrepreneurial firms often cannot afford (due to
resource-constraints) or cannot identify (due to
uncertainty and dynamism) such VRIN resources.
As Zahra et al. (2008) describe: demographic
shifts, liberalization of national economies and
attendant markets, institutional and state failures
and technological advances have combined to
increase the impetus and fuel the formation of
social ventures. In such circumstances, instead
of identifying and acquiring VRIN resources, it
is more advisable to invest in resources that have
the potential to become VRIN resources. The
entrepreneur(s) can then work with these resources
to develop them into VRIN resources. Thus, such
resources should be adaptable for scalability and
multi-faceted for malleability, so that they can be
used in specific ways that are valuable, rare, in-
imitable and non-substitutable. One resource that
has been identified to be a source of competitive
advantage in management literature is internet
and communication technology (ICT) (Powell &
Dent-Micallef, 1997). However, ICT that is truly
VRIN cannot often be afforded or even initially
implemented due to the resource-constraints and
dynamic and uncertain environments in which
social entrepreneurs operate. ICT is a resource
that when on hand can be leveraged in multiple
ways or bricolaged, where bricolage is the making
do of resources at hand (Baker & Nelson, 2005).
Thus, ICT cannot provide value and competitive
advantage alone; it must be implemented in a
malleable, scalable way and co-evolved with the
complementary skills in the social entrepreneurial
venture. In his seminal article, Teece (1986) identi-
fied that a necessary condition for firms to profit
from innovative behavior is that their innovations
must be coupled with a variety of complementary
assets that allow firms to successfully implement,
sell, or otherwise extract value from the innova-
tion. Teece’s argument complements Milgrom and
Roberts’ conceptualization of complementary as-
sets (1990, 1995) which defines assets as mutually
complementary if the marginal return of an asset
increases with the level of the other asset. In other
words x and y are complementary if when a firm
increases their amount of asset x, the marginal
benefit of y increases. Thus, the implication of
complementary assets is that firms that possess
complementary assets will outperform rivals that
do not. In this context, the skills of the employee(s)
are necessary for deriving value from the ICT,
such as salespeople who can sell a new product
or engineers that can implement a more efficient
production technology or financial-savvy that can
be used to build better business models (Campbell
& Banerjee, in press). This chapter will explicate
the importance of ICT as a bricolagable resource
for social entrepreneurship.
In what follows, we review the traditional roles
of ICT in business, which are multi-faceted. We
then build the perspective of ICT as a bricolagable
resource and argue, using the resource-based view,
that ICT can truly create competitive advantage
for social entrepreneurship. In order to do so, ICT
must be malleable, scalable and co-evolvable. We
define these three terms and explore them using
the case of Ananda Dhara Creations to provide
solutions and future research directions in devel-
oping models of competitive advantage based
on ICT as bricolagable resources. Dynamic and
uncertain environments can be seen as a positive
for creating sustainable competitive advantage
through developing isolating mechanisms. Future
research must bridge the gap between creativity
and implementation in regards to bricolage.
This chapter has important implications for
students, academics, entrepreneurs and policy-
makers alike. When making a resource choice,
social entrepreneurs face a key trade-off. Should
they invest in a resource with easily visible advan-
tages that are easily valued by the entrepreneur
and by the entrepreneur’s rivals, or should the
entrepreneur invest in a resource with hard to
observe but potentially valuable in multiple facets?
The entrepreneur’s ability to engage successfully
495

in bricolage can result in getting more value out
of undervalued resources and thus represents an
important ability that can positively affect firm
performance. Looking beyond VRIN (valuable,
rare, inimitable, and non-substitutable) to mal-
leable, scalable and co-evolvable is critical for
success to finding the true value of ICT in social
entrepreneurship.
BACKGROUND
The literature on information and communica-
tion technology (ICT) has identified the benefits
of ICT implementation in business. ICT consists of
all technical means used to handle information
and aid communication, including computer and
network hardware, communication middleware
as well as necessary software. ICT has also been
highlighted in its role within entrepreneurship,
where entrepreneurship is the undertaking of
new combinations (Schumpeter, 1936). In this
light, firms serve their immediate information
needs and their day-to-day decision-making
requirements and can strengthen longer-term
social capital assets and subsequently other
assets, such as financial and human capital.
However, there are additional facets of ICT that
should be managed for social entrepreneurship.
Like Mair and Marti (2006), we view social
entrepreneurship as following three criteria: 1) a
process of creating value by combining resources
in new ways; 2) these resource combinations are
intended primarily to explore and exploit op-
portunities to create social value by stimulating
social change or meeting social needs; and 3)
when viewed as a process, social entrepreneurship
involves the offering of services and products but
can also refer to the creation of new organizations.
ICT is currently playing a more and more impor-
tant role for social entrepreneurs, such as showing
strategic impact: ICT is a resource for bricolage
and as such competitive advantage.
496

ICT
Bricolage, first introduced by Lévi–Strauss
(1966), and defined by Baker and Nelson (2005)
as “making do by applying combinations of the
resources at hand to new problems and opportu-
nities” (p. 333), has been incorporated into the
literature on entrepreneurship, largely due to the
nature of resource construction, i.e. recombining
existing resources to pursue unique opportunities
(Schumpeter, 1934). Bricolage has been estab-
lished as a separate, well-developed construct
from other modes of organizational ingenuity
regarding satisficing behavior including impro-
visation, causation, and effectuation. Whereas
improvisation, defined as the substantive and
temporal convergence of design and execution of
a novel production (Miner, Bassoff & Moorman,
2001) implies reliance on the resources at hand,
bricolage can occur in the absence of improvisa-
tion (Baker, Miner & Eesley, 2003; Moorman &
Miner, 1998) and may be a cause of improvisation
(Baker & Nelson, 2005). Causation processes take
a particular effect as given and focus on selecting
between means to create that effect (Sarasvathy,
2001). Therefore, causation processes try to
create a predetermined affected through either
resource-seeking behaviors or bricolage (Baker
et al., 2003). Effectuation processes take a set of
means as given and focus on selecting between
possible effects that can be create with that set of
means (Sarasvathy, 2001). While both bricolage
and effectuation involve starting with a set of
means, bricoleurs use materials at hand not only
to see the possible effects (effectuation) but also
to meet a pre-existing goal (causation) (Baker et
al., 2003).
In other words, the concept of bricolage (Baker
& Nelson, 2005; Lévi-Strauss, 1966) describes the
efforts of entrepreneurs, who often face substantial
resource constraints, to make use of the resources
they do control in novel ways. It describes the cre-
ative process by which bricoleurs devise new uses
for the resources available within their organiza-
tion, making it possible for them to overcome their

ICT
limitations. Firms can maximize the value from
their existing limited resources by innovatively
changing their current configuration. Whether
the resources were never satisfactorily configured
for the business challenges in the environment,
or whether conditions changed which caused the
resource configuration to become suboptimal, bri-
colage represents an approach where organizations
survey their resources at hand and re-assess how
to bundle and allocate the resources to generate
more value for the organization (Banerjee, Camp-
bell & Saxton, 2011). This may involve the use of
materials or procedures considered by others to
be strategically worthless, a selective refusal to
acknowledge socially constructed obstacles, and
the combination of existing resources to produce
new benefits. Thus, bricolage, in the sense of this
chapter, is truly about making do with the resources
at hand through recombination and redeployment.
Recombination and redeployment of re-
sources harken to the essence of the resource-
based view (RBV) (Wernerfelt, 1984). The RBV is
based on the work of Penrose’s (1959) theory of
the firm, where she argues that a firm is more
than an administrative unit; it is a collection of
productive resources and the firm is best judged
by some measure of the productive resources it
employs. Wernerfelt’s (1984) articulation of the
resource based view of the firm certainly signi-
fied the first coherent statement of the theory.
The RBV holds that firms can obtain higher
performance if and only if they have superior
resources and those resources are protected
by some form of isolating mechanism (Rumelt,
1984) preventing diffusion throughout the
industry. This initial statement of the theory
served as the foundation that was extended
by others such as Rumelt (1984), Barney (1996),
and Dierickx and Cool (1989). Barney’s (1991)
specification of the characteristics necessary
for a sustainable competitive advantage, noted
the resources which are valuable, rare, inimi-
table, and non-substitutable (VRIN) can provide
sources of sustainable competitive advantages.
Even critics of the RBV have acknowledged the
breadth of its diffusion (Priem & Butler, 2001).
With its emphasis on internal firm resources as
sources of competitive advantage, the popular-
ity of the RBV in entrepreneurship literature has
been no exception.
We argue that recombination and redeployment
are forms of resource investment and allocation
that result in sustainable competitive advantage.
However, while the resource-based view literature
has treated resource investment and allocation in
a largely singular fashion – as Galunic and Rodan
(1998) write: “resources are discussed in the plural
but the implications of that plurality are seldom
explored” (p. 1193). While interactions between
resources require extra exploration, it is the rede-
ployment of resources in novel ways that needs it
most, more than mere recombination. Therefore,
we argue that strategic resources are not just
VRIN resources: valuable, rare, inimitable, and
non-substitutable (Barney, 1991). Social entrepre-
neurship requires creation of value and obtaining
competitive advantage as much as and even more
so than pure business firms, with an addition focus
on social wealth. However, such endeavors take
place in some of the most dynamic and uncertain
environments. We argue that the three additional
facets of ICT that should be managed for social
entrepreneurship are malleability, scalability and
co-evolvability.
These three concepts help identify how so-
cial entrepreneurs, in particular, can recognize
the value in the component parts of diverse
systems and discerning that these parts could
be recombined in a novel fashion. Malleability
is the flexibility, fungibility, and adaptability of a
resource. In other words, it is the ability of a re-
source to be shaped, formed, and/or influenced.
Scalability is the ability to continue to function
well when a resource or its context is changed in
size or volume in order to meet a user need. It is
a word that is commonly used in business as in
ICT, i.e. the ability of a computer, product or sys-
tem to expand to serve a large number of users
497

without breaking down. This is very important
for social entrepreneurs as any entrepreneur, as
only scalable businesses can achieve the high-
growth characteristics required to create real
change in social impact and command market
multiples attractive to venture investors. Busi-
nesses can outgrow resources without proper
planning, resulting in performance declines
and cost increases. Co-evolvability is the ability
for evolution to occur in interacting elements,
permitting change to be driven by both direct
interactions and feedback from the rest of sys-
tem, so that there are adaptations to changes
in other parts of the system. Co-evolvability
stems from assets being complementary. As
discussed above, if x and y are complementary
if when a firm increases their amount of asset
x, the marginal benefit of y increases. However,
co-evolvability says that not just the direction
of change is in the same direction, but that the
amount of change is related.
THE MULTIPLE FACETS OF ICT
The role of ICT, in particular IT, in firm perfor-
mance has been well-investigated by strategy
practitioners and researchers (Powell & Dent-
Micallef, 1997). Less explored is the role of
ICT in entrepreneurship, in particular social
entrepreneurship which operates in resource-
constrained, dynamic and uncertain environ-
ments. In such cases, ICT provides the many
facets of competitive advantage identified in
business but also three additional facets that
have not been identified to date: malleability,
scalability and co-evolvability.
ICT applications have been found to serve
entrepreneurs immediate information needs
and their day-to-day decision-making require-
ments even in remote rural areas (McKemey et
al., 2003). ICT has also been found to strengthen
longer-term social capital assets and other as-
sets. Therefore ICT allows for better partnering
498

ICT
and instant feedback in entrepreneurship. In
African countries with rural telecenters, new
networks of communication helped to build
sociopolitical assets. E-mail and the Internet
created support networks of communication
between community- based organizations and
other support structures that directly serve
the needs of microenterprise (Etta & Parvyn-
Wamahiu, 2003). Telephony also supports infor-
mal information systems and helps to support
the social networks that substitute for absent
market functions. Sufficient trust is needed
to justify business decisions, which can is cre-
ated predominantly through personal contact,
interaction, and, usually, a shared context and
proximity to the information source. However,
enhanced communications (facilitated via mo-
bile telephony, for example) can serve to rein-
force trust, confidence, and security by helping
to break down the insularity of entrepreneurs’
social networks.
ICT also reduces the transaction costs associ-
ated with the exchange of information relevant
to entrepreneurship activity (Duncombe &
Heeks, 2002). ICT can reduce the time (and hence
costs) associated with receiving market informa-
tion (such as prices) and the costs of conducting
and agreeing to transactions. Telecommunica-
tion services are particularly advantageous
because they support real-time communica-
tion and two-way flow of information. Another
example, many enterprises in Botswana make
use of rural telephony for arranging delivery and
collection of goods (Duncombe & Heeks, 2002).
Thus, ICT can enhance a company’s marketing
and operations by reducing costs of obtaining
and distributing information. For example, in
England, ICT was seen as helpful in improving
the response time to customers, thus improving
productivity (Harindranath, Dyerson & Barnes,
2008). ICT was also reported as important and
helpful in keeping up with their competitors.
Overall, ICT are the key driver for the inno-
vation and growth (Duncombe, 2006). ICT is a

ICT
technological platform, where innovation may be
designed and implemented. Thus, ICT is a major
technological driver which has reduced the produc-
tivity gap in technology entrepreneurship (Leitao
& Baptista, 2011). ICT has been used to create,
share, and transfer knowledge and leverage the
capabilities even with others at different locations,
thus broadening opportunities across economies
and among multiple people. ICT has been widely
accepted in building the bridge among countries
and helping firms to open opportunities, connect
people, and create channels for development of
the business (Geldof, 2005). Entrepreneurs in
most of the developed and developing economies
in Asia and West have been using wide range of
ICT tools and techniques for product development,
marketing, planning, and other strategic purposes
(Mathew, 2010). Adoption of ICT for strategic
management processes include changes in train-
ing & recruitment policies; market research and
gathering information vital for strategic marketing
plan; and changes in the mission/objective of the
enterprises, which in most cases is survival to
profitability and growth (Koshy, 2009). In this
sense ICT has strategic impact as a VRIN resource.
However, social entrepreneurship is not about
local, non-replicable solutions. The focus is on
overall societal needs and problems, on how
to maximize social change and improve social
conditions. As Bill Drayton (2010), the founder
of Ashoka writes in his blog: Given all the prob-
lems our world faces – in teaching, technology,
health care, or finance – we need many more
social entrepreneurs. Social entrepreneurs need
to address existing gaps in society which are in
need of practical solutions, and more importantly,
the solution initiatives are driven by innovative
people who must make do with the resources at
hand – bricolage. Bricolage is apparent in the
use of ICT that can be (re-)assembled at will ac-
cording to actual information needs at the time
(Ciborra, 1992). Despite being created through
rigid rules and structure, ICT is characterized by
a high degree of flexibility in use, which allows
users to act as bricoleurs. In fact, ICT is rarely
used in the ways for which it was originally con-
ceived due to diversion of functions and break-
ing up and recombination of systems in use – all
signs of bricolage – allowing for infinite collage
(Duymedjian & Ruling, 2010).
In addition, social entrepreneurship requires
multitasking as entrepreneurs are jack-of-all-
trades and have to undertake jobs of different
nature (Lazear, 2004). Lazear (2004) suggests that
entrepreneurs are generalists who put together
teams of people and assemble resources and
capital. To do this effectively, they must have a
general set of skills. Individuals may be endowed
with a general set of skills, but endowments
can be augmented by investment in human
capital and formal schooling can supplement
the skill set of those who choose to become
entrepreneurs.
The case of Ananda Dhara Creations (ADC),
a single-artisan’s endeavor to create and sell
jewelry to support village schools in rural India is
a perfect example of the requirements of social
entrepreneurship (Banerjee, 2011). In the case
of ADC, a social entrepreneur grapples with the
tradeoffs between spending her limited time on
using and improving social media and Internet
presence with that of actually designing and
creating her hand-made jewelry collections. For
example, the protagonist asks: contemplating
recommendations to build a social media strat-
egy, however was also struggling with the costs
of implementation: “Can I go back to creating my
stuff now? As much time as technology saves, it
wastes. There is only me and if I spend my time on
social media who is going to make the jewelry?”
Without the new and sometimes customized
wares for sale, revenues cannot be generated by
social media alone. The decision she makes is to
focus more on Internet for legitimacy creation
(i.e. certification of authenticity with sponsors,
buyers, etc.) and electronic payments, rather
than focus on just building social connections.
Primarily it is her skills in selling, marketing
499

and creating that co-evolve to be enhanced by
ICT as her business grows (and scales) and the
context of her growth continuously changes.
In particular, the protagonist mentions: “Al-
though I am not a technically trained person,
my background being in Accounting, I always
took technology as a challenge. Without any
formal training in any software, I learned Pow-
erPoint and Excel on my own and in those days
[early 1980’s] I was doing pricing models and
forecasting using spreadsheets. So designing
my website was a challenge. I am, in general, a
very impatient person and also a perfectionist.
So when this idea came to me to design and
create unique jewelry and sell them to raise
money for the school, I had to start right away
and get going like there’s no tomorrow.” In this
case, the use of ICT is multi-faceted and flexible,
sometimes in unexpected ways. However it was
not just the multi-faceted, flexibility of ICT that
allowed ADC to accomplish start-up goals within
a three-month span, but co-evolution of skills
of the entrepreneur with the use of ICT. Social
entrepreneurs are visionaries who seek to trans-
form society through creating social ventures
that can be scaled up and replicated in multiple
settings through dissemination, affiliation and/
or branching (Bornstein, 2004).
Solutions and Recommendations
Social entrepreneurship requires creation of
value and obtaining competitive advantage as
much as and even more so than pure business
firms, with an addition focus on social wealth.
However, such endeavors take place in some
of the most dynamic and uncertain environ-
ments. For social entrepreneurship, in addition
to recommendations of VRIN resources, is the
vital need for resources that are bricolagable:
malleable, scalable and co-evolvable.
500

ICT
Malleability
Social entrepreneurs need to enables them-
selves to share ideas and spread innovations
rapidly, while adapting themselves to the appli-
cation and environment at hand. It is very likely
that social needs will increase and, consequently,
the number of people committed to addressing
them will increase. Likewise the innovations in
response to the dynamic and uncertain envi-
ronment will increase, especially in the field of
examining and applying technology to social
needs. This requires ICT to be a malleable tool
that can be shaped and reshaped to changing
needs in the dynamic and uncertain environ-
ment of social entrepreneurship.
Scalability
Social entrepreneurs need to grow their operations
to provide scalable solutions. They are social bri-
coleurs that need to take what is on hand to make
pervasive solutions of social impact (Zahra et al.,
2009). ICT needs to have the ability to continue to
function well when it or its context is changed in
size or volume in order to meet a user need. Scal-
ability can be of the product itself (for example, a
line of computer systems of different sizes in terms
of storage, RAM, and so forth) or in the scalable
object’s movement to a new context (for example,
a new operating system). ICT needs to have the
ability not only to function well in the dynamic
and uncertain environment, but to actually take
full advantage of it. For example, an application
program would be scalable if it could be moved
from a smaller to a larger operating system and
take full advantage of the larger operating system
in terms of performance (user response time and
so forth) and the larger number of users that could
be handled.

ICT
Co-Evolvability
Just as Powell and Dent-Micallef (1997) find
with the use of IT in retail, sophisticated users
rarely underperform less sophisticated users.
ICT must leverage pre-existing complementary
human capital (skills, abilities knowledge of in-
dividuals) but also evolve and growth with the
entrepreneur(s) skill set. While human capital
is a resource that can be retrained, reallocated,
and recombined to address new problems,
there is little research on this phenomenon, es-
pecially in emerging markets and in technology
entrepreneurship. Intense interaction with ICT
(including internet, blogs, 24-hour worldwide
television, and telephony) have facilitated per-
sonally transformative exposure and encour-
aged the founding and development of many
social ventures (Barendsen & Garnder, 2004).
However, a co-evolutionary approach assumes
that change may occur in all interacting ele-
ments of organizations, permitting change to be
driven by both direct interactions and feedback
from rest of system. In other words, ICT and the
relevant entrepreneur(s) human capital evolve
together such that one adapts to the changes of
the other, thereby affecting each other’s growth,
productivity and success.
Ultimately, it is not just about understanding
bricolagable resources, such as ICT, and imple-
menting recombination and redeployment, but
creating isolating mechanisms (Rumelt, 1987)
for sustainable competitive advantage (SCA).
The term isolating mechanism (IM) is borrowed
from bioecological references to the creation of
barriers. In other words, isolating mechanisms
prevent imitation and protect strategic (rent-
generating) resources, such as legal sanctions to
protect property based resources (e.g., mineral
discovery, patentable inventions, and intellec-
tual property); information impactedness (i.e.,
either secrecy or tacit knowledge); response
lags (the delay attributable to a competitor’s
recognition of another’s advantage, formula-
tion of a countermove, and implementation);
producer learning (essentially the same as the
learning curve phenomenon); reputation (a per-
ception held by adopters); and a large user base.
Building SCA in the use of ICT as a bricolagable
resource in social entrepreneurship can be
achieved through seeing dynamic and uncertain
environments as a positive, not a negative. The
accelerating rate, magnitude, and complexity
of change create an isolating mechanism that
favors the bricolagable aspects of ICT: malle-
ability, scalability, and co-evolvability.
FUTURE RESEARCH DIRECTIONS
Social entrepreneurs play the role of change
agents in the social sector, by adopting a mis-
sion to create and sustain social value (not just
private value), recognizing and relentlessly pur-
suing new opportunities to serve that mission,
engaging in a process of continuous innovation,
adaptation, and learning, acting boldly without
being limited by resources currently in hand,
and exhibiting heightened accountability to
the constituencies served and for the outcomes
created.
There is a great opportunity to identify specific
practices around developing malleable, scalable
and co-evolvable resources that can be bricolaged,
where bricolage is the practice of making do with
what is on hand (Baker and Nelson, 2005). While
the resource based view says VRIN resources
are those that will create value and competitive
advantage. Social entrepreneurs should invest in
malleability for multi-faced flexible use, scal-
ability for growth in uncertain, dynamic environ-
ments, and co-evolution for parallel development
of the technology applications and the skills of
the entrepreneur(s). More case studies, like that
of Ananda Dhara Creations (Banerjee, 2011) are
required in addition to large-n studies of resources
at social entrepreneur’s hands which were most
productive as sources of competitive advantage.
501

Bricoleurs (those who implement bricolage)
are forced to test the limitations of existing social
constructions (Baker & Nelson, 2005). The uses to
which resources can be applied are limited under
normal circumstances by law, initial conditions,
social constructions about their utility, and the
dominant mindset in the organization (Prahalad
& Bettis, 1986), which filters out information
that might suggest alternate uses for resources
that don’t fit within the current paradigm. For
organizations in favorable resource positions,
this is not a problem; working within the limita-
tions will achieve acceptable results. Resource-
constrained organizations, such as those created
by social entrepreneurs, however, must adopt
other approaches. As Galunic and Rodan (1998)
describe there is a natural tendency against radical
resource recombinations.
Teaching malleability, scalability, and co-evo-
lution ensures students, academics, entrepreneurs
and policymakers alike understand the difference
between resources for entrepreneurship and re-
sources for a social entrepreneurial organization
that makes long term impact on society. More
work needs to be done on finding ways to expose
learners to new experiences, new resources, and
new contexts so that recombination and redeploy-
ment are not tremendously difficult or even foreign
tasks. For example, de Bono (1999) has urged
us to put on different hats when thinking about
a problem, a powerful technique used to look at
decisions from different points of view. These six
hats move thinking away from habitual styles and
towards a more rounded view of a situation, for
example: a white hat is objective, neutral think-
ing in terms of facts, numbers and information
and with it you focus on the data available; a red
hat is emotional, with judgments, suspicions and
intuitions, and with it you look at problems using
intuition, gut reaction and emotion; a black hat
is negative, and with it you look cautiously and
defensively at all the bad points of the decision; a
yellow hat is positive, optimistic, clear, effective
and constructive, and with it you see all the benefits
502

ICT
of a decision; a green hat is creative, and with it
you can develop creative solutions to a problem;
and lastly, a blue hat is a Meta hat, which allows
thinking about thinking. Usually such exercises
in creativity are kept away from implementa-
tion, in this case the actual redeployment and
recombination. However, in the case of ICT as
a bricolagable resource, creative thinking needs
to go hand-in-hand with social entrepreneurship
for success. Moreover, more thought is needed
on how to utilize techniques for understanding
dynamic and uncertain environments, i.e. environ-
mental analysis, scanning and forecasting (Auster
& Choo, 1994), for bricolage and better use of
ICT. Environmental scanning is the acquisition
and use of information about events and trends
in an organization’s external environment, the
knowledge of which would assist management
in planning the organization’s future courses of
action. Scanning uses information sources cover-
ing all sectors of the external environment (social,
technological, economic and political) from the
direct effectors to the general global environment.
How can scanning be integrated real-time into bri-
colage of ICT? Broadly, Auster and Choo (1994)
find that most CEOs concentrate their scanning
on the competition, customer, regulatory, and
technological sectors of the environment. In the
majority of cases, the chief executive officers used
environmental information in the entrepreneur
decisional role, initiating new products, projects,
or policies. The chief executive officers acquire
or receive environmental information from mul-
tiple, complementary sources. Personal sources
are important for information on customers and
competitors; while printed or formal sources are
also important for information on technological
and regulatory matters.
CONCLUSION
In summary, Internet and communications tech-
nology (ICT) helps entrepreneurs start and build

ICT
businesses from several aspects, such as meeting
the immediate information needs of entrepreneurs
and strengthening assets, and enhancing the tech-
nology transfer in global business. However, more
importantly ICT can be seen as a strategic resource
that is fungible and allows social entrepreneurs
to make do with what is on hand (i.e. bricolage).
Bricolage is an important entrepreneurial activity.
The extended use of ICT will help the entrepreneur
for creating advantage, research; participate in the
global world of business for technology transfer,
training, collaboration, and development initia-
tives at the global level.
This chapter has important implications for
students, academics, entrepreneurs and policy-
makers alike. When making a resource choice,
social entrepreneurs face a key trade-off. Should
they invest in a resource with easily visible
skills that are easily valued by the entrepreneur
and by the entrepreneur’s rivals, or should the
entrepreneur invest in a resource with hard to
observe but potentially available multi-facets?
The entrepreneur’s ability to engage successfully
in bricolage can result in getting more value out
of undervalued resources and thus represents an
important ability that can positively affect firm
performance. Looking beyond VRIN (valuable,
rare, inimitable, and non-substitutable) to mal-
leable, scalable and co-evolvable is critical for
success to finding the true value of ICT in social
entrepreneurship.
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KEY TERMS AND DEFINITIONS
Bricolage: Making do with the resources at
hand through recombination and redeployment.
Causation: Processes that take a particular
effect as given and focus on selecting between
means to create that effect.
Co-Evolvability: Ability for evolution to occur
in interacting elements, permitting change to be
driven by both direct interactions and feedback
from the rest of system, so that there are adapta-
tions to changes in other parts of the system.
Competitive Advantage: An advantage that
a firm has over its competitors, allowing it to
generate greater performance than its competitors.
Complementary Assets: Two assets, x and
y, are complementary if when a firm increases
their amount of asset x, the marginal benefit of
y increases.
Effectuation: Processes that take a set of means
as given and focus on selecting between possible
effects that can be created with that set of means.
Environmental Scanning: The acquisition
and use of information about events and trends
in an organization’s external environment, the
knowledge of which would assist management
in planning the organization’s future courses of
action.
Improvisation: The substantive and temporal
convergence of design and execution of a novel
production.
Internet and Communications Technol-
ogy (ICT): All technical means used to handle
information and aid communication, including
computer and network hardware, communication
middleware as well as necessary software.
Isolating Mechanism: A barrier to imitation
that protects strategic resources.
Jack-of-All-Trades: A person who can do
many different kinds of work, which is required
of entrepreneurs.
Malleability: Ability to be shaped, formed,
and/or influenced.
Resource Based View: A perspective based
on enunciating that competitive advantage of a
firm lies primarily in the application of resources
at the firm’s disposal.
Scalability: Ability to continue to function
well when a resource or its context is changed in
size or volume in order to meet a user need.
Social Entrepreneurship: The creation and
growth of an organization that applies commercial
strategies to maximize improvements in human
507
 
ICT

and environmental well-being, rather than just
maximizing profits for external shareholders.
Strategic Resources: Those resources which
are rent-generating and create competitive ad-
vantage.
Sustainable Competitive Advantage (SCA):
Longer-term competitive advantage that is pro-
tected by some form of isolating mechanism.
VRIN Resources: Those resources that pro-
vide sustainable competitive advantage because
they are valuable, rare, inimitable and non-
substitutable.

This work was previously published in Social E-Enterprise edited by Teresa Torres-Coronas and María Arántzazu Vidal-Blasco,
pages 165-178, copyright year 2013 by Information Science Reference (an imprint of IGI Global).

508
 Section 3
Frameworks and Methodologies
This section provides in-depth coverage of conceptual architecture frameworks to provide the reader with a com-
prehensive understanding of the emerging developments within the field of Economics. Research fundamentals
imperative to the understanding of developmental processes within Economics are offered. From broad examina-
tions to specific discussions on methodology, the research found within this section spans the discipline while of-
fering detailed, specific discussions. From basic designs to abstract development, these chapters serve to expand
the reaches of development and design technologies within the Economics community. This section includes 10
contributions from researchers throughout the world on the topic of Economics.
510

Chapter 28
The Entrepreneur as
Strategist and Improviser:
Subject of Activity and Object
of Understanding

Kiril Todorov
University of National and World Economy, Bulgaria

ABSTRACT
The chapter deals with the search for relevant strategic responses to the challenges of a dynamic and
competitive, international and multicultural business environment where new strategic approaches like
Strategic Entrepreneurship (SE) and tools to meet the specific characteristics and needs of SMEs are
launched. The entrepreneurial opportunities, and their exploration and exploitation through the entre-
preneur’s/manager’s various roles as a strategist, leader, and improviser, are analyzed. It is shown that
in most cases the entrepreneur (especially in long-term dynamic, ambiguous conditions) acts without
sufficient formal information and resources and therefore has to improvise taking certain risks (stra-
tegic improviser). Difficulties in the understanding and the implementation of entrepreneurial roles,
especially those of strategist and improviser, require non-traditional approaches, forms and methods in
the education of students in entrepreneurship, and in training/consulting for both new and established
entrepreneurs. The forms and methods of mythology, metaphorical representation and jargon, as tools
of the so-called subjective (qualitative) approach, are widely accepted. The chapter employs examples
of original myths and metaphors to demonstrate how better to understand the linkages across strategic
orientation/management, improvisation and strategic learning, thus helping entrepreneurs/managers to
better adapt theories, concepts and tools for effective working in a dynamic, competitive environment.

INTRODUCTION business environment. In this respect new ideas and

Undoubtedly there is a growing interest in under-
standing strategic aspects of entrepreneurial activ-
ity that are of critical importance for competitive
behavior in a dynamic, international multicultural
concepts are emerging to meet these challenges,
especially in the specific conditions of SMEs.
Researchers in the field have worked inten-
sively in recent years in an attempt to combine
the two separate areas of entrepreneurship (E)

DOI: 10.4018/978-1-4666-8468-3.ch028

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The Entrepreneur as Strategist and Improviser
and strategic management (SM) into one, formu-
lating the concept of strategic entrepreneurship
(SE) (Shane & Venkataraman, 2000; McMullen
& Shepherd, 2006; Ketchen, Ireland & Snow,
2007; Hitt, Ireland, Sirmon & Trahms, 2011). In
both research and business practice there are high
expectations surrounding the new formulation. It
is more than clear, however, that to launch such
a new concept, especially in the research field,
creates real difficulties for many reasons.
On one hand, there are the very different in-
ternational, national and local political, economic
and socio-cultural conditions in which many mil-
lions of small, medium and large enterprises of
different sizes, phases of life cycle and sectors are
operating as well as entrepreneurs/managers with
varying personal and behavioral characteristics.
This makes it difficult to formulate, compare
and use even basic definitions and measures
related to entrepreneurship and entrepreneurs as
an activity/phenomenon, identifying existing or
creating new entrepreneurial opportunities, and
their exploitation.
On the other hand, although the strategic
management is a more “fermented concept”
primarily in large companies it has its own prob-
lems - running from the definition of strategy to
the question of whether it is a practical method or
art (Cummings, 1994; Ohmae, 1994) to assessing
the effectiveness of strategies (Mintzberg, 1994).
The ever-changing external environment puts
under question the achievement of pre-set (stable)
targets and the appropriate allocation of resources
to achieve it. In addition, the specific role of the
entrepreneur (alone or with team) whether as
strategist, leader or manager, in micro and small
enterprises is difficult to identify, analyze and
interpret for the reasons stated. Therefore, the key
question is how to combine organically two highly
complex, specific areas such as E and SM, reflected
in the new concept of SE. For larger companies
with sufficient resources and opportunities to at-
tract qualified managers (strategists) it is perhaps
easier to enhance their entrepreneurial behavior
(corporate entrepreneurship) at the strategic level.
In small and medium enterprises, the situation is
quite different. Characterized by their resource
limitation and isolation “a priori” and with the
dominant role of the entrepreneur-manager, these
enterprises (especially those operating in competi-
tive, dynamic business environment) also need to
find and exploit entrepreneurial opportunities,
leading to the development of competitive advan-
tages and generating added value. This requires
the implementation of strategic entrepreneurship
- achieving synergistic effects from identifying
promising entrepreneurial opportunities and turn-
ing them into sustainable competitive (strategic)
advantages.
But how does this happen in practice? How does
the entrepreneur act as a strategist (complemented
by other roles), very often without enough formal,
rational information and arguments?
In micro and small enterprises (unlike medium-
sized enterprises which can share some of the
advantages of size with large companies), the
entrepreneur-manager as strategist uses formal
available resources (though often insufficient),
but relies to a significant degree on his/her per-
sonal and behavioral characteristics in the form
of knowledge, skills, experience, intuition, cha-
risma, refracted through his/her own value system
(Todorov, 2011a). In effect, in most situations,
he/she is forced (alone or supported by team) to
enrich, finish and interpret events and processes
“on the hoof,” i.e. to improvise (Weick, 1993,
2005; Crossan & Hurst, 2006; Hmieleski, 2009;
Hmieleski & Corbett, 2006). Improvisation, “im-
provisus” meaning “not seek ahead of time,” is
“playing extemporaneously … composing on the
spur of the moment” (Barrett, 1998). And if, with
operational decisions, the entrepreneur regularly
improvises and the potential losses from “wrong”
improvisation are typically bearable, it can be
quite different in the case of improvisation at the
strategic level. In more complex situations with
longer time horizons it is necessary, but more dif-
ficult, to improvise and the potential losses from
511

the “wrong improvisation” can be fatal for a small
enterprise that does not have the compensating,
diversification capabilities and resources of a big
company.
In many situations entrepreneurs are faced with
insufficient knowledge and skills of competitive
entrepreneurial behavior, moreover of strategic
improvisation (SI), both theoretically and in
practice with a few exceptions (see for example
Crossan & Hurst (2006)). The very concept of
improvisation in terms of process and content as
it relates to entrepreneurial activity is still at its
early stages, but it is a promising field of research
and practically useful actions.
So, some research issues emerge such as:
• The functionality of the concept of SE;
• The strategies and behavior of entre-
preneurs in exploring and exploiting
opportunity;
• The balance in the entrepreneur’s behavior
towards being a strategist and improviser;
• How to better understand what tools/meth-
ods to use in the training of entrepreneurs
in the context of SE.
Therefore, the main goals of this chapter are to:
• Identify and highlight specific expressions,
problems and solutions in the role of the
entrepreneur as a strategist, complemented
by other roles in exploration and exploita-
tion of entrepreneurial opportunities in the
context of strategic entrepreneurship;
• Identify the role of entrepreneur, particu-
larly as (strategic) improviser, in a complex
and dynamic business environment;
• To demonstrate in a concrete way how en-
trepreneurs strategize and improvise, so as
to be better able to teach students of en-
trepreneurship, assist start-ups and estab-
lished entrepreneurs in particular, using
non-traditional approaches and tools.
512

The Entrepreneur as Strategist and Improviser
Following this, the intention is to add value
to the themes in the chapter through a particular
perspective based on observations and analysis
of prominent authors’ work and good practice
accumulated by the author over the past 20 years,
while researching, teaching/training and consult-
ing with students/entrepreneurs.
ENTREPRENEURIAL
OPPORTUNITIES AND
ENTREPRENEURIAL BEHAVIOUR
A starting point in analyzing entrepreneurial
activity are entrepreneurial opportunities or the
so-called “entrepreneurial windows” examined
by Casson (2000) and Drucker (1985). Entre-
preneurial opportunities are a major focus in the
research of such classic authors in the fields of
economics, entrepreneurship and management as
Schumpeter (1934), Hayek (1945, 1978), Drucker
(1985) and their followers. The entrepreneur is
regarded as a pioneer in identifying market op-
portunities and while pursuing a path of reasonable
risk (Schumpeter, 1934). In the transformation of
the U.S. economy from “managerial” (for large
firms) to “entrepreneurial” (for small firms) and
the resulting new business opportunities, the so-
called “entrepreneurial windows” are open not
only in an economic but also in a social context
– Drucker (1985).
Recent studies of entrepreneurship view entre-
preneurial opportunities in a more comprehensive
and contextual manner. Many authors emphasize
that identifying and exploiting (market) business
opportunities is not always entrepreneurial, but
only when introducing new products, services,
resources and organizational methods (Shane &
Venkataraman, 2000). Other authors focus atten-
tion on entrepreneurial opportunities, the use of
which leads to the establishment and development
of sustainable competitive advantages, emphasiz-
ing discovery (exploration) and use (exploitation)

The Entrepreneur as Strategist and Improviser
of entrepreneurial opportunities of a strategic
nature and their consequences (Crossan & Hurst,
2006; Hitt, Ireland, Sirmon & Trahms, 2011;
Companys & McMullen, 2007).
The researchers develop and apply different
theories and concepts, sometimes eclectic, to
explain the nature of entrepreneurial opportuni-
ties, their sources and manifestations. Using the
research framework of Shane & Venkataraman
(2000) who consider entrepreneurship as an “ex-
amination of how, by whom and with what effects
opportunities to create future goods and services
are discovered, evaluated and exploited”; Com-
panys & McMullen (2007) attempted to answer
these questions through the concepts developed by
other authors. They analyzed three basic concepts
(schools) viz. economic cultural, cognitive and
socio-political schools. Based on these concepts,
they attributed the launching of economic/social,
cultural and political strategies for discovery and
exploitation respectively of objective and subjec-
tively cognitively generated entrepreneurial op-
portunities (pp. 311-315). The added value here
is both in identifying and analyzing the so-called
business opportunities existing objectively and
constructed subjectively, as well as their integra-
tion in the search for synergistic effects.
Here we can point that one of the underesti-
mated problems in understanding entrepreneurial
opportunities is the limited development and
attention on “how some already identified and
exploited entrepreneurial opportunities, initiate
other entrepreneurial opportunities.” And en-
trepreneurial practice over a long period of time
shows that initiated “secondary entrepreneurial
opportunities” are sometimes more important
and effective for individuals, groups and societies
than the primary ones which initiated them. In this
context main challenge is forming competitive
entrepreneurial behavior to explore existing or
create new (secondary) entrepreneurial opportuni-
ties and their appropriate exploitation.
A summarized, synthesized view of the re-
lationship and interaction between the external
environment (entrepreneurial opportunities and
threats); identifying opportunities of a strategic
nature and entrepreneurial actions (behavior) with
their forward links and feedbacks is presented in
Figure 1.
Figure 1 shows that entrepreneurs (using
their social capital) seek prospective (strategic)
opportunities and positions for the formation of
sustainable competitive behavior. In this situation,
they violate the current status quo, creating an
imbalance, but enter a new (dynamic) equilibrium
as described by Schumpeter (1934). Of course,
this is the ideal case, because entrepreneurs make
mistakes from which they must learn (strategic
learning). Therefore, in the process of identify-
ing opportunities and threats, learning from their
mistakes and those of others through the system
of feedbacks, entrepreneurs build proactive, suc-
cessful behaviors in a competitive environment,
based on available resources (learning by doing).
But here they not only have to comply with the
strategic opportunities thus identified, but also be
aware that these opportunities must be met with
the resources of the firm (own or acquired). They
must also lobby often in an unfavorable, dynamic
environment, filled with great uncertainty, and
organize properly the operational system for the
realization of their strategic goals. In this sense,
the entrepreneur (alone or with team support)
(has to) play together different roles like a “man
orchestra” or a multi-faced Buddha.
THE ENTREPRENEUR’S
ROLES IN EXPLORING AND
EXPLOITING ENTREPRENEURIAL
OPPORTUNITIES
The heterogeneity of entrepreneurial activity,
entrepreneurial personality and behavior deter-
mine the different roles that the entrepreneur
must perform in different contexts. In general,
they are associated with the identification of
dynamic, strategic opportunities, providing the
513

Figure 1. Entrepreneurial behavior (Source: Thompson, 1999, p. 288.; Published with written permis-
sion of the author)
resources necessary to achieve the objectives,
the organization of business processes and espe-
cially encouraging and motivating staff. On this
basis, various researchers have tried to make an
appropriate identification of the roles, which en-
trepreneurs (should) play. Of course, in practice,
and depending on the situation, there is a lead-
ing role, while others are complementary. This
dynamic of changing roles is the most important
element in the “entrepreneur-orchestra” necessary
to operating successfully in complex situations of
a strategic nature. All researchers emphasize the
entrepreneur’s roles as of crucial importance in
the identification, evaluation and exploitation of
entrepreneurial opportunities.
514

The Entrepreneur as Strategist and Improviser
Basically, the approaches to assessment of
the entrepreneur and his/her roles are viewed
in different research constructions. Attempts
to identify these roles can be seen firstly in the
work of researchers in strategic management in
large companies. For example Quinn, Mintzberg
& James (1988), write about the entrepreneur-
ial approach and leading figure and role of the
entrepreneur-founder or top manager, an adaptive
approach where the power is “blurred” between
managers, groups, etc. and a formal planning ap-
proach with the leading role of analyzer/planner.
Some authors try to objectively identify dif-
ferent types of organizations with their respective
trajectories, common strategies and to identify in

The Entrepreneur as Strategist and Improviser
them the leading roles of the entrepreneurs/manag-
ers/experts. For example, D. Miller (1994) defines:
a focusing trajectory (focus) on the quality and
technology and the leading role of highly trained
engineers; an inventing trajectory, presented by
launching product champions, often bordering on
utopias; a decoupling trajectory led by excellent,
recognized marketers; a venturing trajectory,
growth-driven, led by entrepreneurial builders,
imaginative leaders, exploiting ‘helter-skelter’
into business they know nothing about (p. 455).
Such entrepreneurial builders are growth-driven,
oriented towards expansion. These builders have
the promotional skills to raise capital, the imagi-
nation and initiative to exploit significant growth
(strategic opportunities) and the courage to take
substantial risks. Therefore, the leading role in
the cycle is associated with strategic proactivity
(vision), accounting for the resources that are
available, including core competencies, balanced
with contextual improvisation (when required).
Other authors try to identify more specific
typologies of entrepreneurs and the roles they
perform in the exploration and exploitation of en-
trepreneurial opportunities, trying to avoid relevant
threats. For example, according to Rogoff & Lee
(1996) the three main types of entrepreneur can be
reduced to: (1) creators – higher risk-takers, start-
ing businesses to follow their dreams by creating
new products/services; (2) inheritors (successors)
– family firm members who inherit the business;
(3) operators – motivated by financial objectives
or lacking other alternatives, they buy businesses/
franchises as a means of minimizing risk.
Of course, other typologies with many common
points and often claiming to be exhaustive, can
be highlighted. For example, from Schumpeter
(1934) to the present, among the most popular type
of entrepreneur is the innovative one (Wilhelm,
2001; Kirzner, 1997). Their road to success is the
generation and promotion of new ideas for devel-
opment, since they have the unique ability to see
phenomena in different and creative ways. Such
entrepreneurs make difficult and controversial
decisions in the context of incomplete informa-
tion while demonstrating creativity and a sense
of context - Casson (2000).
Great attention is also paid by researchers to the
entrepreneur-leader with corresponding actions, as
interpreted by Kirzner (1997). The leader is such,
because he/she possesses qualities that not every-
one has, particularly to see the “whole picture.”
Especially important for the entrepreneur-leader
is to inspire and build trust with and among fol-
lowers (Todorov, 2011a).
Also right is Casson (2000), who emphasizes
that the probability that the entrepreneur-leader
will succeed is greater if at least part of the nec-
essary resources are available. In this context we
can highlight the entrepreneur as a coordinator
and integrator of resources.
Synthesizing the dominant views of researchers
about entrepreneurial roles it is possible to identify
several general entrepreneurial roles:
The Entrepreneur as a
Manager/Operator
In the smallest businesses, the entrepreneur in the
role of manager/implementer of his/her vision
makes things really ‘happen’. He/she regularly
deals with the organization and the change in
business processes, distribution and tracking of
financial flows and the training and organiza-
tion of staff. The fulfillment of these different,
even routine roles may be the most difficult for a
visionary entrepreneur and therein lies a danger
– the vision (strategic orientation) may be eroded
or may prove difficult to implement in practice.
Ultimately achievement will reflect the interplay
of the knowledge, skills and adaptability of the
entrepreneur.
The Entrepreneur as a Leader
Following important characteristics proposed
by different authors we see entrepreneur-leader
as a person with a vision as well as with com-
515

munication and negotiation skills, taking risk
and responsibility even for mistakes of others,
and perhaps possessing a charismatic style. The
real entrepreneur-visionary leader can encourage
the team to follow him/her even in ill-defined or
unpredictable circumstances.
The Entrepreneur as a Strategist
This type identifies the so-called focused entre-
preneur with an overlap between personal and
business goals. He/she supports goal-setting,
the use of strategic management tools and feed-
back mechanisms for achieving harmony across
the key success factors - see Driessen, Lеаn &
Zwart (2010). The entrepreneur-strategist can be
viewed as a performer with “high standards” in
entrepreneurial activity, mainly because of the
combination of thinking well- ahead matched by
rapid responses to changes in the environment with
its multiple forces acting in. This leadership role
of the entrepreneur as a strategist and an agent of
change will be discussed in more details below
according the theme of the chapter.
The Complex Entrepreneur
From above, it can be seen that although some of
the leading roles/characteristics of the entrepre-
neur are highlighted, supporting roles are also very
important. Therefore, some authors talk about the
complex entrepreneur claiming that he/she is most
likely to start and develop a successful company
(Wilhelm, 2001; Miner, 1997). And that implies
better recognition of available entrepreneurial
opportunities (and/or cognitively created by him/
her) and their successful realization (exploitation)
– thereby closing the circle.
In practice, for better understanding, views of
the entrepreneur are often distributed in a popular
way, comprising the subjective interpretations and
abstractions of some researchers, media and even
wider audiences of the entrepreneur’s nature and
516

The Entrepreneur as Strategist and Improviser
role, forming a so-called entrepreneurial mythol-
ogy. The entrepreneur has been described through
various metaphors mostly as a hero, anarchist,
dispenser of justice (Johanisson, 1999) or ice-
breaker as well as paternalist or quick money-
maker (Todorov, 2011b). So, in such mythology
improvisation tools like myths, metaphors, jargon,
etc. are used. Significant changes can be seen in
the entrepreneurial mythology that follows socio-
economic changes in the world and the reinvention
and renaissance of entrepreneurship. If in 1990s
the entrepreneur is more a hero and savior, then
15-20 years later this figure is represented, for
example, by the subgroups “global winner, wolfish
entrepreneur, charming entrepreneur.” Despite its
significant subjective impact, such metaphorical
presentation helps considerably in understanding
the figure and behavior of the entrepreneur in real
life. Such a tendency towards mythological and
metaphorical references will be presented more
fully later in the context of non-routine (impro-
visational) forms and methods of entrepreneurial
behavior and in its place in teaching/training stu-
dents and entrepreneurs. The very different and
specific role of the Entrepreneur as improviser
will also be examined.
THE ENTREPRENEUR
AS A STRATEGIST AND
AGENT OF CHANGE
Strategic Management in SMEs
As pointed out in the introduction to this chapter,
researchers have identified and investigated the
need for SMEs to use strategic approaches and
tools, but they differ very much from strategic
tools used in large-scale enterprises, where SM
is more popular.
Larger companies usually have written strate-
gic plans developed and implemented by specific
units. In more complex situations and develop-

The Entrepreneur as Strategist and Improviser
ments they are supported by specialized consult-
ing teams – most often formed by experts in the
company with the external consultants. A further
process involves differentiation of the general
(corporate) strategy into shorter periods with more
detailed measures of performance developed by
the middle (tactical) management level. From here
tactical plans and activities are cascaded further
down the organization and submitted for immedi-
ate implementation to the operational management
level. Therefore, the strategic management of the
company is a complicated and a long-term and
resource-seeking process, which in the general
case has to guide effective firm behavior in terms
of the market and competitors.
The above mentioned steps are typical for
“classic” SM in LEs. Of course some deviations
exist among different schools of thought. But in
the case of SMEs, the situation differs. Generally,
as many authors point out, the strategic process
in SMEs is much less formal, shorter, with a
dominant role for the Entrepreneur-strategist.
Logically, more orientation is given to the explo-
ration instead of exploitation of opportunities. Of
course, the group of SMEs is not homogeneous.
A significant difference exists not only between
SMEs and LEs, but within SMEs. If we take on
the one hand micro and small businesses, and on
the other, medium-sized businesses, we shall see
that the needs and opportunities for application
of SM in them vary. Why? The answer lies in
the three specific advantages of medium-sized
companies: successful operation on the market
(in most cases); direct and simplified management
and adequacy of resources (Napuk, 1996). This,
coupled with sufficient flexibility allows them to
change strategy on the move if the environment
is changing.
In the late 20th century there was a tendency
of transferring SM concepts and practices from
large companies to SMEs (mostly in a mechanical
way). At the same time it is often forgotten that
SMEs are not miniature versions of LEs, and have
specific needs and specific manifestations of SM.
So, there is a necessity for new approaches to SM
for SMEs, acting in complicated and challenging
business environment.
Strategic Entrepreneurship
In the early 21st century there is a trend towards
justifying and enforcing the new concepts in
response to changing conditions and challenges
in the business environment (especially interna-
tional one characterized by increasing change and
ambiguity). Authors like Hitt, Ireland, Camp &
Sexton (2002), Ketchen, Ireland & Snow (2007);
Hit, Ireland, Sirmon & Trahms (2011) attempt to
combine the two separate areas: entrepreneurship
(E) and strategic management (SM) into one, Stra-
tegic Entrepreneurship (SE) as more appropriate
in new business conditions.
Strategic Entrepreneurship helps firms to
“address the dual challenges of exploiting cur-
rent competitive advantages (for the purview
of strategic management) while exploring for
opportunities (the purview of entrepreneurship)
for which future competitive advantages can be
developed and used as the path to value and wealth
creation” (Hitt, Ireland, Sirmon & Trahms, 2011).
The authors devise an “Input–Process–Output
Model of Strategic Entrepreneurship” (Figure 2).
The SE model incorporates environmental,
organizational and individual factors/resources
into the dynamic process of simultaneous op-
portunity and advantage-seeking behaviors. The
model involves three dimensions: resource/factor
inputs, resource orchestration process and outputs.
The key moment is creating value for customers
and wealth for stakeholders.
The combination of Е (exploring opportunities)
with SM (exploiting opportunities) contributes to
achieving value and wealth. While (E) as a part
of SE requires flexibility and novelty, at the same
time SM seeks stability and predictability.
The above model is a useful tool for better
understanding of the so-called SE and its dimen-
sions. But at the same time it is noticeable that
517

Figure 2. Input–Process–Output Model of Strategic Entrepreneurship (Source: Hitt, Ireland, Sirmon,
& Trahms, 2011, pp. 57–75)
feedbacks between and within elements of the
model are lacking – begetting the question of how
existing asymmetries might be corrected? At the
same time the model seems to be more applicable
to bigger (medium-sized) firms. We cannot see
the figure of the strategic entrepreneur using often
non-standard tools (improvisation) to overcome
scarcity of resources or asymmetry between them.
For similar reasons a number of research-
ers ask different questions concerning SE - for
example, how the strategic part of SE will work
in dynamic conditions where flexibility and re-
activity are most important, or how to take into
account the differences within the subgroups of
SMEs, etc. (Kraus & Kauranen, 2009). There are
also definitely negative opinions about the new
SE concept. (Van Rensburg, 2013), giving his
own arguments.
Despite the still-underdeveloped concept of SE
and its practical application, there is a good base
at this moment for better presence and understand-
ing strategic needs and processes of SMEs and
entrepreneurs’ behavior in a dynamic, complex,
and completive environment.
518

The Entrepreneur as Strategist and Improviser
The Entrepreneur as a Strategist
and Agent of Change
Undoubtedly, the person of the Entrepreneur and
his/her behavior are of key importance for the
strategic orientation of SMEs and a worthwhile
subject of research. The role of Entrepreneur as
a strategist (nor as a practitioner) is still not well
studied as research topic. Indeed, often this role
overlaps with the role of Entrepreneurial manager
– see Hinterhuber & Pop (1992), Cassia & Meoli
(2009). The reasons for this are clear (most of them
we mentioned in the introduction to this chapter).
Returning to the model of SE - Hitt, Ireland,
Sirmon & Trahms (2011), let’s see the entrepre-
neur’s role on all stages and in elements of the
model can be seen but with some qualification.
The efforts of the strategist are focused mainly
on the input and less on orchestration of resources.
Identifying environmental factors is a primary
aspect of SE as the Entrepreneur has to iden-
tify opportunities, preferable with a sustainable,
competitive potential. Based on many studies and
analysis of practice, it is well-known that SMEs

The Entrepreneur as Strategist and Improviser
(have to!) pay more attention to opportunity seek-
ing and relatively less to managerial capability.
This is because of the “a priori” possession of
flexibility and reactivity of these firms even they
are often not predisposed enough to act. In this
context is important to stress the readiness and
capability of the entrepreneur-strategist to learn
from one’s own mistakes and from those of others
(strategic learning – refer to Figure 1 again) - see
also Pop (1993). Many researchers have pointed
out that the entrepreneur uses different sources
and methods for identifying opportunities and
obtaining necessary resources.
Identifying necessary organizational resources
to meet the requirements of objectively discovered
or cognitively constructed opportunities is of vital
importance in their exploration. Resource-based
theory makes enough suggestions and recommen-
dations in this context, evaluation of availability,
adequacy and access to resources and attracting
them from external sources, etc. More often, in
practice, there is a scarcity of resources so they have
to be used in more effective and efficient ways. All
these are challenges for the entrepreneur-strategist.
Individual resources are associated mainly with
the figure of the Entrepreneur, who plays as a strate-
gist. His/her capability to explore opportunities and
find appropriate resources, as it was stated, is of vital
importance. But as we mentioned above, in Inputs
of the model (Figure 2) he/she has to find a solu-
tion (very often to improvise) on how to overcome
asymmetry between opportunity and resources and
between organizational and individual resources.
At the same time the entrepreneur-strategist has to
be prepared to adapt to necessary changes in op-
portunities and resources, to be agent of strategic
change (Todorov, 2011b). But what capability and
tools has the entrepreneur as a strategist/agent of
strategic change?
Let’s go to the romantic times of first aviators:
The medium-sized companies seem to be controlled
in a similar way as the brave men controlled their
flying machines. All these brave men needed in
their flying machines except a compass, were a
scarf, a tie and glasses. In the way the scarf flut-
tered, they were able to estimate direction and
speed of wind. Depending on movement of tie
diagonally showing early rain or fog, the posi-
tion had to be corrected and they needed to land
quickly. Because you really could fly only when
the weather is nice, but then it was wonderful
(following Küpper, Bronner & Daschmann, 1994).
This excellent example describes in a pictur-
esque manner the simplicity and directness of SM
in small and medium-sized enterprises. Indeed,
it appears that entrepreneurs and managers in
these companies, in most cases apply simpler
tools and techniques for planning, organization,
control and change than those in larger firms.
However, many of these companies – especially
the medium-sized, often achieve results (sales,
profits, image) equal to or more significant than
those of large companies. What is the key? “The
sensitivity of the fingertips, intuition and expe-
rience, simple and clear structures here replace
inflated (most often!) departments for planning,
control and coordination in LEs.” (Küpper, Bron-
ner & Daschmann, 1994).
So, as mentioned, more or less, the entrepreneur
appears in the role of strategic improviser and
agent of change. The question is how they could
be combined and balanced.
Important also is the industry in which the
opportunities are sought and the nature of the
resources. A parallel can be made with weather,
day or night, the aviator and their interactions.
Exploiting opportunities in a new or changing
industry is generally easier than making waves in a
mature industry. Enormous creativity, experience
and contacts are needed to take business away from
competitors in a mature industry, where market
forces have long shaken out weak technologies,
strategies and organizations…
519

Strategic choices in a new industry are often very
limited; entrepreneurs have to adhere to the emerg-
ing standards for product features, components
or distribution channels (Bhide, 1994, p. 154).
Orchestrating resources to exploit identified
opportunities in a best way also requires a high
level of knowledge and skills. The Entrepreneurs
need to pay constant attention to the competition
that is waiting just behind the corner, but not for
account of nothing really happen in the firm.
Securing a dynamic balance between opportu-
nity (exploration and exploitation) and competition
is a primary task for Entrepreneur-strategist. At
the same time entrepreneurs have to look to the
situation/changes in the market and form a correct
judgment in this balancing act. In practice, the
strategist has to rationalize the (cost of) analysis,
because excessive analysis does not bring the same
benefits or, if carried on too long, the opportuni-
ties identified can change or disappear (Bhide,
1994, p. 154).
If we summarize, in exploration and exploita-
tion of opportunities, the entrepreneur-strategist
can take two broad approaches:
1. To follow the classical model of the strategic
process and implement the different phases
according to his (and the team’s!) capabilities
and available resources. That means he/she
will prepare and implement a semi-formal,
sample strategic plan. This plan could be
based on personal knowledge, experience
and behavioral characteristics also. If he/she
are looking for entrepreneurial opportunities
in a relatively stable environment and the
firm is not too small, this approach could
work to some extent.
2. In the majority of cases, especially in a
dynamic, competitive and uncertain envi-
ronment, the approach could be different.
520

The Entrepreneur as Strategist and Improviser
The Entrepreneurs need to act as “effectua-
tors” using the “explorer” strategy. Cook &
Yamamoto (2011), following Sarasvathy’s
findings, give some interesting examples
for these two models (para 1 and para 2)
of strategy and behavior, such using the
example of general Napoleon. He worked
with a fluid plan in mind, ready to modify
it according to the practical circumstances
facing him (pp. 7-8). The idea is to evaluate
the terrain (options) deployment of forces
(competition) and to make a plan for action
based on current realities and exigencies.
This means that, once again, the entrepreneur
has to improvise to a certain extent.
Bearing in mind similar arguments, and mak-
ing a parallel with business (entrepreneurial)
situations some authors, following the findings
of Saras Sarasvathy (2008), present an alternative
model of strategy (versus classical one). Instead of
starting with objectives, then obtaining resources
to achieve these objectives, they proposed the
alternative viz. “the strategic objective could be
formed by assessing resources available to the
entrepreneur“ (Cook & Yamamoto 2011, p. 82).
They said: “Casual thinkers behave like “rulers”
who are confident that their resources can com-
plete their desired objective.” In contrast, so-called
“‘effectuators’ have a mindset more analogous to
explorers, who are discovering uncharted lands”
(p. 79). Very interesting discussion on planned
and “expectation” approaches could be found also
in Bridge & O’Neill (2013).
Based on such works and the author’s own
lengthy involvement with entrepreneurs, such a
view of an “explorer” strategy being adopted by
the entrepreneur-strategist is acceptable, especially
in a dynamic, uncertain environment. This again
moves towards seeing the entrepreneur in the role
of improviser, supporting with the role of strategist.

The Entrepreneur as Strategist and Improviser
THE ENTREPRENEUR
AS IMPROVISER
Improvisation in
Entrepreneurial Activity
As mentioned in the introduction to this chapter,
often the Entrepreneur (alone or with his/her
team) has to deal with heterogenic, random and
unpredictable conditions in the external environ-
ment in searching for appropriate entrepreneurial
opportunities and in their exploitation. That
implies the entrepreneur has to improvise in a
certain manner.
In the literature, entrepreneurial improvisation
mostly relates to myths and metaphors (Morgan,
1996; R. Van Engen, 2008; Leone, 2010; Barrett,
1998). The author’s studies (Pivoda, Hoy, Todorov
& Voitko, 2011; Todorov, 1993a, 1993b, 1994,
2011b) and many years of practical observations
have enabled a broader and richer understanding
of entrepreneurial improvisation. This involved
the use of additional improvisational forms like:
tricks, bluffs and jargon (less analyzed by research-
ers), and also by utilizing the improvisational
approaches and tools in the training and teaching
Figure 3. The Metaphorical approach (Source: Morgan & Burrell, 1999)
of entrepreneurs and students of entrepreneurship.
The examples and summary of results obtained
over 20 years as presented at many international
events and publications are presented below in
this chapter.
The history of research on entrepreneur’s
improvisation is relatively young. Most of the
researchers acknowledge the pioneering contribu-
tion of Weick (1993), who observed the jazz band
and its improvisation as an example/prototype for
organization learning and innovation, as well as
the work of Morgan (Morgan, 1996) who used
the metaphorical approach to characterize life in
organizations.
B. Johanisson (1999), Burrell and Morgan
(1999) were among the first researchers to present
a systematic view of symbols and metaphors in
the life of an organization. In their opinion, there
are different “schools of thought” which have
their own paradigms and associated approaches
and tools for metaphorical representation and
expression. (see Figure 3).
The metaphor is a multifaceted literary device
that assists in interpreting complexity and assisting
clarity and a flexible tool for leaders/followers in
organizations. It adds color to the physical, emo-
521

tional and spiritual dimensions of existence (Van
Engen, 2008). In addition to research metaphors,
authors also point to the use of different myths by
entrepreneurs, media and even by the wider pub-
lic. Such mythology can vary from comparisons
with ancient heroes to today’s “heroes,” artists,
sportsman and even enemies. Indeed it is neces-
sary to estimate the importance of jargons, tricks
and bluffs also as is evidenced in their use by
entrepreneurs in their improvisation while also
being employed in the teaching/training process
of students and entrepreneurs. In fact the author
has found that they help considerably in assist-
ing understanding of complex events and facts in
entrepreneurship and the nature of improvisation
in entrepreneurial behavior (Todorov, 1993a,
1993b, 2011).
The improvisation process could be illustrated
through various key dimensions (Leone, 2010).
Typical of some definitions by renowned authors
in the field is the following:
Improvisation is a creative process, characterized
by spontaneity and extemporaneity … Improvi-
sation is guided by intuition and characterized
both by real time and deliberate nature of action.
(Leone, 2010, p. 3).
Leone also summarized definitions from dif-
ferent authors in the subfields of entrepreneur-
ship, organization and management, creating an
enriched view of improvisation (Leone, p. 5-8).
Some researchers focus on different perspec-
tives and attributes of improvisation in its differ-
ent forms and expressions (Hmieleski & Corbett,
2006; 2008; Van Engen, 2008).
Bearing in mind the purpose and the content
of improvisation tools and tasks employed by
the entrepreneur, particular attention will be paid
to the Entrepreneur-improviser – presenting, in
many cases, the reverse side of the “coin of the
entrepreneur” as a strategist.
522

The Entrepreneur as Strategist and Improviser
The Entrepreneur as
(Strategic) Improviser
If we apply the improvisation process in a more
holistic manner to the person of the Entrepreneur,
it could be asserted: the Entrepreneur as improviser
is dealing with unfamiliar circumstances, assess-
ing situations in a spontaneous, new way, using
available knowledge, experience, intuition and
charisma to achieve maximum effect. That means
(as most authors emphasize) that improvisation
is not a planned activity (Barrett, 1998; Weick,
1993). But in some cases an “experienced impro-
viser” could anticipate (even provoke) situations
needing improvisation and be (semi-) prepared in
advance. (Todorov, 2011b).
In practice, entrepreneurs use in parallel several
forms of improvisation (metaphors, tricks, bluffs,
jargon and myths) although one of them can be
dominant at any particular time.
Some entrepreneurial improvisations may be
illustrated as follows:
The Case with the Auto-Bazaar “Turbo”
(Pivoda, Hoy, Todorov & Vojtko, 2011)
In 1994, in the post-communist economy of the
Czech Republic, two entrepreneurs rented a large
parking space for their intended 120-car auto-
bazaar (at that time, they had only 4 cars). Although
they visited a few local banks they were unable
to obtain any additional financial support to buy
more cars. So they had to find a new way to fill in
the empty parking spaces which in their opinion
was a requirement to make an auto-bazaar more
attractive. As the auto-bazaar was located next
to a large company, the entrepreneurs decided to
offer employees free parking under the condition
that, while parked, fictitious price tags would be
placed on their cars. Fortunately this offer was
accepted and Turbo Auto-bazaar was full from
early mornings and in the afternoons most of the

The Entrepreneur as Strategist and Improviser
cars were gone. If a client demonstrated interest
in some of these cars different tricks and bluffs
were used to cause distraction (for example, “the
car was just sold”). Passers-by probably got the
impression that cars were selling there as though
they were on a production line. Within half a year,
thanks to the strategy of the two entrepreneurs
had 20 of their own cars in their auto-bazaar and
success followed.
In practice a combination of tricks-bluffs was
being employed in this case.
The next case illustrates the use of a metaphor.
The blind men and the elephant – This metaphor
is derived from а famous Indian story re-told by
many all over the world. It is used when a person
is unable to see the whole picture and comes to
the wrong conclusion, namely that the part of it
that is visible represents the whole picture. It is
used in training of entrepreneurs and managers
with the TKJ method: individual trainees see a
“hose” (proboscis), a “column” (foot), a “palm
leaf” (ear), etc. Thus illustrates how individuals
(teams) may perceive a situation in their company.
Only after bringing together all the perceptions
and conclusions of the participants the full picture
is being “assembled” and becomes apparent (the
elephant) – Todorov (2011b). This encapsulates
the Entrepreneur as a strategist (alone or with
team). He/she could have capability (on time)
to see the bigger (whole) picture in the market
place thus deciding what opportunities to take
and which to avoid.
Myth-Metaphor
The Emperor’s new clothes – based on the famous
story of Hans Christian Andersen for the king,
who on external advice dressed in non-existent
clothes, believing they were invisible only to stupid
or undeserving people (to occupy a position in the
firm). In the case of SMEs the “new clothes” could
represent a tendency to stick to an idea, action,
advice, etc. (provided for example by external
consultant), that could be unacceptable or even
foolish; but this metaphor could be used in other
ways also, for example believing too firmly that
competitors behave like the king (entrepreneur).
Sentence metaphor: If you fear bears, do not
walk in the forest – in the case of the entrepre-
neur it can be interpreted in the following way:
if you are afraid of a possible failure or of strong
competition after launching a business, it is better
not to start. It could illustrate a lack of strategic
vision and avoidance of risk-taking.
Bluffs
Bluffing is often associated with negotiating
from the position of power, especially when the
negotiator does not have such a position. A basic
requirement for successful bluffing is that the other
side does not suspect it and to give the impression
that the bluffer has other options. Therefore it is
a double edged sword – the bluffer must consider
the consequences of bluffing before acting which
means one is unlikely to sustain a partnership only
based on bluffs. However in many cases bluffing
helps entrepreneurs as an additional tool, some-
times even the main tool.
It is natural in using all forms of improvisation
to watch for any negative consequences. But a
”soft” negative result might be misunderstanding
of the metaphor or slang, while used inappropri-
ately (especially in a strategic aspect) the negative
results of tricks and bluffs can be very serious.
Returning to Figures 1 and 2 one can observe
the behavior of Entrepreneur as a strategist. Based
on the definition of improvisation, in the general
case, the Entrepreneur has to improvise in the
moment, facing reality. But a very well-prepared
entrepreneur could judge the most appropriate op-
portunity and evaluate the competition in advance.
As a whole the key issues regarding the En-
trepreneur as improviser are:
• The initial preparation of the Entrepreneur
to meet or react in such an environment/
general culture; specific knowledge and
523

skills; situational (intuitional) evaluation
of the whole picture, reading between the
lines); see also Pop (1993);
• Strategic learning, which involves focusing
on how to play in a complex, ambiguous,
dynamic environment, but also to be realis-
tic in the approach to identification/exploi-
tation of the opportunities (see Figure 1);
• Is it possible and to what extent can the en-
trepreneur be trained, especially as a (stra-
tegic) improviser (see next points). Let’s
remember the sentence of a very success-
ful generalissimos Suvorov, who crossed
with his army the Alps successfully during
the winter: “The more sweat in the exer-
cise, the less blood in the battle.” He illus-
trates in an excellent way the appropriate
behavior for the Entrepreneur as a strate-
gist/improviser, generating learning both
for himself and his team in the context of
the environment (winter Alps and enemy).
NON-TRADITIONAL
APPROACHES AND TOOLS IN
ENTREPRENEURSHIP EDUCATION/
TRAINING: THE ENTREPRENEUR
STRATEGIST AND IMRPOVISER AS
OBJECT OF UNDERSTANDING
New realities in terms of the arenas for entrepre-
neurial activity and the changing characteristics
of the audience for entrepreneurship education
require new approaches to, forms of and meth-
ods applied to research, teaching and learning.
Together with equipment, software, interactive
learning methods (guided discussions, role plays,
case study method, and management games), as
already noted, another very effective approach is
the use of myths, metaphors, jargon, pictures and
other in the entrepreneurship learning process.
This applies especially when the student or the
student/entrepreneurs’ groups for various reasons
are heterogeneous – for example, of different na-
524

The Entrepreneur as Strategist and Improviser
tionalities, at different stages of development in
the start-up process or with different background.
With the help of non-traditional teaching methods
it can be easier to describe and explain to students/
entrepreneurs the nature of both traditional and
non-traditional activities and behavior used by
improvising entrepreneurs. It can be done in a very
interactive and attractive way. These approaches,
forms and methods can be particularly effective
in a multicultural environment and particularly in
countries, characterized by an informal national
(business) culture.
Using Metaphors and
Images in Entrepreneurship
Research and Education
One of the most recent but also most reliable
trends in the “arsenal” of researchers and teachers
in entrepreneurship – the so-called metaphorical
(symbolic) direction – has a great potential in
defining the nature and behavior of different types
of entrepreneurs in the real life. Using symbolism
and certain rules, the entrepreneur’s personality,
motives, roles, and behavior become easier to
understand through such “planned” improvisation
tools especially by a heterogeneous audience. It
is particularly useful for explaining relatively
new areas of study in entrepreneurship such as
strategizing and improvising.
Symbolic thinking and performance is a unique
human characteristic that helps us to understand
complex life situations and problems. It is particu-
larly necessary for people who are dealing with
science and art, but also business students and
young entrepreneurs so that they have a certain
minimum capability in abstract and symbolic
thinking as an aid to understanding realities and
act in them.
Reviewing numbers of authors (primarily
Morgan, 1996), Johanisson, 1999) asserted that
entrepreneurship research includes two basic ap-
proaches: objective and subjective. The objective
approach is deductive, goes from the general to

The Entrepreneur as Strategist and Improviser
the specific – from the “world” to the concrete
situation. Underlying it are ‘hard facts’ and the
research method common within it is primarily
quantitative. The subjective approach is induc-
tive, starting with the subjective perception of
the researcher and moving towards more general
conclusions. In this approach soft, qualitative
methods are typically employed.
In this view, B. Johanisson notes that there
are paradoxes in searching and understanding the
phenomenon of entrepreneurship (entrepreneur).
On the one hand, objective methods and indicators
such as costs, revenue, and profit are used while
on the other hand, a subjective approach tends to
be used for identification of the entrepreneur’s
characteristics (personal and behavioral).
To portray a richer and more colorful il-
lustration of the types of entrepreneurs, he uses
metaphorical representations deriving from the
subjective approach. According to him, the main
types of entrepreneurs and their role (functions)
can be represented by entrepreneurial metaphors
which answer questions such as: What is being
done? Why? How it is done? (see Table 1).
Generally the willingness to, and degree of,
learning through metaphors by students/entre-
preneurs depends on their literary and economic
preparation, on the breadth of their thought and
their national characteristics. For example, for
the students from countries with a more formal-
ized culture the use of metaphors should be more
limited, and be less ambiguous. For students from
countries with a more informal culture (e.g. South
Table 1. Entrepreneurial metaphors of B. Johanisson (types of entrepreneurs and their roles)
Metaphor What?
John Wayne Solves local problems
Robber Baron Uses niches
Anarchist Opposing business prescriptions
Coach Organizes human resources
Artist Innovate
Source: Johanisson, 1999.
European) metaphors consisting of jokes, hints,
and ambiguity are more applicable, i.e. “subtler”
variables (Todorov, 2011b). Moreover, it is the
author’s experience over a lengthy period that
improvisations with metaphors are perceived much
better if accompanied with appropriate pictures.
Using (Ancient) Mythology to Explain
Important Entrepreneurial Events,
Roles and Facts: The Entrepreneur
as Strategist and Improviser
The use of ancient (for example Greek, Roman)
myths and metaphors in teaching entrepreneur-
ship appears to be very appropriate, as the effec-
tive use of these approaches poses a number of
requirements:
• To select myths relatively familiar to au-
dience’s context – country, students/
entrepreneurs;
• To use appropriate forms of expression
(painting, drawing or text only) for presen-
tation according to the audience;
• The educator should have the necessary
knowledge and experience in the field and
strong communication skills (charisma) in
order to achieve the desired effect.
Myths are sacred stories containing funda-
mental truths about the nature of human life and
in particular the economic and social activity of
the human beings. When trying to understand
Why? How?
Need for independence Organizational project
Need for achievement Partisan tactics
Internal locus of control Network formation
Needs from status and role modeling Through education/training.
Internal locus of assessment Experiential learning
525

or explain problems or achievements, a story to
encapsulate them is sought. Ancient mythology is
a rich source of such stories. Myths are a flight of
human imagination - they are often fantastic, full
of surreal creatures, circumstances and actions,
but connected to the realities of life.
For many years mythology has been used in
entrepreneurship education in the University of
National and World Economy in Sofia, Bulgaria
and some other countries to explain important
entrepreneurial characteristics and processes.1
And it is perceived that students/entrepreneurs
enjoy, understand, and very often, with the appro-
priately selected myths, learn the basic postulates
of entrepreneurship theory and in particular the
characteristics and behavior of real entrepreneurs.
Two cases are presented to illustrate the theme of
the recent chapter.
The Hero Theseus and King
Pyrrhus (Entrepreneur-Strategist
and Impulsive Entrepreneur)
The business environment over the last 20 years
(dynamic, complex and ambiguous), especially
in its twists and turns in an international context,
offers reminders and similarities of the ancient
Greek myth of the labyrinth of King Minos him-
self. In it, the hero, Theseus, with the help of the
king’s daughter, Ariadne (love or sympathy?),
kills the monster Minotaur (the guardian of the
Labyrinth) – see Figure 4. Then he comes out of
the labyrinth (to show off his trophy) finding the
exit thanks to an untangled ball of thread given
to him by Ariadne. The Labyrinth reflects today’s
complex business environment in which bold,
but prepared people can make their way success-
fully. The Minotaur is synonymous with fierce
competition in the marketplace. The outcome
of the meeting with the Minotaur depended on
the approach and preparation for entry into the
Labyrinth. Killing the Minotaur and making the
way back (the exit from the Labyrinth) is equally
526

The Entrepreneur as Strategist and Improviser
important! Theseus embodies the bold, experi-
enced and strategically-oriented entrepreneur.
The ball of Ariadne symbolizes the existence of a
strategy – not just how to enter the market, but how
to exit it successfully (or with minor losses) and
to go further. Therefore, Ariadne plays the role of
external consultant to Theseus in formulating his
explorer’s strategy. So, we can see a combination
of preliminary preparation, strategic orientation,
contextual improvisation (the love of Ariadne):
as well as search, identification and successful
exploitation of entrepreneurial opportunities,
using available (own and obtained) resources.
But in mythology, as in business, there are not
only positive heroes and a happy ending. There
are other participants in the competitive game who
seek their way through the Labyrinth and the glori-
ous victory over the Minotaur. So there is, at the
same time, also the opposite of Theseus, matching
the kind of isolated, impulsive entrepreneur. Such
an example is the ancient King Pyrrhus, who in his
victorious battle against the Romans lost so many
soldiers and elephants that he shouted: “Another
victory like this and I will end up with no army!”
Students/entrepreneurs could find in the person of
King Pyrrhus a symbol of determination and will
to achieve, regardless of “the price of success.”
Therefore he can be called “impulsive, short-view
entrepreneur, uncalculating of the price of success”
in advance. In the above case, this type of entre-
preneur could beat the Minotaur, but will probably
not enjoy his victory for long – eventually losing
the war! (indeed he could not find the way out of
the Labyrinth). A very important aspect of this
case is the way Theseus and Pyrrhus learn from
their own mistakes and the mistakes of others in
playing in such a competitive environment. Now
let’s imagine the “whole picture.” The Monster
(Minotaur) is waiting for Theseus and Pyrrhus
somewhere in the Labyrinth. What is the behavior
of the two and how does it relate to their personal
and behavioral characteristics; how do they learn?
See table 2.

The Entrepreneur as Strategist and Improviser
Figure 4. In the labyrinth of the Minotaur (© Kiril Todorov; Painter: Georgi Chalakov; based on the
idea of the author)
Based on their behavior and characteristics we
can classify Theseus and Pyrrhus as “the entre-
preneur who learns” (strategist) and “entrepreneur
who does not learn” (short-term oriented).
The Entrepreneur Who Learns
He takes into account the conditions and require-
ments of the environment and strives to uncover
his best features to achieve his goal. He relies on
the good knowledge of the enemy on the basis of
previous experience of others and his own judg-
ment even on the moment. Before the victory he
is thinking about what will happen after it even to
the last moment (obtaining the ball from Ariadne).
He cannot be a mythological hero who fights with
ghosts (unidentified enemy), which change their
location and do not engage in a miracle battle
like Don Quixote. He is the archetypal strate-
gist, who explores opportunities and realizes his
vision in practice. It is important to stress the
combination of a strong “strategic” orientation
and expert entrepreneurs’ (effectuation) approach
with the appropriate orchestration of all resources
to achieve strategic goal.
527

Table 2. Personal and behavioral characteristics of the entrepreneur – the strategist who learns (Theseus)
and the impulsive entrepreneur who does not learn (King Pyrrhus)
Theseus
He believes that victory over the Minotaur is just another battle in the
war against “the enemy” (competition).
He uses outside help (ball of Ariadne), not only as a strategic tool to
win the battle, but also to extract a long-term benefit from the results/
accumulate new experience (as improviser).
He has a very good professional and psychological preparation (is very
well aware of his own power and uses it depending on the situation).
He applies “learning by doing,” understands and corrects own mistakes,
and learn from the mistakes of other heroes who tried to kill the
Minotaur before him.
He takes significant, but calculated risk (having in mind the existing
experience, information, intuition but he has never seen the Minotaur);
he evaluates the concrete opportunities but threats also, and improvises.
He possesses strong motivation, concentration and ability to estimate
risk, distribute efforts and coordinate resources and is able to improvise
(to be in love with Ariadne and to receive the ball of thread, which she
gave to him!)
Conclusion: There are conditions for winning the “war” and for future
(strategic) development. The danger is in getting accustomed to the
routine from success and in ignoring to some extent the possibility that
the circumstances may turn against him in case of sudden changes in
the external environment
Source: Based on Todorov, 2011b.
The Entrepreneur Who Does Not Learn
He takes situational, impulsive decisions, influ-
enced by prestige and other emotional reasons. It
is of greater importance “to have an enemy” rather
than “what is the enemy.” As to the outcome of
the battle, the internal “ego” stands before the
rational thought. He may be suitable for action in
an unstructured environment but not continuously.
He is a man of “spontaneous action,” improvis-
ing more than the situation requires with no clear
view on distribution and coordination (price) of
resources. It is useful here to add the case of the
“Icarus” type of entrepreneur.
528

The Entrepreneur as Strategist and Improviser
Pyrrhus
He believes that the victory over the Minotaur is a single
decisive battle, by which the war against the enemy will end.
He believes that he will solve the problems alone on the spot,
relying on his own capabilities and being confident that he is
identified by the God to win.
He lacks experience and preparation for ‘battles’ in
a multicultural environment (good for the Greek, but
inapplicable for the Roman conditions).
He does not learn from his mistakes - if he does so, it is done
subsequently, with a delay.
He takes uncalculated risk (attitude for making impulsive
decisions without thinking about the consequences). No
appropriate contextual behavior.
He possesses healthy motivation, strong enthusiasm, a huge
potential to work in tense (unusual) conditions, a huge will
to prove himself (to gain prestige), but he is unstable in the
longer term (like a cheetah running at high speed in short
distances)
Conclusion: He lacks entrepreneurial vision (short-term
oriented). Bad distribution and orchestration of resources. It is
likely that the Minotaur will “eat him.” He may win the battle
but will lose the war.
Icarus (Impulsive, Dreaming
Entrepreneur)
Exploiting the famous myth of Icarus’s flight with
wax wings, this case illustrates the unfavorable
business environment and its underestimation by
the unprepared, impressive entrepreneur (Icarus).
More of a dreamer and improviser than a rational-
ist, he resembles a product with a short life cycle
and unclear competitive advantages. In his case
he sees the ‘desired’ as equating with reality. With
wings melted by the “sun of competition” the en-
trepreneur Icarus logically falls into the Charon’s
boat, carrying the souls of the dead into Hell. In
this case Icarus is a “romantic” parallel of Pyrrhus
(Todorov, 1993; Todorov, 2011b).

The Entrepreneur as Strategist and Improviser
The Golden Fleece (Entrepreneur and
Team as Strategists and Improvisers)
A favorite metaphor to illustrate the actions of the
charismatic (improvising), but also well-prepared
(with a strategic vision) entrepreneur-leader, is the
famous myth of Jason and the Argonauts, who went
to search for the Golden Fleece in ancient Colchis
(today’s Georgia) (Todorov, 1994) – Figure 5:
In this case, the metaphor is used for illustrating
(synonym of) the search for know-how in the field
of entrepreneurship and management (Golden
Fleece) by Eastern European teachers, consultants,
researchers and entrepreneurs in Colchis (Euro-
pean Union), where the Golden Fleece is located
(Todorov, 1994). Here the context of transition
of these countries to a market economy embraces
emotions around the merits of the new economic
system. But in contrast to Theseus and Pyrrhus/
Icarus, the team work employed in achieving
the strategic goal is presented. The letters on the
picture (Figure 5) stand for:
Figure 5. In search of the Golden Fleece (© Kiril Todorov; Painter: Georgi Chalakov; based on the
idea of the author)
E: Jason, captain of the ship – the Entrepreneur
with strategic vision (explorer) making the
most important decisions and coordinating
resources;
N: Helmsman – Operations manager helping
entrepreneur in maintaining the right and
rhythmic direction for the ship (coordinating
business processes);
M: Navigator/Marketing manager – checking the
depth and shallows (competition) with a rod;
C: Consultant – external advisor observing from
the distance the trends and risks in the busi-
ness environment;
P: Rowers – the Personnel, working in line with
the oars and other systems of the ship (firm).
This famous, ancient story presents in an ex-
cellent way the journey of the Argonauts, led by
Jason to achieve the desired (strategic) objective
– Golden Fleece:
It highlights:
529

• The use of existing accumulated experi-
ence (stories of eyewitnesses, proposals of
philosophers, seaman, etc.);
• Knowledge (to a limited degree) only for
cabotage shipping (coastal sailing), com-
bined with guessing (improvisation) – nav-
igation by the water, sun, stars and birds.
• Coordination of the resources and efforts
of the team (business processes and moti-
vation of personnel) for achieving syner-
getic effects from the teamwork.
During the journey Jason, the managers and
the rest of the personnel are a constantly learning
community, taking into account the changes in
environment (weather, water, unexpected barri-
ers, etc.) – an explorer’s strategic approach. Most
important is how the entrepreneur is learning by
doing, correcting in real time what is necessary
(strategic learning – see Figure 1). At the same
time he has to improvise to a certain extent, tak-
ing higher risk.
The stories analyzed present in an metaphoric
way how entrepreneurs (alone or with team) (un)
act as a strategist and improviser in the context of
strategic entrepreneurship concept.
CONCLUSION AND FUTURE
RESEARCH DIRECTIONS
Today’s international, dynamic, multicultural
business environment raises increasing challenges
for SMEs and their entrepreneurs/managers. Oc-
cupying competitive positions in such a business
environment, with ever-increasing change and
uncertainty, requires searching for strategic tools
which are appropriate to the specific character-
istics of SMEs and the Entrepreneur in his/her
leadership role. It is suggested that one of the
most important answers to these challenges is
the generation of the new concept of “Strategic
Entrepreneurship” which combines two separate
530

The Entrepreneur as Strategist and Improviser
areas: entrepreneurship and strategic management.
Although still underdeveloped, it is contended
that it is a good basis for understanding how to
build sustainable competitive advantages in such
a complex environment.
The leading role of the entrepreneur as a strat-
egist, particularly in SMEs, is not in doubt. The
problem is how to implement it in practice - alone
or with a team. One option is to take the classical
(casual) approach to SM, drawing on the theory
and practice of large companies, but this is less
applicable to the specific conditions of SMEs.
They do not have opportunities that large enter-
prises have for planning of the strategic process,
nor do they have the resources to implement it
(time, finances, personnel and attraction of ex-
ternal specialists). Therefore, in such cases, it is
argued that the so-called “explorer” (effectuation)
approach is more suitable for the entrepreneur-
strategist. Its main feature is a change in the way
of thinking and the basis for action to respond
to dynamic environmental conditions and the
real time response to them. The search for and
exploitation of entrepreneurial opportunities as a
component of SE require specific knowledge and
skills. They are not “frozen” and should therefore
be changed according the dynamic circumstances.
A very important aspect in SE is the strategic
learning – that is learning from one’s own and
others’ mistakes. Decisions and consequent actions
by the entrepreneur-strategist are often based on
insufficient information, with little or no external
help. He/she needs to bridge the gap in information
by improvising, based on available knowledge,
skills, communication/negotiation skills, experi-
ence, and charisma. This is a very “thin” moment
in entrepreneurial strategic behavior because of
the stretch of the time horizon, the difficulty of
assessing facts and events, but also because of the
danger of “wrong improvisation” and the relevant
losses. Nevertheless, improvisation is a powerful
success factor together with appropriately used
myths, metaphors, tricks, bluffs, jargon. These

The Entrepreneur as Strategist and Improviser
tools provide color and dynamism, creativity and
reduce uncertainty helping the entrepreneur to get
closer to the success sought.
Understanding the phenomenon of “entrepre-
neurship,” the figure of the entrepreneur and his/
her behavior also requires unconventional ap-
proaches (improvisation) in the teaching/training
of students in entrepreneurship as well as nascent
and established entrepreneurs. In this context,
myths, metaphors and other tools serve well if
properly selected and applied. Specific, impro-
vised studies may demonstrate almost everything:
the entrepreneur as a strategist, as (strategic)
improviser (even balancing on a wire) or as an
impulsive, romantic (but poorly prepared) entre-
preneur. Using known myths and metaphors for
events and persons is an excellent tool for drawing
comparisons and understanding the entrepreneur
in his/her roles as strategist, leader, manager and
even improviser in reality – not least when dealing
with multicultural audiences.
It is hoped that the research issues posed in the
introduction to this chapter have been answered
with some added value around certain themes.
Although in recent years there has been an
increase in the research in SE and other concepts,
including the roles of entrepreneur as a strategist,
leader, improviser and their interactions in dif-
ferent contexts, much remains to be done in this
field, such as:
• Testing the concept (SE) in practice in dif-
ferent conditions in diverse international,
economic, social and cultural contexts;
• Searching for a dynamic balance between
behavior based on information and facts
and those based on improvisations well as
formulating practical recommendations to
guide practice;
• Finding out how the entrepreneur-strategist
and improviser can better learn from his/
her mistakes (strategic learning) and mak-
ing recommendations in this direction;
• Can the entrepreneur learn (be trained) to
apply the explorer’s strategy (which in-
clude contextual approach and response,
strategic change, skills for resource nego-
tiation and improvisation), to be seen as a
“complex entrepreneurial player.”
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KEY TERMS AND DEFINITIONS
Bluff: Often associated with negotiating from
the position of power, especially when the negotia-
tor (bluffer) does not have such position. A basic
requirement for successful bluff is that the other
side does not know it is happening and to give the
impression that the negotiator has other options.
534

The Entrepreneur as Strategist and Improviser
Entrepreneur-Improviser: A person who
takes actions in dynamic, ambiguous situations
without sufficient formal information and re-
sources by improvising and taking certain risks
according to the needs of the situation in a spon-
taneous, new way, using available knowledge,
experience, intuition and charisma to achieve
maximum effect.
Entrepreneur-Leader: A person with a
vision, communication and negotiation skills,
charisma, taking risk and responsibility even for
the mistakes of others. The real Entrepreneur –
visionary leader can encourage the team to fol-
low him/her even in confusing and unpredictable
circumstances.
Entrepreneur-Strategist: A person with stra-
tegic vision, using formal, available, often scarce
resources, but to a significant degree acts on his/
her personal and behavioral characteristics in the
form of knowledge, skills, experience, intuition,
charisma, refracted through his/her own value
system to achieve strategic goals.
Exploitation: Taking advantage (commer-
cialization) of entrepreneurial opportunities of
a strategic nature and consequences. It can be
associated with the (strategic) management ap-
proaches and tools.
Exploration: Discovery of entrepreneurial op-
portunities with strategic nature and consequences.
It can be associated with the entrepreneurial
activities (behavior).
Jargon: Phrases/metaphors whose archetypes
are taken mostly from the stories of famous writ-
ers, popular in various parts of the world, from
folklore or business practice.
Metaphor: A multifaceted literary device that
assists in interpreting complexity and expressing
clarity, a variable tool for leaders/followers in
organizations. It adds color to physical, emotional
and spiritual dimensions of existence (Van Engen
2008).

The Entrepreneur as Strategist and Improviser

Myths: Sacred stories containing fundamen-
tal truths about the nature of human life and in
particular the economic and social activity of the
human beings.
Strategic Entrepreneurship: A new concept
combining two separate areas: entrepreneurship
(exploring opportunity) and strategic manage-
ment (exploiting opportunity) in order to achieve
strategic effect.
Trick: A creative technique used by entrepre-
neurs, which also can represent a form of fraud and
might be doubtful from an ethical point of view.
ENDNOTES
1
A number of myths, metaphors and images
are included in papers presented by the author
at various professional international forums.

This work was previously published in a Handbook of Research on Strategic Management in Small and Medium Enterprises
edited by Kiril Todorov and David Smallbone, pages 98-123, copyright year 2014 by Business Science Reference (an imprint
of IGI Global).

535
536

Chapter 29
Users’ Involvement in
the Innovation Process
through Web 2.0:
A Framework for Involvement Analysis
in a Brazilian Automotive Company

Sergio Ricardo Mazini

São Paulo State University, Brazil

José Alcides Gobbo Jr.

São Paulo State University, Brazil

EXECUTIVE SUMMARY
Organizations are inserted into a competitive environment in which innovation is an essential factor in
gaining temporary competitive advantages. The search for external sources of knowledge, which can
contribute to the innovation process, has become a constant among the organizations. One of the actors
involved in this search is users, who often play an important role in the development of new products. This
chapter develops a framework for the analysis of users’ involvement in the innovation process through
Web 2.0. The research method used a unique case study conducted in a Brazilian automotive company
that developed a project of a concept car involving users through Web 2.0. The presented study case was
analyzed according to the framework. The obtained result shows that users can contribute not only with
idea generation, but also with involvement in the innovation process, depending on which steps of the
New Product Development (NPD) process they take part in. Moreover, increasingly users’ development,
participation, and collaboration are essential factors in this process.

INTRODUCTION has become an effective concept to provide the

External sources of knowledge and information
are factors considered relevant in innovation
activities and new product and service develop-
ment. The open innovation (Chesbrough, 2003)
search of external resources. The concept suggests
an approach for the innovation, through the col-
laboration of several actors in the value chain for
the search of new knowledge and technologies.
Ryzhkova (2009) argues that is a relatively new

DOI: 10.4018/978-1-4666-8468-3.ch029

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Users’ Involvement in the Innovation Process through Web 2.0
concept, which has attracted the attention of aca-
demics and practitioners. Generally, the paradigm
of the open innovation suggests that companies
search partnerships and the involvement of other
actors (usually, external) that can contribute to
the innovation process (Rossi, 2009). The ability
to identify and involve customers during the in-
novation process can be considered an important
factor for the development of innovative activities
of a company (Lettl, 2006).
New information and communication tech-
nologies are contributing to the customers’ par-
ticipation in all steps of the product development
process, which allows the improvement not only
in costs and time, but also, projecting what the
customers really want (Mattos & Laurindo, 2008).
The innovation tools, based on Web technology,
can simplify integration with customers and also,
knowledge absorption, facilitating the interaction
between company and customers (Prandelli, et
al., 2006).
This research is limited to the exploration of
different types of Web-based collaboration with
users for the purpose of innovating. The focal point
of this chapter is the exploration of Web based
user innovation methods, from the companies’
perspective, aiming to address organizational and
management issues of collaboration with users.
From the standpoint of management practice,
the goal is to contribute to a better understanding
of organizational and management challenges
arising from the implementation of toolkits for
innovation through the Web. From the standpoint
of management research, the exploration of tools
for user innovation, as methods of practicing open
innovation, will help to improve the concept.
Additionally, it is described and analyzed
a unique case study of a Brazilian automotive
company, which adopted Web 2.0 for user innova-
tion. This case represents a paradigm shift in the
automotive sector, because no auto manufacturer
has “opened” the development process of a car so
far (Wentz, 2010). It is a common sense, that the
auto companies use the Internet to organize their
hundreds of suppliers, but not to design their cars.
Gladwell (2010) suggests that the articulation of
a coherent philosophy of auto design cannot be
conducted by an open network system without a
system of organizational leadership and control.
The study will help to understand how to involve
users in the process of innovation with Web 2.0
toolkits, as well as, the impact that the adoption
of the method of user innovation has had on the
company.
The literature has also shown the possibility
of a successful involvement of users through the
Web 2.0 in the efforts of companies’ innovation
(Piller & Ihl, 2009). Fredberg et al. (2008) suggests
that the advent of new collaborative technologies,
specifically the use of Web 2.0, lead to the need for
reevaluation of existing models and their analysis
based on the new practices. In order to benefit
from user innovation, companies must respond
to the new challenges, to modify their existing
practices and to develop a specific set of skills
(Piller & Ihl, 2009). Thus, this context opened
up a gap in the theory to an effective analysis of
this type of involvement.
OPEN INNOVATION
The open innovation model was proposed for
the management of innovation and is based on
the necessities of the companies to open up their
innovation processes and to combine internal and
external development of technology for the value
creation in business. The term open innovation
was firstly proposed by Chesbrough (2003), and
it refers to the organizations capacity of search-
ing ideas, information and knowledge outside
the organizational environment. For Chesbrough
(2003), the innovation processes of companies
that are intensive in technology are changing from
the “closed innovation” for the “open innovation”
model. The open innovation emphasizes the
importance of the use of external knowledge for
the best development of the innovation process.
537

Users’ Involvement in the Innovation Process through Web 2.0
In the previous paradigm of closed innovation,
the companies adopted the philosophy that an in-
novation to succeed needs control. In other words,
the companies must generate their own idea and
then develop them for the market. In the end of
20th Century, however, a combination of factors
changed. Maybe the main factor was the increase
in the number and mobility of the knowledge
workers, bringing an amazing difficulty to the
companies to control their original ideas. Other
important factor was the crescent availability of
private venture capital, which has helped to finance
new companies and their efforts in commercialize
ideas that were coming up outside the corporative
research laboratories (Chesbrough, 2003). In the
open innovation model, the companies commer-
cialize their own ideas as well as the ideas of other
companies and seek for bringing the internal ideas
to the market for the development of external ways
to business (Chesbrough, 2003).
Figure 1. The open innovation model (Chesbrough, 2003)
538

Figure 1 shows that the research projects are
not restricted to the company´s frontiers and, many
of them, being conducted by external agents to
the company. In this moment, the interaction with
the external agents to the company is a constant.
A great number of studies (Christensen, et al.,
2005; Dogson, et al., 2006; Gassmann, 2006;
Vanhaverbeke, 2006) are adopting this term to
describe the phenomenon where the companies
depend more and more on external sources of in-
novation and show the importance to investigate
how the companies can implement the open in-
novation, emphasizing the importance of having
the “suitable conditions” (in terms of strategy of
the company, capacities, organizational factors,
management tools, etc.) to implement an open
approach successfully.
The first models of open innovation have been
seen and studied in the development of Open
Source Software (OSS) and were subsequently

Users’ Involvement in the Innovation Process through Web 2.0

transferred to the more general practices (West Chiaroni et al. (2011) proposes a theoretical
& Gallagher, 2006). Today, open innovation is framework to enable companies to dynamically
becoming a paradigm that connects the various deploy the new emerging paradigm of open in-
parts of management research. The term is still novation, as shown in Figure 3.
being debated, and many authors agree that it In the dimensions of open innovation, it is
has a much wider application than originally possible to identify two conceptually distinctions:
proposed by Chesbrough (e.g. Piller & Walcher,
2006). The literature discusses a wide range of • Open innovation from outside to inside,
topics such as: the concept of open innovation, e.g., outside-in, in which the practice to
business models, organizational design and bound- utilize the findings of others, involves the
ary limits of the firm, leadership and culture, opening and establishment of relations with
tools and technologies, Intellectual Property (IP), the external organization in order to access
patenting and ownership, and industrial dynamics their knowledge and skills to improve the
manufacturing. The research field is expanding company’s innovation performance.
in many directions and the ongoing discussions • Open innovation from inside to outside,
cover a variety of areas connected by the general e.g., inside-out, which suggests that, in-
purpose of understanding how companies can be stead of relying entirely on internal paths
more innovative. to market, companies can look to outside
Lazzarotti and Manzini (2009) identify two organizations with business models that
variables that represent the opening level of the are more suitable for the commercializa-
innovation process and of products development tion of a particular technology.
in a company: the number and kinds of partners
which the company collaborates and the number
and kind of innovation process steps that the Figure 2. The four ways of open innovation (Laz-
company opens to external collaborations. The zarotti & Manzini, 2009)
Figure 2 illustrates the authors´ thoughts.
According to Lazzarotti and Manzini (2009),
the closed innovators model corresponds to the
companies that access external sources of knowl-
edge only for a specific moment of the innovation
funnel. The specialized collaborators model cor-
responds to the companies that are able to work
with several kinds of partners but concentrate
their collaborations in one point of the innova-
tion funnel. Yet the integrated collaborator model
corresponds to the companies that open all their
innovation processes but the contributions are
only from a few partners and, finally, the open
innovators model corresponds to the companies
that are really able to manage a wide set of tech-
nological relationships and that involve a vast set
of different partners.

539

Users’ Involvement in the Innovation Process through Web 2.0
Figure 3. Theoretical framework for deployment of open innovation (Chiaroni, et al., 2011)
In the adoption process of open innovation, it
is possible to identify three phases through which
organizations pass:
• The first phase involves the creation of a
sense of urgency for change, creating an
administrative coalition to defend change,
in creation and communication of the
new vision to both internal and external
stakeholders.
• In the second phase, the concerns are with
the actual implementation of change, driven
by the creation of new procedures and stan-
dards of behavior compatible with the new
vision, possibly acting on budget constraints,
goals, schedules, and reward systems.
• The third phase involves the institutional-
ization of the new order, through the con-
solidation of the improvements made in
the previous step, preventing a slide back
to the previous situation.
540

In the managerial levels of open innovation,
one can identify four main points that the imple-
mentation of open innovation has an impact:
• Relationship Networks: Implies an exten-
sive use of interorganizational relations, in
the generation of external ideas from a va-
riety of innovation sources and, new ideas
to the internal market that are outside to the
current company´s business model.
• Organizational Structures: The success
of knowledge management acquired ex-
ternally requires the development of com-
plementary networks and internal organi-
zational structures dedicated access and
integration of knowledge in the innovation
process of the company.
• Process Evaluation: The opening of the
innovation system increases the difficulties
generated by the evaluation of innovation

Users’ Involvement in the Innovation Process through Web 2.0
projects that often involve uncertainties in
the techniques and the market.
• Knowledge Management Systems:
Finally, managers may be forced to engage in
knowledge management systems to facilitate
the introduction of the new paradigm of in-
novation management.
Accordingly to Muller et al. (2012), the first
step for companies who wish to adopt the process
of open innovation is to evaluate each stage of the
innovation process and to consider which methods
of open innovation will be best applied to the com-
pany’s growth objectives. Furthermore, the author
also suggests that companies should approach
external partners to get access to complementary
knowledge. A central part of the innovation pro-
cess is, also, the organization of searches for new
ideas that have commercial potential (Laursen &
Salter, 2006). So far, researchers have explored
these issues in general and have concluded that a
change of closed to open innovation will inevitably
occur. However, how this will occur is less clear.
Open innovation is a paradigm that assumes
that companies can and should use external ideas.
There are many ways to practice the concept, and
between these, user involvement is of a primary
concern. Collaborating with users can be a valuable
resource to access external knowledge. However,
while collaboration with users can be a promis-
ing strategy, it also has its risks and limitations
(Dahlander, 2006; Braun & Herstatt, 2008). After
presenting the open innovation concept, the next
step discusses the importance and mechanisms to
involve customers in the innovation process, con-
sidering, above all, those that involve users along
the process of New Product Development (NPD).
USERS’ INVOLVEMENT IN
INNOVATION PROCESS AND NPD
The change of innovation from directed by the
manufacturer to the user-driven innovation has
been identified several decades ago, when the
influential role of users in the process of develop-
ing new products became evident, thanks to the
influential work of von Hippel (1986). Accord-
ingly to von Hippel (2007), economic actors are
defined in terms of the manner in which they expect
to appropriate the benefit of a certain innovation.
Therefore, “users” are firms or individual consum-
ers that expect to benefit from the use of a product
or service. In contrast, “manufacturers” expect to
benefit from selling a product or service. The user
innovation and manufacturer innovation are the
two general functional relationships. Users are
unique, because they benefit directly from innova-
tions. All others (considered here as “manufactur-
ers”) must sell the products and services to users
directly or indirectly, in order to be profitable.
User innovations are not necessarily innovations
by end users or consumers. An innovation is a user
innovation when the developer expects to benefit,
by using it. An innovation is a manufacturer in-
novation when the developer expects to benefit
from the sale of this (Franke, 2009). Thus, users
can also be innovative companies if they play the
role of product users.
The active role of consumers has been studied
in the literature on innovation management in
recent decades. Research has shown that many
commercially successful products and processes
are originally results of innovative users rather than
manufacturers. The seminal work of von Hippel
(1986) on lead users has shown their importance
as a source of innovation and has been followed by
other researchers (Olson & Bakke, 2001; Lilien,
et al., 2002; Bonner & Walker, 2004).
Accordingly to Moore (1991) five main seg-
ments are recognized in the technology adoption
life cycle: innovators; early adopters; early and
late majority; and laggards. Lead users especially
express their value for companies that operate in
fast-paced and turbulent markets as they move
ahead of the market with their specific needs
(Figure 4).
541

Users’ Involvement in the Innovation Process through Web 2.0
Figure 4. The roles of leading users throughout the product development cycle (adapted from Moore, 1991)
Develop an accurate understanding of user
needs is neither easy nor free of cost, and the
traditional approach is coming under increasing
scrutiny as user needs change more rapidly, and
firms increasingly seek to serve “individual mar-
kets” (von Hippel & Katz, 2002). Several authors
argue that an over reliance on consumer feedback
negatively impacts the degree of product innova-
tion (Bennett & Cooper, 1981; Christensen, 1997;
Christensen & Bower, 1996; Augusto & Coelho,
2009). The assumption is that consumers or us-
ers are generally unaware of how their needs will
evolve and how certain technologies can impact
the satisfaction of their needs (Augusto & Coelho,
2009). Users and consumers are usually not able to
articulate their need for truly innovative products
because their thinking is shaped by the actual
products on the market (Grunert, et al., 2008).
Despite the great sophistication in market re-
search methods, it remains difficult to understand
customer needs. Very often, customers have very
heterogeneous preferences. Von Hippel and his
team revealed that user needs are extremely dif-
ficult to understand, because they often involve
consumer´s tacit knowledge, which is revealed
542

only through learning-by-doing (von Hippel,
1998). Von Hippel (1998) describes this quality
of customer information such as stickiness. The
stickiness of a given unit of knowledge or, infor-
mation, is defined as the incremental expenditure
necessary to transfer this unit from one place to
another, in order to be accessed by the recipient.
When this expenditure is low, the stickiness of
information is low; also, when this expenditure
is high, the stickiness of information is high.
Consequently, the customer information is more
difficult to move (von Hippel, 1998). For this
reason, many companies began to appreciate the
deep integration of users in product development,
in order to exploit their tacit knowledge.
The degree of integration has increased, to-
wards the delivery of product specification for
virtual users, which develop products themselves
(Dahan & Hauser, 2002; von Hippel & Katz, 2002;
Gassmann, 2006). Integration of consumers in the
early stages of the innovation process has been
analyzed in relation to roles (Brockhoff, 2003),
the possibilities (von Hippel, 1998, 2005), and
risks (Enkel, et al., 2005). An increasing integra-
tion of users is being facilitated by two technical

Users’ Involvement in the Innovation Process through Web 2.0
trends related to: (1) the growing improvements
in the ability to design (innovation toolkits) that
advances in computer hardware and software
make it possible for users, (2) the constant im-
provement in the ability of individual users, to
combine and coordinate their efforts related to
innovation through new media like the Internet
(von Hippel, 2004). Thus, user innovation is not
a new paradigm, but its importance is increasing
due to cost reduction of interaction with the new
communication technologies.
With the high market uncertainties of radical
innovations, firms need to involve users as a source
of knowledge related to the market. According
Lettl (2007), two potential barriers related to us-
ers account for this. First, cognitive limitations
may prevent users from delivering a value input
(barriers of not knowing). Second, users may be
unwilling to contribute to radical innovation proj-
ects (barrier of not wanting). A review of empirical
studies reveals that some users are involved in
innovation processes by acting as inventors and
(co)developers. Computer users, who are using
and redefining the open-source software, are
the most visible and recent innovators (Shapiro,
2000; Braun & Herstatt, 2008). Information and
communication technologies have enabled the
sharing of software almost costless and led to
global and virtual innovation communities (Tietz,
et al., 2006).
In his book, The Sources of Innovation, von
Hippel (1988) describes the importance of the
interaction with customers in the NPD. Users
that participate in the innovation process can
develop exactly what they want, and interact
with the company to deal with their agents. In
this context, von Hippel (1986) defines a special
category of users called leader users and that
differentiate themselves from the common users
in two aspects: they seek for their necessities for
months and years before the costumers´ mass and,
they are motivated and engaged in the effort for
innovation.
The process of generating new products and
services can be supported by leading users, as they
reveal themselves as a source of knowledge and
ideas about the products and services (Inauen &
Wicki, 2011). Procter and Gamble, as an example,
migrated part of their research and development
(R&D) function to the concept of connect and
develop (C&D) model that is based on external
sources of ideas, which have involvement of lead
users (Hennala, et al., 2011). Another example is
Apple with its iPhone, where thousands of external
software developers have developed applications
for the product, turning it into a commercial suc-
cess that became the center of a thriving business
(Boudreau & Lakhani, 2009).
The customers can be involved not only in the
ideas generation for new products, but also in the
co-creation with the companies, in final tests of
products and providing support to final users.
According to Nambisam (2002), there is a variety
of roles that the customers can play in product
innovation and value creation. Table 1 describes
the roles of customers in NPD.
The development of innovations by users,
provided by the information and communication
technologies, result in the existence of several
kinds of relationships among companies and
customers, which the consumers have different
roles in the innovation process.
Accordingly, to Piller and Ihl (2009), three ways
of customers´ participation in the NPD can help
to understand the different roles that customers
have to collaborate with the companies:
• Design for Consumers (Mode1): In a first
contact, the products are made according to
the consumers´ preferences. The company
uses information acquired through several
ways, such as feedback of sales and groups
that search for the consumers´ necessities.
• Design with Consumers (Mode 2):
Besides the acquired information (Mode
1), solutions and different concepts for
543
 
Users’ Involvement in the Innovation Process through Web 2.0

Table 1. Customer´s role in the NPD (Nambisam, 2002)

Customer as a resource Ideation • Customers´ appropriation as innovation source

• Selection of innovative customers
• Necessity of several incentives to the customers
• Infrastructure to capture the customers´ knowledge
• Differentiated roles of existent and potential customers.
Customer as a co-creator Design and • Development in a wide range of design and development tasks
Development • Context nature of new development process: industrial/consumption products.
• Adjustment with internal teams of NPD process.
• Uncertainties Management of the projects.
• Reinforcement of the customers´ knowledge in products/technologies.
Customer as an user Products Test • Scheduled Activities.
Products Support • Assure the customers´ diversities.
• Continuous Activities.
• Infrastructure to bear the interaction among customers.

consumers are also sought, so that they
can react in proposing other solutions of
design.
• Design by Consumers (Mode 3): In
this mode, the consumers are involved in
the design and development of products.
Usually, the company offers technological
mechanisms for the interaction with the
consumer.
The customer´s focus seems to promote the
advantage of new products in terms of reliabil-
ity, quality, and exclusivity. Moreover, if the
customers not only describe their needs, but also
try to come up with solutions that satisfy these
needs, the companies will get insights on the
direct demands of the consumer market (Lüthje
& Herstatt, 2004). The marketing literature also
discusses about the value co-production through
the consumers´ involvement in the NPD processes.
Lusch (2007) classifies the co-production in three
perspectives: “to market” which the involvement,
interaction and worry about the consumers that
do not present relevance in the development of
new products, “market(ing) to” which the interac-
tion and the involvement with the consumers are
not part of the company´s strategy and are seen
as resources and “market(ing) with” which the
consumer is considered a partner that interacts
with the company and takes part in the process
of value co-production. Santos and Brasil (2010),
in turn, describe three variables to be considered
for the consumers´ involvement in the NPD pro-
cesses: the involvement ways of the consumers,
the process steps of development, and the involve-
ment intensity.
Many companies seek for the customers´
knowledge to help and support the innovation
process in the products development. The new
information and communication technologies
have created new opportunities for the integration
with the customers. The tools based on Web 2.0
can simplify the integration with the customers
and the absorption of the knowledge in a low
cost (Prandelli, et al., 2006). The collaboration
mechanisms based on the Internet can be mapped
for the use in the new development process of
products in two important dimensions–the nature
of the customers´ involvement that is needed, and
the stage in NPD which the customer is involved.
The Figure 5 shows the variety of mechanisms
based on the Internet classified in both dimen-
sions: front-end and back-end (Sawhney, et al.,
2005). Figure 5 shows the two main variables
in the collaboration mechanisms based on the
Internet: the first one is the collaboration nature
and, the second one is the development phase of
the product (front-end and back-end). According
to these variables, some mechanisms and tools
are more adequate than others.

544

Users’ Involvement in the Innovation Process through Web 2.0
Figure 5. Collaboration mechanisms based on the Internet (Sawhney, et al., 2005)
The progress of NPD refers to the stage, in
which customer inputs enter in the development
process, i.e., the consumer input enters in the be-
ginning of the front-end process (ideas generation
and development concepts) or, if enter later in the
back-end process (product design and testing).
Front-End Phase of
Consumer Innovation
In the early stages of the NPD, generate ideas
and select the best are the main activities. The
process of idea generation is more open and cre-
ative than selection. Thus, two activities can be
differentiated according to the different degrees
of freedom. About the degrees of collaboration,
both tasks are performed between the company and
individual consumers without the collaboration of
other consumers who characterize them as dyadic
interactions. The task of generating and selecting
ideas can be attributed to consumers through idea
competitions (Piller & Walcher, 2006; Terwiesch
& Xu, 2008) and screening of ideas (Toubia &
Flowers, 2007), respectively. The mechanism of
competition (companies offer rewards to winners)
can also be seen as a powerful tool to motivate
customers to transfer their innovative ideas.
Moreover, this competitive mechanism can help
to identify lead users in order to drive the integra-
tion of them in the later stage of the NPD (Piller
& Ihl, 2009). As suggested by Toubia and Flores
(2007), the next task of selecting ideas can also
be delivered to consumers through idea screening.
In the network configuration, consumers
perform similar tasks of idea generation and idea
selection. Consumer communities are recognized
as important sources of innovation, because they
allow consumers collaboration that generates
abundant and valuable innovations (e.g., Shah &
Franke, 2003). As consumers communities differ
in their objectives in relation of entry to NPD,
Piller and IHL (2009) distinguish between com-
545

Users’ Involvement in the Innovation Process through Web 2.0
munities that are concerned with the generation
of new ideas and concepts (Sawhney & Prandelli,
2000) and discussion forums with related prod-
ucts, in which customers mainly exchange use
experiences (Piller & Ihl, 2009). As communities
of consumers differ in their objectives in relation
to NPD entry, Piller and IHL (2009) distinguish
between communities that are concerned with the
generation of new ideas and concepts (Sawhney
& Prandelli, 2000) and discussion forums with
related products, in which, customers mainly
exchange use experiences (Piller & Ihl, 2009).
The Back-End Phase of
Consumer Innovation
The back-end of NPD requires more sophisticated
inputs of consumers. Thus, in a dyadic interac-
tion, companies, often, provide consumers with
interactive platforms, called toolkits for open
innovation (von Hippel & Katz, 2002; Franke &
Piller, 2003). A toolkit is a development environ-
ment where users can find a solution according
to your needs using the solution space available.
The first revolutionary experience with toolkits
for user innovation occurred in the semiconductor
business in early 1980. The toolkits for designing
integrated circuits transformed industry and led
to a massive growth of the market between the
1980s and early 21st century (von Hippel, 2002).
Toolkits are differentiated into two types, ac-
cording to the degrees of freedom that the solu-
tion space provides to customers: toolkits for user
innovation and user toolkits for co-design and
customization (Franke & Schreier, 2002, Piller &
Ihl, 2009). The solution space of toolkits for user
innovation is almost unlimited. One example is
the solution information provided in the form of
software or programming languages. In contrast,
toolkit for user customization provides a solution
space which is limited to a predefined set of com-
ponents, such as a set of Lego bricks. The main
function of these toolkits is to individualize and
adapt the product to specific user needs.
546

Collaboration within networks of consumer’s
communities can continue to contribute to the
degree of development of customer solutions.
Piller and Ihl (2009) define this type of inno-
vation in the consumer as peer production. In
opposition to consumer communities that focus
on the front-end activities of the idea generation
and concept development, peer-based production
activities usually extends from the back end of
the NPD, where many users are working on the
collective production and product development.
The development of Open Source Software (OSS)
is a recognized type of user innovation.
Piller and Ihl (2009) argue that different types
of user innovation are used by companies when
deciding on a particular approach to customer col-
laboration, which could be more advantageous in
a given context. For example, the choice between
strong and stable relationships with consumers
or, the weak links, allowing the flexibility and
dynamism that can be done deliberately using one
or another method of the consumer innovation.
Furthermore, these methods force companies to
build capacity and infrastructure, which allow
consumers to develop innovation activities.
Currently, absorbing the external knowledge
to the organization can become an important
factor for the creation of successful innovations.
In the open innovation era, researchers question
themselves about a more active engagement of
the customers for the development of new prod-
ucts than the traditional market researches allow,
and according to Füller and Matzler (2007), the
customers can be virtually integrated into the
innovation process of the companies through the
new interaction tools that allow the companies
to get valuable contributions of the customers
through Internet.
User Involvement
throughout Web 2.0
A type of structure for user innovation and their
corresponding tools are the Web-based tools. Cur-

Users’ Involvement in the Innovation Process through Web 2.0
rently, there are a variety of innovation tools used
by Web-based companies in different industries
that can serve as inspiration for the development
and testing of new services and business models. A
number of innovation tools are used in the phases
of exploration (front-end) and exploitation (back-
end) of the innovation process. These collaboration
tools with users are classified according to reach
(reaching many users and generating a broad
knowledge) or depth (reaching a few selected users
and generating a detailed knowledge and deep).
In the early stages of NPD as ideation and
concept development, tools such as virtual com-
munities are more appropriate because they allow
a greater participation of users to post their ideas
and also to comment or vote on the ideas of other
users. Already in the design and testing phases,
the toolkits are an alternative for users to develop
prototypes and new products. With toolkits, users
can create a preliminary design, simulation or
prototype and to evolve the development of new
products in their own environment. Experiences
in fields where toolkits have been pioneers show
that, the developments of customized products
begin much more quickly and at lower cost.
Perhaps no word in technology has generated so
much discussion in management circles as “Web
2.0” (Cunningham & Wilkins, 2009). However,
what is Web 2.0 and why do organizations should
care about it? The second generation of Web
emphasizes the construction of a common, open
and friendly space to competitive intelligence,
focused on data capital offered by multiple us-
ers with simple tools and shared across multiple
interfaces (i.e., facilitating collaboration) (Hung,
et al., 2008).
Web 2.0 tools are very simple to provide,
require no maintenance and have very low costs.
With Web 2.0 applications, firms can enter the
“collective” in a much larger scale than had already
occurred (Bonabeau, 2009). Therefore, Web 2.0
can provide to companies and users the effective
ways to accomplish user innovation. Bernoff and
Li (2008) argue that increased levels of social
participation between consumers and the available
sophisticated technology, allow organizations to
place their social applications on equality with
other business projects. There are thousands of
Web 2.0 applications and specialized sites. The
most typical classes are the different types of
social networks, business networks, collaborative
encyclopedias, enterprise 2.0, and many other
specialized sites (See Lai & Turban, 2008, for
examples).
Janzik and Herstatt (2008) argues that the
motivation of members to participate is one of the
most critical success factors to online communi-
ties. This determines the quality and quantity of
ideas, as well as the selection and modification
of the contributions. Reward mechanisms can be
introduced to encourage more competent users to
compete in solving problems in specific innovation
markets with base on Internet (Nalebuff & Ayres,
2003; Sawhney, et al., 2005). Bretschneider et al.
(2008) believes that the motivation of members
to contribute requires incentives and a more ap-
propriate approach to the involvement of users.
In order to benefit from innovation activities on
the Web, a company needs to develop or acquire
certain skills. Piller and Ihl (2009) proposed the
need for three types of managerial skills in order
to successfully manage open innovation practices.
After a process of solving problems, they argue
the need to: 1) disclosure competence: the compe-
tence to disclose the company’s problems and to
establish an interaction with users, 2) appropriation
competence: the competence to capture and protect
user-generated knowledge, and 3) assimilation
competence: the competence to assimilate and
integrate the knowledge generated by the user in
the innovation process of the company. Moreover,
the advent of relatively recent Web innovation tools
makes many managers unaware and skeptical of
these tools and corresponding skills. There are a
number of management challenges to overcome
before being able to benefit from the innovation
generated by the user through innovation tools
on the Web.
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Users’ Involvement in the Innovation Process through Web 2.0

FRAMEWORK PROPOSAL tion with users, promoted by the informa-

FOR USER INVOLVEMENT
Based on the systematization of the literature
presented and on the analysis of the case study
presented in this work, it was developed a frame-
work for the involvement analysis and users´
collaboration in the innovation process, through
Web 2.0. The framework has as a basis the devel-
opment process of new products (front-end and
back-end) and it is divided in three dimensions: (1)
user´s involvement ways; (2) participation level;
and (3) Web 2.0 tools. The Table 2 illustrates the
dimensions of the framework and the authors
that are reference in the subject. In relation to
the first dimension of the proposed framework,
which refers to modes of user involvement, were
referenced authors that distinguished by clarity
and objectivity to address the major forms and
stages of involvement of users in the innovation
process. In relation to the second dimension of the
proposed framework, which refers to the level of
participation of users, authors who were referenced
have distinguished by approach to new ways of
participation of users, such as the Internet, and
also the intensity of these interactions. Finally, the
last framework dimension refers to Web 2.0 tools.
Authors were referenced by their explanation of
digital media usage in various stages of NPD and
innovation process.
• User Involvement Modes: The first di-
mension of the framework refers to the us-
ers´ involvement modes, according to the
NPD phases. The development of innova-
tion technology, resulted in the existence
of several kinds of relationships between
users and companies. Users play different
roles in the innovation process according
to the stage in which they are involved.
The first mode of users´ involvement (Mode 1)
limits to the generation and idea selection phase,
which correspond to the front-end phase of the
NPD. According to Nambisan (2002), the ideation
phase is where the company will understand that
its users are potential sources of innovation and
can contribute to the innovation process through
the generation and ideas selection. In this users´
involvement mode the organizations need to com-
prehend some necessary changes such as: Get the
establishment of a connection with users; Identify
the creation of several appropriate incentives with
the objective of making the ideas contribution, ag-
ile; Capture the customers´ knowledge and needs.
The second mode of user involvement (Mode
2) passes by the front-end phase and gets to some
back-end phases (design and development) where
the company will understand that its users are
potential sources to co-creation along with the
organization and that can contribute with the
innovation process through the creation of new
designs and prototypes. Comparing to the first
way of involvement, the interaction between users
and the company tend to be much more intensive
and frequent. In this user involvement mode, the
organizations need to comprehend some necessary
changes such as: new mechanisms to monitor and
control the quality of development and project

Table 2. Dimensions and references of the proposed framework

Dimensions of the Framework References

Users´ involvement ways Nambisam, 2002; Lüthje & Herstatt, 2004; Lusch, 2007; Piller & Ihl, 2009; Lazzarotti &
Manzini, 2009; Santos & Brasil, 2010
Users´ participation level Füller & Matzler, 2007; Santos & Brasil, 2010
Web 2.0 Tools Dahan & Hauser, 2002; Sawhney, et al., 2005; Prandelli, et al., 2006; Mattos & Laurindo, 2008

548

Users’ Involvement in the Innovation Process through Web 2.0
efficiency; necessity of a deeper technological
and product knowledge; improved adjustment of
internal teams of P&D with users.
The third mode of user involvement (Mode 3)
passes by the front-end and back-end phase where
the company will understand that its users are able
to contribute with all the development phases of
new products (idea generation, idea selection,
design, tests, release). Comparing to the first
and second involvement modes, the interaction
between users and company´s tend to be much
more intensive and frequent. In this mode of user
involvement, organizations need to comprehend
some necessary changes such as: the infrastructure
to bear the interaction between the company and
the users can have a high cost and end up limiting
the interaction; a company also needs to identify
who are its lead users, that are able to contribute
to the process. The three modes of user involve-
ment in NPD can help to understand the different
roles that users play when they collaborate with
the companies (Piller & Ihl, 2009).
• Participation Level: The second dimen-
sion of the framework refers to the partici-
pation level of the user during the develop-
ment process of new products. In the first
involvement mode, the level of participa-
tion is low because users are involved only
in the initial phases (front-end). In addi-
tion, in the second involvement mode the
participation level can be considered aver-
age, because users interact until the design
and product development phases (back-
end). In the last users´ involvement mode,
the participation level is considered high,
because users participate in all the front-
end and back-end phases.
A central matter is how to identify users that
can be motivated to participate and, to collaborate
in the innovation process. The utilization of on-line
communities, where users interact with others,
tends to have an increased level of participation
of users. The users´ individual necessities can
be not so interesting for the organizations, but
lead users, in particular, can have very distinctive
necessities in relation to basic users and custom-
ers. Instead of trying to satisfy the necessity of a
specific customer, it is economically more viable
for the organization to identify necessities, product
combinations, from several customers’ points
of view. It is possible to accomplish it, through
the support and motivation of customers, to use
their collective creativity to innovate together
(Antikainen, et al., 2010).
Some factors that can motivate the users´ to
collaborate to the innovation process of organi-
zations are (Antikainen, et al., 2010): interesting
goals and a clear purpose; an open and construc-
tive environment; Influence in the development
of new products and services; new points of view
and synergy; efficiency sense; to be fun; rewards
of participation and victories; cooperation sense;
community and similarity sense.
• Web 2.0 Tools: The third dimension of the
framework refers to some tools of social
media, existent in Web 2.0 and, that can be
used according to the development stage of
new products, services, and processes.
According to the users´ involvement modes,
some tools are more appropriate than others. In
the first user involvement mode, tools such as
Blog, YouTube, Twitter, and other social networks
features are more appropriate because they allow
larger participation of users “to post” their ideas
and also “to comment” or “to vote” on other us-
ers´ ideas. In the second user involvement mode,
tools such as Forums and Online Communities
allow a better organization of the discussions
through subjects or topics, where the discussion
of concepts and new technologies happen, which
promotes a better engagement by those users. At
the last user involvement mode, toolkits provide
to users tools for the development of prototypes,
new designs, creation, and test. It is necessary,
549

Users’ Involvement in the Innovation Process through Web 2.0
increased engagement of specialists and techno-
logical resources due to those tools.
The social media, used in user’s involvement
modes, need to be evaluated through two main
variables:
• Engagement: How easy is the engagement
for users through the collaboration technol-
ogies for sharing knowledge and express-
ing their opinions and ideas?
• Control: How much control will be in
users’ and other stakeholders’ hands and,
what are the difficulties for the company to
decentralize that control?
The three dimensions of the framework, for
the analysis of user’s involvement in the innova-
tion process through Web 2.0 are illustrated in
the Figure 6.
The framework includes key-factors analysis,
as the opening of the innovation process of the
organizations. In which stages will user’s involve-
ment happen?
• What types of modes users will be involved
in the process?
Figure 6. Framework for the analysis of the users´ involvement in the innovation process through Web 2.0
550

• What is the level of freedom and engage-
ment that the users will have?
• Which means will be utilized for the users´
involvement?
For the application of the framework, it is
recommended that organization, firstly, identify in
which stages of the process of NPD, users will be
involved. Then, it is recommended to identify in
the first dimension of the structure proposal, what
mode of users´ involvement to be adopted: if the
users will be only resources for the generation and
selection of new ideas (Mode 1); if users, besides
contributing to the generation and selection of new
ideas, will also participate, giving their opinions
during the prototyping and new product design
creation, proposing other solutions (Mode 2); or,
if users will have conditions to create their own
prototypes and design for new products (Mode
3). to identify in the first dimension of the frame-
work proposal, what users´ involvement way to
be adopted: if the users will be only resources for
the generation and selection of new ideas (mode
1); if the users,
Subsequently, it is identified, in the second
dimension of the framework, the participation

Users’ Involvement in the Innovation Process through Web 2.0
level of users in the process. As moving forward
in users´ involvement, from Mode 1 to Mode
3, the participation level of users in NPD tends
to increase. It can be noted, in this stage of the
framework, which the lead users´ identification
and participation help in the collaboration and
engagement process of other users.
Finally, at the third dimension of the frame-
work, is necessary to determine, among the existent
social media tools in Web 2.0, which will contrib-
ute the most at each step of the users´ involvement
process. For mode 1of users´ involvement, tools
such as weblogs, Twitter, YouTube are indicated
for the ideas generation and selection because of
the easiness and agility in the posting. In addition,
in the Mode 2 of users´ involvement, tools such as
forums and communities facilitate the necessary
interaction for the ideas discussion, prototypes or
even the products design. In the Mode 3 of users´
involvement, tools such as toolkits promote the
necessary resources for the prototypes creation
and new products design and, in the products
release phase, social networks such as Facebook,
Orkut, and Twitter can contribute to the release
and propagation of them. The intrinsic logic in the
framework is to organize, sequentially, the key-
factors of the opening of the innovation process and
to manage the necessary actions to implement it.
RESEARCH METHOD
Exploratory research was conducted with the
objective of capturing user’s interaction in the
innovation process and the development of new
products through Web 2.0. The exploratory nature
is justified, because there is a lack of researches
about this subject that considers the interaction
customer-company through the Internet (espe-
cially, when refer to emerging economy scenario).
In developed countries, empirical studies have
shown that users often play a dominant role in the
invention of new products. This was demonstrated
in the study of Chesbrough and Crowther (2006)
which investigated 12 industry segments such as
aerospace and chemical. Vanhaverbeke (2006) and
van der Meer (2007) also investigated open inno-
vation in companies in developed countries with
heterogeneous sectors (e.g. food and beverages;
chemicals; machinery and equipment). A field,
where promising approaches can be obtained is the
experience of building networks in the context of
a developing country. In other words, the context
for the development of an innovative network is
unfavorable and tends to exaggerate the involved
problems. This is becoming an interesting field for
exploring more general issues around the design
and implementation of such networks (Morris,
et al., 2008).
Case study was used in the empirical part of this
research. Primary and secondary data was used for
the data collection stage. According to Yin (2003),
the use of several sources of evidence allows the
researcher to dedicate himself to wide diversity
of questions, such as historical, behavioral, and
attitude. The criteria for choosing this study case,
was due to its uniqueness, which demonstrates a
paradigm shift in the automotive sector.
The case study was conducted from 2010 to
2011, whereas, in retrospect, the period from 2009
to 2011. The first unit of analysis was Agência,
the digital media agency that turned the site op-
erational and conducted the interaction between
users and the project development team in Auto
company´s concept car. The agency and the auto
company were given fake names to preserve their
image and to give more freedom for the researcher’s
analysis. The second unit of analysis was the au-
tomotive company itself, leading activities related
to the selection and operationalization of the ideas
generated at the site. Non-structured interviews
were taken with the leaders of the project in both
organizations, in order to understand the innova-
tion process and the status of the development
of the concept. In addition, written material and
presentations were provided. The material was
transcribed and analyzed in the framework context.
In addition, secondary data was collected from
551

Users’ Involvement in the Innovation Process through Web 2.0
several other sources, such as books, magazines,
besides the access to the website about the project
that makes possible the interaction (user-company)
as the Web platform.
THE AUTO COMPANY PROJECT
The automotive company site was started in Au-
gust 2009, asking for ideas. In the site appears
the invitation: “The auto company invites you
to create a car. A car to call your own.” The auto
company gathered ideas from consumers through
social media to an idealization and creation of a
concept car (Concept Car III) that was presented
at the 2010 São Paulo International Auto Show
in São Paulo, Brazil. The auto company is a large
global corporation with origin in Italy, and busi-
nesses ranging from cars to tractor manufacturing
plants spread across several countries. The auto
company is the largest automaker in Brazil with
24.8% market share, and the fifth largest advertiser
in the country, spending approximately US$ 80
million per year (Wentz, 2010). Brazil was chosen
for this project because it is a digitally sophisti-
cated and innovative market, and the largest for
the Italian company. The project also reflects the
optimism of the Brazilians, supported by a market
that grew 5% in 2010 to nearly 3 million vehicles
(Wentz, 2010).
The first experience of Auto Company in the
user’s involvement through the Web began in
2006 when the business unit completed 30 years
in Brazil. The company had prepared a campaign
to celebrate its presence in the country. The slo-
gan was “Auto Company 30 years, inviting you
to think about the future,” people were asked to
think about the future, with the main protagonists
being children and young people. Through the
Internet, they participated in an interactive way
of a survey research that sought to identify what
the Brazilian Internet users from different regions,
ages, and social classes were expecting for the
next 30 years.
552

Auto company presented at the 2006 Sao
Paulo International Auto Show, the Concept Car
I (FCC I), being the first car entirely designed
by the Auto Company Style Centre in Brazil.
The design studies continued, but with the goal
of creating an ecologically sustainable vehicle,
which would provide driving pleasure. The result
of this development was the Concept Car II (FCC
II), another concept car presented at the 2008 São
Paulo International Auto Show. Developed in
Brazil, the FCC II was built with environmentally
sustainable components. It was the first experi-
ence in the adoption and development of new
technologies and mobility solutions with reusable
and clean alternative materials. The concept cars
are the basis for applications of technology, testing
new concepts and materials that could be applied
in series production cars.
The auto company had already detected the
involvement of users in the projects of FCC I and
FCC II through the Internet, however the turning
point in the direction of Web tools occurred with
the launch of Auto Company´s Line Car, whose
market launch was preceded by the release of an
Internet blog, with updates on the release of the
vehicle and as a diary where users could leave
their first impressions. In 2008, the Style Center
asked to the communication area of the company,
to establish a blog on the Internet so that users
could participate in creating the next project of a
concept car (FCC III).
The digital media agency (Agência) which
managed the contents of the Auto Company´s site
was observing projects that had used concepts of
co-creation, crowdsourcing, and open innovation.
They proposed the collaborative involvement
of users’ thought Web 2.0, as mean to create a
concept car. Auto Company decided to evaluate
the proposal, which led to the formation of a
cross-functional team involving the internal areas:
Style Center, Communication, Engineering, and
Media agencies (Agência and Mídia). The multi-
functional group was tasked to assess and discuss
the ideas and other technical issues of the project.

Users’ Involvement in the Innovation Process through Web 2.0
Traditionally, auto manufacturers have always
been closed in new product development and direct
interaction with customers. Previous experiments
of the Auto Company, apparently, assisted in
moving to a more open model. Auto Company
realized a workshop with representatives from
all functional areas of the company, including the
participation of the company´s president, to create
a development framework, in order that project
phases could come along with the development of
the prototype. Therefore, a key question was asked
to motivate people and to give direction to what
would be the input for the construction of the car.
Thus, Auto Company decided by the involve-
ment of users through the Web, to design the Con-
cept Car III for the 2010 São Paulo International
Auto Show. With the project, it was planned to use
the media and social networks as a communication
channel with users to work collaboratively from
car design to marketing communications. Agência
(based in São Paulo) which had worked together
in the design of the Auto Company Line Car Blog
was chosen to lead the project site.
Agência was responsible for the development
of the Web collaborative platform, and was also
responsible for the operational management of
the site and all digital communications strategy.
The site was open to any type of user profile,
from consumers to academics, to be given the
most diverse ideas, techniques or not. It fell to
Auto Company, and not the Agência, to organize
a process of evaluation and selection of ideas and
topics proposed by users thought the Internet.
The site was organized in the form of votes
on ideas and incorporating various elements of
media and social networking, including Twitter
and Facebook. In the two subsequent weeks to
3rd of August, 2009 (the day of the launch on
the Internet), the site had received 67,000 visi-
tors, who submitted 1,700 ideas, and more than
40,000 comments related to the project were
posted on Twitter.
The site, which originally had been released
only in Portuguese, received up to 20% of traf-
fic from outside Brazil. An English version was
released on August 21, 2009, followed soon after
by versions in French, Spanish, and Italian (Wentz,
2010). The posts were comments on the site, mostly
in Portuguese, but they could be translated into
other languages ​​with one click. On October 27,
2009, the project had already received over 6,800
ideas and 9,600 participants, in addition to its
more than 1,100 Twitter followers (Ong, 2009).
In total, more than 10,000 ideas were submitted,
12,000 comments were posted, 17,000 registered
participants and 2.1 million unique hits, as shown
in Table 3. The countries that most accessed the
site of the project were: Brazil, Spain, France, USA
and Argentina. There were also unusual accesses
in countries as Kazakhstan, Burkina Faso, Laos,
and Namibia.
“We invited Brazilian consumers to invent the
concept car that Auto Company will display at the
auto show in October 2010,” said Vice President
of Agência in the interview. Even if the concept
car will never be built for the mass market, the
suggested characteristics can be incorporated
into vehicles of Auto Company (Wentz, 2010).
According to the respondent, concepts such as
crowdsourcing and community involvement to
make the best products and services had been
implemented to a limited extent, particularly at
Starbucks and Dell. In the case of the project, the
role of users would go far beyond. Not only would
these make recommendations on design, function-
Table 3. Project numbers (as of March 2012)
Aspects of the Project Quantity
Posted Comments 17,682
Sent ideas 10,666
Registered participants 17,758
Unique visitors 2,313,914
553

Users’ Involvement in the Innovation Process through Web 2.0
ality, and other aspects of the car, but also on the
current marketing strategy and communications.
Users have submitted ideas for the car design,
which were studied by the group of NPD from
Auto Company. Subsequently, users were asked
for ideas for marketing and branding. The site is
organized as a social networking site, with photos
and comments from users, and a Twitter feed in the
sidebar. The ideas are divided into categories such
as design, materials, safety and infotainment, and
also classified by the latest, most voted, and more
discussed. Any user could participate with ideas,
however, the team kept a closer communication
with the lead users (identified by the quantity and
popularity in suggested ideas).
In September 2009, Auto Company changed
the positioning, asking users to more technical
ideas. After this stage, teams of engineering and
styling of Auto Company consolidated the tech-
nical design, which was published on the site in
a form of open-source software in the beginning
of 2010. In March of 2010, the discussion began
to turn towards the development of a brand and
marketing campaign before the Auto Show. At
another stage, the Auto Company car dealers
were involved.
The management team of site content (Agência
and Mídia), which was formed by automotive
journalists, initially grouped the ideas into pre-
defined categories so that discussions were made
by subjects, which would facilitate the progress
of the weekly work of the multifunctional group.
The suggestions were grouped into 21 questions,
to users’ answers. This process helped in the initial
development of the car, through the enhancement
of the discussions, the construction of the concept
design of the vehicle and the actions on the site.
The more technical issues were being evaluated,
in terms of feasibility, by the Engineering team
of Auto Company.
The internal processes of Auto Company were
also changed with this project, especially regarding
how decisions and approvals on the stages of the
project would be conducted. The area of Product
554

Development carried out the screening of ideas
(possibly relying on the help of suppliers), and
selected those that could potentially be used in
future projects and applied in the mass production
of vehicles.
The project covered the following aspects in
the development process:
• Mapping Scenarios: In this phase, was
explored the current issues that could in-
spire and guide the search of ideas for the
concept car;
• Key Question: Definition of a key ques-
tion that could orient the general develop-
ment of the project;
• Exploration of Concepts Ideas: Based
on the key question, a series of new ques-
tions were formulated to guide the open
exchange of references between the project
development team and users;
• Briefing: The best ideas and references
were being incorporated into the composi-
tion of the preliminary design of the con-
cept car;
• Collective Design: At this time, the cross-
functional team fosters collective partici-
pation for users to choose solutions for the
concept car according to the briefing;
• The Concept Car: The FCC III was devel-
oped from the proposed briefing together
with the solutions proposed by the users;
• Creative Commons Licenses: Suggested
ideas then turn into specifications for the
concept car, which, through Creative
Commons licenses, become free for use by
any individuals or manufacturers.
Besides the appealing to consumers and us-
ers to participate via print ads, portals, Facebook
and Auto Company’s database, the firm turned to
universities to get the participation of engineering
and communication schools. The ideas generated
by this project are protected by Creative Commons
licenses and vary from the simple distribution

Users’ Involvement in the Innovation Process through Web 2.0
of the car’s manual in flash drive, even the most
absurd, as the use of waste as a source of propul-
sion. As an example, we can highlight the idea
posted in the use of glass lenses transitions in the
material of the windshield. The Creative Commons
licenses are more flexible in relation to copyright.
Instead of “all rights reserved,” for example that
happens in movies, Creative Commons works
with the concept of “some rights reserved,” and
the author is no longer the sole owner of the idea
(Ong, 2009). Following, will be analyzed through
the theoretical framework, the results obtained in
the study case of the involvement of users (through
the Web 2.0) in the innovation process.
ANALYSIS OF THE AUTO
COMPANY PROJECT
This case study analysis along with the review
concepts of the previous literature resulted in an
analysis of the different users´ involvement modes
through the Web 2.0 tools in the innovation process
and NPD. According to the customer’s roles in
the NPD, proposed by Nambisan (2002), it was
identified in the project that the Internet users
had an active participation as resources in the
ideas generation and selection and as co-creators
in the design and development of the automobile
assembler new car concept. The interaction with
the development team of the auto company was
through the Web 2.0 tools available in the project
website: forums, pools, voting, and videos.
Three types of users´ involvement are differen-
tiated through the Web 2.0 tools, as proposed by
Piller and Ihl (2009). The project is fitted in the
user´s involvement mode 2 (Design with users).
The company can acquire information and ideas
from the Internet users and also show solutions
and different concepts to the consumers, which
could then interact proposing other solutions to
the automobile assembler. The users could submit
their ideas, participate in discussions, or even
follow the making of the project through videos.
The project is part of Mode 2, because they have
an active role, but to a lesser degree than in Mode
3 (Design by users). As previously discussed,
companies need to acquire new competencies as
they move up in the modes of involvement of us-
ers. Therefore, it is implied that Auto Company
has also developed skills in the activities of Mode
1 (Design for users), while moving up the stairs
toward the activities of Mode 2 (Design with us-
ers). However, Auto Company has not reached
the third mode of engagement (Design by users).
User’s participation level in the NPD process
was very high and it happened through the col-
laboration tools available through Internet. The
users also had a high level of freedom to suggest
the ideas or even to vote and express their opinions.
As proposed by Lazzarotti and Manzini (2009),
besides the number and type of partnerships,
which the companies collaborate, other important
variable is the number and type of phases of the
innovation process that the company opens to
the external collaboration. In this case, the auto
company was concerned to not involve users in all
the development phases, promoting the necessary
follow-up through videos that were posted in the
website. The project fits in the open innovators
model.
In an analysis of the case, it is observed that the
involvement of users was done through the project
site (a site with social networking features), where
users were registered and, during the generation
of ideas. The ideas were posted and received a
classification by keywords (tagging). In order to
encourage the participation of users, in the selec-
tion phase and evaluation of ideas, the site has
a special link with issues facing the automotive
environment that inspires users for suggesting
new ideas. Moreover, the ideas submitted by users
received points, thus forming a ranking of most
active users on the site, and those ideas, went to
evaluation by a multi-functional team.
Users had an active participation in the gen-
eration, selection of ideas, as co-creators of the
concept car design and in the evaluation concern-
555

Users’ Involvement in the Innovation Process through Web 2.0
ing the same. The interactions were made, mainly,
through the project website and the embedded
Web 2.0 tools (blogs, forums, polls, videos, etc.).
In the step of defining the design for the concept
car, the discussions were conducted through the
forums and later were voted the attributes of the
design posted by the multi-functional development
team of Auto Company. At the time of vehicle
launch, users participated, giving suggestions
for the promotional campaign of the concept car.
In the front-end stage of development of the
concept car, the forums were used, due to the
ease of organizing discussions in topics about the
design of the vehicle and, voting polls have served
as a test of the suggested design chosen for the
car concept. In the back end stage, the site was
used for the dissemination of the attributes chosen
by Internet users to the concept car. Twitter and
Facebook were used to advertise the concept car
before its launch at the Motor Show. In the vehicle
launch were used videos on YouTube.
Web 2.0 tools available in the project were
indispensable for the involvement of users in sev-
eral phases of the car construction, mainly, in the
front-end phases where ideas and concepts were
collected for the prototypes creation, which was
subsequently presented to the Internet users by
the automobile assembler. Tools such as forums,
pools, voting, videos and the own website, cre-
ated an environment as a social network where
the Internet users create a profile and manage to
collaborate with the other users, whether com-
menting their ideas or even voting in the best
suggestions. This infrastructure helped to make
the project collaborative and participatory. Other
important factor was the constant activations
through the website and social networks, such as
Twitter and Facebook, with the purpose to involve
and motivate the users´ participation.
556

CONCLUSION
Increasingly, organizations are seeking for external
sources of knowledge for use in their innovation
process. In this context, users are a key part in
the innovation process. Web 2.0 technologies and
tools are essential for user involvement to be car-
ried out in a large scale and without boundaries.
The Auto Company´s project is a pioneer in
the automotive industry and showed the users´
involvement in several innovation process stages,
such as the ideas generation and selection, proto-
types analysis and evaluation. All this involvement
was possible due to the website developed for the
Project, which used several Web 2.0 embedded
technologies and tools.
User’s involvement mode requires more and
more virtual resources as moving upwards to the
Mode 3 of Piller and Ihl (2009). Other relevant
matter is the way that users are involved and kept
in the project. Further studies are needed on how
to keep the participants motivated at the same
time, and how to select the best ideas without
dismissing the potentially radical ideas.
The organizations involved in the project
needed to restructure themselves, in order to
manage the interaction with the Internet users in
several car development phases. The company in-
novation process also needs to be mature enough,
to be able to implement the new paradigm of the
open innovation, in which new competences and
knowledge are integrated to the current ones. The
contribution for the success of this innovative
project came from the participatory environment,
the culture of focus on the innovation process, and
the use of new technologies.
The authors expect that this study will motivate
future researchers about this subject, and that they
will add to the theoretical body of open innovation.
Additionally, the results here presented could help
managers to improve their products development
practices through the interaction with consumers.

Users’ Involvement in the Innovation Process through Web 2.0
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562

Chapter 30
Mapping the Knowledge Supply
Chain to Foster Innovation
Nicola Bellantuono
Politecnico di Bari, Italy

Pierpaolo Pontrandolfo
Politecnico di Bari, Italy

Barbara Scozzi
Politecnico di Bari, Italy

ABSTRACT
Knowledge Supply Chains (KSCs) are the networks that provide knowledge supplies so nourishing one
or more business processes carried out by a firm. KSCs are particularly crucial for innovation develop-
ment processes. The need to recur to open KSCs during the accomplishment of such processes is indeed
emphasized by the recent literature on open innovation (Kirschbaum, 2005; Chesbrough, 2006; Gassman,
2006; Van de Vrande et al., 2009). However, as scholars adopt different definitions of openness and
stress different practices, it is not clear what open really means (Dahlander and Gann, 2010). Research
is called for to further classify the different practices and, above all, to measure the impact of open vs.
closed innovation so as to support companies in the identification of the right balance (Enkel et al.,
2009). In the paper a methodology to map and analyze KSCs arising during an innovation development
process is proposed. The methodology is described with specific reference to New Product Development
(NPD) which is widely common as well as strategic in many firms. The methodology supports the char-
acterization of the knowledge supplies (also in terms of the adopted collaboration approach) and the
assessment of their criticality within the NPD process. Hence, it (1) contributes to make the concept
of openness clearer and (2) provide companies with a clear picture of the process and its criticalities.

INTRODUCTION knowledge across public and private organizations

make both wise and necessary for enterprises to
Labour mobility, abundant venture capital, de- develop innovations by engaging in collabora-
velopment of information and communication tion networks (Pisano & Verganti, 2008; van de
technologies, and the existence of widely dispersed Vrande et al., 2009). The need to recur to partners

DOI: 10.4018/978-1-4666-8468-3.ch030

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Mapping the Knowledge Supply Chain to Foster Innovation
to develop innovations is not new: communica-
tion, information, and knowledge-intensiveness
have always been crucial aspects associated to
innovation development, so often requiring com-
panies be supported by suppliers, customers and/
or other partners (Tushman, 1979; Kats & Allen,
1982; Morelli et al., 1995 Eppinger, 2001). The
recent literature on open innovation emphasizes
the beneficial for those firms that, in particular,
recur to open practices, such as venturing, outward/
inward intellectual property licensing, or R&D
outsourcing (Kirschbaum, 2005; Chesbrough,
2006; Gassman, 2006; Van de Vrande et al.,
2009). However, scholars adopt different defini-
tions of openness and stress different practices,
so creating conceptual ambiguity (Dahlander &
Gann, 2010). Although some typologies of open
collaboration have been developed/described
(Pisano & Verganti, 2008; Dahlander & Gann,
2010), more research is needed to describe and
analyze the different practices and, above all, to
measure the impact of open vs. closed innovation
so as to support companies in the identification of
the right balance (Enkel et al., 2009). Such a need
is not addressed neither by the literature on open
innovation nor by the older and wider literature
on the information and communication networks
developed in the fields of innovation develop-
ment, technology management, and supply chain
management (Allen, 1977; Tushman, 1979; Allen
et al., 1980; Clark & Fujimoto, 1991; Morelli et
al., 1995; Eppinger, 2001).
The paper discusses a methodology to map
and analyze the knowledge networks that nourish,
by providing knowledge supplies, the innovation
development process carried out by a company.
We define such networks as Knowledge Supply
Chains (KSCs). Although the methodology can
be used for any innovation development process,
for the sake of clarity, in the paper we decided to
discuss it with specific reference to New Product
Development (NPD). The methodology, based on
the rooting ideas of Business and Supply Chain
Mapping Techniques (Scott & Westbrook, 1991;
Kettinger et al., 1997) and the Analytical Hierarchy
Process (AHP) (Saaty, 1980; 2008), supports the
identification of actors involved and the role they
carry out in the NPD process, as well as the types
and criticality of the transferred knowledge and
the adopted collaboration approach.
The methodology is intended as a support
for companies interested to map and analyse the
knowledge networks in which they are involved.
In particular, by providing a clear picture of the
NPD process, ex-post it allows firms to: (i) preserve
the architectural knowledge, i.e. the knowledge
related to the different parts of the final product,
and (ii) support ex-post learning (lesson learnt) as
to the knowledge acquired and used during NPD.
The methodology can also support companies ex
ante. Based on forecasts and experience, compa-
nies can (i) design a map of the NPD process to
be developed and (ii) identify the most critical
knowledge supplies, which is useful to assess
priorities in allocating resources.
Finally, as it requires a description of the knowl-
edge supplies also in terms of the collaboration
approach, the methodology contributes to make
the concept of openness clearer. In particular, it
represents a first step to develop a tool by which
a company can measure the openness degree with
respect to a specific NPD process.
The paper is organized as follows. In the next
section we discuss the concept of knowledge
supplies. In the following section we describe the
steps to implement the methodology. An example
of application of the methodology is reported in the
section after. Finally, in the last section we draw
some conclusions and discuss further research.
NPD AND KNOWLEDGE SUPPLIES
“Open innovation is both a set of practices for
profiting from innovation and also a cognitive
mode, for creating, interpreting and researching
563

Mapping the Knowledge Supply Chain to Foster Innovation
those practices” (Chesbrough et al., 2006). As
stressed in Dahlander & Gann (2010), such a
definition is quite broad. It encompasses different
practices, dimensions, and aspects so leading to
studies that discuss open innovation under very
different perspectives, sometimes uncorrelated
among each other.
Enkel et al. (2009) summarize the theoretical
developments reported in the literature on open
innovation based on three main open innovation
processes: the outside-in process – also defined
as technology exploration or inbound innovation
(van de Vrande et al., 2009 Dahlander & Gann,
2010), the inside-out process – also defined as
technology exploitation or outbound innovation
(van de Vrande et al., 2009, Dahlander & Gann,
2010), and the coupled process. The first process
consists of enriching the company’s own knowl-
edge through the integration of external knowledge
sources. The second one relates to earning profits
by bringing knowledge to market. The last one
refers to co-creation with complimentary partners,
during which both “give” and “take” are crucial
for success. Such processes are associated to
interactions that are pecuniary or non-pecuniary
(Dahlander & Gann, 2010). Huizingh (2011) fur-
ther classifies open innovation practices based on
the innovation output, which can be open (public
innovation or open source innovation) or closed
(private open innovation). Chiaroni et al. (2010)
observe that empirical evidence shows the outside-
in as the most commonly adopted process. In this
paper we focus on such a process. In particular,
we examine the KSC, i.e. the network that arises
to support NPD by providing the considered
company with knowledge supplies. We define a
knowledge supply as composed of four elements,
namely a knowledge source, the kind of knowl-
edge provided by that source, the collaboration
approach adopted to manage that supply, and an
internal actor, i.e. the recipient of the supply. In
the rest of the Section, we further discuss such
elements and present some criteria to support the
evaluation of knowledge supplies.
564

Knowledge Sources
NPD is a process usually performed by several
actors that, in turn, could be supported by different
knowledge sources, both internal and external to
the considered company. We define a knowledge
source as any individual, organization, or en-
tity that provides some knowledge to the actors
involved in NPD in a given company. Internal
sources are represented by proposals, ideas, and
studies carried out by the company’s research
and development department, inter-functional
project teams, or single employees. Such entities
can be considered as knowledge sources when
other actors involved in NPD use them. In the
paper, we are particularly interested to external
knowledge sources. The most common external
knowledge sources are customers and suppliers.
The literature on such a topic is quite broad (e.g.
Henderson & Clark, 1990; Clark & Fujimoto
1991; Hanfield et al., 1999). Recently, Enkel and
Gassmann (2008) found that external knowledge
sources are mainly customers, suppliers, competi-
tors, public and commercial research institutions,
consultants. They are followed by a large body of
other sources such as partners from other industries
and innovation intermediaries (e.g. innocentive.
com). In addition, Tether and Tajir (2008) mention
standards and regulations, fairs and exhibitions,
professional meetings and conferences, trade as-
sociations, and trade or technical press (including
electronic databases).
Customers may provide knowledge related to
their needs (either expressed or potential) and the
way they use (new or already existing) products.
There exist different techniques aimed at identi-
fying needs and relationships depending on the
kind of customer (final customer or firm). Under
this perspective, the roles of the purchasing and
sales departments are crucial to NPD process.
Suppliers may provide knowledge on technologies,
materials, and techniques to manage and control
the process, so supporting NPD activities both
in the planning and development phases. Com-

Mapping the Knowledge Supply Chain to Foster Innovation
petitors may directly collaborate to all the NPD
activities by partnership agreements (e.g. joint
ventures, cross licensing agreements) or merg-
ers and acquisitions. Moreover, competitors may
indirectly provide knowledge supply whenever
the company emulates or imitates them. Public
and private research institutions may support
companies during ideas generation, by providing
the results of recent studies, as well as in the other
NPD phases by providing technological, manage-
ment, and organizational support. Consultants may
provide knowledge useful to support the strategic
and operative planning as well as the development
phase. Sales agents and innovation intermediar-
ies may have information and knowledge on the
market as well as on the technology. Increasing
importance have some knowledge intermediaries
such as innoCentive.com (or Nine Sigma, yet2.
com, etc.), a website wherein companies can post
a problem and anyone can propose solutions. Such
intermediaries allow companies to get in touch
with a network of distributed actors, which, based
on their expertise and knowledge, may contrib-
ute to innovation during all the different stages
(Sawnhey et al. 2003; Verona et al., 2006). The
knowledge can be provided in different ways, from
informal meetings to more formal partnerships or
exclusive contracts. Trade/category associations
(e.g. Industrial Associations, Chambers of Com-
merce, etc.) may provide knowledge both directly,
by the promotion of events and the publication
of news in different fields, and indirectly, by
promoting meetings among firms and fostering
cross-fertilization phenomena.
Other sources such as trade or technical press,
fairs and exhibitions, professional meetings, stan-
dards and regulations may be extremely relevant
to acquire any category of knowledge (see the
second section for clarification).
Each knowledge source, based on its pecu-
liarities and the activities in which it is involved,
contributes to the process by providing different
kinds of knowledge.
Kinds of Knowledge
The knowledge provided by a knowledge source
can be classified according to different knowledge
categories, e.g. technical knowledge, economic
and financial knowledge, marketing knowledge,
and law and administration knowledge. Within
each category, specific kinds of knowledge are pro-
vided, e.g. market trends are a kind of knowledge
related to economic and financial knowledge or
innovative design is a kind of knowledge related
to technical knowledge. It is not possible neither
useful to define all the possible kinds of knowledge
provided by all the knowledge sources. However,
each company can easily identify such elements.
Each kind of knowledge can be further
described by different attributes. By adapting
Holsapple and Joshi (2001), in Table 1 we report
the attributes that can be relevant to assess the
knowledge provided by a knowledge source. Other
attributes provided by Holsapple and Joshi (2001)
– e.g. subject, source, or locations of knowledge –
assume values which cannot be univocally related
to the kinds of knowledge. Therefore, we disregard
them in our analysis.
Collaboration Approach
In the literature, different aspects of (open) col-
laboration are discussed. Table 2 reports the most
relevant as well as the attendant dimensions of
analysis and values. As some dimensions overlap
and some others are not consistent with the goal of
the paper, we selected the followings to describe
the collaboration approach:
• Supply (Open vs. Closed): The knowl-
edge supply can be provided by ad hoc
selected sources (e.g. in the case of consul-
tants selected by the customer company) or
by any possible source (e.g. in the case a
request is posted by the customer company
on innoCentive.com).
565
 
Mapping the Knowledge Supply Chain to Foster Innovation

Table 1. Knowledge attributes (adapted from Holsapple and Joshi, 2001)

Knowledge Attribute Explanation

Degree of certainty (CE)
Stability (ST)
Usability (US)
Degree of proficiency (PR)
Degree of applicability (AP)
Degree of originality (OR)
Degree of onerousness (ON)
Company level of confidence in validity of provided knowledge.
Extent to which the knowledge is preserved from change and does not need to be updated.
Ease in using the provided knowledge by the company.
Expertise embodied in knowledge.
How broadly the knowledge can be applied (locally or globally to other activities or company process).
Degree of exclusiveness of the provided knowledge (exclusive knowledge is provided for example by
patents).
Costs (direct and indirect) needed to adopt the provided knowledge.

Table 2. Collaboration aspects, dimensions of analysis, and values

Collaboration Aspects Dimensions Values

Types of knowledge interactions Relationship Formal/traded relation vs. Informal/untraded relation
(Todtling, Lehner, Kaufmann, 2009)
Knowledge interaction Static (knowledge transfer) vs. dynamic (collective learning)
Collaboration practices Partnership Open vs. closed
(Pisano and Verganti, 2008)
Governance Hierarchy vs. flat
Collaboration output (Huitzinger, Collaboration output Open vs. closed
2010)
Coordination strategies in inter- Information processing Programming vs. feedback
organizational product development structure
(Hong et al., 2009)
Locus of control Centralized vs. decentralized
Forms of openness Sourcing mode Pecuniary vs. non pecuniary
(Dahalander and Gann, 2010)
Innovation process Inbound vs. outbound
Governance (Van de Vrande et al., Governance Outsourcings R&D, partnership contracts, purchase of knowledge
2009) services, crowdsourcing, acquisition and equity participation,
inward intellectual property licensing, personnel hiring
Collaboration modes (Lee et al., 2010) Collaboration modes Customer-provider (funding licensing outsourcing), strategic
alliance (R&D partnership, joint ventures), inter-firm alliance

• Knowledge Interaction (Static vs.
Dynamic): The knowledge supply can be
associated with a knowledge transfer (e.g.
in the case the source is a scientific jour-
nal) or can rather create a dynamic lean-
ing process in which both the source and
the customer company learn (e.g. in the
case of involvement in a common research
project).
• Locus of Control (Centralized vs.
Decentralized): Decisions on the supply
and the way the collaboration is managed
are directly made by the customer company
or rather stay in the hands of its supplier.
• Governance (Hierarchy vs. Market):
The knowledge supply can be governed by
pure market relationships (e.g. by consul-
tancy contracts or acquisition of patents
by the customer company), partnership re-
lationships (e.g. by the definition of joint
venture contracts or involvement in the
same research project), or hierarchical re-
lationships (e.g. by equity investments or
acquisitions). Unlike the other dimensions

566

Mapping the Knowledge Supply Chain to Foster Innovation

of analysis, governance values vary in a
continuum range.
• Sourcing Mode (Pecuniary vs. Non
Pecuniary): The knowledge supply can
be provided without any pecuniary pay-
ment (e.g. in the case of most open source
software development projects) or after a
pecuniary payment (e.g. in the case of con-
sultants paid by the customer company).
Internal Actors
Internal actors are all the company employees
involved in NPD. Such employees can be involved
in one of the three main NPD phases (or macro-
activities), namely planning, development, and
learning (Scozzi et al., 2005). The phases are not
sequentially accomplished: rather they are linked
by reciprocal dependencies. Each phase includes
several activities. Planning deals with idea genera-
tion, idea screening, preliminary technical, market
and economic assessments, detailed business
investigations, new product idea approval, and
NPD process definition. Development involves
the exploration of a variety of solutions to develop
the new product, detailed design, prototyping,
test, engineering, production (trial and full), pre-
commercialization, and market launch. Finally,
learning deals with the internalization of the les-
sons learnt during the NPD process.
The main external knowledge sources and
their contributions to the NPD process activities
are briefly reported in Table 3.
Criteria to Evaluate
Knowledge Supplies
To evaluate the knowledge supplies, we refer to the
literature on purchasing portfolio models, which
distinguishes between internal and external crite-
ria, usually grouped in two dimensions of analysis.
The former – which is defined as importance of
purchasing (Kraljic, 1983), strategic importance of
the purchase (Olsen & Ellram, 1997), or profit im-
pact (Gelderman & van Weele, 2005) – is affected
by economic, competence, and image factors (e.g.
effects on NPD process time and cost, as well as
on buyer’s profitability, competitive advantage,
ability to acquire new knowledge, perceived qual-
ity, or brand name). We call such a dimension,
performance impact. The latter – named complex-
ity of supply market (Kraljic, 1983), difficulty of

Table 3. Main knowledge sources and contribution to NPD process

Knowledge Sources NPD Activities

Customers Idea generation, market assessment, detailed product assessment, prototype assessment, design, test,
pre-commercialization.
Suppliers Idea generation, technical assessment, process definition, management and control, design, production,
market launch.
Competitors Idea generation, market and technical assessment, process definition, management and control, detailed
product assessment, prototype assessment, product test production, market launch.
Sales agents and innovation Idea generation, marketing assessment, prototype assessment, design, test, pre-commercialization,
intermediaries market launch.
Public and private research Idea generation, technical and market assessments, detailed product assessment, process definition,
institutions management and control, design, production, market launch, learning.
Consultants Idea generation, technical assessments, process definition, design, management and control, pre-
commercialization, production, marketing.
Trade associations Idea generation, process definition, management and control, production, pre-commercialization, market
launch.
Other sources Idea generation, technical and market assessments, design, prototyping, production, learning.

567
 
Mapping the Knowledge Supply Chain to Foster Innovation

Table 4. A possible list of criteria to evaluate

managing the purchase situation (Olsen & Ellram,
knowledge supplies
1997), or supply risk (Gelderman & van Weele,
2005) – includes factors which mostly depend on Economic Effects on NPD time, effects on
supply market characteristics (e.g. monopoly or

Performance Impact
factors NPD cost, Profitability
oligopoly conditions, entry barriers), and existence Competence Competitive advantage
of environmental uncertainty. The two dimen- factors
Ability to acquire new
sions of analysis and a list of possible criteria to knowledge
be adopted to assess the knowledge supplies are Image factors Perceived quality
summarized in Table 4. Brand name
Supply market Existence of entry barriers
characteristics

Supply
Risk
THE KNOWLEDGE Environmental Degree of complexity and
uncertainty stability of the environment
COLLABORATION SCHEME:
DESCRIPTION OF THE
METHODOLOGY
Assessment of the Knowledge
In this Section, we present the methodology called
Criticality Degrees
Knowledge Collaboration Scheme. It is aimed at
To assess the relevance of the knowledge sup-
mapping the knowledge supplies and assessing
plies we define a parameter called knowledge
their criticality so as to provide a clear picture of
criticality degree: the higher the relevance of a
the process and its criticalities.
knowledge supply for the NPD process, the higher
The methodology can be adopted before or
its knowledge criticality degree. To measure the
after a certain NPD process is carried out. In the
latter, the following method, based on the AHP
former case, the knowledge attributes and the
(Saaty, 1980; 2008) and made of three stages, is
criteria to evaluate the knowledge supplies will
proposed.
be assessed according to forecasts and/or previ-
The first stage consists in assessing the dif-
ous experience. Companies can then perform a
ferent kinds of knowledge involved in each NPD
what-if analysis, so assessing how the knowledge
activity, based on the knowledge attributes (Table
source and supply criticality degrees as well as
1). To this aim, the internal actors involved in that
the openness degree change when sourcing from
activity jointly compare the attributes pair-wise.
different kinds of knowledge supplies. Besides
The value of each element Aij in the resulting pair-
providing a map of the process to be developed,
wise comparison matrix of knowledge attributes
the assessment may support decision making (e.g.
A reflects the relative importance that the internal
for resource allocation). As mentioned in the first
actors, based on their experience, recognize in
section, the proposed methodology can be also
the attribute i relative to another attribute j. As
used once the NPD process has been completed
reported in the second section, a total of M=7
to preserve the architectural knowledge or to sup-
attributes are considered.
port ex-post learning as to the knowledge acquired
Qualitative judgments can be translated to
and used and the approach adopted to achieve it.
numbers by adopting the fundamental scale of
The knowledge collaboration scheme is com-
judgement reported in Table 5. The weights
posed of three steps, by which the knowledge
of attributes Wm are obtained by the procedure
supplies are identified, measured in terms of their
described in Saaty (1980) or, approximately, by
criticality, and graphically represented.
normalizing each column of the pair-wise com-

568

Mapping the Knowledge Supply Chain to Foster Innovation

Table 5. The fundamental scale of judgment (adapted from Saaty, 2008)

Intensity of Definition Explanation

Importance
1 Equal importance
3 Moderate importance
5 Strong importance
7 Very strong importance
9 Extreme importance
2, 4, 6, 8 For compromise between the above values
Reciprocals of If the importance of i compared with j is one of the
above above positive numbers, then the one of j compared
with i is its reciprocal value.
Two attributes contribute equally to the judgement.
Experience and judgment slightly favour one attribute over
another.
Experience and judgment strongly favour one attribute over
another.
An attribute is favoured very strongly over another. Its
dominance is demonstrated by practice.
The evidence favouring one attribute over another is of the
highest possible order of affirmation.
Numerical interpolations of compromise judgments are
needed when there are no words to describe them properly.
The intensity of importance of the less important attribute is
assumed as unit to estimate the intensity of importance of the
other attribute as multiple of that unit.

parison matrix and calculating the mean of each kinds of knowledge related to the m-th knowledge
row (Saaty, 2008): attribute. The overall value of the n-th kind of
knowledge is the weighted average of the values
1 M  M  it has obtained as to all the knowledge attributes:
Wm =
M
∑ A ∑ A 
mj ij
(1)
j =1 i =1
M
1
Vn =
M
∑W V m mn
(3)
The consistency of pair-wise comparisons can m =1

be assessed by the critical ratio, as explained in

Saaty (2008). In the second stage, an assessment of the
Next, the internal actors must evaluate the knowledge supplies having the same internal ac-
extent to which the kinds of knowledge involved tor and kind of knowledge is provided, based on
in the considered activity address each attribute. a list of criteria, e.g. the one reported in Table 4.
To manage qualitative judgements, the kinds of In particular, the internal actor first calculates the
knowledge are compared pair-wise according to a weight of the criteria for that kind of knowledge,
procedure virtually identical to the one described then gives a value to the knowledge supplies as
above. Using the approximate formula, the value for each criterion. Both the judgements are based
of the n-th kind of knowledge as for its ability to on the pair-wise comparison procedure, again. In
address the m-th attribute is given by: other terms, the weight of the p-the criterion of
the n-th kind of knowledge is:
1 N  N 
Vmn = ∑ Bmnj ∑B 

(2) 1 P  P 
∑ C
mij
N j =1 i =1 wnp =
P npj ∑C nij


(4)
j =1 i =1

where N is the number of kinds of knowledge and

Bmij is the element at the i-th row and j-th column where P is the number of criteria and Cnij is the
of Bm, i.e. the pair-wise comparison matrix of element at the i-th row and j-th column of Cn, i.e.

569
 
Mapping the Knowledge Supply Chain to Foster Innovation

the pair-wise comparison matrix of the criteria
related to the n-th kind of knowledge.
Criteria can be clustered in homogeneous
groups and structured in a hierarchy. Should be
the case, the above formula refers to the first-tier
criteria only, whereas the weights of criteria at the
other tiers can be computed using the methodol-
ogy described in Saaty (2008).
The value of the q-th knowledge supply (which
belongs to the n-th kind of knowledge) as for the
p-th criterion is:
where xnq=1 if the q-th knowledge supply belongs
to the n-th kind of knowledge, and 0 otherwise.
Moreover, the knowledge source criticality
degree is calculated by summing the knowledge
criticality degrees of all the knowledge supplies
having the same knowledge source. Specifically,
the knowledge criticality degree of the s-th knowl-
edge source is assumed equal to:
Q
KC s = ∑ KC q yqs (8)
q =1

1 Q  Q 
vnpq =
Q
∑ D npqj ∑D npij 


(5) Mapping the KSC: the Knowledge
j =1 i =1
Collaboration Diagram

where Q is the number of knowledge supplies and Finally, results are represented by the knowledge
Dnpij is the element at the i-th row and j-th column collaboration diagram. By adopting process and
of Dnp, i.e. the pair-wise comparison matrix of supply chain mapping techniques, activities should
the knowledge supplies related to the n-th kind be reported as dotted rectangle and include knowl-
of knowledge and the p-th criterion. The value edge sources and internal actors, respectively
of the q-th knowledge supply relative to the n-th reported as rectangles and ovals. Knowledge
kind of knowledge is thus: supplies should be reported by red lines that link
the source and the internal actor. The thickness of
1 P
such lines should be proportional to the knowledge
vnq =
P
∑w v
np npq
(6)
criticality degree of the corresponding knowledge
p =1

supplies. Dependencies between activities should

be reported by black arrows.
We observe that if an internal actor may get a
Some scholars have lately argued on ways to
kind of knowledge by recurring to one knowledge
assess a company’s openness degree (Laursen &
supply only, then he/she has no alternatives to ob-
Salter, 2006; Knudsen & Mortensen, 2011). We
tain that kind of knowledge, and then recognizes
believe that their approach (substantially based
the maximum value to that knowledge supply.
on considering the number of external knowledge
The knowledge supply criticality degree is
sources) may not prove adequate. We suggest
computed in the third stage. For the q-th knowledge
to take into account both the description of all
supply, it is equal to the weighted average of its
the KSs involved in the process (with emphasis
values as for all the knowledge attributes, times
on the adopted collaboration approach) and the
the value of the kind of knowledge to which that
measurement of the criticality of each of them.
knowledge supply belongs. In formula:
This would make companies better assess whether
N and in which way they were open in the analyzed
KC q = ∑ vnqVn x nq (7) NPD process. Note that, as the criticality of each
knowledge source is measured within the specific
n =1

570

Mapping the Knowledge Supply Chain to Foster Innovation

activity in which the attendant knowledge is sup-
plied, the assessment does include an analysis
of the specific context in which the knowledge
supply is acquired and used.
An example of how such methodology should
be implemented is provided in the next Section.
ILLUSTRATIVE CASE
knowledge source (i.e. specialized reviews) and
belongs to the same kind of knowledge as one of
the former knowledge supplies, i.e. market trends.
Table 6 maps the considered activity in terms of
internal actors, knowledge sources and categories,
kinds of knowledge and collaboration approaches.
For sake of brevity, in this example the analysis
does not cover the other activities included in the
NPD process.

The methodology above is now applied to a specific Assessment of the Knowledge

activity within the NPD process of a manufacturing
firm. The case was developed so as to show how
the methodology works. To this end, we tried to
be concise while introducing different knowledge
sources that provide different kinds of knowledge
based on different collaboration approaches.
NPD Process Analysis
Let us consider an activity involving one internal
actor, which recurs to four knowledge supplies: two
of them share the same knowledge source, i.e. the
participation to fairs and exhibitions, and belong
to three different kinds of knowledge, i.e. market
trends, demand forecast, and innovative materials;
the fourth knowledge supply relates to another
Criticality Degree
To assess the knowledge criticality degree, we fol-
low the three stages described in the third section.
The first stage is based on the list of knowledge
attributes in Table 2, by which the internal actor
evaluates the kinds of knowledge included in the
considered activity. These criteria are compared
pair-wise in Table 7, whose last column gives the
weights of attributes, calculated by (1).
Then, the kinds of knowledge are compared
each other as for each attribute: Table 8 relates
to the pair-wise comparison matrix for the first
attribute and in the last column reports the value
assigned to the three kinds of knowledge as for
that attribute.

Table 6. Description of knowledge supplies

Knowledge Supply #1 #2 #3 #4
Activity Design Design Design Design
Internal actor Designer Designer Designer Designer
Knowledge source Fairs and exhibitions Fairs and exhibitions Consultants Specialized reviews
Category of Marketing knowledge Marketing knowledge Technical knowledge Marketing knowledge
knowledge
Kind of knowledge Market trends Demand forecast Innovative materials Market trends
Collaboration • Supply: closed • Supply: closed • Supply: open • Supply: closed
approach • Knowledge interaction: • Knowledge interaction: • Knowledge interaction: • Knowledge interaction:
dynamic dynamic dynamic static
• Locus of control: • Locus of control: • Locus of control: • Locus of control:
centralized centralized decentralized decentralized
• Governance: market • Governance: market • Governance: market • Governance: market
• Sourcing mode: • Sourcing mode: • Sourcing mode: • Sourcing mode:
pecuniary pecuniary pecuniary pecuniary

571
 
Mapping the Knowledge Supply Chain to Foster Innovation

Table 7. Pair-wise comparison matrix of the knowledge attributes and resulting weights

CE ST US PR AP OR ON Weight
Degree of certainty (CE) 1 5 1/3 1/5 1/3 5 3 0.118
Stability (ST) 1/5 1 1/7 1/9 1/5 1 1 0.036
Usability (US) 3 7 1 1/3 1 3 3 0.177
Degree of proficiency (PR) 5 9 3 1 3 5 7 0.386
Degree of applicability (AP) 3 5 1 1/3 1 5 5 0.194
Degree of originality (OR) 1/5 1 1/3 1/5 1/5 1 1 0.046
Degree of onerousness (ON) 1/3 1 1/3 1/7 1/5 1 1 0.044
(CR = 0.067)

Table 8. Pair-wise comparison matrix of the kinds

Subsequently, the weights of the knowledge
of knowledge as for their degree of certainty and
criteria are calculated one kind of knowledge at
resulting values
once and the respective values of the knowledge
MT DF IM Value
supplies assessed.
For sake of simplicity, we limit our analysis to
Market trends (MT) 1 3 1/3 0.260
the first-tier knowledge criteria, i.e. performance
Demand forecast (DF) 1/3 1 1/5 0.106
impact and supply risk. Table 10 relates to the
Innovative materials (IM) 3 5 1 0.633
pair-wise comparison procedure for the first kind
(CR = 0.053)
of knowledge, i.e. market trends, and reports the
weights of the knowledge criteria, in accordance
with (4). Similar tables can be built for the other
Similar matrices can be built for the other at- kinds of knowledge: Table 11 summarizes the
tributes. Table 9 summarizes the values that are results.
obtained and, in the last column, reports the overall Now, the overall values of knowledge supplies
value of the kinds of knowledge, which follows relative to their own kind of knowledge have to be
from (3). We observe that all the knowledge at- assessed. To this aim, we have to build the pair-wise
tributes, but onerousness, increase the worthiness comparison matrices of the knowledge supplies
of the kinds of knowledge. Therefore, only in for each criterion, one kind of knowledge at once.
the assessment of the value for the onerousness, We begin from first and the fourth knowledge
the pair-wise comparison adopts a dual scale supply, i.e. the ones whose kind of knowledge is
(namely, higher values for lower onerousness market trends. As for the performance impact, in
and vice versa). Table 12 the pair-wise comparison matrix of such

Table 9. Summary of values of the kinds of knowledge as for each attribute, and resulting overall values

CE ST US PR AP OR ON Overall Value
weight 0.118 0.036 0.177 0.386 0.194 0.046 0.044
MT 0,260 0.480 0.106 0.656 0.429 0.133 0.669 0.438
DF 0.106 0.405 0.633 0.080 0.143 0.077 0.267 0.213
IM 0.633 0.115 0.260 0.265 0.429 0.790 0.064 0.349

572

Mapping the Knowledge Supply Chain to Foster Innovation

Table 10. Pair-wise comparison matrix of knowl- Table 13. Summary of values of the knowledge
edge criteria for market trends, and resulting supplies whose kind of knowledge is market trends,
weights as for each knowledge criterion, and resulting
overall values
PI SR Weight
Performance impact (PI) 1 4 0.800 Performance Supply Overall
Impact Risk Value
Supply risk (SR) 1/4 1 0.200
weight 0.800 0.200
CR = 0,00)
#1 0.667 0.500 0.633
#4 0.333 0.500 0.367

Table 11. Summary of weights of the knowledge

criteria as for each kind of knowledge
Table 14. Summary of values of the knowledge
MT DF IM supplies whose kind of knowledge is demand
Performance impact 0.800 0.750 0.333 forecast, as for each knowledge criterion, and
Supply risk 0.200 0.250 0.667
resulting overall values

Performance Supply Overall

Impact Risk Value
Table 12. Pair-wise comparison matrix of knowl-
weight 0.750 0.250
edge supplies whose kind of knowledge is market
#2 1.000 1.000 1.000
trends, as for the performance impact, and result-
ing values
Table 15. Summary of values of the knowledge
#1 #4 Value
supplies whose kind of knowledge is innovative
#1 1 2 0.667
material, as for each knowledge criterion, and
#4 1/2 1 0.333
resulting overall values
(CR = 0)
Performance Supply Overall
Impact Risk Value

kinds of knowledge is depicted and the resulting weight 0.333 0.667

values computed by (5). A similar table can be #3 1.000 1.000 1.000

made as for the other criterion, i.e. supply risk.
The overall values of both knowledge supplies,
which follow from (6), are reported in Table 13.
The second knowledge supply is the unique
whose kind of knowledge is demand forecast.
Therefore, the value assigned to it is maximum
(i.e. equal to 1) as for both profit impact and supply
risk. The same happens to the fourth knowledge
supply. Tables 14 and 15 relate to these knowl-
edge supplies.
Finally, the knowledge criticality degrees are
computed. Table 16 reports the knowledge sup-
ply criticality degrees, obtained from (7), i.e. by
multiplying the overall value of each knowledge
supply by the overall value of the corresponding
kind of knowledge. Note that the sum of degrees
for the four knowledge supplies is equal to 1, as
expected. Table 17 presents the knowledge source
criticality degrees, which for each knowledge
source is equal to the sum of the knowledge sup-
ply criticality degrees of all the knowledge supply
that belong to that knowledge source, as in (8).
The most critical knowledge supply is the #3
and the most critical source is represented by
fairs and exhibitions (which is associated to two

573
 
Mapping the Knowledge Supply Chain to Foster Innovation

Table 16. Knowledge supply criticality degrees

Kind of Knowledge MT DF IM Knowledge Supply Criticality Degree

weight 0.438 0.2127 0.349
#1 0.667 0.292
#2 1.000 0.213
#3 1.000 0.349
#4 0.333 0.146

different supplies). Based on the evaluation of the
internal actor, its critically degree is for example
about two times greater than the criticality degree
associated to the #4 source. Such a result can
be used by the company, for example, to decide
how to allocate its budget among the different
knowledge supplies.
Tables 6, 16 and 17 provide a clear picture of
the main characteristics as well as of the criticality
of the KSs. The project is managed in an open
way as intended by Chesbrough (2006), i.e. it is
not completely developed in house. However, the
openness is still quite different from, for example,
what is typical of Open Source Software projects.
As a result, the proposed methodology, by more
accurately differentiating different forms of open-
ness, facilitates the evaluation of the openness
degree of the organization involved in a specific
NPD process.
Mapping the KSC: the Knowledge
Collaboration Diagram
The knowledge collaboration diagram for the
considered activity is reported in Figure 1. Each
red line between a knowledge source (rectangle)
and an internal actor (oval) represents a knowledge
supply and is labelled with the kind of knowledge
provided and its knowledge criticality degree.
Moreover, the thickness of the line is proportional
to the knowledge supply criticality degree.
CONCLUSION
Knowledge supply chains (KSCs) are the networks
that provide knowledge supplies so nourishing
one or more business processes carried out by
a given firm. KSCs are particularly crucial for
innovation development processes. In the paper
a methodology to map and analyze KSCs aris-
ing during an innovation development process is
proposed. The methodology can be used for any
innovation development process, given that it is
rooted in concepts common to any innovation
process: activities, internal actors and knowledge
acquired by external sources. Nonetheless, the
paper describes the methodology with specific
reference to New Product Development (NPD),
which is widely common as well as strategic in
many companies. Central to the methodology is
the definition of the knowledge supply. Knowledge

Table 17. Knowledge source criticality degrees

Knowledge Supply #1 #2 #3 #4 Knowledge Source Criticality Degree

fairs and exhibitions 0.292 0.213 0.505
consultants 0.349 0.349
specialized reviews 0.146 0.146

574

Mapping the Knowledge Supply Chain to Foster Innovation
Figure 1. Knowledge collaboration diagram for the considered activity
supplies are described based on four elements:
the knowledge source, the kind of provided
knowledge, the collaboration approach, and the
internal actor to which they are delivered. The
methodology allows all the knowledge supplies
to be mapped and their criticality to be assessed
based on criteria related to the market risk, the
performance impact, and some specific attributes
related to the provided knowledge. The assess-
ment, defined as knowledge supply criticality, is
performed by the AHP method. The final aim of
the methodology is to improve the NPD process
by providing a clear picture of the process and its
knowledge supplies.
The methodology overcomes the dichotomy
open/closed innovation by both providing differ-
ent dimensions of analysis for the collaboration
approach adopted by a company and supporting
the measurement of the criticality for the different
knowledge supplies. Thus the methodology con-
tributes to make the concept of openness clearer
and represents an initial step towards the definition
of a tool to support companies in measuring their
openness degree.
Companies can utilize the methodology once
a given NPD process is completed as well as
before it takes place. When used ex-post, the
methodology is useful to support companies in
mapping and assessing the knowledge network
in which they are involved. For example they can
identify the most critical knowledge links, increase
their effort to manage such links, and preserve
the architectural knowledge, i.e. the knowledge
related to the different parts of the final product.
When used ex-ante, the methodology is useful
mainly for what-if analysis, e.g. to assess how the
knowledge source and supply criticality degrees as
well as the openness degree change when sourc-
575

Mapping the Knowledge Supply Chain to Foster Innovation
ing from different kinds of knowledge supplies.
Such assessments provide useful information to
support decision making (e.g. in terms of resource
allocation).
In the next future, we intend to extend the
methodology to include outbound open innovation
processes as well as to validate and finally test it
on a large sample of firms, working in different
sectors.
ACKNOWLEDGMENT
This work has been supported by Regione Puglia
(APQ PS025 - ICT supporting Logistics services:
a model of Organized Market).
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edited by John Wang, pages 9-25, copyright year 2013 by IGI Publishing (an imprint of IGI Global).

578
 579

Chapter 31
Contextual Intelligence:
A Critical Competency for Leading
in Complex Environments

Matthew R. Kutz
Bowling Green State University, USA

Anita Bamford-Wade
Gold Coast University Hospital, Queensland, Australia

ABSTRACT
Context and intelligence are two concepts that when combined create unique insight relative to leader-
ship in complex and ambiguous settings. Contextual intelligence is described as the ability to recognize
patterns of interrelated artifacts inherent in events or circumstances, which result in intentional behaviors
that facilitate influence. This chapter is divided into sections that introduce the concept of contextual
intelligence as a framework rooted in three core concepts. Those concepts include understanding non-
Newtonian thinking, synchronicity, and tacit knowledge. Following a discussion of these core concepts,
the model is expanded to include three-dimensional (3D) thinking, which requires the practical ap-
plication of hindsight, insight, and foresight through the lenses of the three core concepts. The chapter
concludes with a diagram of the contextual intelligence circumplex and a breakdown and description
of 12 meta-competencies (behaviors) associated with contextual intelligence.

INTRODUCTION did get the nature of survival correct. Survival is

Charles Darwin (n.d.) is credited as saying, “It is
not the strongest of the species that survives, or
the most intelligent, but the one most responsive
to change.” Few people are more polarizing than
Charles Darwin. Regardless of what you believe
about Darwin’s theory, it is our conviction that he
not dependent upon academic prowess or physical
strength, but it is dependent upon adaptability.
Indeed, our world is a place where “change and
constant creation are ways of sustaining order and
capacity” (Wheatley, 2006, p.4). Likewise, schol-
ars such as Gardner (1983), Heifetz (1994), and
Sternberg (1988) strongly promote the notion that

DOI: 10.4018/978-1-4666-8468-3.ch031

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

intelligence and success is a product of flexibility
and adaptation, as opposed to the traditional (i.e.,
IQ-based) understanding of intelligence.
Due to the constantly changing contexts
in which leaders are required to operate (e.g.,
economic upheavals, educational and political
reforms, globalization, technological advances,
natural disasters) a drastic change in leadership
perception is needed (Osborn, Hunt, & Jauch,
2002). Contextual intelligence can help delineate
some of how that change can be implemented.
The contextual intelligence model of leadership
unites the concepts of context and intelligence,
which may be able to facilitate better leadership
and innovation for the globally minded leader in
complex and uncertain environments.
To grasp the fuller implication of context it
is necessary to explore several concepts, specifi-
cally synchronicity, non-Newtonian thinking, and
tacit knowledge. Likewise, intelligence requires
redefining the traditional metrics of intelligence
and recalibrating how one interacts with time.
Before we introduce contextual intelligence, let us
briefly introduce concepts necessary to understand
context and intelligence.
Synchronicity is a concept that was originally
introduced by Carl Jung (1931 1969). Synchronic-
ity is the meaning we assign to apparently unre-
lated or irrelevant occurrences. In other words,
synchronicity is a way to describe two or more
events that are not causally related but occur
coincidentally and result in a meaningful con-
nection. In Western thinking, it is natural to look
for cause-and-effect relationships. Unfortunately,
this can distract one from identifying synchronous
relationships. The application of synchronicity,
as it relates to contextual intelligence, requires
recalling lessons that you learn in one context and
applying it in an unrelated or apparently irrelevant
context (Kutz, 2013).
Non-Newtonian thinking requires embracing
a way of thinking about and interacting with the
world which is not based on patterned, sequential,
linear, or predictable models. To get a better grasp
580

Contextual Intelligence
of non-Newtonian thinking, it is appropriate to
contrast it to traditional Newtonian models. A
traditional Newtonian model is a paradigm that
is based on linear models and empirical science
where it is assumed that everything is patterned,
orderly, and predictable. Examples of non-New-
tonian thinking would be models of behavior and
leadership which include chaos theory, complex-
ity theory, adaptability and resilience, systems
thinking, or quantum mechanics or physics. As
globalization grows, it is becoming increasingly
important to embrace a non-Newtonian paradigm
relative to leadership practices and behaviors.
Tacit knowledge is an important influencer of
leadership behavior (Argyris, 1999). Tacit knowl-
edge is what we know to be true about a person or
event, but have no idea how or where we learned
it (Kutz, 2013). Therefore, tacit knowledge is dif-
ficult to pass on or transfer. Perhaps we are more
familiar with the concepts of wisdom, intuition,
or experience, which are often used to explain
tacit knowledge.
Traditional metrics of intelligence include
IQ (intelligence quotient), GPA (grade point
average), Scholastic aptitude tests (ACT or SAT
scores, GRE scores), TOEFL scores, or grades
on exams or thesis. In general, traditional metrics
of intelligence are delineated by objective and
quantifiable means. While these methods have
historically been validated, is it possible they are
becoming less relevant? However, one does not
merely throw these metrics out. It is reasonable to
assert that additional metrics must also be used in
the quantifying of intelligence. These additional
metrics should include one’s capacity for resilience
and flexibility, adaptability, critical thinking, and
complex problem-solving.
Time orientation is another concept that is
necessary to grasp in order to understand the full
implications of intelligence. Time orientation is a
predisposition to emphasize a specific time orien-
tation over another (e.g., past, present, and future)
specifically when engaged in problem-solving or
a crisis situation. It becomes more appropriate

Contextual Intelligence
for global citizens who are trying to function and
sustain influence in a rapidly changing and volatile
environment to be able leverage experiences from
the past as well as grasp present day reality and
aspirational identity. Therefore, having a proper
time orientation requires the appropriate use of
hindsight, insight, and foresight.
CONTEXTUAL INTELLIGENCE
The term contextual intelligence has been used
by practitioners in a variety of disciplines, such as
nursing, psychology, business, education, medi-
cine, allied health, and politics (Bamford-Wade,
2011; Brown, Gould, & Foster, 2005; Hayes &
Brown, 2004; Sternberg, 1988; Knight, Moore,
& Coperthwaite, 1997; Mayo, 2007; Nye, 2008;
Smart, 2005; Souba, 2011; Tetrazzini, 1993) and
while implicitly similar in meaning each definition
was applied differently in each situation. The op-
erational definition for contextual intelligence we
will employ is: The ability to quickly and intuitively
recognize and diagnose the dynamic contextual
variables inherent in an event or circumstance
which results in an intentional adjustment of
behavior in order to exert appropriate influence
in that context (Kutz, 2013; Kutz & Bamford-
Wade, 2013). The contextually intelligent leader
leverages specific skills to be able to function in
uncertainty, embrace complexity, remain calm
in volatile situations, and adapt to ambiguity.
The outcome of contextual intelligence is influ-
ence. Influence of the contextually intelligent
leader comes from demonstrating an appropriate
response in reaction to real-time observations.
The traditional western perspective has seen
some dramatic changes to what was once con-
sidered a stable and predictable environment.
For many western-thinking leaders unstable
and dynamic conditions were rare, but that has
changed. Now, more than ever, western thought
leaders are coming to terms with what the rest
of the world already knew by embracing the
idea that things may not be as predictable or
nonrandom as once believed. It is not difficult
to image how that developed. For example, as a
consequence of industrialization and building a
solid infrastructure, predictability and stability
became the rule and not the exception. After all
stability and predictability are goals of organized
development. Whereas in other parts of the world
– less industrialized and with poorer infrastruc-
ture – randomness and instability continued to be
the norm. Because industrialized societies tend
to isolate themselves, many were unaware that
the rest of the world was not “keeping up.” As
organizations in these industrialized societies were
experiencing success, many other organizations
in less industrialized societies naturally looked to
them for input. These more “advanced” organiza-
tions were happy to help, in so doing – mostly with
good intentions – they made a fatal flaw of teach-
ing and applying principles based on their stable
and predictable models. Only after the realization
that their models didn’t always work in other parts
of the world, were they willing to re-examine the
assumptions behind their behaviors. As these
more industrialized organizations became more
globally minded, they became aware of how “non-
Newtonian” the world really is. With the advent
of global communication and instant access via
technology their outdated models became more
and more obvious. This in turn forced them to
rethink their assumptions even more, eventually
requiring a major shift in thinking. The irony of
less industrialized and poorer countries waiting
for developed (western nations) to “catch up” to
more relevant ideas about complexity, random-
ness, and non-linear reality is substantial. It is
as if the followers were waiting for the leaders
to catch up. While the non-Western world may
have always been ahead of the proverbial curve
relative to “thinking outside the box” because of
their constantly shifting context, it was not until
industrialized nations - with most of the resources
- caught up, could we all as global citizens move
forward.
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Globalization is not only responsible for shrink-
ing the globe; it is also responsible for increasing
the awareness of the unpredictable and dynamic
nature of reality. In other words, new stuff hap-
pens every day and change appears to occur more
quickly than it ever has before. In conditions such
as these one needs to reconsider the concept
of leadership and how it can be learned. Alvin
Toffler (1970) said, “Tomorrow’s illiterate will
not be the man who can’t read; he will be the man
who has not learned how to learn” (p. 271). Part
of learning how to learn requires unlearning and
relearning. This becomes even more important
when you consider that we are living in what
Bob Johansen has dubbed a VUCA world; that is
a world that is subject to unprecedented levels of
Volatility, Uncertainty, Complexity, and Ambigu-
ity. Therefore, unlearning and relearning become
central aspects of the ongoing learning required
in VUCA contexts.
Leadership has always been serious business.
Even writers of the New Testament during the
ancient Roman Empire state that if you have
leadership ability you must take that responsibility
seriously (Romans 12:8). Regardless of the era,
geographic location, organizational rank, or avail-
able resources, leaders have always had to produce
results regardless of difficult circumstances.
Despite the challenging nature of leadership in
general, it seems that the modern era has added
a level of complexity to leadership that up until
now has been rare in many industrialized nations.
Being a leader means navigating uncertainty and
adapting to what you cannot see or predict. In light
of the apparently endless amounts of research in
organizational development and leadership there
seems to be an endless variety of variables vying
for top position as the key performance indicator.
Discoveries and innovations in computer tech-
nology, neuroscience, weapons technology, virtual
reality, medicine, and physics have contributed to
paradigm shifts that 50 years ago were unthink-
able. For example, neuroscience, medicine, and
technology have converged to develop new ways
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of discovering the complexities of the human
brain via neuroimaging. Physics has claimed to
discover Higgs boson, which has dramatic impli-
cations on human origins. The sheer complexity
of all the variables that influence economies and
market share can be overwhelming. Leaders must
embrace a paradigm of leadership that transcends
traditional models and methods and accounts for
unstable, uncertain, unreliable, and unpredictable
environments. In fact, our basic concept of what
an environment is and the elements of which it
consists must be redefined. Organizational envi-
ronments’ are beginning to change from being
mechanistic structures that flourished to whole
systems or learning organizations where people
“exhibit self-organizing capacity” (Wheatley,
2006, p.15). Demonstrating contextual intel-
ligence is necessary so that one can acquire and
sustain influence in a world where there is an ever
increasing level of complexity.
This chapter introduces the concept of contex-
tual intelligence, a necessary skill that requires
being able to respond and adapt in real time to
change as it happens. Contextual intelligence
includes being able to leverage synchronicity,
embrace complexity and chaos theory, manage
tacit knowledge, and practice three-dimensional
(3D) thinking. In the following sections we will
elucidate each of these four principal components
of contextual intelligence, identify 12 behaviors
specific to contextual intelligence, and offer strate-
gies on how to develop the skills necessary to be
contextually intelligent.
CENTRAL COMPONENTS OF CI
The central axis of contextual intelligence as pre-
sented by contemporary scholars rotates around
the components of synchronicity, non-Newtonian
thinking, and tacit knowledge (Kutz, 2008, 2013;
Kutz & Bamford-Wade, 2013). It is necessary to
investigate each one of these three components in
order to appreciate how to correctly apply contex-

Contextual Intelligence
tual intelligence. Contextual intelligence should
not be applied independently of integrating these
central components. The following section will
outline these components.
Synchronicity
Synchronicity is the convergence of two or more
unrelated events (Jung, 1969). In other words,
even though certain experiences are not - on the
surface - related they are often construed or re-
membered by the individual as having a significant
relationship to other conscious or subconscious
experiences. Carl Jung first described synchron-
icity as the meaning we give to unrelated and
non-sequential experiences; experiences that
often shape and guide major life decisions and
one’s worldview. Synchronicity provides a way
for us to make the unconscious a physical reality
(Hopcke, 1998). Hence, synchronicity cannot be
controlled, neither is it random (Senge et al., 2005).
Meaning is often predicated on experience and is
sometimes subconscious. The decisions that lead-
ers make may not always be based on facts and
figures – sometimes those decisions – and they
may be the best decisions – come from sources
that the leader cannot explain or that the leader
does not recognize and happens as an unexpected
surprise. It is possible synchronicity is one way to
explain how an unconscious reality takes shape
in a conscious decision. One way to develop that
ability is for the leader to reframe experiences
and remember them in a way where every experi-
ence has value. In other words, the contextually
intelligent leader refuses to accept any experience
as irrelevant. Applying synchronicity requires
leveraging forgotten or unconnected experiences
to apparently unrelated or new contexts. We use
the term “apparently unrelated” because the ap-
plication of synchronicity presupposes that every
experience has value and meaning in the current
context without having to be explained. Senge et
al. (2005) believe that amazingly synchronistic
events occur when people connect with their
deeper source of intention and subsequently feel
like being part of a field of knowing: “to be taking
action informed by the whole” (p.160).
Synchronicity is an exception to the concept of
visible causality (Guindon & Hanna, 2002). The
statistical notion of causality is based on averages
or generalizations; as such this provides room for
real-life exceptions (Guindon & Hanna, 2002).
Jung (1969) believed causality to be a universal
principle rooted in Greek philosophy (Guindon &
Hanna, 2002), which required holistic or system-
atic thinking. Therefore, synchronicity necessarily
requires the belief that the whole is greater than
the sum of its parts (i.e., what is seen or visible).
When synchronicity is applied to contextual
intelligence we have a way to communicate about
the perceived and real relationships between the
parts in the whole. de Laszlo (1958, p. 252) stated
that, “Just as in a living body the different parts
work in harmony and are meaningfully adjusted to
one another, so events in the world stand in mean-
ingful relationship which cannot not be derived
from... causality.” In other words, experiences are
often directly related, but they may not be linear.
Experiences can be simultaneously nonrandom
and nonlinear. To correctly apply synchronicity
to leadership requires a different orientation to
time (which we will discuss in more detail in a
later section). For example, there is discontinuity
between time and space that is understood and ar-
ticulated by the leader. This discontinuity helps to
conceptualize synchronicity because there can be
no causality because no event precedes any other.
Bell (1964), a contemporary of Einstein,
wanted to demonstrate that reality is not local or
linear (Herbert, 1988). In his now famous study,
Bell (1964) demonstrated that twin photons,
sent in a different direction, and manipulated
independently affected the other. Furthermore,
Bell demonstrated that these influences act in-
stantaneously and do not diminish with distance.
Bell postulated that there is a link between two
or more locations without crossing time or space.
He believed these nonlocal connections to be
583

pervasive and ubiquitous because reality itself is
nonlocal (Bell, 1964; Herbert, 1988). Therefore,
quantum theory supports the notion that a causal
reality coexists alongside a traditional Newtonian
(i.e., mechanistic, predictable, or linear) under-
standing of reality.
Applying synchronicity to leadership has
tremendous implications to decision-making and
development. This can enhance one’s leadership
behaviors by increasing an awareness of the dif-
ferent contributions our experiences - some of
which, on the surface, seem to be irrelevant - make.
Synchronicity when applied to leadership enables
practitioners to gain new and valuable perspec-
tives on cause-and-effect and short and long term
implications of decisions. Senge and colleagues
(2005), suggest that some of the best opportunities
for significant change arise through synchronous
processes that, although not necessarily con-
nected, give rise to ‘meaningful coincidence’ and
synergies (p. 159). Capitalizing on this “synergy”
between apparently unrelated experiences may
help to provide a tacit-based framework whereby
ideas are generated more easily and performance
ceilings can be elevated.
Complexity Science and Chaos
Theory (Non-Newtonian Thinking)
In order to better appreciate non-Newtonian
thinking, it is first necessary to describe its an-
tithesis. Newtonian thinking rests in the Western
or industrialized notion of predictable cause-and-
effect outcomes. Newtonian-based paradigms are
helpful because they offer a level of predictability
and the appearance of stability. For example,
Frederick Taylor’s (1911) principles of scientific
management seek to completely replace working
by “rule of thumb” or habit. Taylor suggests using
the scientific method to study a job and determine
the most efficient way to perform specific tasks.
In other words, Taylor (1911) argued that good
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management depends on identifying, describing,
and prescribing predictable patterns for workers
to follow.
As a result, much of traditional decision-
making models used by management rely on
precedent and established policy, which is heavily
reliant on a Newtonian framework. While certain
Newtonian-based laws are well established (e.g.,
gravity,) quantum physics and discoveries in
neuroscience and biology call into question some
basic assumptions about concepts like equilibrium,
homeostasis, and predictability. These findings
are meaningful to leadership because they help
to free the leader from the constraints of relying
on predictable linear patters of decision-making.
When leaders can begin to explore the nature of
reality (and decisions) without the prescribed,
linear constraints of scientific method, they are
free to feel and experience a broader purview from
which to make decisions and lead.
Chaos theory and complexity theory are
models that have been presented to explain why
Newtonian-based thinking is no longer the exclu-
sive paradigm (Wheatly, 2006; Uhl-Bein, 2007).
We are not proposing that we completely dismiss
Newtonian thinking merely that it is necessary to
embrace the idea that non-Newtonian thinking
and a causal reality can coexist.
Chaos Theory
Chaos theory offers an alternative to Newton’s
mechanistic and linear view of the physical world
with the supposition that not all processes can
be determined. The problem with seeing all of
life as linear is that it blinds individuals to “life’s
processes” (Wheatley, 1999), which are those
unanticipated – and often formative - events that
occur throughout one’s life. Unfortunately, chaos
implies randomness and disorganization. The truth
is chaos theory, while complex, yields non-random
patterns. What is often labeled chaos is just pat-

Contextual Intelligence
terns that haven’t been recognized (Resnicow &
Vaughan, 2006). The irony of Chaos theory is
that while it is non-linear and unpredictable, it is
patterned. What appears to be chaotic may in fact
be non-random. Often what stands in the way of
seeing that order or pattern is too close proximity.
For example, a pattern is often easier to recognize
the further one is away from it; it is to this end that
the axiom “hindsight is 20/20” is referring to. It
is in this sense that close proximity to a situation
can distract from the whole picture. Maintaining
a vantage point - presumably at enough distance
- whereby one can see the whole picture or pat-
terns is a fundamental tenant of gestalt therapy. In
other words, we fail to see patterns because we are
too close to a situation and therefore prematurely
condemn it to be chaotic, disorganized, or random
when in fact it may not be.
To gain a full understanding of Chaos it is
necessary to introduce relevant terms such as
strange attractors, phase transition, and double-
loop learning.
Strange attractors are the unidentified influenc-
ers of patterned movement (Burns, 2002). It refers
to an unknown phenomenon that is continually
pulling matter toward itself (Wilson, 1998): im-
plying that in spite of an apparent randomness or
lack of repetition there is something unexplained
or nebulous ordering movement or at least caus-
ing convergence of unrelated phenomenon (the
presence of strange attractors helps conceptualize
synchronicity). Contextual intelligence requires
one to be aware of the strange attractors in the
process of decision-making throughout one’s
lifetime. While there is not yet been research
showing this link, we believe a helpful question
would be to ask what is causing me to gravitate
towards a particular decision or mental position?
For example, do I rely on the perceptions of my
mentor’s behaviors in my own behavior as a leader?
Phase transition is a dynamic zone of existence
somewhere between stability and randomness
(Stacey, 1996). Phase transition is the transient
reality between what is known and what is un-
known. An example of phase transition in physical
science is the state or condition of water when it
is moving from a liquid to a solid or a liquid to
steam (Grobman, 2005). There is a point during
its transition where it is neither liquid water nor
solid ice. In spite of its nebulous identity, it is
no less real. Living organisms and organizations
experience phase transition during different stages
of development and growth. One practical example
is the awkward time in everyone’s life when they
are no longer a child but not yet a mature adult.
Similarly, organizations when trying to re-create a
culture or establish a new identity may experience
a temporary – although it never seems temporary
– unknown identity as their metamorphosis pro-
gresses. The stress of phase transition comes from
not knowing what that new identity will look like
exactly. For example, bureaucratic organizations
wishing to become a learning organization often
undergo phase transition before they realize their
goal (Lusch, Liu, & Chen, 2010).
As one’s proximity to an event decreases,
formerly random patterns begins to appear pat-
terned. It is important to note that proximity in
the context of chaos does not necessarily mean
time. It is possible to decrease your proximity to
a situation while that situation is happening. One
way to do that within the contextual intelligence
model is to practice three-dimensional thinking,
which will be discussed later. Sufficient for now
is understanding that three-dimensional thinking
requires the intentional and simultaneous applica-
tion of hindsight, insight, and foresight. Adopting
this mental convergence may be enough to help
decrease one’s proximity to a specific event.
Complexity Theory
Complexity theory is framed around the dynamic
ability of adaptive systems. Rooted in the under-
standing of biological (i.e., living) systems, com-
plexity theory advances the notion of adaptability.
Heifetz’s (1994) concept of adaptive capacity is
one of the main drivers behind the popularity of
585

complexity theory, which is an essential compo-
nent of understanding contextual intelligence.
Complexity theory distinguishes between systems
that are complicated to those that are complex
(Uhl-Bien et al., 2007).
What makes something complicated is not nec-
essarily the number of pieces – although typically
there are many – it is that the pieces themselves
can be disassembled or reduced down to individual
pieces and parts. In Newtonian-based thinking a
complicated system are best understood by break-
ing the system down to its smallest component
parts and then examining those parts. This is the
foundation of empirical science and the scientific
method. Its relationship to the scientific method
is precisely why it has become embedded in our
problem-solving and organizational processes.
When one considers an organization, life, or an
individual to be complicated there is an implicit
assumption that it also operates as a closed system.
Problematically, as a closed system the problem
solver often ignores need to consider external
variables and instead focuses on the individual
piece or pieces that may be “broken.” Embrac-
ing a non-Newtonian-based framework requires
that we discard the notion of closed complicated
systems; and replace it with complexity.
The only similarity between a complicated
system and a complex system is that they both
have many parts. A complex system is open and
requires understanding all the parts relative to the
context including external influences. Complex
systems cannot be understood by only studying
the smallest component parts of the system. It
requires both an internal and external analysis
as a unit. While complicated systems are unaf-
fected by external variables, complex systems are
highly sensitive to even the smallest fluctuations
in the context (Lorenz, 1993). Complexity occurs
as a result of different (or seemingly unrelated)
constituents “bump[ing] into one another” which
causes a chain reaction of unpredictable and
nonlinear change (Uhl-Bien et al., 2007, p. 302).
What makes complexity so interesting is that any
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resulting change from those small fluctuations
usually occurs in unexpected or unanticipated
places (Uhl-Bien et al., 2007). When that change
occurs, it sets in motion a new, but unknowable
future reality. Because history cannot be revisited,
the trajectory of that change cannot be altered
(Dooley, 1996).
When considering non-Newtonian thinking
within the construct of leadership, we can begin
to see how everyone throughout the organization –
and not only relegated to those in executive-level
or hierarchal positions – can practice leadership.
Something else we have learned from the study
of physics is that two objects with mass cannot
occupy the same space. This principle applies
to leadership as well. However, when everyone
is demonstrating leadership, it sets in motion a
new reality, which is exciting and frightening,
one where leadership becomes dynamic. Using
the metaphor of the puzzle may be helpful at this
point. As we place the pieces of synchronicity
and non-Newtonian thinking together, it creates
a backdrop for contextual intelligence. However,
one other piece is needed. That puzzle piece is
tacit knowledge.
Tacit Knowledge
Argyris (1999) says that skillful leadership is
grounded in tacit knowledge. Tacit knowledge is
what people know or believe to be true, but have
a difficult time in articulating how they learned
it. Consequently, tacit knowledge is difficult to
teach. Webster’s dictionary defines tacit as some-
thing that is implied and not spoken. In its most
simple form, tacit knowledge is knowledge from
an unknown origin; or knowledge whose origin is
beneath the surface of conscious awareness. The
difficulty with tacit knowledge is not whether or
not it is real; the difficulty is in understanding how
it is acquired and how it is disseminated. Tacit
knowledge is action oriented, typically acquired
without direct or intentional help from others,
and enables one to achieve their goals (Sternberg

Contextual Intelligence
et al., 1995). Tacit knowledge is traditionally ex-
plored within the domain of expert-level behavior
(Wagner, 1987). However, it is not necessarily
the exclusive domain of experts. Understanding
the tacit process or tacit learning can accelerate
the acquisition of wisdom and intuition. Leverag-
ing tacit knowledge is a hallmark of contextual
intelligence. Being able to bring the “how and
when” tacit knowledge was acquired from the
subconscious to the surface of our awareness
can be a significant competitive advantage, in as
much as it as gives the leader a reference point in
an otherwise unstable world.
Fully appreciating tacit knowledge has two
significant challenges, first, its origin – where
did the knowledge come from and how or where
was it learned; and second disseminating it. Once
one can begin to understand how and where tacit
knowledge was learned it can accelerate the de-
velopment of contextual intelligence.
Tacit knowledge is intrinsically related to
leadership behavior. Much of what a leader is
required to do, depends on what Peter Drucker
calls, “doing the right thing.” Often times “the
right thing” is not explicitly clear and therefore re-
quires what Jack Welsh has dubbed, “leading from
the gut.” In contemporary leadership language,
the gut phenomenon, a.k.a. intuition or wisdom,
has almost gained the same mystical power as
charisma. Fortunately, having an understanding
of how tacit knowledge is developed helps to ac-
curately frame the intangible concepts of instinct,
wisdom, and intuition.
Researchers have postulated that tacit knowl-
edge comes from two sources: experience and ana-
logical reasoning (Hatsopoulos & Hatsopoulos,
1999). In other words, the most plentiful source of
tacit knowledge is from trial-and-error experiences
(Hatsopoulos & Hatsopoulos, 1999). To expedite
the development of tacit knowledge, decisions
should be made based on associations between
attempted actions and the resulting outcomes,
whether positive or negative. Experience only
enhances performance when it becomes embedded
as tacit knowledge. The embedding (or forma-
tion) of tacit knowledge is only possible when
one is able to analyze their actions and decisions
in light of real outcomes (Ericsson, Prietula, &
Cokely, 2007). In other words, in order to embed
tacit knowledge, we must analyze our actions and
decisions in light of real outcomes.
Analogical reasoning is also a significant
source of tacit knowledge (Hatsopoulos & Hatso-
poulos, 1999). Analogical reasoning (or inference)
allows us to compare apparent similarities that
occur in different situations – this is related to the
concept of synchronicity discussed earlier. The
main difference between analogical reasoning
and synchronicity is that synchronicity compares
completely unrelated and perhaps even irrel-
evant experiences whereas analogical reasoning
compares experiences that are obviously related.
By using analogical inference an individual can
“recognize” a trend in a given context even if they
have never been in that context before. Analogi-
cal reasoning has the capacity to compensate for
a lack of experience or experiences.
The irony of analogical inference is that it
requires making judgments in novel and new
situations based on experiences you have not
had. Analogical inference is the next best thing to
actually having been there. Obviously, the more
experiences one has increases one’s capacity to
make accurate analogies. Therefore, it is possible
to improve one’s ability to make analogical infer-
ences and therefore intentionally acquire tacit
knowledge by increasing the number and diversity
of experiences one has. Contextually intelligent
people consistently put themselves in new and
novel situations and purposefully increase their
exposure to different ideas, phenomenon, cultures,
and experiences. Johansen (2009) has called this
“immersion learning.” Immersion learning, not
only facilitates one’s ability to make analogical
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inferences, but it also adds to one’s reservoir of
experiences, which in turn ultimately contributes
to tacit knowledge (i.e., intuition and wisdom).
Polyani (1976) discusses tacit knowledge as a
core component of wisdom. Wisdom is predicated
on the application of tacit knowledge, rooted
in extracting and organizing one’s experiences.
Wisdom has been defined as “the application of
tacit knowledge as mediated by values” (Stern-
berg, 1985, p. 637). Achieving these values re-
quires a balance between the interests of self and
stakeholders relative to different environmental
contexts. Therefore, wisdom requires the correct
application of different experiences with respect
to inter–, intra-, and extra-personal values in a
complex milieu of relationships.
Blass and Ferris (2007) identified two types of
experience necessary to understand one’s context.
The first type of experience is “vicarious;” the
second type of experience is “firsthand.” Vicari-
ous experience is a tacit-based understanding of
how an individual is impacted by the decisions,
behaviors, and actions of others. Firsthand expe-
rience are those explicit forms of learning (also
called declarative knowledge) that are directly
related to the individuals’ demonstrated behaviors
and the ensuing outcomes, and refer to facts and
theories that can be articulated or transferred to
others (Grant, 1996).
While it is always necessary to have firsthand
experiences, explicit knowledge alone is not ad-
equate any longer (Lankau & Scandura, 2002).
The scope of technical competency or explicit
knowledge is the most useful to the context in
which it was learned. In other words, because
technical competency is often so heavily nuanced
to a particular industry or job it is difficult to
apply elsewhere. However, the benefit of tacit
knowledge is that it can be applied in any situ-
ation, at any time, in any place – there is little
restriction to when, where, or how it is applied
(Wagner, 1987). In ambiguous environments, it
is necessary to view one-self relative to what is
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needed in relationships. Understanding how one
relates to others within rapidly changing contexts
is necessary to transition effectively as a leader or
influencer in contexts that are uncertain, complex,
and ambiguous. In these types of dynamic contexts,
learning from vicarious experiences is critical to
performing well because it shortens the “learning
curve.” Therefore, contextually intelligent leaders
focus less on developing technical competencies or
explicit knowledge and focus more on developing
skills that facilitate tacit knowledge from vicarious
experiences using analogical reasoning.
3D THINKING
Synchronicity, non-Newtonian thinking, and tacit
knowledge are the central components of con-
textual intelligence; three-dimensional thinking
(3D thinking) is what frames it. Managing time
orientation is a critical success factor in leadership
and a driving force behind performance (Thoms
& Greenberger, 1995). To understand time ori-
entation correctly we must look at two issues, the
mental perception of time and the application of
time. The mental perception of time can be de-
scribed as past, present, and future, where only
the present is reality. The second issue is how one
uses their mental perception of time. The applica-
tion of time is described as hindsight, insight, and
foresight. Three-dimensional thinking is useful
during the process of decision-making where
hindsight, insight, and foresight are consulted
simultaneously.
There is a significant body of literature that
stresses the importance of time orientation as it
relates to the behavior of leaders (Bird, 1992;
Bluedorn & Denhardt, 1988; Bluedorn, Kaufman,
& Lane, 1992; Das, 1986, 1987, 1991, 1993;
Jaques, 1982; McGrath & Rotchford, 1983; Thoms
& Greenberger, 1995). The general consensus of
this body of literature implies that leaders use
hindsight, insight, and foresight differently in their

Contextual Intelligence
decision making and that difference is dependent
on many factors, such as personality, age, experi-
ence, industry, and gender.
Applying the application of time to the contex-
tual intelligence model requires all decisions and
actions be based on hindsight (H), insight (I), and
foresight (F) simultaneously, and can be expressed
in the equation H+F=I. The unique aspect of 3D
thinking is that hindsight and foresight equally
contribute to insight. This nuance becomes neces-
sary when the environment is complex, unstable
and ambiguous – such as we see in the world today.
In a context that is predictable or stable one might
emphasize hindsight over foresight or vice versa.
Hindsight represents those elements of your
past (memories, tradition, or precedent) which
can be used to bring definition or clarity to your
present context. This clarity can then be used as a
resource for better decision-making and problem-
solving. It is important to realize that hindsight
can only be leveraged in the present. In other
words, any part of your past which does not add
value to the present moment should be set aside.
Hindsight (past) can either serve as a prison which
prevents you from seeing anything other than a
particular incident in the past or it can help move
you toward a desired future by allowing you to
apply the wisdom from lessons learned; either way
hindsight can only ever manifest or be of value in
the present moment. Often times the influence of
the past is a passive process. On the other hand,
hindsight is the deliberate recalling of experiences
and learned lessons (some of which may be com-
pletely unrelated to the current context) that can
be applied to the current context. As hindsight is
practiced and becomes more developed, it becomes
more intuitive though no less deliberate.
Foresight is an aspirational identity, a projected
image of yourself (organization or loved ones,
etc.) that you hold in your mind as something
to achieve and includes attitude about the future
(expectations, hope, and aspirations). Foresight
should only be used to bring clarity to the present.
If overemphasized aspirational identity becomes
a prison where one is locked by a fear of failure
or unrealistic expectations. In the 3D thinking
framework foresight is distinguished from fore-
casting. Forecasting requires one make predictions
about what might happen. In a complex context,
forecasting accurately is very difficult because
metrics are a moving target (e.g., game theory)
and stakeholders can be fickle. However, with
foresight the principal metric is your aspirational
identity and while that may be dynamic is still
under your control. A future orientation repre-
sents the leader’s behavior that has a direct and
purposeful impact on their future or the future of
others (Thoms & Greenberger, 1995). Foresight is
anticipation of (or looking ahead to) how present
decisions and actions will impact the preferred
future. Foresight takes into account unknown and
unpredictable patterns or what cannot be known
by conventional wisdom.
Insight is the most powerful application of
time orientation. A present orientation requires
responding to present day situations in real time
and is understood to have a significant impact on
outcomes, both short-term and long-term. Insight
begins with the awareness that reality is only ever
expressed in the concept of now. Insight manifests
when the leader recognizes the many different
variables that have converged to create the pres-
ent reality. Insight is the confluence of hindsight
and foresight and results in the realization that all
decisions – regardless of how they are influenced
by hindsight and foresight – are always made in
the present. Likewise, all feelings are always felt in
the present, all attitudes are always demonstrated
in the present, lessons learned from the past can
only ever be applied in the present, and the nec-
essary steps towards achieving the desired future
can only ever take place in the present. Insight
requires living life with the understanding that the
past is a figment of your imagination, it cannot
be revisited; and that the future is a fantasy that
cannot be made a reality without strict attention
to the present.
589

Three-dimensional thinking is the convergence
of hindsight, foresight, and insight. Therefore,
contextually intelligent leaders spend time de-
veloping their capacity to leverage hindsight,
articulate foresight, and practice insight. Leaders
who demonstrate a high level of 3D thinking are
able to answer the following questions:
• What actions from my past have contrib-
uted to my current situation?
• How have those actions influenced what
I believe to be true about my current
situation?
• What action – great or small – can I per-
form right now that will move me one step
closer to my aspirational identity?
Diagramming the Contextual
Intelligence Model
We have described contextual intelligence as the
ability to quickly and intuitively recognize and
diagnose the dynamic contextual variables inher-
ent in an event or circumstance which results in an
intentional adjustment of behavior in order to exert
appropriate influence in that context. However, it
is first necessary to describe operationally how
context and intelligence should be understood.
Context
The etymology of the word context comes from the
Latin contextere, which means to weave together. It
was used to describe the intricate process of using
different fabrics, colors, and materials to weave a
tapestry. As such, context is a complex pattern of
interwoven artifacts from the past, present, and
future of both of the observer and the observed
that create a unique picture or pattern.
Intelligence
Intelligence is understood as the ability to adapt to
a given context and should be considered distinct
590

Contextual Intelligence
from the more traditional understanding of intel-
ligence, which is based in scholastic aptitude or
academic prowess. Intelligence is then the ability
to accurately diagnose and correctly respond to
the interwoven artifacts of the current context.
Intelligence can only be demonstrated by a
change in behavior. In other words, one can only
be said to have learned something if it results in a
change, whereby some value was added that was
previously absent. The idea that the definition of
contextual intelligence includes recognition and
diagnosis is intended to delineate how the process
of intelligence progresses. Any intelligent act
must first begin with recognition and diagnosis.
The context, which is what is being observed, is
dynamic. Therefore, recognition is the awareness
of the variables that are influencing or creating
a context. Diagnosis is the meaning we assign to
the interplay between these variables. Recogni-
tion and diagnosis cannot be taken for granted. It
is a process that requires recalibration each time
a new context is encountered. The intelligent
act itself is then demonstrated in the appropriate
adjustment based on the diagnosis. Ultimately,
that adjustment should yield influence (newly
acquired or sustained).
Contextual Intelligence Behaviors
Demonstrating contextual intelligence transcends
proficiency in 3D thinking and awareness of its
three central values (synchronicity, non-Newto-
nian thinking, and tacit knowledge). To completely
demonstrate contextual intelligence, it is neces-
sary to become proficient in 12 specific behaviors
(Kutz, 2008, 2013). In order to apply the 12 con-
textual intelligence behaviors within the context
of 3D thinking the behaviors are organized into
a three-part taxonomy (Table 1). Part one consist
of four behaviors that contribute to demonstrating
Foresight. Those four behaviors are: intentional
leadership, future minded, change agent, and in-
fluencer. Part two consists of four behaviors that
contribute to demonstrating Hindsight. Those four

Contextual Intelligence
behaviors are: effective use of influence, critical
thinking, cultural sensitivity, and multicultural
leadership. The third part is four behaviors that
contribute to demonstrating Insight. Those four
behaviors are: mission minded, consensus build-
ing, communitarian, and diagnosing context.
Table 1. Kutz’s contextual intelligence behaviors (Kutz, 2008; 2013; Kutz & Bamford-Wade, 2013)
Behavior Description
Foresight
Influencer Uses interpersonal skills to non-coercively
affect the actions and decisions of others.
Change agent Raises difficult and challenging questions
that others may perceive as a threat to the
status quo.
Future-minded Having a forward-looking mentality and
sense of direction and concern for where
to be in the future. Sees beyond present
contradictions.
Intentional leadership Is aware and proactive concerning their
own strengths and weaknesses and has
delineated goals for achieving personal best
and influencing others.
Hindsight
Constructive use of Appropriately uses different types of power
influence to create a desired image and influence.
Critical thinker Makes connections, integrates, and makes
practical application of different actions,
opinions, outcomes, and information.
Culturally sensitive Works to provide opportunities for diverse
members to interact in a nondiscriminatory
manner.
Multicultural leader Can influence the behaviors and attitudes of
ethnically diverse people or groups.
Insight
Communitarian Expresses concern about social trends
and issues, and participates in civic and
community activities
Mission minded Communicates how the performance of
others affects the mission. Is aware of
how their own attitude affects people’s
perception of who they represent.
Consensus builder Convinces other people to see the common
good or a different point of view.
Diagnoses context Knows how to appropriately interpret
and react to shifts or changes in one’s
surroundings.
Table 1 identifies those 12 behaviors, each of
which has a description of the behavior and key
questions to ask to aid in the development of the
behavior. The questions can also be used collec-
tively – within each of the 3D thinking frameworks
– for reflection or to produce dialogue about the
presence of either foresight, hindsight, or insight.
Key Developmental Questions
How do I know that my influence/input has made a
difference to the status quo? Write down some samples.
What are my motives for asking challenging questions? Does
my question advance the cause or add roadblocks?
What are others doing that is leading edge? What can I learn
from them? What are the contradictions in my life?
What is my leadership style? Do I know my follower’s needs?
What are my short term and long term outcomes/goals?
Do I know how others perceive me? Am I aware of the
actions that create those perceptions?
How aware am I of my thinking and reactions in real time?
Do I self-edit in real time? Am I able to process, connect, and
integrate information and practical applications?
How inclusive am I of other’s ideas? Do I believe that
difference equates to richness?
How well do I understand different cultures and worldviews?
Do I have a sense of social justice? Am I community
minded?
How familiar am I with the mission of my organization?
Do I role model the mission and values outside of the
organization?
What it is about the values and goals that will win the hearts
and mind of others? What outcomes are attractive to others
and why?
How aware am I of the contextual ethos? Am I resilient and
adaptive to volatility in change?
591

These 12 behaviors serve as a reference point
for assessing leadership that is contextually intel-
ligent within the framework of 3D thinking. The
Contextual Intelligence Circumplex™ (Figure 1)
is a model that graphically depicts how the three
central values, 3D thinking, and 12 behaviors
converge. With the addition of the 12 behaviors,
we can begin to assemble the contextual intelli-
gence circumplex which starts with understanding
the three central values of synchronicity, non-
Newtonian thinking, and tacit knowledge. The
circumplex is then framed by the 3D thinking
framework (hindsight, insight, and foresight).
The final step is anchoring the 12 behaviors to the
Figure 1. Contextual Intelligence Circumplex™
592

Contextual Intelligence
three central themes and organizing them into the
3D thinking framework. Figure 1 is the assembled
Contextual Intelligence Circumplex™.
CONCLUSION
In today’s complex environment, knowledge is
becoming the core commodity; and the rapid
production of that knowledge will be fundamental
to survival (Bettis & Hitt, 1995; Boisot, 1998).
Consequently, the basic assumptions underlying
much of what is taught as leadership are entirely out
of date and irrelevant in a VUCA world. Based on

Contextual Intelligence
this premise, Manville and Ober (2003) proclaim
that it is time for an entirely new conceptual model
of leadership. Contextual intelligence may offer
such a model for these complex times.
Measuring contextual intelligence against the
presence of these 12 behaviors alone can be mis-
leading. The nature of the contextual intelligence
model is that each of the 12 behaviors be practiced
as a single cluster. In other words, contextual in-
telligence is the outcome when all 12 behaviors
are practiced simultaneously. Therefore, when
assessing contextual intelligence your CI quotient
or aptitude is not based on a mean score or ratio
of demonstrated behaviors to non-demonstrated
behaviors. The 12 behaviors are interdependent
and do not constitute contextually intelligent
behavior if isolated or demonstrated independent
of 3D Thinking.
It is hoped this chapter has offered some
insights and a fresh understanding of leadership
competencies required for an adaptive envi-
ronment. The dynamic which is created when
synchronicity, non-Newtonian thinking and tacit
knowledge become interwoven is both energizing
and resilient. The dynamic is embodied in the
concept of contextual intelligence.
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598

Contextual Intelligence
KEY TERMS AND DEFINITIONS
Context: The interwoven artifacts that cre-
ate or influence the background of any event or
circumstance.
Foresight: Present-day actions/behaviors that
position an organization or individual to establish
a predetermined and desirable future.
Hindsight: Using what you have learned from
past experiences (both yours and others) to make
the beneficial present-day decisions.
Insight: A thoughtful appreciation of the
present-day reality, which lead to real-time deci-
sions that are informed by hindsight and foresight.
Intelligence: The ability to rapidly respond
and contribute in a way that adds value to any
environment.
Non-Newtonian Thinking: Thinking that al-
lows for nonlinear and nonrandom reality.
Synchronicity: Two or more events that are
not causally related but that converge together as
a meaningful coincidence.
Tacit Knowledge: Acquired knowledge that
informs one’s behavior, but is difficult to com-
municate to others and whose origin is difficult
to pinpoint.
 599

Chapter 32
Information Strategy as Enabler
of Competitive Advantage
Neeta Baporikar
University of Pune, India

ABSTRACT
Technology has been continuously improving, causing high business pressures that affect organizations’
current and future competitiveness. Gaining competitive advantage is critical for organizations. Among
the various resources which organizations deploy to succeed, information is identified as a crucial
resource. The success of organizations depends on the decisions made and the excellence of decisions
depends upon the quality and reliability of information. If this be so, then information strategies need
to be designed and implemented in a comprehensive manner so that the organizations derive competi-
tive advantage. Based on an in-depth literature review and contextual analysis, this paper will review
competitive forces and competitive information systems strategies for gaining competitive advantages,
explain concepts of value chain, business ecosystems and discuss innovation strategy.

INTRODUCTION equivalent benefits or providing unique benefits

Competitive advantages give a company an edge
over its rivals and an ability to generate greater
value for the firm and its shareholders. The more
sustainable the competitive advantage, the more
difficult it is for competitors to neutralize the
advantage.
Competitive advantage grows out of value a firm
is able to create for its buyers that exceeds the
firm’s cost of creating it. Value is what buyers
are willing to pay, and superior value stems
from offering lower prices than competitors for
that more than offset a higher price. There are
two basic types of competitive advantage: cost
leadership and differentiation. (Michael Porter,
Competitive Advantage, 1985, p.3)
There are two main types of competitive ad-
vantages: comparative advantage and differential
advantage. Comparative advantage, or cost advan-
tage, is a firm’s ability to produce a good or service
at a lower cost than its competitors, which gives
the firm the ability sell its goods or services at a
lower price than its competition or to generate a
larger margin on sales. A differential advantage is

DOI: 10.4018/978-1-4666-8468-3.ch032

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Information Strategy as Enabler of Competitive Advantage
created when a firm’s products or services differ
from its competitors and are seen as better than a
competitor’s products by customers.
Competitive advantage is the favorable posi-
tion an organization seeks in order to be more
profitable than its competitors. It involves com-
municating a greater perceived value to a target
market than its competitors can provide. This can
be achieved through many avenues including of-
fering a better-quality product or service, lowering
prices and increasing marketing efforts. Sustain-
able competitive advantage refers to maintaining
a favorable position over the long term, which can
help boost a company’s image in the marketplace,
its valuation and its future earning potential. Porter
maintains that achieving competitive advantage
requires a firm to make a choice about the type
and scope of its competitive advantage. There are
different risks inherent in each generic strategy,
but being “all things to all people” is a sure recipe
for mediocrity - getting “stuck in the middle.”
Thus competitive advantage is an advantage
that a firm has over its competitors, allowing it to
generate greater sales or margins and/or retains
more customers than its competition. There can
be many types of competitive advantages includ-
ing the firm’s cost structure, product offerings,
and distribution network and customer support
and information systems. Different organizations
evolve and adopt different strategies to seek com-
petitive advantage and different strategies in turn
result in different competitive advantages. Based
on an in-depth literature review and contextual
analysis, this paper will review competitive forces
and competitive information systems strategies for
gaining competitive advantages, explain concepts
of value chain, value web and business ecosystems
and discuss innovation strategy.
BACKGROUND
Information Systems (IS) strategy is a comprehen-
sive plan that information technology management
600

professionals use to guide their organizations. IS
project management is the process of planning,
organizing and delineating responsibility for the
completion of organizations’ specific information
systems goals.
According to the Project Management Insti-
tute, project management processes are guided
through five stages: initiation, planning, execut-
ing, controlling and closing. Orderly IS project
management is inherent to an organization’s IT
strategy and is usually under the direction of the
Chief Information Officer (CIO). IT (information
technology) is a term that encompasses all forms
of technology used to create, store, exchange, and
use information in its various forms (business
data, voice conversations, still images, motion
pictures, multimedia presentations, and other
forms, including those not yet conceived). It’s
a convenient term for including both telephony
and computer technology in the same word. It
is the technology that is driving what has often
been called “the information revolution.” An IT
strategy should cover all facets of technology
management, Business technology management
(BTM) is a term for a group of services intended
to help businesses that might not have their own
information technology (IT) department.
BTM can include technology planning, project
management, support, database services, disaster
recovery, network management, security, and
document services such as e-billing, document
formatting, and mass printing and mailing. A com-
pany that offers BTM services may offer consulting
or the actual service itself including cost man-
agement, human capital management, hardware
and software management, vendor management,
risk management and all other considerations in
the enterprise IT environment. Executing an IT
strategy requires strong IT leadership; the chief
information officer (CIO) and chief technology
officer (CTO) need to work closely with business,
budget and legal departments as well as with other
user groups within the organization.

Information Strategy as Enabler of Competitive Advantage
Many organizations choose to formalize their
information technology strategy in a written
document or balanced scorecard strategy map.
Balanced scorecard methodology is an analysis
technique designed to translate an organization’s
mission statement and overall business strategy
into specific, quantifiable goals and to monitor the
organization’s performance in terms of achieving
these goals. Developed by Robert Kaplan and
David Norton (1992), the balanced scorecard
methodology is a comprehensive approach that
analyzes an organization’s overall performance in
four ways, based on the idea that assessing per-
formance through financial returns only provides
information about how well the organization did
prior to the assessment, so that future performance
can be predicted and proper actions taken to create
the desired future.
LEVEL OF INFORMATION
TECHNOLOGY USAGE
To determine the level of IT usage is also very
important in order to get maximum benefit from IT
implementations in organizations. From this point
of view, there exist three different levels (Callon,
J.D., 1996) classified bottom-up, as operational
level, tactical level and strategic level. In the op-
erational level, necessary activities of the firm are
carried out and this level concerns all the users
in the firm. In this level, the main purpose of IT
usage is supporting business operations and the
role of IT is to gain efficiency which is measured
by productivity. By the help of IT usage it is aimed
to do things better. Tactical level concerns middle
level managers. The main purpose of IT usage is
Table 1. Framework of different effects of IT
    Technical     
    Benefits (+)     Expenditures on IT (-)
    New Revenues (+)     Cost Reductions by Technology (+)
to support managerial decision making and find
solutions to the problems arisen in the firm. The
role of IT is to do better/right things and to gain
effectiveness accomplished by broadening the
scope of individual tasks, jobs or processes within
organization (Nustini, Y., 2003).
The top one is the strategic level which concerns
senior management. The usage of IT at strategic
level aims to support strategic management. The
role of IT is to do better and new things and to
gain competitive advantage. In this level, IT is the
supporter of three generic competitive strategies
such as cost leadership, differentiation and focus
(Porter’s 1980). Using IT at strategic level in order
to gain competitive advantage supports the firm’s
competitive strategies. In this context, organiza-
tions can reach their set of objectives and can gain
competitive advantage by providing long term
success if only they use IT at strategic level in the
scope of these three main competitive strategies.
It is here only where IT strategy becomes enabler
of competitive advantages.
IMPACTS OF INFORMATION
TECHNOLOGY USAGE
Usage of IT at different levels creates different
impacts on the firms which are often difficult to
identify. Because of the difficulties in analyzing
the impacts of IT, it is necessary to define vari-
ous effects of IT on the firms. Table 1 describes
a framework for describing the different effects of
IT on a firm. As given in Table 1, there are three
types of impacts such as technical, economic and
strategic. Technical impacts arisen from the use
of IT are defined as positive effects. These effects
Economic     Strategic
    Differentiation
    Cost Leadership
601

Information Strategy as Enabler of Competitive Advantage
are created by the use of IT at operational level
such as quick access of correct and up-to-date
information, data storage, share of information,
ease of communication, reducing costs and less
use of paper. Hence, technical impacts provide new
revenues, quality improvements, added value and
less resource consumption for the firm.
Economic impacts are generally defined as
negative effects such as expenditures on IT. These
effects caused by the continual demand for upgrad-
ing, high investment costs and continuous training
to employees. Even if IT usage generates such
positive impacts, this does not mean that it created
competitive advantage IT strategies for the firm.
These impacts must be transformed into strategic
ones in order to cope with change and support
competitiveness. Strategic impacts are created,
when used at strategic level and supported stra-
tegic management such as determination of goals
and objectives, formulating and implementation
of strategies. By the help of using IT at strategic
level and gaining strategic impacts, IT is going
to create enhanced competitiveness and strategic
advantages for the firm and then it has to create
unique benefits to the firm that does not occur in
any other firm.
Several authors have gone beyond examining
the value of IT in reducing a firm’s costs and/or
increasing its revenues to suggest ways that IT can
be a source of sustained competitive advantage.
It is stated that IT can do more than enhance
operational efficiency, it may change the way a
business will compete (McFarlan, 1984). Porter
and Miller (1985) illustrated how IT can get in-
tegrated into the activities of the value chain and
either improve or create competitive advantage.
IT has also been mentioned for its possible role
in creating sustained competitive advantage for
firms Mata et al. (1995).
Using a small architecture firm as case study
subject, demonstrated how IT becomes an integral
and part of a firm’s core business processes and
helps gain competitive advantage (Yetton et al.,
602

1994). Tan studied the impact and linkage of IT
and competitive advantage with using 13 leading
engineering consulting firms in Taiwan (Tan, R.R.,
1996). Furthermore, research by Betts et al. (1991),
into Betts (1992), Tan in 1996 and Rockart et al.
(1996) indicate that IT can offer many strategic
advantages, facilitate new ways of managing work
and develop new business opportunities.
Gaining competitive advantage is critical for
organizations. Baltzan and Phillips (2010, p. 16)
define competitive advantage as ‘a product or ser-
vice that an organization’s customers value more
highly than similar offerings from its competitors’
(in other words, you have something useful (i.e.
products, services, capabilities) that your com-
petitors do not have). Competitive advantages are
typically temporary as competitors often seek ways
to duplicate the competitive advantage (Baltzan
& Phillips 2010, p. 16). In order to stay ahead of
competition, organizations have to continually
develop new competitive advantages. This sec-
tion discusses how an organization can analyze,
identify, and develop competitive advantages using
tools such as Porter’s Five Forces, three generic
strategies, and value chains.
PORTER’S FIVE FORCES
Michael Porter’s Five Forces Model (Porter,
1985, p.6) is a useful tool to assist in assessing the
competition in an industry and determining the
relative attractiveness of that industry. In order to
do an industry analysis a firm must analyze five
competitive forces:
1. Rivalry of competitors within its industry
2. Threat of new entrants into an industry and
its markets
3. Threat posed by substitute products which
might capture market share
4. Bargaining power of customers
5. Bargaining power of suppliers

Information Strategy as Enabler of Competitive Advantage
To survive and succeed, a business must devel-
op and implement strategies to effectively counter
the above five competitive forces. O’Brien and
Marakas (2011, p. 49) suggest that organizations
can follow one of five basic competitive strategies,
which are based on Porter’s three generic strategies
of broad cost leadership, broad differentiation, and
focused strategy. The five competitive strategies
are: cost leadership, differentiation, innovation,
growth, and alliance. How information systems
could be a critical enabler of these five competi-
tive strategies is discussed below:
1. Cost Leadership: Organizations can use
information systems to fundamentally shift
the cost of doing business (Booth, Roberts,
& Sikes 2011) or reduce the costs of business
processes or/and to lower the costs of custom-
ers or suppliers, i.e., using online business to
consumer and business to business models,
e-procurement systems to reduce operating
costs.
2. Differentiation: Organizations can use
information systems to develop differenti-
ated features or/and to reduce competitors’
differentiation advantages, i.e., using online
live chatting systems and social networks to
better understand and serve customers; using
technology to create informediaries to offer
value-added service and improve customers’
stickiness to your web site/business (Booth,
Roberts, & Sikes 2011); applying advanced
and established measures for online opera-
tions to offline practices (i.e., more accurate
and systematic ways of measuring efficiency
and effectiveness of advertising) (Manyika,
2009).
3. Innovation: Organizations can use informa-
tion systems to identify and create (or assist
in creating) new products and services or/
and to develop new/niche markets or/and
to radically change business processes via
automation (i.e., using digital modeling
and simulation of product design to reduce
the time and cost to the market (Chui &
Fleming, 2011). They also can work on
new initiatives of establishing pure online
businesses/operations. At the same time, the
Internet and telecommunications networks
provide better capabilities and opportunities
for innovation. “Combinational innovation”
and Open innovation are two good examples.
There are a large number of component parts
on the networks that are very expensive or
extremely different before the establishment
of the networks, and organizations could
combine or recombine components/parts
on the networks to create new innovations
(Manyika, 2009). Meanwhile everyone is
connected via personal computers, laptops
and other mobile devices through cabled
Internet or wireless networks or mobile
networks, there are plenty of opportunities to
co-create with customers, external partners
and internal people.
4. Growth (Including Mergers and
Acquisitions): Organizations can use in-
formation systems to expand domestic and
international operations or/and to diver-
sify and integrate into other products and
services, i.e., establishing global intranet
and global operation platform; establish-
ing Omni-channel strategy to gain growth
(Omni-channel strategy looks at leveraging
advantages of both online (or digital) and
offline (or non-digital) channels) (Rigby,
2011).
5. Strategic Alliance: Organizations can use
information systems to create and enhance
relations with partners via applications,
such as developing virtual organizations and
inter-organizational information systems.
In addition to these five basic strategies, com-
panies can also adopt other competitive strategies
facilitated by information systems to shape their
603

Information Strategy as Enabler of Competitive Advantage
competitive advantage. Some examples include
(O’Brien & Marakas, 2011, p. 50–52; Chui &
Fleming, 2011; Authors’ Own Knowledge).
They are:
1. Building switching costs via extranets and
proprietary software applications (i.e.,
Amazon’s user-friendly and useful B2C
website)
2. Locking in customers or suppliers by en-
hancing relations and building valuable new
relationships via customer/partner relation-
ship management systems/applications (i.e.,
providing a bank’s customers with multiple
touch points via telephones, Internet, fax
machines, videos, mobile devices, ATMs,
branches, the bank’s agents).
3. Raising barriers to entry through improv-
ing operations or/and optimizing/flattening
organizational structure by increasing the
amount or the complexity of the technology
required (i.e., Google’s search engine and P
and G’s digitization strategy to make it the
world’s most technologically enabled firm).
VALUE CHAIN
Another important concept and tool that can
help a business identify competitive advantage
and opportunities for strategic use of informa-
tion systems is Porter’s value chain model. The
value chain approach views an organization as a
chain, or series, of processes, and it classified an
organization’s activities into two categories: pri-
mary activities (i.e., inbound logistics, operations,
sales and marketing, customer service, outbound
logistics) and secondary/support activities (i.e.,
administration, human resources, technology,
procurement) (O’Brien & Marakas, 2011, p.
56; Laudon & Laudon, 2012, p. 135). The value
chain helps an organization determine the ‘value’
of its business processes for its customers. The
model highlights specific activities in the business
604

where competitive strategies can be best applied
and where information systems are most likely to
have a strategic impact.
By creating/adding value and thus creating
competitive advantages, information systems
could contribute to each part of an organization’s
value chain and extended value chain (including
interactions/ties with external partners and stra-
tegic alliances). By leveraging on the Internet
technologies, organizations could also create a
value web (Laudon & Laudon, 2012, p. 137) or a
hub structure, both of them look at improving the
efficiency and the effectiveness of value chain and
supply chain by digitally connecting customers,
suppliers, partners; by reducing the information
gaps/errors along the chain (especially demand
and supply); and by bettering communication,
cooperation and collaboration.
BUSINESS COMPETITION
AND COOPERATION
In today’s digital era, firms need to have a more
dynamic view of the boundaries among firms,
customers, and suppliers, with both competition
and cooperation occurring with members of the
industry set (more than one industry) (Laudon &
Laudon 2012, p. 140). For example, car, plane, bus,
trains are in the same industry set of transporta-
tion. Another example is the way that traditional
universities are now competing with online learn-
ing and other training and development firms.
Business eco-systems refer to “loosely coupled
but independent network of suppliers, distribu-
tors, partners and strategic alliances (Laudon &
Laudon, 2012, p. 139). An excellent example
of business eco-systems is the mobile Internet
platform; industries such as mobile device manu-
facturers, software vendors, online services firms,
Internet services providers are working together.
Meanwhile in order to stay ahead of the competi-
tion, organizations need to actively establish their
business ecosystems. For example, looking at the

Information Strategy as Enabler of Competitive Advantage
competition between Apple and Samsung, it can
be said that Samsung is still very much a hard-
ware player while Apple has been developing its
ecosystem and venturing into areas of hardware,
software, service, content and customer support
in recent years (Wagstaff 2012). So who is doing
better now?
Another term reflects the same meaning is
“Co-opetition.” In order to succeed in today’s
highly competitive market; firms also should
practice ‘co-opetition’ since not all strategic al-
liances are formed with suppliers or customers.
Co-opetition is a strategy whereby companies
cooperate and compete at the same time with
their competitors, complementors (i.e. hardware
and software businesses), customers, suppliers
(Pearlson & Saunders, 2004, p. 52). Through
co-opetition, the best possible outcome for a
business can be achieved by optimally combining
competition and cooperation. A good example is
Covisint (http://www.covisint.com/), which is the
auto industry’s e-marketplace and is backed up
by competitors of GM, Ford, Daimler Chryslers
and others. Benefits of Covisint include speed
in decision-making, reduced supply chain costs
and greater responsiveness in serving customers.
The downside to co-opetition is that it may be
viewed as collusion. Many countries have legis-
lation in force to deter anti-competitive or price-
fixing practices. The Australian Competition and
Consumer Commission (ACCC) in Australia has
imposed huge monetary fines on companies and
the directors of those companies found guilty of
anti-competitive or price-fixing practices.
INNOVATION STRATEGY
Open innovation emphasizes an organization’s
efforts of engaging and collaborating with ex-
ternal sources and its partners in its innovation
process (Lichtenthaler, Hoegl & Muethel, 2011).
The telecommunications networks and Internet
technologies have made the open innovation more
appealing to organizations. Open innovation strat-
egy has been adopted by many most innovative
companies in the world. For example, 3M has been
very successful in developing smart products via
its open innovation approach-10,000 R & D people
in 73 locations from 63 full-scale operating busi-
nesses across dozens of industries work together
as well as working with large number of external
partners via 300 joint programs and customers via
30 customer technology centers around the world
(Jaruzelski, Holman, & Baker, 2011). One of the
biggest barriers to promote open innovation in the
organization is to do with employees’ attitudes
of not-invented here and not-sold-here, some
strategies to deal with such attitudinal tendencies
include (Lichtenthaler, Hoegl, & Muethel, 2011):
1. Clearly communicating open innovation
strategy across the organization, especially
the benefits of opening up the innovation
process to outside expertise.
2. Demonstrated top management support:
senior executives have to be champions and
role models of open innovation strategy and
simply providing lip services is not going to
work.
3. Establishing incentive/reward systems:
need to reduce the traditional emphasis on
internal-only innovation process and develop
both monetary and non-monetary reward
mechanism (i.e., granting open innovation
award, providing opportunities to work in
the partner organization for some time (es-
pecially in a different location/country) for
open innovation practice.
4. Fostering pro-open innovation environment
by working on organizational culture and
structure.
One of the excellent/prominent examples or
leaders of successfully implementing open inno-
vation strategy is Mozilla Corporation, which has
developed an open-source and free web browser:
Firefox (currently at its 14.0.1 version and accounts
605

Information Strategy as Enabler of Competitive Advantage
for more than 24% of web browsers market) (Wiki-
pedia, 2012). It has extensively relied on external
people (a broader group of volunteers) outside the
firm for creative ideas, development of products,
and decision making (in fact the number of outside
contributors is much larger than that of internal
people). What are some recipes for Mozilla’s huge
success of open innovation strategy? Michelle
Baker, Chairperson and former CEO of Mozilla
Corporation provides with some answers (reported
in Mendonca and Sutton (2008)):
1. Effectively managing the mode of participa-
tion: setting up frameworks where people can
get involved in a very relaxed/decentralized
way
2. Discipline in crucial areas (i.e., programming
codes going into the Firefox)
3. Putting quality control process in place;
clearly specifying where input is needed;
giving people the feeling of ownership thus
inspiring their desire for creating an open,
participatory and safe Internet
4. Balancing internal people and outside
volunteers
5. Transparent and distributed decision-making
process
6. Having the confidence that giving people
control or voice in an elegant manner can
create innovations and generate good op-
portunities (even revenue).
7. Open management style
8. Leaders with courage to acknowledge and
admit when they are wrong
At the same time, by drawing on the experi-
ences of successful open-source innovation initia-
tives (i.e., Wikipedia, ATLAS particle detector,
Firefox web browser, Sun Microsystems’ Solaris
operating systems, and others), Bughin, Chui and
Johnson (2008) present suggestions for effective
open innovation management:
606

1. Attracting and motivating co-creators/
contributors
2. Participants are largely interested in making
a contribution and seeing it become a reality.
3. Organizations need to effectively understand
motivations of contributors and provide the
right incentives to the right people. Many
contributors do enjoy non-financial rewards,
such as fun, fame/recognition, and altruism.
Trust and brand affinity are also important
influencing factors. People generally don’t
want to work with brands/firms they don’t
trust or like.
4. Appropriate structure for participation:
projects/problems need to be broken down
into smaller ones and let contributors work
parallel on different pieces.
5. Governance mechanism to facilitate
co-creation
6. Clear rules, leadership, and transparent
processes for setting goals
7. Procedures for resolving conflicts should be
established and clearly communicated
8. Quality assurance through appropriate qual-
ity assurance process
In addition, managing risks of open innovation
is another critical issue. One typical risk is intel-
lectual property (IP). Organizations need to clearly
understand potential IP risks and the investments/
costs associated with identified risks, and could
take measures such as establishing IP sharing
agreement or/and rewards/risks sharing arrange-
ment to deal with IP issues (Alexy & Reitzig,
2012; Bughin, Chui, & Johnson 2008). Updating
and maintaining open source code and providing
technical support to users are also needed to be
looked at (Pearlson & Saunders, 2010, p. 340).
Another important and highly debated topic
in innovation strategy management is when or-
ganizations should be early adopter of new tech-
nologies. Companies like eBay (online auction),

Information Strategy as Enabler of Competitive Advantage
Yahoo (Internet directory), and Apple computer
(software/hardware) ‘got there first’ and leveraged
their first-mover/early adopter competitive advan-
tage. Companies such as Citibank (ATM), Sony
(video tape), Chemdex (B2B digital exchange),
Netscape (Internet browser), lost their first-mover
advantages to late movers. Intel (microchip),
America Online (Internet marketing), and Google
(online search engine) are some good examples
of companies who were later movers but gained
success over earlier adopters by being the best
(Turban et al. 2006, p. 592).
The first mover in an industry has the advantage
of being the first to offer a product or service to
the market. This can help create an impression
that the firm is the pioneer or the initiator in the
customer’s mind. In addition this firm will be
able to capitalize on the demand for the product
or service until another firm enters the market
(Turban et al., 2006, p. 591). However, first mov-
ers take the risk that new goods and services may
not be accepted by the market. Some suggested
factors that determine the success or failure of
the first mover strategy include (Turban et al.,
2006, p. 591):
1. Size of the Opportunity: Big enough op-
portunity for just one firm and the company
is big enough for the opportunity.
2. Commodity Products: Simple enough to
offer but hard to differentiate, i.e. books and
airline seats. Products such as clothes and
restaurants are more easily differentiated by
later movers with better features and services
encouraging a switch to late movers.
3. Be the Best: In the long run, best-mover
advantage not first-mover advantage deter-
mines the market leader, such as Apple’s
iPhone, Google’s search engine, Amazon’s
e-commerce platform.
In the long term, organizations have to keep
on being innovative and investing in research and
development (R & D) to stay ahead of the competi-
tion or even survive in the market. In fact, firms
who are very active in innovation and seriously
invest into their R&D are top performers. Some
top spenders on R & D include: Toyota, General
Motors, Ford, Honda, Volkswagan in the Auto
industry; Pfizer, Johnson and Johnson, Roche
Holding, GlaxoSmithKline, Novartis, Sanofi-
Aventis, AstraZeneca, Merck in the Health Care
industry; Nokia, Samsung, IBM, Intel, Panasonic,
Cisco Systems in the Computing and Electronics
industry; Microsoft in the Software and Internet
industry, and Siemens in the Industrials sector
(Jaruzelski & Dehoff, 2008; 2010; 2011; Jaru-
zelski, Loehr, & Holman, 2012).
Harvard Business School Professor Michael
Porter, in his excellent essay, “What is Strategy?”
(1996), argues that these two concepts must not
be confused: operational effectiveness means a
company is better than rivals at similar activities
while competitive advantage means a company
is performing better than rivals by doing differ-
ent activities or performing similar activities in
different ways. Investors should know that few
companies are able to compete successfully for
long if they are doing the same things as their
competitors.
At the same time, gaining a sustainable com-
petitive advantage is not as simple as just being
different. When companies do eventually manage
to achieve competitive advantage, more often
than not the advantage is short lived. Like bees to
honey, competitors are drawn to the high profits of
competitive advantage; competitors work hard to
develop new technologies and business techniques
that can quickly upset the competitive status quo.
Remember, today’s competitive advantage can
become tomorrow’s albatross.
At the end of the day, it is sustainability that is
so critical. Powerful competitive advantage creates
a big barrier around a business, allowing it to fend
off competitors and enjoy extraordinary growth
and profitability. The best long-term investments
are those companies whose walls are not only
high but also getting higher and thicker over time.
607

Information Strategy as Enabler of Competitive Advantage
Think of Coca Cola’s (NASDAQ: COKE) global
brand name recognition, Microsoft’s (NASDAQ:
MSFT) dominance of the PC operating system, or
Wal-Mart’s (NYSE:WMT) advanced information
technology and inventory management systems.
Investors need to understand the circumstances in
which a company and its business model compete
and whether the model puts the company at a
competitive advantage or disadvantage.
RECOMMENDATIONS
Meanwhile when we are talking about innova-
tion, we are referring not only to R & D for new
products but also to changes and new things in
the various parts of the business, such as busi-
ness processes, customer services, marketing and
sales, training and learning, talent management,
knowledge management, data collection and
decision-making, design of organizational struc-
ture, intra-organizational and inter-organizational
communications, procurement, payment systems,
logistics management, among many others.
Organizational learning (especially open learn-
ing) could be viewed as an important element
of innovation, without effective and continuous
learning and quick responses to market changes;
organizations won’t be able to have the skills and
knowledge for creative ideas. It can be said that
even though the success and failure of the business
is a result of multiple factors including manage-
ment issues (such as leadership, management
experiences and skills, decision making process,
investment strategies), organizational factors (such
as culture, structure, processes, people’s skills),
changes in the industry and in the marketplace,
and economic conditions, the ability and com-
mitment to continuous innovation are definitely
critical to the sustainable competitive advantage
and long-term growth of the organization.
In fact, innovation is the source of the added-
values and profits, for example Chinese manufac-
turers working on OEM orders typically make very
608

slim margin while the owner of the intellectual
property owner does much better. If an organiza-
tion is able to make its innovation accepted as
industry standard, then competitive advantages
and good financial outcomes will be flowing in
easily-just looking at the competition between
Google’s Android operation system and Apple’s
iOS (iphone operating system) for mobile devices.
Furthermore when we are talking about using
IS/IT for innovation, IS/IT alone won’t be enough
for successful innovation, and it is a joint effort of
IS/IT and business (users), which needs a top-down
push to deal with silo problems and foster coopera-
tion (Roberts and Sikes 2011). On a related note,
Kleiner (2012) argues that only a few firms (i.e.,
Amazon, Apple) have successfully locked down
their intellectual capital (technological informa-
tion), and most companies hope that the speed of
innovation beats the risk of leaking information
to competitors. Continuous innovation could be
used for dealing with intellectual property issues.
Additionally, different proven instruments can
be used in order to measure the strategic use of
IT in order to gain competitiveness and studies to
draw comparisons on an international basis too.
CONCLUSION
In this paper an important dimension of informa-
tion systems, identifying competitive advantages
and enhancing competitive strategies through
information systems, has been deliberated. Or-
ganizations can apply tools such as Porter’s five
forces and value chain to analyze their competitive
position, examine their competitive advantages,
and identify relevant competitive strategies. Infor-
mation systems can play a very important role in
the success of organization’s competitive strate-
gies. However competitive strategies alone cannot
create magic. In order to meet the ‘IS/IT’s unmet
potential’, both IS/IT and non-IS/IT executive
need to work hard to have better understanding
each other’s areas (Roberts & Sikes, 2008). The

Information Strategy as Enabler of Competitive Advantage
transparency in the planning and execution of
information systems projects should be visible
to business leaders. Accountability of informa-
tion systems projects should be applied to both
information systems and business parts in the
organization. However, efficient methods to plan
and evaluate information strategies are required.
Furthermore, when it comes to determining
a company’s competitive advantage, there are a
few important questions that stakeholders can ask
about a company: Is its strategy different from
other companies in the market? Does the com-
pany’s strategy position deliver superior profits?
Is the strategy defensible? If the response is ‘yes’
to these questions, the company may have good
future prospects.
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This work was previously published in the International Journal of Strategic Information Technology and Applications (IJSITA),
5(1); edited by Caroline Howard, Karen Schenk, and Kathleen M. Hargiss, pages 30-41, copyright year 2014 by IGI Publish-
ing (an imprint of IGI Global).

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Chapter 33
Open Business Intelligence
for Better Decision-Making
Jorge Bernardino
Institute Polytechnic of Coimbra, Portugal

ABSTRACT
Decision-making is a crucial, yet challenging task in enterprise management. In many organizations,
decisions are still made based on experience and intuition rather than on facts and rigorous approaches.
This is often due to lack of data, unknown relationships between data and goals, conflicting goals and
poorly understood risks. The success of organizations depends on fast and well-founded decisions taken by
relevant people in their specific area of responsibility. Business Intelligence (BI) is a collection of decision
support technologies for enterprises aimed at enabling knowledge workers such as executives, managers,
and analysts to make better and faster decisions. In this paper, the authors review the concept of BI as an
open innovation strategy and address the importance of BI in revolutionizing knowledge towards economics
and business sustainability. The main objective is to discuss why the concept of BI has become increas-
ingly important and presents some of the top key applications and technologies to implement open BI in
organizations, which would like to enter into the new market and operate on a global scale.

INTRODUCTION sibility to adequate and reliable information in

Increasing competition, demand for profits, con-
tracting economy, and savvy customers all require
companies and organizations to make the best
possible decisions. With the fast advancement
of both business techniques and technologies in
recent years, knowledge has become an important
and strategic asset that determines the success or
failure of an organization (Wit & Meyer, 2003).
Studies show that a competitive advantage in
the business environment depends on the acces-
shortest time possible and the high selectivity in
the creation and use of information. An effective
instrument to create, aggregate and share knowl-
edge in an organization has therefore become a
key target of management.
The need to implement decision support
systems in organizations is an unavoidable real-
ity (Arsham, 2011). Currently, the majority of
organizations have Information Technology (IT)
systems, designed to record and store massive
amounts of data resulting from the operational

DOI: 10.4018/978-1-4666-8468-3.ch033

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Open Business Intelligence for Better Decision-Making
activity (Kimberling, 2006). This data set has
to be transformed in information and all that in-
formation will lead to knowledge useful for the
organizations.
In addition, in a competitive environment,
traditional decision-making approaches no lon-
ger meet the requirements of organizations for
decision-making; organizations must make good
use of electronic information system tools such
as Business Intelligence (BI) systems to quickly
acquire desirable information from huge volume
of data to reduce the time and increase the effi-
ciency of decision-making procedure. Different
researchers have different definitions for business
intelligence system, for example (Turban et al.,
2008) defined the business intelligence system as
“an umbrella term that encompasses tools, archi-
tectures, databases, data warehouses, performance
management, methodologies, and so forth, all of
which are integrated into a unified software suite.”
Business Intelligence is one of the few forms
of sustainable competitive advantage left (Burstein
& Holsapple, 2008). For example, any two well-
funded competitors in a market have near real
access to capital, technology, market research,
customer data, and distribution. People and the
quality of the decisions that they make are the
primary competitive differentiators in the Informa-
tion Age (Lin et al., 2009). The implementation of
BI components is the key to sustaining long-term
competitive advantage.
Not getting or having access to information not
only hinders employees’ decision-making ability
and affects their individual performance − but it
also has tremendous effects at the organizational
level as well (SAP, 2009):
• Questionable data reduces productivity
and challenges wide-ranging consensus;
• Decisions are delayed, resulting in missed
opportunities, lost revenue, and cost
escalation;
612

• Reduced confidence across the organiza-
tion limits momentum and helps maintain
the status quo, often the least-desirable
outcome.
Compounded, these effects reduce profitability
for the organization and severely limit its ability
to react to changes as the market evolves.
Several studies have showed how IT invest-
ments impact enterprise performance (Popovič
et al., 2010). In order to capture real benefits of
BI investments, as an IT investment, these stud-
ies revealed that organizations have to make a
great effort (Chamoni & Gluchowski, 2004). In
the earlier steps of BI system implementation the
selection of the most convenient system is very
important. In this paper we describe the top key
systems to implement open source BI in organi-
zations; in particular organizations which would
like to enter into the new market and operate on
a global scale. Thus, open source BI systems
can trigger immense possibilities of accelerating
knowledge acquisition, intensifying entrepreneur-
ship development and improving business skills,
therefore, leading to business sustainability. In this
context open BI can be seen as another form of
open innovation, which can be used by business
communities, especially among SMEs.
The rest of the paper is organized as follows.
First, we describe the problem of growing data
volumes that organizations have to deal with.
Second, we introduce the concept of BI and ad-
dress the importance of BI in revolutionizing
knowledge to enhance organization’s response
in making better and more efficient business
decisions, also increasing innovation. Some BI
resources are also introduced and we discuss the
advantages of using the open source model. After,
we present the top Business Intelligence software
vendors to implement open BI in organizations.
Finally, the concluding remarks are presented in
conclusions section.

Open Business Intelligence for Better Decision-Making
GROWING DATA VOLUMES
AND SMARTER DECISIONS
For years, technical analysts have been specu-
lating about the monumental growth of data.
A 2010 article suggests that data volume will
continue to expand at a healthy rate, noting that
“the size of the largest data warehouse … triples
approximately every two years” (Adrian, 2010).
The data explosion is globally recognized as a
key Information Technology (IT) concern. Ac-
cording to a Gartner study published in October
of 2010, “47% of the respondents to a survey,
ranked data growth in their top three challenges”
(Mearian, 2010). As an example of rampant data
growth, retailer Walmart executes more than 1
million customer transactions every hour, feeding
databases estimated at more than 2.5 petabytes.
Persistence is not a requirement either – a 2010
report suggests that by 2013, the amount of traffic
flowing over the Internet annually will reach 667
exabytes (Cukier, 2010).
Structured information in databases is just
the tip of the iceberg; some important milestones
document the explosive growth of unstructured
data as well: by the end of 2009, the amount of
digital information was estimated to have grown
to almost 800,000 petabytes (or 800,000,000,000
gigabytes), with an expectation that by the end of
Figure 1. Digital data explosion
2010 that amount would total approximately 1.2
million petabytes! At this rate, the amount of digital
data could grow to 35 zettabytes (1 zettabyte =
1 trillion gigabytes) by 2020 (Gantz & Reinsel,
2010) (see Figure 1).
Complex business processes are increas-
ingly expect to be executed through a variety of
interconnected systems. Integrated sensors and
probes not only enable continuous measurement
of operational performance, the interconnected-
ness of many systems allows rapid communication
and persistence of those measures. Every day, it
is estimated that 15 petabytes of new information
is being generated, 80% of which is unstructured
(Bates et al., 2009).
We can conclude from these few examples of
rapid expansion of the amount of digital informa-
tion that exciting new vistas can be opened up as
never before through combined analysis of struc-
tured and unstructured data. New and improved
means of data analysis allow organizations to
identify new business trends, innovate, assess the
spread of disease, or even combat crime, among
many other opportunities. It appears that we are
reaching the point where information is becoming
the most significant focus of the business, where
“statisticians mine the information output of the
business for new ideas” (Bates et al., 2009). And
these new ideas are not just lurking in structured
613

Open Business Intelligence for Better Decision-Making
databases. Rather the analysis must encompass
unstructured data artifacts as well.
But as the volume of data grows, so does the
complexity of finding those critical pieces of
information necessary to make those business
processes run at their optimized level. The issue
is no longer the need to capture, store, and manage
that data. Rather, the challenge is distilling out
and delivering the relevant pieces of knowledge
to the right people at the right to time to enhance
the millions of opportunities for decision-making
that occur on a daily basis.
In essence, this can be summarized as the desire
to integrate business intelligence in a pervasive
manner into both the strategic and the operational
processes across all functions and levels of the
organization. And whether this means notifying
senior management of emerging revenue oppor-
tunities, providing real-time insight into corporate
performance indicators, or hourly realignment of
field repair team schedules to best address cus-
tomer service outages. The ability to accumulate,
transform, and analyze information to provide
rapid, trustworthy analyses to the right people at
the right time can enhance growth opportunities
and competitiveness, leading to a sustained open
business model of value chain. All this can be
done selecting the most appropriate BI system
to the organization.
BUSINESS INTELLIGENCE
Some articles mention the term Business Intelli-
gence (BI) was first introduced in 1989 by Howard
Dresner, who defined BI as “a set of concepts and
appropriate methods to support decision making,
using the data provided by support systems to
business process” (Power, 2007). However, some
authors’ claim Dresner re-appropriated the term
to rebadged what was then called DSS-Decision
Support Systems. They say H.P. Luhn actually
invented the term, not in 1989, but in 1958 in an
614

IBM Journal article that pretty accurately predicts
BI systems today. The original definition of Busi-
ness Intelligence from (Luhn, 1958) is: “business
is a collection of activities carried on for whatever
purpose, be it science, technology, commerce,
industry, law, government, defense, et cetera. The
communication facility serving the conduct of a
business (in the broad sense) may be referred to as
an intelligence system.” The notion of intelligence
is also defined here, in a more general sense, as
“the ability to apprehend the interrelationships of
presented facts in such a way as to guide action
towards a desired goal.”
Perhaps the first probable reference to BI was
made in Sun Tzu’s “Art of War” (Tzu, 1963), who
was born five centuries BC, where he claimed
that to succeed in war, full knowledge on one’s
strengths and weaknesses as well as the strengths
and weaknesses of the enemy must be known.
Applying this to the modern business world, BI
becomes the art of wading and sieving through
tons of data, and presenting the overloaded data
as information that provides significant business
value in improving the effectiveness of managerial
decision-making (Turban et al., 2004). As such,
BI is carried out not just for gaining sustainable
competitive advantages, but it also has a valuable
core competence in most instances. A variety of
businesses have used BI for activities such as
customer support and service, customer profiling,
market research and segmentation, product profit-
ability, inventory and distribution analysis, etc.
The concept of “business intelligence” and
“analytics” include tools and techniques support-
ing a collection of user communities across an or-
ganization, as a result of collecting and organizing
numerous (and diverse) data sets to support both
management and decision making at operational,
tactical, and strategic levels. Through data col-
lection, aggregation, analysis, and presentation,
business intelligence can be delivered to best serve
a wide range of target users. Organizations that
have matured their data warehousing programs

Open Business Intelligence for Better Decision-Making
allow those users to extract actionable knowledge
from the corporate information asset and rapidly
realize business value.
But while traditional data warehouse infra-
structures support business analyst querying and
canned reporting or senior management dash-
boards, a comprehensive program for information
insight and intelligence can enhance decision-
making process for all types of staff members in
numerous strategic, tactical, and operational roles.
Even better, integrating the relevant information
within the immediate operational context becomes
the differentiating factor. Offline customer analy-
sis providing general sales strategies is one thing,
but real-time business intelligence can provide
specific alternatives to the sales person talking
to a specific customer based on that customer’s
interaction history in ways that best serve the
customer while simultaneously optimizing cor-
porate profitability as well as the salesperson’s
commission. Maximizing overall benefit to all
of the parties involved ultimately improves sales,
increases customer and employee satisfaction, and
improves response rate while reducing the cost of
goods sold – a true win-win for everyone.
The wide ranges of analytical capabilities all
help suggest answers to a series of increasingly
valuable questions (Loshin, 2011):
• What? Predefined reports will provide
the answer to the operational managers,
detailing what has happened within the or-
ganization and various ways of slicing and
dicing the results of those queries to un-
derstand basic characteristics of business
activity (e.g., counts, sums, frequencies,
locations, etc.). Traditional BI reporting
provides 20/20 hindsight – it tells what has
happened, it may provide aggregate data
about what has happened, and it may even
direct individuals with specific actions in
reaction to what has happened;
• Why? More comprehensive ad hoc que-
rying coupled with review of measure-
ments and metrics within a time series en-
ables more focused review. Drilling down
through reported dimensions lets the busi-
ness client get answers to more pointed
questions, such as the sources of any re-
ported issues, or comparing specific per-
formance across relevant dimensions;
• What if? More advanced statistical analy-
sis, data mining models, and forecasting
models allow business analysts to consider
how different actions and decisions might
have impacted the results, enabling new
ideas for improving the business;
• What next? By evaluating the different
options within forecasting, planning, and
predictive models, senior strategists can
weigh the possibilities and make strategic
decisions;
• How? By considering approaches to orga-
nizational performance optimization, the
senior managers can adapt business strate-
gies that change the way the organization
does business.
Information analysis makes it possible to an-
swer these questions. Improved decision-making
processes depend on supporting business intel-
ligence and analytic capabilities that increase in
complexity and value across a broad spectrum
for delivering actionable knowledge (as shown in
Figure 2). As the analytical functionality increases
in sophistication, the business client can gain more
insight into the mechanics of optimization. Statisti-
cal analysis will help in isolating the root causes
of any reported issues as well as provide some
forecasting capabilities should existing patterns
and trends continue without adjustment. Predictive
models that capture past patterns help in projecting
“what-if” scenarios that guide tactics and strategy
towards organizational high performance.
615

Open Business Intelligence for Better Decision-Making
Figure 2. A range of techniques benefits a variety of consumers for analytics
Intelligent analytics and business intelligence
are maturing into tools that can help optimize the
business. That is true whether those tools are used
to help (Loshin, 2011):
• C-level executives (CEO, CIO, CFO, …)
review options to meet strategic objectives;
• Senior managers seeking to streamline
their lines of business; or
• Operational decision-making in ways nev-
er thought possible.
These analytics incorporate data warehousing,
data mining, multidimensional analysis, streams,
and mash-ups to provide a penetrating vision that
can enable immediate reactions to emerging op-
portunities while simultaneously allowing one to
evaluate the environment over time to discover
ways to improve and expand the business.
Business Intelligence and
Decision Making
A BI system allows an organization to gather,
store, access and analyze corporate data to aid in
decision-making. Generally these systems will
illustrate business intelligence in the areas of
customer profiling, customer support, market re-
search, market segmentation, product profitability,
statistical analysis, and inventory and distribution
analysis to name a few.
Most companies collect a large amount of data
from their business operations. To keep track of
that information, a business would need to use a
wide range of software programs, such as Excel,
Access and different database applications for
various departments throughout their organiza-
616

tion. Using multiple software programs makes it
difficult to retrieve information in a timely manner
and to perform analysis of the data.
Benefits of Business Intelligence
Initially, BI reduces IT infrastructure costs by
eliminating redundant data extraction processes
and duplicate data housed in independent data
marts across the enterprise. For example, 3M
justified its multimillion-dollar data warehouse
platform based on the savings from data mart
consolidation (Watson et al. 2004).
BI also saves time for data suppliers and users
because of more efficient data delivery. End users
ask questions like “What has happened?” as they
analyze the significance of historical data. This
kind of analysis generates tangible benefits like
headcount reduction that are easy to measure;
however, these benefits typically have local impact.
Over time, organizations evolve to questions
like “Why has this happened?” and even “What will
happen?” As business users mature to perform-
ing analysis and prediction, the level of benefits
become more global in scope and difficult to
quantify. For example, the most mature uses of
BI might facilitate a strategic decision to enter
a new market, change a company’s orientation
from product-centric to customer-centric, or help
launch a new product line.
The spectrum of BI benefits can be summarized
in the following (Ponniah, 2010):
• Cost savings from data mart consolidation;
• Time savings for data suppliers;
• Time savings for users;
• More and better information;

Open Business Intelligence for Better Decision-Making
• Better decisions;
• Improvement of business processes;
• Support for the accomplishment of strate-
gic business objectives.
Keys to BI Success
Success with BI isn’t automatic. Organizations are
more likely to be successful when certain facili-
tating conditions exist. According to (Henschen,
2008) the “Top Roadblocks to BI Success” are:
1. Complexity of BI tools and interfaces;
2. Cost of BI software and per-user licenses;
3. Difficulty accessing relevant, timely, or
reliable data;
4. Insufficient IT staffing or excessive software
requirements for IT support;
5. Difficulty identifying applications or deci-
sions that can be supported by BI;
6. Lack of appropriate BI technical expertise
within IT;
7. Lack of support from executives or business
management;
8. Poor planning or management of BI
programs;
9. Lack of BI technology standards and best
practices;
10. Lack of training for end users.
BI RESOURCES
Resources on BI are freely available on the Web
for both practitioners and academics. Here, we only
describe three well-known resources: Teradata
University Network, TDWI-The Data Warehous-
ing Institute and Kimball University.
Teradata University Network
Teradata University Network is a web-based por-
tal for faculty and students in data warehousing,
business intelligence/decision support, and data-
base that is provided at no cost to the university
(Teradata, 2011). This content also can support
introduction to IT courses at the undergraduate
and graduate levels. For those who teach BI, the
Teradata University Network (www.teradatauni-
versitynetwork.com) offers various free BI-related
resources: course syllabi used by other faculty,
book chapters, articles, research reports, cases,
projects, assignments, PowerPoint presentations,
software, large data sets, Web seminars, Web-
based courses, discussion forums, podcasts, and
certification materials.
The software - such as the Teradata database,
MicroStrategy - is available through an applica-
tion service provider arrangement so that schools
do not have to install and maintain BI software.
A companion site, the Teradata Student
Network (www.teradatastudentnetwork.com),
provides students access to resources assigned
by their instructor. The Teradata University
Network currently has nearly 2,000 registered
faculty members, from over 1000 universities,
in 75 countries, with thousands of student users,
according to its web site.
The Data Warehousing Institute
The Data Warehousing Institute is the premier
educational organization for business intelligence
and data warehousing managers and professionals,
according to the information in its web site (TDWI,
2011). TDWI provides BI training, research, and
networking opportunities to its members around
the world. Founded in 1995, the organization
offers vendor-neutral educational opportunities
at quarterly conferences, on-site classes, and re-
gional events and through its web site. Each year,
TDWI sponsors a BI best practices competition
that recognizes organizations that have achieved
significant success in BI. TDWI offers five ma-
jor World Conferences, topical seminars, onsite
education, a worldwide membership program,
business intelligence certification, live Webinars,
resourceful publications, industry news, an in-
617

Open Business Intelligence for Better Decision-Making
depth research program, and a comprehensive Web
site: tdwi.org. The TDWI Business Intelligence
publications provide fresh ideas and perspectives
to help organizations operate more intelligently.
They also provide actionable insight on how to
plan, build, and deploy business intelligence and
data warehousing solutions.
The Kimball University
Kimball University, operated by the Kimball
Group, offers public and on-site data warehouse
classes based on their best-selling books and ex-
tensive hands-on consulting experience (Kimball,
2011). They are a team of dedicated data warehous-
ing professionals, focused on developing, teaching
and applying dimensional data warehouse design
techniques for IT business intelligence profession-
als through consulting, writing and education.
Kimball University is a source for dimensional
data warehouse education offering public classes
in venues around the US and internationally. In
addition, they teach classes on-site at client loca-
tions. All classes content are vendor neutral.
The Kimball Group delivers practical tech-
niques via their monthly email Design Tips, along
with reminders about upcoming worldwide classes
and events. They have written over 250 articles for
InformationWeek, Intelligent Enterprise, DBMS,
Information Management and DM Review, that
are available to download in the web site.
OPEN SOURCE MODEL
An economic shift has occurred in the past de-
cades, introduced with the rise of the Internet.
The Internet provides connectivity, which in turn
connects demand to supply; this removes the capi-
tal equation and shifts conditions in the market.
People with computers all over the world provide
the means of conduction, and with easy ways for
these people to connect they can easily collaborate
618

on projects with very little infrastructure. This, in
turn, led to the popularity of Open Source.
A variety of authors (e.g. (Pollock, 2009;
Lakhani & von Hippel, 2003; Bessen, 2006))
have pointed out that an open-source approach
may offer substantial efficiency advantages – for
example by allowing users to participate directly
in adding features and fixing bugs – and this is
particularly true where the information good is
complex and transaction costs are high.
Open Source has had many consequences for
the enterprise software market, primarily by mak-
ing it a commodity market and by driving down
price. It also allows people who have a desire
to do something to make money from doing it.
Production inputs are widely distributed and the
raw materials are there to produce things in new
ways. Many argue that this shift has been about
software licensing, but actually it is largely about
the production and distribution of software; it is
therefore a change that is more about economics
than about ideology. That economic base – the
combination of connectivity, of easier ways to
market, produce and distribute software, and
the fact that the Internet acts as a giant copying
machine – changes the conditions under which
software can be sold. That is why Open Source
continues to disrupt the market and to force ven-
dors to come up with new ways to cope with it.
Enterprise software is not going away; rather, it
has been forced to shift.
A 2008 survey by North Bridge Venture Part-
ners (Skok, 2008) asked: “Which sector of the
software industry is most vulnerable to disruption
by Open Source?” At the top of the resulting list
was web publishing and content management, a
market that’s currently highly fragmented and
therefore perfect for introducing Open Source
products. The second sector was social software,
an entirely new category that has been difficult
to define, and difficult currently for commercial
vendors to make money from; again, Open Source
is the ideal solution.

Open Business Intelligence for Better Decision-Making
Business Intelligence was the third sector listed
in the North Bridge survey. This is understand-
able, since BI tools and data warehousing tools
are exactly that: tools. While end users consume
the outputs, they’re not themselves often put into
the hands of end users; rather, IT sets up the meta-
data, defines metrics, etc. Which means Open
Source is targeted at the right audience; there is
a platform in a data warehouse that has multiple
layers, any one of which can be Open Source or
proprietary. Those modular boundaries make Open
Source an ideal fit.
Why Open Source?
In addition to examining the sectors left vulnerable
by Open Source, the North Bridge Venture survey
also asked: “What makes Open Source attractive?”
Price was the most popular answer. In addition to
the capital cost of licensing, Open Source drives
down acquisition cost, as companies no longer
have to go through heavy proof of concept. It’s
also easier to trial things, and if license costs are
less then maintenance costs are also less. Finally,
unbundling maintenance support and service
means that businesses can choose from a menu of
services instead of being forced into the traditional
approach of a 20 percent single lump fee.
The study also showed that companies found
that Open Source offered freedom from vendor
lock-in. In addition, it is flexible, with easy access
to commodity code, in order to develop, embed
and build content into websites.
Another 2008 study, by (The 451 Group, 2008),
gave a list of what organizations saw as benefits
to Open Source once it was already introduced.
At that point, flexibility came out over cost. In
this instance, though, the definition of flexibility
was different; respondents were impressed by
the fact that there is no vendor that dictates when
they have to upgrade, how they have to upgrade,
and why they have to upgrade. For a commercial
vendor at end of life or desupporting versions of
their software, a sales and marketing schedule
will often require a release every Q1, whether
they are ready or not. As a result, companies will
be forced into an upgrade they don’t want, that
was released simply because marketing dictated
it and not necessarily because it was ready. Open
Source is typically not under those same types
of pressures.
Buyers were also impressed by scaling costs;
if an organization has 50 initial licenses and
pushes it out to 150 more people, in BI lowered
costs come in beyond the initial capital costs. As
well, companies are not dependent on vendors
for service or for additional pieces of technology.
However, misconceptions still exist around
Open Source, based largely on the idea that these
projects are being developed by teenagers in their
parents’ basement; a myth that is more than a
decade outdated, as today Open Source projects
are generally run by commercial Open Source
providers with paid developers. Still, a lack of
information can prove a problem for organizations
introducing Open Source. This often plays out in
the legal department, which reviews all contracts
and may not be informed when it comes to Open
Source software licenses. An Open Source license
will be missing half the standard clauses the law-
yers are used to; clauses of restriction that dictate
how to deploy, what can be deployed, where it can
be deployed, and how the software can be used.
Most Open Source licenses do not have these
same clauses and lawyers will want to know why
they’re missing. That can be another road bump
in getting the software acquired.
Support can also be more confusing. Most
major projects have commercial vendor support
behind them. But unbundling is also available,
which means buyers don’t have to purchase sup-
port, but instead can buy the subscription model
that covers only bug fixes, integrated patch testing
and certification against databases. This is because
enterprise support is often overrated; more often
than not internal support solves more problems
than the vendor does.
619
 
Open Business Intelligence for Better Decision-Making

Chesbrough and Crowther (2006) also proclaim The result is a stacked ranking with an average
the benefits of openness and at the same time it is score for every one of the six categories and an
closely related to entrepreneurship by focusing on overall average score for each vendor.
new knowledge creation, too. The authors support It is important to understand the scale that
the idea of transferring the open source development they used in scoring the industry and vendors.
philosophy to entrepreneurship, i.e. the concept of The scale used is the following:
open innovation. Open innovation at its core is the
increasing usage of external sources for creating • 5.0 = Excellent
and developing new ideas, which lead to innovation. • 4.0 = Very Good
In contrast to a closed innovation paradigm, com- • 3.0 = Adequate
panies try to include customers, users, universities • 2.0 = Poor
and even competitors in different stages of their • 1.0 = Very Poor
new product development processes (Chesbrough,
2003). As every open source software innovation In the next sections we present the ranking of
process is based on the desire of integrating external Open Source BI. Based on the ranking presented
knowledge, it is not astonishing that open source in Dresner (2011), we will examine the Top 3 open
development is often referred to the open innova- source tools: Actuate/BIRT (2011), Jaspersoft
tion paradigm (Dahlander & Magnusson, 2005; (2011), Pentaho (2011), which according to the
West & Gallagher, 2006; West & Lakhani, 2008) study, have higher scores.
and extends open business strategies.
Open Source Business
Intelligence Systems
OPEN BI SOLUTIONS
For the first time in this study they separated
In this section we present the open source BI out the Open Source BI vendors into their own
systems from the vendors that follow the open category. These vendors include Actuate/BIRT,
source model. We will describe the top open Jaspersoft and Pentaho. Jedox/Palo (www.jedox.
source BI tools accordingly to the rankings of com) also fits into this category, but they don’t
Business Intelligence software vendors published ranked it due to the relatively small number of
by Dresner Advisory Services in its Wisdom completed surveys. Table 1 shows the ranking
of Crowds Business Intelligence Market Study for Open Source BI vendors.
(Dresner, 2011). In this study vendors were ranked
using 32 different criteria, on a 5-point scale for
each. Criteria covered: Table 1. Open source business intelligence ven-
dors – stacked rankings
• Sales/acquisition experience – 8 criteria;
Vendor Average Score
• Value for price paid (Excellent – Poor);
• Quality and usefulness of product – 12 Actuate/BIRT
4.15
(www.actuate.com)
criteria;
Pentaho
• Quality of technical support – 5 criteria; 3.88
(www.pentaho.com)
• Quality and value of consulting services – Jaspersoft
3.83
5 criteria; (www.jaspersoft.com)
• Whether vendor is recommended (Yes/
No).

620

Open Business Intelligence for Better Decision-Making
These are all top BI solutions that organiza-
tions can choose according to their dimension,
requirements and budget.
Actuate/BIRT
Actuate Corporation was founded in 1993 and
has been selling commercial BI software since
its formation. In 2004, Actuate became the first
public BI software company to enter the open-
source space by petitioning for membership into
the Eclipse Foundation and proposing a new open
XML report design specification and accompany-
ing toolset.
The Business Intelligence and Reporting Tool
(BIRT), founded and co-lead by Actuate, is based
on the Eclipse framework. Under the BIRT project,
Actuate is making a small subset of its commercial
enterprise reporting solution available under an
open-source license.
For BIRT, Actuate offers a variety of products
and services, supporting users through an annual
subscription model for the open-source version,
which has limited capabilities compared to the
full Actuate platform. As such, the BIRT offering
must be considered an attempt to attract highly
technical do-it-yourself audiences and get a “foot
in the door.” Customers looking for the full func-
tionality BI platform are required to upgrade to
the commercial Actuate license.
BIRT’s advanced and highly interactive re-
porting functionality, made highly scalable and
function-rich with Actuate commercial extensions,
propel Actuate BIRT to the leadership position.
Actuate is also expanding its offering into end-to-
end document management (or ILM – information
life-cycle management) capabilities. Producing
reports often starts a report life cycle, where a
report needs to be distributed, stored, secured,
and archived.
Eclipse’s BIRT project is a flexible, open
source, and 100% pure Java reporting tool for build-
ing and publishing reports against data sources
ranging from typical business relational databases,
to XML data sources, to in-memory Java objects.
BIRT is developed as a top-level project within the
Eclipse Foundation and leverages the rich capa-
bilities of the Eclipse platform and a very active
open source community of users. Using BIRT,
developers of all levels can incorporate powerful
reporting into their Java, J2EE and Eclipse-based
applications as illustrated in Figure 3.
BIRT has two main components: a report
designer based on Eclipse, and a runtime com-
ponent that we can use to integrate BIRT reports
into our applications. BIRT also has a charting
engine that lets include charts into BIRT reports
or add standalone charting capabilities to Java
applications.
BIRT has also the Spreadsheet Designer, an
Excel-like authoring environment that gives re-
port developers and Excel experts the power to
automate the task of creating and updating Excel
spreadsheets with the latest data (see Figure 4).
BIRT Spreadsheet automates and centralizes
spreadsheet production, maintenance, archiving,
and security, eliminating version discrepancies
and curbing the proliferation of multiple silos of
Excel workbook data.
Pentaho
Pentaho was founded in 2004 and is one the best-
known open-source BI platforms in the market.
Pentaho provides a breadth of functionality that
can be considered the closest match to commer-
cial offerings from companies such as Business
Objects, Cognos or Oracle.
Pentaho’s offerings include a simple reporting
solution and the more comprehensive Pentaho BI
suite, which also includes analysis, dashboard
and data mining capabilities. For both offerings
customers can purchase a subscription. The
subscription also enables access to additional BI
platform functionality (for example, system au-
diting, performance monitoring as well as single
sign-on or clustering), which is not available in
the open-source version.
621

Open Business Intelligence for Better Decision-Making
Figure 3. BIRT reports (source: www.actuate.com)
To round out the capabilities for the BI plat-
form, Pentaho has acquired the assets and hired
the lead developers of some complementing open-
source projects, such as Mondrian or Kettle, for
online analytical processing (OLAP) or extraction,
transformation and loading (ETL) technology,
respectively. The BI platform, which runs on most
popular Windows versions, Linux distributions
and even Mac OS, is based on server-side Java, a
thin client Ajax front-end and an Eclipse-based
design environment.
Pentaho provides a highly interactive and easy
to use web-based design interface for the casual
business user to create simple and ad hoc opera-
tional reports. Pentaho has also rich and highly
interactive dashboards that help business users
to easily identify the business metrics that are on
track, and the ones that need attention. With no
622

prior training, users can create personalized dash-
boards to turn organizational metrics into visual
and interactive representations as seen in Figure 5.
JasperSoft
JasperSoft is another well-established brand in the
open source BI market. Founded in 2001, the ven-
dor calls itself “the market leader in open-source
BI” with more than 12,000 commercial custom-
ers worldwide and more than 11 million product
downloads (JasperSoft, 2011). Still, that claim
is difficult to substantiate as many open-source
vendors are quoting large numbers of product
downloads, often hundreds of thousands or even
millions, while the number of production deploy-
ments of their community editions is unclear.

Open Business Intelligence for Better Decision-Making
Figure 4. BIRT spreadsheet designer (source: www.actuate.com)
Jaspersoft provides a Web-based, open, and
modular approach to the evolving business in-
telligence needs of the enterprise, providing a
first-in-class, multi-tenant BI environment while
providing a common platform for on-premise,
virtualized, SaaS, and cloud deployments. The
JasperSoft product family includes JasperServer,
JasperReports, the JasperStudio report designer,
the JasperAnalysis OLAP analysis server and
JasperETL, which is based on the open-source
ETL engine from Talend.
JasperSoft has established a partner network
that includes companies such as Sun Microsys-
tems, MySQL, Novell, Red Hat and Unisys. Jas-
perSoft attempts to extend its community into the
world of applications with specific solutions for
salesforce.com, SugarCRM and Oracle eBusiness
Suite. Many small independent software vendors
are also including JasperReports as the reporting
component in their respective software packages.
The Jaspersoft Business Intelligence Suite
offers a number of ways for end users to perform
interactive analysis. The two primary tools dedi-
623
 
Open Business Intelligence for Better Decision-Making

Figure 5. Pentaho interactive dashboards (source: www.pentaho.com)

cated to analysis within the Jaspersoft suite are
JasperAnalysis and the integrated In-Memory
Analysis tool within JasperServer. JasperAnalysis
is a traditional OLAP (Online Analytical Pro-
cessing) tool, based on the popular open source
Mondrian engine. OLAP tools perform analytic
tasks on specialized, analysis-tuned data collec-
tions commonly called “cubes.”
JasperServer provides an integrated suite of BI
capabilities, including ad-hoc query and report-
ing, dashboarding and analysis. All capabilities
are delivered based on a common metadata and
security layer and are delivered via the same Web
2.0-style user interface.
To create a query, users simply drag and drop
data objects of interest from a business view of the
data into a query builder window, with the option to
add filters and parameter groups. The query results
can then be laid out and formatted to produce a
report that can be saved, shared, scheduled and
distributed through the JasperServer platform.
Dashboards, including features like URL-
based mashups and live refresh, can also be created
through the same drag-and-drop interface. Flash
charts and maps enhance the look and interactivity
of the dashboards. Figure 6 shows an example of
a dashboard with some of these features.

624

Open Business Intelligence for Better Decision-Making
Figure 6. A JasperSoft dashboard sample (source: www.jaspersoft.com)
Jaspersoft offers a suite of analysis capabilities
covering a broad range of user and organizational
profiles, delivered chiefly within JasperAnalysis
and in the integrated In-Memory Analysis tool
within JasperServer.
CONCLUSION
The key to winning in the Information Age is
making decisions that are consistently better and
faster than the competition. Business intelligence
is an approach to managing business that is dedi-
cated to providing competitive advantage through
the execution of fact-based decision-making. At
a tactical level, business intelligence allows to
achieve this goal by applying a decision-making
cycle of analyzing information, gaining insight,
taking action, and measuring results. At a strategic
level, business intelligence allows to use the results
of analysis to create superior corporate strategies
that outsmart competitors.
Business intelligence essentially means putting
relevant information at the fingertips of decision
makers at all levels of the organization – functional
areas, business units, and executive management.
Technologies exist today to make this possible for
all companies – large and small. The BI technolo-
gies presented in this paper become valuable only
when they are used to positively impact organi-
zation behavior. Successful BI solutions provide
businesspeople with the information they need to
do their jobs more effectively.
625

Open Business Intelligence for Better Decision-Making
If we are looking for traditional pure-play BI
application and highly scalable and function-
rich reporting functionality, Actuate BIRT is the
right option. Actuate leveraged technology and
experience from its commercial source products
such as eReports and iServer in Actuate BIRT.
As a result, Actuate BIRT reports can be used for
mass (millions) report distribution and for highly
complex (with scalability and load balancing
challenges) BI applications like interactive online
customer statements. In the most recent edition,
Actuate also added BIRT Data Objects, which
can be used for disk- or memory-based OLAP-
style analysis. But we will have to rely on other
vendors for broader BI capabilities such as ETL,
data quality, or advanced analytics. Actuate is also
investing heavily into mobile BI with BIRT iPhone
application and BIRT Mobile virtual appliance,
which can deliver BIRT content to most popular
mobile devices. Additionally, as BIRT is part of
the Eclipse project, Actuate BIRT is also highly
attractive to developers using Eclipse Integrated
Development Environment (IDE).
In our opinion Open Source Business Intel-
ligence platforms are mature from the functional
and business model point of view to become a
solid option to meet and exceed the business intel-
ligence needs of an organization, especially among
SMEs to enter into the new market and operate on
a national and global scale. Nowadays with the
new techno-economic paradigm, the SMEs can
also improve their competitiveness using open BI
as an open innovation strategy. Thus, the use of
open source BI systems in organizations can trigger
immense possibilities of accelerating knowledge
acquisition, innovation, intensifying entrepreneur-
ship development and improving business skills,
therefore, leading to business sustainability.
626

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of IGI Global).

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Chapter 34
Entrepreneurship as a
Survival-Seeking Strategy for
Indigenous Communities:
The Case of Indigenous
Ecotourism SMEs in Mexico

Virginia Barba-Sánchez
University of Castilla-La Mancha, Spain

Ericka Molina-Ramírez
National Polytechnic Institute, Mexico

ABSTRACT
The aim of this chapter is to offer an alternative to the emigration and marginalization currently ex-
perienced by indigenous Latin American communities by creating ecotourism ventures in their home
territories. By fostering profitable and environmentally sustainable economic activities enabling them
to remain in their settlements, it is possible to alleviate the problem of socio-economic marginalization
which they currently face whilst helping conserve the environment and their ancient culture. Qualitative
research has therefore been conducted by means of a multiple case study. This is an introductory work
and the authors’ preliminary findings highlight the importance not only of social networks in the cre-
ation of indigenous SMEs but also of the culture, values, uses and customs of such communities in the
identification of the profile of the indigenous entrepreneur.

INTRODUCTION of emigration and marginalization experienced

This chapter sets out to exteriorize and highlight the
benefits of entrepreneurship as a survival-seeking
strategy in Latin America. The aim is to find a
solution to the complex and historical problem
by these populations (Navarrete, 2008) through
the creation of ecotourism ventures. This type of
venture will enable endogenous development of
indigenous communities so that their quality of
life may be improved and their cultural heritage

DOI: 10.4018/978-1-4666-8468-3.ch034

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
conserved while contributing to sustainable
environmental conservation (Kirk, Peredo, &
Chrisman, 2010).
Among the research developed on the com-
mon theme of venture creation are various study
approaches which focus on the characteristics and
attributes of the entrepreneur’s personality, ap-
proaches which study the venture creation process
itself, and also more complex approaches which
examine social, cultural and economic factors. In
this regard, venture creation is considered to be
a complex and comprehensive process which in-
cludes a wide range of factors of a social, economic,
public policy, cultural and situational nature.
Correspondingly, De Carolis and Shaparito
(2006) state that different lines of research which
consider psychological variables, personality traits
and demographic factors as factors characterizing
entrepreneurial activity are not completely reliable
due to the ambiguity of the conclusions obtained.
For this reason, they propose that social networks
be included as an emerging research topic in the
sphere of venture creation.
Additionally, the population-ecology model
(Hannan & Freeman, 1979), which was developed
to explain venture creation (Van de Ven, Hudson
& Schroeder, 1984), studies the relationship
between entrepreneurs and their surroundings
and focuses on the relationships that are created
to obtain information, resources and social sup-
port. In this regard, Moran (2005) maintains that
in uncertain contexts with a high risk potential,
reliable social networks represent an extremely
valuable asset, particularly for reducing the risk
which is inherent to venture start-up. There are,
however, not nearly enough studies and in fact
very few study the indigenous entrepreneur profile
since such studies are addressed from a historical,
anthropological and sociological perspective (Luz,
2005; Jiménez, 2000).
Mexico was chosen as the context to study
this phenomenon given the diversity of its ethnic
groups and the high percentage of its indigenous
630

population (9.5%). Moreover, according to the
CDT (2006), standard of living indicators for in-
digenous populations are clearly lower than those
of the rest of the population, which highlights
their marginality and poverty. Entrepreneurship
is therefore conceived as a way of integrating
indigenous groups into the country’s economic
activity so that their quality of life may be im-
proved without relinquishing either their way of
life or identity.
Consequently and accordingly, the chapter is
organized as follows. We start with a brief review
of the main entrepreneurship study approaches.
We then analyze the impact of social networks on
venture creation and the consolidation process.
This is followed by an analysis of the indigenous
population in Mexico and the basic characteris-
tics of ecotourism ventures which this group has
created. We then present a research strategy of
multiple case studies. The final section presents
the conclusions of the chapter and certain recom-
mendations for improving the strategic manage-
ment of this type of venture.
MAIN ENTREPRENEURSHIP
STUDY APPROACHES
Kantis, Ishida and Komori (2002) classify the
different lines of research which focus on solving
the problem of ensuring that venture start-up is
successful into three different approaches: those
which focus on the entrepreneur’s personality
traits, those which focus on the venture creation
process and those which combine social, cultural
and economic factors.
Approaches Focusing on the
Entrepreneur’s Personal Traits
This approach encompasses groundbreaking
venture creation research which analyzes the
factors relating to the figure of the founder and

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
the venture creation decision (Barba-Sánchez &
Atienza-Sahuquillo, 2012) in order to pinpoint the
critical qualities which distinguish the entrepre-
neur from the rest of the population. There are,
therefore, two lines of research: one focusing on
the founder’s behavior and personality and the
other on demographic characteristics (Robinson,
Shaver, & Wrightsman, 1991); although both con-
sider the entrepreneur to be the central, decisive
agent in the successful venture creation process.
Among the main contributions exploring the
entrepreneur’s psychological traits or behavior is
the work by McClelland (1961), who focuses on the
founder’s personality traits which are paramount
for an entrepreneur, such as the need for achieve-
ment, Locus of Control or risk propensity, etc.
Need for Achievement. Under the psychological
trait approach, many studies have been published
which highlight the importance of the need for
achievement as the driving feature and factor for
entrepreneurs to achieve venture success (Barba-
Sánchez, 2007). The need for achievement refers
to a strong desire to perform tasks well or better
than others.
Locus of Control. Another psychological trait
which has been studied in literature as decisive
in entrepreneurial behavior is Locus of Control
(Casrud & Brännback, 2011). Locus of Control
refers to the self-confidence that an individual has.
Authors such as Box, White and Barr (1993)
or Shaver and Scott (1991) have concluded that
Locus of Control is directly linked to success
in business since self-confidence supports the
search for business opportunities and generates
a positive attitude.
Risk Propensity. Authors such as Douglas and
Shepherd (2000) and Zhao, Seibert and Lumpkin
(2010) propound risk orientation to be a special
trait of entrepreneurs and one which distinguishes
them from the rest of the population as they per-
ceive it to be an opportunity rather than a threat.
According to Lyon, Lumpkin and Dess (2000),
risk propensity consists in carrying out activities
such as going into debt above one’s individual
means, allocating a high proportion of personal
resources to projects with uncertain results, or
entering unknown markets.
Furthermore, according to specialized litera-
ture, the most important demographic variables
in entrepreneurial behavior are age, gender, edu-
cation, previous entrepreneurial experience and
family entrepreneurial background.
Age. Empirical studies reveal that most entre-
preneurs are in their thirties (Kelley, Singer, &
Herrington, 2012). Some of the reasons which
explain the relationship between youth and
entrepreneurial intention are that young people
have greater risk-propensity, are better trained,
have fewer social and work commitments and are
more likely to be unemployed (Barba-Sánchez &
Atienza-Sahuquillo, 2012).
Gender. Although certain characteristics dis-
tinguish entrepreneurs of one sex from another
(Shinnar, Giacomin, & Janssen, 2012), e.g. female
entrepreneurs are more autonomous, flexible,
committed and generally more satisfied at work,
whereas male entrepreneurs are better trained and
more experienced (Schiller & Crewson, 1997),
there is no major difference between either group
in terms of their desire for success, empathy, work
capacity, Locus of Control, commercial skills or
innovation capacity (Wilson, Marlino, & Kickul,
2004).
Education. Authors such as Patel and Thatcher
(2013) stated that entrepreneurs have more uni-
versity qualifications than the rest of the popula-
tion; however, in studies conducted by the Global
Entrepreneurship Monitor (Kelley, Singer, &
Henington, 2012), results differed according to
the prevailing economic model. Further education
is not, therefore, a relevant factor in efficiency-
driven or innovation-driven economies whereas
it is in factor-driven economies.
Previous Experience. According to Morris
et al. (2012), successful entrepreneurs have ex-
perience of the activity sector in which they are
involved, although this factor is age-dependent
as older individuals have more experience while
631

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
younger ones have the necessary energy, enthusi-
asm and innovation to start a business (Kautonen,
Tornikoski, & Kibler, 2011).
Family Background. Most studies conclude
that entrepreneurs come from families where the
father or mother are also entrepreneurs, thereby
representing a role model to be followed (Hsu,
Roberts & Eesley, 2007).
In short, there is a school of literature which
believes that entrepreneurs have psychological
and demographic traits which distinguish them
from the rest of the population (Zhao, Seibert, &
Lumpkin, 2010).
Approaches Focusing on the
Venture Creation Process
Such an approach is based on the supposition that
venture creation is the result of the entrepreneur’s
rational process whereby the decision to start a
business is motivated by questions of a purely
financial nature (Audretsch & Keilbach, 2004;
Parker, 2004; Wennekers et al., 2005).
According to Gartner (1985), entrepreneur-
ship is an activity not a trade. Within this activity,
the entrepreneur is capable of a number of tasks
which include identifying business opportunities,
accumulating resources, producing, constructing
organizations and answering to the government
and society. Correspondingly, Bygrave and Hofer
(1991) propose a change in the study approach
covering venture creation, with an analysis from
a dual perspective: from that of the entrepreneur’s
personality traits and that of the process, i.e. from
what entrepreneurs do to create their ventures.
Similarly, from criticism of work which focuses
on the entrepreneur’s personal traits (Audretsch &
Keilbach, 2004), the author focuses his analysis
on the various activities which must be under-
taken to successfully manage venture creation,
concluding that success depends on the ability
to identify business opportunity (Wennekers et
632

al., 2005). In addition, the main criticism of this
approach is based on the fact that each study iden-
tifies different phases between the first and final
moment of venture creation. This is why Moroz
and Hindle (2012) have chosen to offer a single
model for the venture creation process, in order
to reach a “single study body” and to provide a
solid theory which would serve as the basis for
analyzing venture creation.
Approaches Focusing on
Environmental Factors: Social,
Cultural and Economic
Much has been published about the impact of dif-
ferent environmental factors (e.g. legal matters,
public policies, support services, or the beliefs,
values, perceptions and attitudes in a given society)
on venture creation (Busenitz, Gómez, & Spen-
cer, 2000; Manolova, Eunni, & Gyoshev, 2008;
Shapero & Sokol, 1982; Steyaert & Katz, 2004).
Kantis (2005) defines the entrepreneurial
environment as a series of elements and factors
that have an impact on the entrepreneurial pro-
cess by contributing to or hindering the birth and
development of entrepreneurs and ventures both
in qualitative and quantitative terms. Literature
classifies this series of environmental elements and
factors as social, cultural and economic, given the
importance of these three environmental dimen-
sions in the venture-creation decision.
This approach is therefore based on the popula-
tion perspective and on the study of the relation-
ship between the venture and its surroundings,
emphasizing the entrepreneur’s social relations
or contacts for the success of the venture (Johan-
nisson, 2003; Szerb, 2003). These studies are
based on the premise that venture creation is not
an isolated event and the founder forms part of a
group to establish useful contacts either for now
or the future. According to Johannisson (1996),
therefore, the network is extremely important for

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
the entrepreneur as a way to boost self-confidence,
thereby encouraging the entrepreneur to start
their venture.
Similarly, studies about environmental factors
include those which pinpoint the importance of
the entrepreneur’s culture as influential for ven-
ture creation. Pioneering work by Weber (1969)
paves the way for considering the importance of
beliefs and values on venture activity. From this
premise, Shapero and Sokon (1982) also found
that venture-creation intentions were affected by
factors such as cultural surroundings.
Finally, the economic conditions of the region
or place where the company is created are an
important factor. Economic stability will always
determine whether or not a venture is created
(Kantis, 2005). In the same way, venture creation
is also affected by other economic factors, such as
market structure (García, Sáez, & Barba-Sánchez,
1999) or unemployment levels (Barba-Sánchez &
Atienza-Sahuquillo, 2011).
In short, the role of the environment in the
venture-creation decision has become critical,
not only in terms of its economic dimension but
also the social and cultural dimensions of a given
society in that they affect the decisions and be-
havior of its members and can significantly affect
a person’s decision to become an entrepreneur.
SOCIAL ENTREPRENEURSHIP AND
THE ROLE OF SOCIAL NETWORKS
In the field of social sciences, various studies have
been published on the importance and impact of
social networks on various contexts (see Baker,
1990; Birley, 1985; Bourdieu, 1986; Burt, 1992;
Coleman, 1988; Lin, 2001; Putnam, 1993).
The impact that networks have on venture cre-
ation is based on the advantages that these offer to
the founder, such as reliable inside information;
reduction of uncertainty (Putnam, 1993); emo-
tional support (Lee, Ruan, & Lai, 2005; Van der
Gaag & Snijders, 2005) or the identification of an
idea or opportunity to start a venture (Blesa & Ri-
pollés, 2006). The entrepreneur’s social networks
and context are therefore key to venture creation
(Molina, Barba-Sánchez & Martínez, 2008).
Correspondingly, from the theoretical perspec-
tive of population ecology (Hannan & Freeman,
1977; Van de Ven, Hudson & Schroeder, 1984),
surroundings are regarded as a key factor of influ-
ence in the venture creation process (Tsai, MacMil-
lan, & Low 1991). In this context, we can say that
networks constitute an environmental factor which
affects venture creation according to the variety
of resources to be found in the network (Kantis,
2004). There are, therefore, real and/or potential
resources (Barney, 1991; Grant, 1991) embedded
in the relationship network called social capital
(e.g. Nahapiet & Goshal, 1998). On this subject
in particular, Leiva (2004) includes the context
of the entrepreneur, who he affirms is capable of
providing what he refers to as support resources.
Despite the vast number of studies which have
been published on the impact of networks and/or
social capital on the creation process (Anderson
& Jack, 2002; Baron & Markman, 2003; Birley,
1985; Blesa & Ripollés, 2006; Bollingtof & Ul-
hoi, 2005; Davisson & Honig, 2003; De Koning,
1999; De Carolis & Saparito, 2006; Hills, Lumpk-
ing, & Singh, 1997; Nahapiet & Ghoshal, 1998;
McFadyen & Cannela, 2004; Moran, 2005), few
have analyzed the emotional support provided
by the entrepreneur’s social networks during the
venture creation process (Anderson, Jack, & Dodd,
2005; Klyver & Hindle, 2007; Lee, Ruan, & Lai,
2005; Smith & Lohrke, 2008; Van der Gaag &
Snijders, 2005).
Social Entrepreneurs and the
Role of Social Networks
The various findings of studies into entrepreneur-
ship and the role played by social networks are
summarized in Table 1.
By analyzing man’s nature as a social and
economic agent, it can generally be affirmed that
633
 
Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities

Table 1. Studies into entrepreneurship and social networks

Author (Year) Study Conclusions

Birley (1985) Both the entrepreneur’s formal and informal networks and behavior affect the venture creation process.
Ostgaard and Birley The importance of networks and human behavior on the creation process, development and growth of new
(1994) enterprises.
The social network size and its degree of interconnectivity and frequency of contacts have a positive
Hansen (1995)
influence on the growth of the venture during the first year.
Johannisson and
Categorization and development of the characteristics of Scandinavian entrepreneurial strategic networks.
Monsted (1997)
Brüderl and The network and its support (social capital) are used to compensate for the small shortcomings of other types
Preisendörfer (1998) of capital. Emotional support increases the success of the venture.
A sociological perspective of entrepreneurs is developed, distinguishing between embeddedness, institutional
Thornton (1999)
and ecological perspectives, suggesting their full use for research purposes.
Allen (2000) The individual self-employment choice is highly influenced by the activity developed.
Anderson and Jack Social capital is both the glue which forms the network structure and the lubricant which facilitates network
(2002) operation.
The benefits of network proximity and diversity are different for each entrepreneur, and a balanced network
Ng (2004)
in terms of diversity and proximity optimizes the benefits offered.
Based on the theoretical review of the dynamics of networks, an extended model of networks is developed
Witt (2004)
and their impact on the enterprise start-up process.
Anderson, Jack and Results show that help is offered by the entrepreneur’s family not only during the venture start-up stage but
Dodd (2005) also in subsequent years.
Bollingtoft and Ulhoi
Networks influence the venture creation process by acting as venture incubators.
(2005)
The entrepreneurial networks of emerging firms are important for entrepreneurial opportunity recognition,
Hite (2005)
resource acquisition and effective governance of relationally embedded ties.
Koch and Kautonen There is the need for a legislative framework and to stimulate entrepreneurship through government
(2005) programs.
Moran (2005) There is a productive influence of social networks (through social capital) on the enterprise’s resources.
Blesa and The entrepreneur’s networks as resource providers have a bearing on entrepreneurial orientation and
Ripollés1(2006) positively affect the growth of the new venture.
Cruickshank and Rolland Communication connects a network to support entrepreneurship and ICTs (Information and Communication
(2006) Technologies) are used for the interconnection.
The structural diversity of social networks changes during start-up: diversity is more important to
Klyver and Hindle
entrepreneurs during the discovery stage than to those in the start-up stage and moderately important to
(2007)
entrepreneurs who have already started their business.
Smith and Lohrke (2008) Relationships based on affection and trust have a bearing on network development.
Grossman, Yli-Renko The importance of the entrepreneur’s social networks during the initial stage of the venture creation process
and Janakiraman (2012) is paramount.
Source: Author’s own compilation.

economic agents do not operate in isolation but in which it is possible to identify different social
rather carry out economic interactions which are structures of human relations (Sanz, 2003).
integrated within social networks and structures Taking these ideas into account, the network
(Granovetter, 1985). These networks form a model is considered to contain a number of people and/

634

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
or groups of related enterprises, among which
relationships and agreements are established
between members, and which are coordinated by
means of market mechanisms, so that activities
may be carried out.
The main reason why enterprises establish
relationships with each other is to help each
other obtain information, mainly related to the
market and technology (Gulati, Nohria, & Zaheer,
2000). In this respect, social networks have been
studied from the main perspectives (Anderson &
Jack, 2002): the impact on economic exchanges
(Johannisson & Landström, 1997), the resources
which they provide to enterprises (Ostgaard &
Birley 1994) and the creation process (Anderson
& Jack, 2002; Baron & Markman, 2003; Bolling-
tof & Ulhoi, 2005; Davisson & Honig, 2003; De
Carolis & Saparito, 2006; Grossman, Yli-Renko,
& Janakiraman, 2012; McFadyen & Cannela,
2004; Moran, 2005).
On this in particular, Forni, Siles and Barreiro
(2004) observed that despite the differences,
however large, that may exist between the con-
cept of social networks and that of social capital,
it is important to bear in mind that the resource
of social capital is generated by social networks
themselves and is accumulated in these. From
this point of view, social networks arise from
the individual’s need for relationships and this
is satisfied by exchanges (Adler & Kwon, 2002).
Since social networks are relationships which
are created to obtain resources, they are therefore
submerged in a social structure and may be classi-
fied into: (1) market relationships, in which prod-
ucts and services are exchanged or are supplied for
monetary payment; (2) hierarchical relationships,
where authority is obeyed in return for maternal
and spiritual security; and (3) social relationships,
where favors and gifts are exchanged (Adler &
Kwon, 2002). The entrepreneur is therefore a
factor which is affected by various interactions
of social relationships which will undoubtedly
determine the enterprise’s future (Hormiga, Ba-
tista, & Sánchez, 2007).
Social Networks and Their
Impact on Enterprise Creation
Among the research developed around the sub-
ject of venture creation are the study approaches
focusing on the characteristics and attributes of
the entrepreneur’s personality (see Barba-Sán-
chez & Atienza-Sahuquillo, 2011), approaches
which study the very venture creation process
(see Moroz & Hindle, 2012), and also more
complex approaches which study social, cultural
and economic factors (e.g. Manolova, Eunni, &
Gyoshev, 2008). In this regard, venture creation
is considered to be a wide and complex process
which includes a wide range of factors of a psy-
chological, strategic, cognitive, social, economic,
cultural or situational nature.
Correspondingly, De Carolis and Shaparito
(2006) state that the different lines of research
which consider psychological variables, person-
ality traits and demographic factors as factors
characterizing entrepreneurial activity are not
completely reliable due to the ambiguity of the
obtained conclusions.
As part of the venture creation process, there
is a preparation period prior to start-up as the
individual’s decision to become an entrepreneur
develops. This period is based on a complex
motivation process (Barba-Sánchez & Atienza-
Sahuquillo, 2012) supported by their psychologi-
cal and demographic characteristics on one hand
and on the expectations generated in relation to
the new enterprise on the other (Barba-Sánchez,
Atienza-Sahuquillo & Francis, 2012). In this
period, various phases may also be established
which range from identification of the idea to
effective start-up of the new enterprise whereby
it is converted into a dynamic interaction process
between the potential entrepreneur and their sur-
roundings.
Butler and Hansen (1991) therefore classify
networks into three types according to their stage
of development. Firstly, it is necessary to mention
the social networks which exist before enterprise
635

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
creation such as those of family, friends or acquain-
tances. Thanks to these networks, support and
information may be obtained for the identification
of an idea or opportunity to start a business (Hills,
Lumpkin, & Singh, 1997; De Koning, 1999).
Secondly, it is possible to highlight the personal
networks which are created at venture start-up,
when the entrepreneur establishes links with other
network members in order to consolidate the en-
terprise (Coleman, 1988; Grossman, Yli-Renko,
& Janakiraman, 2012). These networks provide
resources for starting, consolidating and making
the venture competitive, including such things
as information or the exchange of knowledge
and goods. Finally, once the enterprise has been
consolidated, it is possible to mention strategic
networks and these are mainly characterized by
relations with competitors, enabling risk minimi-
zation (Gulati, Nohria, & Zaheer, 2000). In the
same way, each type of network affects the dif-
ferent stages of the enterprise creation process in
different ways (Blesa & Ripollés, 2006; Nieto &
González, 2008).
In terms of the degree of network formality, for-
mal networks can be distinguished which include
local, state and federal agents, banks, accountants
or chambers of commerce (Birley, 1985); informal
networks, meanwhile, mainly comprise family,
friends, workmates or classmates, all of whom
can undoubtedly provide the entrepreneur with
information and options (Birley, 1985).
From this perspective, social networks can
provide support both for the individual who is
considering creating an enterprise and for recently
created enterprises (Witt, 2004), since they are a
means of accessing resources which are valuable
and critical for solving problems (Kantis, 2004).
In this respect, family and friends as part of
these informal networks play an important role
as they represent the entrepreneur’s primary and
immediate networks which will support him
throughout the process, providing the resource
which is indispensable for completion: emotional
and moral support (Anderson & Miller, 2003; Bir-
636

ley, 1985; Greve & Salaff, 2003; Hite & Hesterly
2001; Lee, Ruan, & Lai, 2005; Van der Gaag &
Snijders, 2005; Witt, 2004).
In this line of research, Tsai, MacMillan and
Low (1991), on the basis of the premises of
the population ecology theory, concluded that
environment and strategy are vitally important
for new enterprises since by studying the social
relationships that entrepreneurs establish with
their environment to obtain information, tangible
resources and social support, they observed how
the success or failure of a new venture was con-
ditional on these contacts.
In the same way, Chandler and Hanks (1994)
indicated that among the most important factors
affecting the creation process it is important to
include the context in which the entrepreneur
develops. This context is capable of providing
support for entrepreneurs as long as they are able
to detect the support sources. From this perspec-
tive, the entrepreneur attempts to establish various
social relationships in order to obtain resources
such as information, services or favors (Witt,
2004; Lin, 2001). According to Larson (1991),
the entrepreneur’s skill in identifying, cultivating
and managing their social network is critical for
the new enterprise’s survival and success.
In reference to this, Witt (2004) maintains that
according to the development level reached by the
company in the creation process, there are different
ways to define success which can be measured by
both objective and subjective indicators. Among
the objective indicators, it is possible to mention
market persistence, i.e. the number of years the
firm has been operating in the market since it began
its activities (Bruderl & Preisndorfer, 1998; Chell
& Baines, 2000; Witt, 2004); growth rates, both in
terms of sales (Baron & Markman, 2003; Bruderl
& Preisndorfer, 1998; Chandler & Hanks, 1993;
Ostgaard & Birley, 1994; Witt, 2004) and number
of employees (Capelleras et al., 2010; Ostgaard
& Birley, 1994; Serarols & Urbano, 2007; Witt,
2004); and other financial statement data (Baron
& Markman, 2003; Ostgaard & Birley, 1994).

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
Similarly, subjective measures can be categorized
into two groups (Serarols & Urbano, 2007): those
which refer to the entrepreneur’s satisfaction in
relation to business performance (Cooper, 1984;
Chandler & Hanks, 1993) and those based on
comparison with competitors (Hormiga, Batista
& Sánchez, 2007). Subjective indicators cannot,
however, replace objective ones since they are
based on the entrepreneur’s expectations or im-
perfect information.
INDIGENOUS ENTREPRENEURSHIP
IN MEXICO
Mexico has a wealth of ethnic groups (26 regions
and approximately 57 indigenous languages) and
a high percentage of its population is indigenous
(9.5%). Besides the ethnic diversity, according
to data from the Comisión Nacional para el
Desarrollo de los Pueblos Indígenas (National
Commission for the Development of Indigenous
Peoples) (CDI, 2006), standard of living indica-
tors are clearly lower than those of the rest of
the population and this highlights indigenous
marginalization and poverty. The entrepreneurial
spirit is therefore conceived as a way of involving
indigenous groups in the country’s economic ac-
tivity so that their quality of life may be improved
without relinquishing either their lifestyle or
identity (Anderson, Dana, & Dana, 2006).
To date, few studies have examined the profile
of the Mexican or Latin American indigenous
entrepreneur due to the fact that classical studies
have researched indigenous communities from
a historical, anthropological and sociological
perspective (Luz, 2005; Jiménez, 2000), leaving
aside all forms of entrepreneurial organization
and the possibility that these entrepreneurs are
capable of creating profitable enterprises. Tack-
ling this new subject also involves picking up the
thread of questions relating to culture, uses and
traditions, for example, which affect these com-
munities. Consequently, the task of identifying the
entrepreneurial traits and profile of the indigenous
Mexican, the aim of our empirical study, is by no
means easy.
To begin with, it is necessary to understand
indigenous communities as being groups with a
vast, natural and cultural wealth of knowledge.
These communities are characterized by their
form of organization, which is based on communal
responsibility, a high environmental awareness,
which was inherited from their forebears and
involves finding and preserving the natural bal-
ance to ensure their own survival, a strong group
identity based on common work and mutual sup-
port, a deep respect for their elders’ knowledge,
culture and traditional values, and spiritual beliefs
based on their forebears and mother earth (Davis
& Patrinos, 1996).
Unfortunately, social and historical conditions
have not been kind to this population, resulting in
high levels of poverty and also marginalization
and lack of financial resources. This situation is
the same today largely due to lack of employment,
low or non-producing lands, poor profitability of
handicraft products, under-utilization of natural
resources and historical discrimination towards
anything indigenous (Navarrete, 2008).
The poverty and marginalization in which they
are trapped lead to additional problems such as the
search for alternative salaries by means of illegal
activities (CDI, 2008), uprooting by emigrating
from their original settlements, bad exploitation
and use of natural resources, high levels of il-
literacy (21.6%) and school absenteeism (8.4%),
poor nutrition, and even inadequate access to health
services (CDI, 2008). This situation is exacerbated
in the case of women: for example, the illiteracy
rate among indigenous females (27.1%) was 6
percentage points higher than among males.
On the other hand, another characteristic of
the Latin American indigenous population is the
system or form of government, based on politico-
religious organizations. Indigenous peoples are
organized around their own community and their
belief in the earth as Mother and territory. At the
637

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
Community Assemblies, systems of responsi-
bilities are therefore created which take care of
allocating collective work and supervising the
rites and ceremonies, as traditions which create
a sense of identity (Díaz, 2001). The Community
Assemblies are a hierarchical organization, where
the highest authority is the Council of Elders.
Only the oldest males may become members due
to their greater experience and the respect with
which they are held by the rest of the community
and they are the ultimate decision-makers over
anything concerning the community.
In terms of the economy, the main economic
activities of indigenous communities are those
of the traditional economy whereby no money
changes hands and barter still represents the means
of exchange (Zolla & Zolla, 2004). In this respect,
indigenous peoples are generally at a disadvantage
when engaging in economic exchange relations
with the rest of the population (Ramírez, 2008).
There are also two main characteristics condition-
ing their economic activity: a) the organization
of the indigenous group (previously mentioned),
which decides how work is allocated and resources
distributed; and b) the conception of the earth as
Earth (a living being), which determines its treat-
ment and communal use (Perafán, 2000). All of
this hinders integration of these communities in
the current economic context.
Authors such as Uygun and Kasimoglu (2013)
therefore believe that enterprise creation could be
a valid option to alleviate these imbalances and
facilitate the economic integration of indigenous
communities. Perafán (2000), meanwhile, consid-
ers that indigenous communities show certain
shortcomings which impede venture start-up:
the lack of accountancy systems, entrepreneurial
knowhow or financial skills combined with a mis-
trust of other sectors of the non-indigenous popu-
lation to initiate a joint entrepreneurial venture.
Another question which distinguishes indig-
enous communities is social networks, firstly
because the products or services developed by
indigenous communities are devalued by the
638

rest of the population and this results in an unfair
economic exchange. The reciprocity offered by
local networks, however, provides an economic
balance and this makes the group more socially
cohesive (Warman, 2003). In recent years, there-
fore, indigenous communities have started to take
advantage of not only their social capital but also
their cultural values (Skoufias, Lunde, & Patri-
nos, 2009), leading to the creation of ecotourism
ventures.
In Mexico, the ecotourism ventures created
by indigenous communities are characterized
by a series of aspects relating to the particular
features and specific problems of indigenous
Latin Americans: illiteracy, school absenteeism
and low incomes. All these factors prevent access
to real opportunities for earning higher incomes
from other activities which are unconnected
with agriculture or handicraft production. It is,
therefore, not surprising that in recent years ef-
forts have been made to encourage the creation of
alternative tourism ventures in indigenous areas to
spur their socio-economic development (Uygun
& Kasimoglu, 2013). This type of venture also
enables endogenous development of indigenous
communities so that their quality of life may be
improved and their cultural heritage preserved,
thereby contributing to sustainable environmental
conservation (Kirk, Peredo, & Chrisman, 2010).
Sources such as the Comisión Nacional de los
Pueblos Indígenas (National Commission for
the Development of Indigenous Peoples) (CDI),
the Red Indígena de Turismo de México A.C.
(Mexican Indigenous Tourism Network) and the
International Non-Governmental Organization
EchoWay have highlighted the creation of eco-
tourism ventures in indigenous areas as one of the
most outstanding support mechanisms.
Correspondingly, the CDI has supported
the creation of this type of venture through the
Programa de Turismo Alternativo en Zonas Indí-
genas (Alternative Tourism in Indigenous Areas
Program). In 2010, this governmental program
supported 169 projects, of which only 85 managed

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
to successfully complete the creation process by
having the necessary infrastructure and training,
in particular, to offer a quality tourism service.
Research Method and
Sampling Structure
In this research, and in line with work previously
published in relevant literature, a research method
was conducted in order to explore and analyze the
reality of various Mexican enterprises which had
recently been created by indigenous entrepreneurs
and which were connected with ecotourism. The
case study represents an important qualitative
methodology for analyzing specific problems
(particularly in the sphere of social sciences) by
providing an in-depth knowledge of the study
subject, contextualizing it in its reality (Baxter &
Jack, 2008; Yin, 1984). More specifically, in terms
of the creation of ventures and SMEs, various
authors have used this method in their research
(e.g. Perre & Ram, 2004; Ucbasaran, Wright &
Westhead, 2003).
As no study had been made of the general
profile of this kind of entrepreneur, we decided to
start by conducting a strictly exploratory, statisti-
cal study. Drawing on quantitative data collected
through 29 face-to-face structured interviews
(Table 2) with indigenous entrepreneurs whose
enterprises, located in different states in the Mexi-
can Republic (Table 3), are characterized by the
fact that their main activity is ecotourism and by
the length of time since they began market activity
(i.e. enterprises with an average age of 5 years).
Personal and detailed interviews were sub-
sequently conducted with the founding partners
from four objective companies corresponding to
the studied cases.
For the results analysis of the case study, we
decided to first conduct a cross analysis of the
cases in order to identify the characteristics of the
indigenous entrepreneurs, their motivations and,
finally, the sort of social network. The obtained
data was then compared with the descriptive study
and the general characteristics of the indigenous
people.
Findings
Table 4 summarizes the main results of the descrip-
tive analysis of the 29 indigenous entrepreneurs
comprising the study population.
Gender and Age. In this study, a mainly male
population is sampled (85%), against a minority
of females (15%). The majority of the entrepre-
neurs sampled (35% of the population) were in the
25- 35 age range, followed by those in the 36-45
range and then those in the 46-55 range (30% for
each). Finally, entrepreneurs over the ages of 56
only represented 5% of the population.
Motivation. There were any one of five reasons
motivating this type of entrepreneur to create an
enterprise, with the most common being the desire
to conserve the environment. In second place was
the desire to preserve traditions and identity, fol-
lowed by the desire for self-employment and to
earn an income. The final reason was the invitation
from different organizations such as the CDI or the
Red Indígena de Turismo Alternativo (Indigenous
Network of Alternative Tourism) (RITA).
Age in Years. 45% of the enterprises compris-
ing the population had lasted for more than five
years, 25% for longer than four years and 20%
for longer than six years. The smallest percent-
age of enterprises (10%) had existed for longer
than two years.
Funding Sources. The main source of funding
for the entrepreneurs was obtained from state
government programs (35%), closely followed
by funding with own resources (25%), savings
provided by family members (25%) and loans
from friends (25%).
Information Sources. The information sources
for subjects relating to the enterprise creation pro-
639
 
Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities

Table 2. Variable description

Variables Description Variables Description

Sex Male Age 25-35 years
Female 36-45 years
46-55 years
Over 56 years
Motivation Environmental protection Years of Business Five years
Keep traditions Four years
Invitation Three years
Customer feedback Two years
Self-employment One year
Other
Financing Own resources, Time invested in Less than 8 hours
Family loans Social Capital per 8-14 hours
Friends loans week 15-21 hours
Bank loans 22-35 hours
Suppliers and customers More than 35 hours
Federal Government Programs
National, municipal and local government
programs
Information Family Collaborators Family
Friends Friends
Colleagues Colleagues
Banks Banks
Chambers of Commerce Chambers of Commerce
Business incubators Business incubators
Government institutions Government institutions
Consultants Consultants
Futures customers Futures customers
Prospective suppliers Prospective suppliers
Universities Universities
Indigenous associations Indigenous associations
Other Other
Number of Networks No network
One network
2-3 networks
4-5 networks
More than 5 networks
Source: Author’s own compilation.

cess are mainly government institutions (90%) and
friends (80%). However, the least used information
source was that of banks (10%).
Contributors to the Creation Process. During
enterprise creation, entrepreneurs mainly relied
on the help of consultants (70%), friends (70%)
and family members (65%). Banks, chambers of
commerce, enterprise incubators and other enti-
ties or bodies, meanwhile, hardly represented any
form of contribution to the entrepreneurs in the
study (10%).
Investment for the Creation of Social Capital.
35% of the entrepreneurs in the study devoted fewer
than 8 hours per week to venture creation. This
was followed by those who devoted 8-14 hours
per week to entrepreneurial activities (25%), those
devoting 15-21 hours (15%), those devoting 22-
35 hours (15%), and finally, those devoting more
than 35 hours per week (10%). A larger number
of entrepreneurs, therefore, devoted fewer hours
to entrepreneurial activities.

640

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities

Table 3. Sample description

Number of Workers Alternative

Cases Mexican State Age (Years) Entrepreneurship Rank
(Including Partners) Tourism Sector
1 6 13
Campeche
2 6 25
3 8 22
4 Chiapas 8 22
5 5 28
6 6 258
Hidalgo
7 6 400
8 Jalisco 4 27
9 3 19
10 8 25
11 Michoacán 7 14
12 7 10
13 7 20
14 Nayarit 7 10
Ecotourism
15 Oaxaca 7 7 Adventure tourism Founder entrepreneur
Ethnotourism
16 4 11
Puebla
17 5 8
18 7 56
19 2 146
20 2 15
21 Quintana Roo 2 15
22 2 54
23 4 11
24 4 28
25 Tlaxcala 10 22
26 6 19
Veracruz
27 3 5
28 2 16
Yucatán
29 4 23
Source: Author’s own compilation.

Number of Indigenous Networks to which they
Belong. Generally speaking, the entrepreneurs
only belong to one network (40% of the population
in the study). In order of importance, this was fol-
lowed by the number of entrepreneurs belonging
to 2 or 3 networks (25% of the population in the
study), to 4 or 5 (15% of the entrepreneurs) and
to 5 or more networks (5% of the entrepreneurs).
The following table presents the results from
the detailed interviews with four indigenous
entrepreneurs. The analysis of the cases shows
interesting results regarding the following aspects:

641
 
Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities

Table 4. Indigenous entrepreneur profile

Sex Male
Age 25-35 years old
Motivation Environmental Protection
Years of Business More than 5 years
Financing Government programs, own resources, family and friends loans
Information Government Institutions and friends
Collaborators Consultants, friends and family
Time invested in Social Capital of the week Less than 8 hours
Number of Networks One network
Source: Author’s own compilation.

characteristics of the indigenous entrepreneurs, ranged from 30 to 60 years old. It is important

motivations and type of social network (Table 5).
Characteristics of the Indigenous Entrepre-
neurs. In order to generally analyze the characteris-
tics of the entrepreneurs, the interviewees provided
demographic data such as age, geographic loca-
tion and sex. The cases comprised four different
Mexican States. The age of the interviewees
to emphasize that in all four cases, the founding
partners interviewed are males.
Motivation. The interviewees revealed that
in three cases (C-1, C-2 and C-3), their main
motivation for starting a business was to protect
the environment, traditions and culture. They
understand that natural resources are limited and

Table 5. Aspects of the case study

Aspects Case 1 Case 2 Case 3 Case 4

Entrepreneur Characteristics:
30-60 (two partners-
Indigenous Entrepreneur Age Range 50-60 leaders of the 50-60 30
project)
Geographic location Distrito Federal Veracruz Hidalgo Morelos
Sex Male Male Male Male
Job Creation
Environmental
Environmental Program
Motivation protection, traditions Alternative income
protection Protection of
and culture
Traditions
Social Networks:
Family, friends Family, friends Family, friends Friends and Non-
At the beginning and during the process and government and government and government Governmental
institutions institutions institutions Organizations
Academic and
Academic and
Academic and government
government Academic and
government institutions, Non-
Present Networks institutions, related government
institutions, related Governmental
foreign and national institutions
companies Institutions and
companies
related companies
Source: Author’s own compilation.

642

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
they must be preserved because “Mother Earth”
provides them. It is important to emphasize that
the interviewee in Case 3 stated that his main
motivation was to obtain an alternative source
of income. He was invited to participate on a
governmental program that helps this type of en-
trepreneur. He met the Mayor who invited him to
participate, and he saw an opportunity to obtain an
alternative income. The founding partner in Case
4 stated his motivations throughout the interview
and he realized that not only could he protect his
ancient traditions but he could also provide jobs
for himself and other people in the community.
These answers reveal a characteristic of trust and
support within the community.
Social Networks. In order to analyze this aspect,
there are two dimensions. The first dimension is
that of the initial social network during the process
and the second is that of the current network.
Regarding the initial social network during the
process, in Cases 1, 2 and 3, families provide a great
deal of support, which is mainly emotional. Friends
provide information and government institutions
help them through their financing programs. In
Case 4, the interviewee stated that friends were his
biggest support in terms of information. Regarding
financing, a Non-Governmental Organization gave
him the initial resources to start his business. The
four cases obtained resources from government
institutions throughout the creation process.
The current networks, which have consolidated
indigenous entrepreneurs, mentioned academic
institutions and other companies besides the
government institutions.
DISCUSSION OF RESULTS
AND CONCLUSIONS
This work has picked up the three classical ap-
proaches for studying the phenomenon of new
venture creation (that focusing on the entrepre-
neur’s personal traits, that focusing on the new
venture start-up process and that focusing on
environmental factors) and also the importance
of social networks in the enterprise creation pro-
cess as a conceptual framework for tackling the
problems of indigenous entrepreneurship and their
defining features.
Firstly, the main motivational factor which
drives the indigenous individual to create an
enterprise is environmental maintenance or
conservation, something which is not common
among other entrepreneurs analyzed by specialist
literature (Barba-Sánchez & Atienza-Sahuquillo,
2012), but it does match the results obtained by
authors such as López and Palomino (2008) in
empirical studies conducted into indigenous
entrepreneurship. It should be remembered that
the indigenous population is organized into com-
munities and one of the key elements is the Earth
conceptualized as “Mother,” in other words as the
provider of all resources.
Indigenous entrepreneurs are therefore deeply
rooted in the land of their forebears and are re-
luctant to emigrate if there is a choice, a feature
shared by other entrepreneurial groups such as the
ethnic minorities located in countries other than
their countries of origin (Klyver & Foley, 2012;
Ndofor & Priem, 2011; Wang & Altinary, 2012).
In this respect, venture creation can be regarded as
a viable alternative to emigration to urban centers,
enabling entrepreneurs to preserve their natural
heritage, provide job opportunities and generate
income for their economic survival.
Secondly, in terms of social networks and in
line with other research work conducted (e.g. Hite,
2005; Kuada, 2009), primary networks comprising
friends and family play an important role not only
for starting the venture but also for its perma-
nence over time and consolidation by providing
emotional support. In the case of the indigenous
entrepreneur, this aspect of the entrepreneurial
process becomes more significant by deferring
the decision of whether or not the venture should
be created to the support and authorization of the
643

Entrepreneurship as a Survival-Seeking Strategy for Indigenous Communities
Community Assembly and the Council of Elders,
which ensures the support of the entire community
for the life of the enterprise.
This approach also explains the fact that the
main sources of funding for indigenous ecotour-
ism enterprises are governmental programs and
savings from friends and family. These are also
the main providers of human resources and useful
information for venture start-up.
In conclusion, an indigenous entrepreneurial
profile is observed, which differs from the profiles
commonly accepted by literature where the need
for achievement or the Locus of Control play a
leading role. In this case, individual achievement is
deferred to the common good and entrepreneurial
intention to the will and support of the community,
although this research work is only a descriptive
approach based on the study of 29 cases and de-
tailed interviews of 4 indigenous entrepreneurs
and it only presents our preliminary results. This
line of research should therefore be continued
with a wider number of cases and a more repre-
sentative sample of the object population being
studied, including indigenous populations of other
countries, both in Latin America and the rest of
the world, in order to extrapolate the results and
conclusions obtained.
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edited by Kiril Todorov and David Smallbone, pages 398-420, copyright year 2014 by Business Science Reference (an imprint
of IGI Global).
KEY TERMS AND DEFINITIONS
Case Study Research: A detailed intensive
study of a unit, such as a venture or a corporation.
Ecotourism: A form of tourism involving
visiting fragile and relatively undisturbed natural
areas, intended as a low-impact and often small
scale alternative to standard commercial tourism.
Entrepreneurship: A process of identifying
and starting a business venture, and connotes a
special ability to sense and act on opportunity.
Ethnic Entrepreneurship: The creation,
management, and development of new ventures
by ethnic minority persons (usually immigrants).
Indigenous Entrepreneurship: The creation,
management, and development of new ventures by
Indigenous people for the benefit of Indigenous
people. Indigenous people are people whose ances-
tors were living in an area prior to colonization or
prior to the formation of a national-state.
SMEs: Small and Medium Enterprises.
Social Entrepreneurship: A set of behaviors
that are exceptional. Social entrepreneurs are one
species in the genus entrepreneur with a social
mission: social improvements for the targeted
group and even society at large. Wealth is just a
means to an end for social entrepreneurs.
Social Network: A social structure made up of
a set of social actors (such as individuals or orga-
nizations) and a set of ties between these actors.
Sustainable Tourism: Attempting to make
as low an impact on the environment and local
culture as possible, while helping to generate
future employment for local people.
651
652

Chapter 35
Online Communities and
Open Innovation:
The Solar System Metaphor

Alberto Francesconi
University of Pavia, Italy

Riccardo Bonazzi
University of Lausanne, Switzerland

Claudia Dossena
University of Pavia, Italy

ABSTRACT
Online communities are becoming an important way to support firms towards an open innovation approach.
However, knowledge shared in an online community represents only a potential for firm’s innovation aims.
The effectiveness of exploration and exploitation of this knowledge depends on firm’s absorptive capacity.
In this work the authors focus on the time an idea, shared within an online community, takes to be trans-
formed from a ‘potential’ into a ‘realized’ innovation by a firm. In particular, conceiving knowledge as a
trajectory across pole of attraction rather than a linear process, the authors develop a model inspired by
the solar system metaphor. Preliminary results from a case study are presented. They suggest firms may
improve the effectiveness of absorptive capacity exploiting the mediation role of a software tool.

INTRODUCTION ever, to be able to set up a broad knowledge base,

The importance to integrate different sources
of knowledge for firm’s innovation purposes is
well recognized in literature (e.g., Rigby & Zook,
2002; Chesbrough, 2003, 2007; Christensen et al.,
2005). Traditionally firms have focused primarily
on knowledge creation using internal sources of
knowledge, usually through R&D activities. How-
firms may open their boundaries to gain knowledge
from many kinds of sources, not just internal, but
also external (Chesbrough, 2003, 2007).
There is currently a great deal of attention
around the concept of open innovation. “The
future lies in an appropriate balance of the open
innovation approach, where the company or
the institution uses every available tool to cre-

DOI: 10.4018/978-1-4666-8468-3.ch035

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Online Communities and Open Innovation
ate successful products and services faster than
their competitor and at the same time fosters the
building of core competencies and protects their
intellectual property” (Enkel et al., 2009, p.312).
Procter and Gamble (Huston & Sakkab, 2006),
Philips and Siemens (as cited by Enkel et al.,
2009), and Deutsche Telekom (Rohrbeck et al.,
2009) are examples of firms that have successfully
adopted the open innovation.
There are three core processes in open innova-
tion: the outside-in process, the inside-out process
and the coupled process (Chesbrough, 2003, 2007;
Enkel et al., 2009). In this work we focus on the
former and on the customer community integration
(Piller & Fredberg, 2009). However, firms need
to develop or strengthen their competencies to
understand, decode and use external knowledge
which is accessible through the outside-in process.
We refer to the absorptive capacity (ACAP) as the
ability of a firm to recognize the value of new,
external knowledge, assimilate it, and apply it
to commercial ends (Cohen & Levinthal, 1990).
We argue online communities and information
technology (e.g. software tools) can be used by
firms to support the set of routines and processes
to collect, identify and assimilate knowledge. Over
time this set is capable of generating opportunities
of knowledge exploitation for commercial ends.
Our research question is: How can a firm make
use of a software tool to manage the inflow of
ideas and knowledge from an online community
for innovation purposes?
Taking a pragmatic approach, our aim is to
light-up part of the process that starts with in-
novation inputs from an online community and
ends with their exploitation by a firm. In this way,
we also try to explore the role of a software tool
to speed-up and improve the overall process. We
develop an exploratory model, empirically tested
through a case study, inspired by the metaphor
of the solar system. The metaphor is merely in-
strumental to depict our reasoning and certainly
it is not meant as an objective representation of
the ‘reality’, a ‘law’ able to depict the complex
social dynamics surrounding the emergence of
innovations in specific social groups as those that
arise within online communities.
The rest of the paper is organized as follows.
We briefly recall the conceptualization around
open innovation, online communities and ACAP,
and then we adopt the solar system metaphor to
introduce our model. In the third section we pres-
ent the model, its components and the hypotheses.
Then, we describe the method used to collect data,
and the context of analysis. Preliminary results
are presented in the fifth section. The last section
contains a brief summary and a set of directions
for future research.
BACKGROUND
Innovation is recognized as a primary means for
organizational renewal (Dougherty, 1992) and a
key lever for sustainable competitive advantage
(Brown & Eisenhardt, 1995). Various types of
innovation can be highlighted: market (Levitt,
1962), technological (Utterback, 1971), organi-
zational (Daft, 1978), product (Dougherty, 1992),
process (Davenport, 1994), service (Frambach,
Barkema, Nooteboom, & Wedel, 1998), and stra-
tegic (Tushman & Anderson, 2004). Studies on
innovation have been developed primarily within
the conventional context of organizational hierar-
chies. However, innovation scholars from various
perspectives suggest that knowledge creation for
innovative products and services can occur also
in a highly distributed way outside the boundaries
of the firm. Part of the open innovation approach
involves the building of relations with customers
or users. Users or peers outside the firm are rec-
ognized as important sources of knowledge for
innovations (von Hippel, 1988; 2005). Sawhney
and Prandelli (2002) have argued the innovation
locus may lie across the traditional firm’s bound-
aries, between the closed hierarchical model of
innovation and the open market-based model, in
locus where technical knowledge, marketing ex-
653

perience and customer activities intersect. From
this point of view, as innovation occurs primarily
through new combinations of resources, ideas, and
technologies (Enkel et al., 2009), a fertile innova-
tion environment relies on a constant inflow of
knowledge from outside of the firm’s boundaries
(Fey & Birkinshaw, 2005). Cooperation with ex-
ternal actors is central to increase innovativeness
and to reduce time to market (Enkel et al., 2009).
Chesbrough (2003, 2006) has argued firms
should consider external sources for obtaining
and commercializing innovation through an
‘open innovation’ approach: Open Innovation
is the use of purposive inflows and outflows of
knowledge to accelerate internal innovation, and
expand the markets for external use of innovation,
respectively. Open Innovation is a paradigm that
assumes that firms can and should use external
ideas as well as internal ideas, and internal and
external paths to market, as they look to advance
their technology.
Three core processes can be differentiated
in open innovation: outside-in, inside-out and
coupled (Chesbrough, 2003, 2007; Enkel et al.,
2009). The outside-in process enriches the firm’s
own knowledge base through the integration of
stakeholders (i.e. suppliers and customers) and
external knowledge sources to increase a firm’s
innovativeness (Laursen & Salter, 2006; Lettl et
al., 2006; Piller & Walcher, 2006). Within this
process, Enkel et al. (2009) have highlighted the
increasing awareness around the innovation net-
works (Dittrich & Duysters, 2007; Chesbrough
& Prencipe, 2008; Enkel, 2010), the new forms
of customer integration, such as crowd-sourcing
(Howe, 2008), mass customization, and customer
community integration (Piller & Fredberg, 2009),
and the use of innovation intermediaries, such as
Innocentive, NineSigma, or yet2.com (Lakhani,
2008; Piller, 2009). The inside-out process is aimed
at earning profits by bringing ideas to market
faster than through internal development, selling
intellectual property, or multiplying technology
by transferring ideas to partners and to the outside
654

Online Communities and Open Innovation
environment in general (Enkel et al., 2009). The
coupled process refers a bi-directional process,
combining outside-in and inside-out, to co-create
with partners through alliances, cooperation, and
joint ventures, (Enkel et al., 2009). In this work
we rely primarily on the outside-in perspective,
which is one of the key practices of open innova-
tion (Chesbrough, 2003; Enkel et al., 2009).
At the same time, consistent with many studies
on open innovation and on distributed sources of
innovation, we adopt an extended concept of ‘in-
novation’. In fact, though innovativeness includes
at its core the degree of being ‘new’ (Gupta,
Tesluk, & Taylor, 2007), most new ideas emerge
as novel recombination of old ideas. Restricting
the definition of innovation only to those ideas
that are utterly new to the world would make
this concept almost empty (Gupta et al., 2007).
Therefore, the degree of innovativeness is specific
for a particular context.
We focus on a particular context, an online com-
munity, where knowledge pieces or information
(such as fresh ideas from customers and the related
discussions) may feed the innovation of products,
services, processes. Innovations are conceived
also as upgrades, modifications, extensions, and
new applications of existing ones.
An important development of innovation stud-
ies in the past decade has been the recognition
of the role of communities outside and across
the boundaries of firms in supporting techno-
logical and social innovations (Fichter, 2009).
Communities offer an opportunity to extend the
firm-centric concept of open innovation (West &
Lakhani, 2008, p. 223). An emblematic example
is given by the online communities (Füller et al.,
2008). Various factors have increased the poten-
tial and decreased the costs of searching external
knowledge for innovation aims. Developments in
internet and social networking technologies allow
firms to interact with multiple and heterogeneous
knowledge sources, at an unprecedented level of
richness and at very low costs (Benkler, 2006;
Baldwin and von Hippel, 2011, O’Mahony &

Online Communities and Open Innovation
Lakhani, 2011). Firms can involve their customers,
suppliers, or other stakeholders in their product/
service development (Füller et al., 2006; Ches-
brough & Prencipe, 2008). A critical capability
in service/product innovation can be to use the
internet to communicate with customers to fast
incorporate new or changed consumer preferences
in new products. If the firm is able to exercise this
capability faster than its competitors it can give
the firm a competitive advantage (Carlsson, 2003).
Many disciplines have studied online commu-
nities and provided specific definitions. Rheingold
has described them from a social perspective as
“social aggregations that emerge from the Net
when enough people carry on public discussions
long enough, with sufficient human feeling to
form webs of personal relationships in cyberspace”
(Rheingold, 1993, p. 5), emphasizing the possibil-
ity to form also strong and continued friendships
online. In social psychology, Blanchard and
Markus (2004) have studied online communities
from a perspective of ‘sense of community’, ex-
ploring the perceptions of members with respect
to the community and their feelings toward other
members. They have defined online communi-
ties as “groups of people who interact primarily
through computer-mediated communication and
who identify with and have developed feelings
of belonging and attachment to each other.” Lee
et al. (2003, p.51), from an information systems
perspective, have defined an online community
as a “cyberspace supported by computer-based
information technology, centered upon com-
munication and interaction of participants to
generate member-driven content, resulting in a
relationship being built.” Hagel and Armstrong
(1997), focusing on value to firms, have defined
online communities as “computer-mediated spaces
where there is a potential for an integration of
content and communication with an emphasis
on member-generated content” (as cited in Lee
et al., 2003, p. 50).
Literature on online communities suggests that
their nature, with permeable boundaries, weak
ties and self-organization, makes them a powerful
locus of collective creativity and innovation (Lee
and Cole, 2003). Online communities’ members
may develop innovations that can be integrated
into the firm as well as new perspectives on and
ways of framing and solving problems to improve
products, services and processes. Moreover, an
online community may create product/firm/brand
loyalty and establish a sense of belonging and
meaning among its members (Rindova & Petkova,
2007). Therefore, firms can adopt organizational
settings, technologies and strategies to integrate
this flow of creativity and fresh ideas for innova-
tion aims (Dahlander & Wallin, 2006; Jeppesen
and Frederiksen, 2006) and not only for marketing
(e.g. Kozinets, 2002) or corporate reputation man-
agement purposes (e.g. Francesconi & Dossena,
2012). Online communities may constitute an
important external source of innovation for those
firms able to implement a constructive relation-
ship with them (Dahlander & Magnusson, 2005).
A fundamental distinction exists in the pro-
duction versus consumption orientation of online
communities (Sawhney & Prandelli, 2000). The
activities and the output generated by members
vary along these types of communities. Commu-
nities of production innovate virtual products or
services or – for physical products – contribute
detailed building instructions online, while com-
munities of consumption deliver information in
their discussion of products or reports on usage.
The firm involvement may take different levels
(Jäger et al., 2010): from very active participation,
with firm’s employees and moderators delegated to
contribute and to animate discussions, to passive
involvement, offering only the online platform, to
no involvement, as in brand communities orga-
nized by consumers and fans themselves. On the
intersection of these communities, Sawhney and
Prandelli (2000) locate their concept of community
of creation: the authors refer to the development
of knowledge socialization and relational intel-
ligence in a community “that is governed by a
central firm that acts as the sponsor and defines
655

the ground rules for participation” (2000, p. 25).
Communities of creation generate knowledge by
linking personal experience, e.g. with product/
service tests or answering marketing surveys. The
online community of creation blends the benefits
of hierarchies and markets by offering a gover-
nance compromise between too much structure
and complete chaos. The online community of
creation model relies on extended participation and
distributed ‘production’ (Sawhney & Prandelli,
2000), benefiting from the high number of online
community members and the voluntary flows of
ideas among them. The contributions of online
community members can be added to suggestions
created by the firm itself. Moreover, by integrating
selected online community members more than
once or iteratively in different stages, these users
may even get the status of development advisors
which strengthens the idea of collective invention
and trust building (Prahalad & Ramaswamy, 2002).
In this work we focus on a community of
creation. Nevertheless, to do this, a piece of our
mosaic has still to be considered: a firm needs
adequate organizational capacities to concretely
benefit from the collective participation in a com-
munity of creation. The exploration and exploita-
tion of external knowledge is linked to the concept
of ACAP, defined as the collective abilities of a
firm “to recognize the value of new information,
assimilate it, and apply it to commercial ends”
(Cohen & Levinthal, 1990). Despite several sub-
sequent theoretical and empirical studies (e.g.
Zahra & George, 2002; Jansen et al., 2005; Tu
et al., 2006; Vinding, 2006; Lane et al., 2006;
Todorova & Durisin, 2007), this field is still
under-investigated, in particular the emerging role
played by online communities and information
technology to support ACAP.
Trying to answer our research question, we use
an expanded definition of ACAP, conceptualized
as a set of organizational routines and processes
by which firms acquire, assimilate, transform, and
exploit knowledge to produce a dynamic organi-
zational capability (Zahra & George, 2002): (1)
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Online Communities and Open Innovation
acquisition refers to a firm’s capability to identify
and acquire externally generated knowledge that
is critical to its operations; (2) assimilation re-
fers to the organizational routines and processes
that allow it to analyse, process, interpret and
understand the information obtained from exter-
nal sources; (3) transformation denotes a firm’s
capability to develop and refine the routines that
facilitate the combination of existing knowledge
with newly acquired and assimilated knowledge;
and (4) exploitation denotes the firm’s ability to
use consistently the new knowledge gained for
commercial use over an extended period of time.
Acquisition and assimilation – (1) and (2) – pro-
vide the potential ACAP (PACAP) of the firm,
while transformation and exploitation – (3) and
(4) – provide the realized ACAP of the firm (RA-
CAP) (Zahra & George 2002). As argued by the
authors, a high PACAP does not necessarily imply
enhanced performance while RACAP ensures that
new knowledge is exploited for commercial use.
Thus, PACAP and RACAP have complemen-
tary roles. Zahra and George (2002) conceive
the ratio of RACAP to PACAP as an efficiency
factor, related to the capability to transform and
exploit knowledge. They also suggest that external
knowledge sources, in various forms, significantly
influence PACAP. They argue that the greater a
firm’s exposure to diverse and complementary
external sources of knowledge, the greater the
opportunity for the firm to develop its PACAP.
As mentioned above, an online community can
be used by a firm not only as a knowledge source but
also as a means to expand its PACAP, in particular
in terms of knowledge acquisition and, in part, of
knowledge assimilation. In fact, the internet and
the information technology may be used to identify
and acquire external information and knowledge,
and to process, analyze and interpret this informa-
tion and knowledge (Carlsson, 2003). Let us recall
what mentioned above. Firstly, firms can benefit
from the high number of members of an online
community who share different knowledge pieces
(fresh ideas, suggestions, and so forth). And this

Online Communities and Open Innovation
is linked to the role played by online communities
as a knowledge source. Secondly, the community
members can help the firm in identifying and
selecting (typically through comments, criticism
and voting systems) the most promising ideas for
potential improvement or innovation of firm’s
products, services and processes. Moreover, given
that social integration mechanisms lower the
barriers to information sharing while increasing
the efficiency of assimilation and transformation
capabilities (Zahra & George 2002), we may argue
that social integration within an online community
may contribute to knowledge assimilation. This
may occur when firm’s employees participate
in the community acting either informally (e.g.,
through informal social interactions with other
members) or more formally (e.g., the formal
interventions of moderators). In other words, the
involvement of the firm within an online com-
munity of creation may support its PACAP and
the search for ‘innovation input’. The efficiency
of assimilation and exploitation processes – and
thus the efficiency ratio proposed by Zahra and
George (2002) – affects how successful the firm
is at exploiting the new knowledge acquired. If the
firm is able to exercise this capability faster than
its competitors it can give the firm a competitive
Figure 1. The solar system metaphor
advantage (Carlsson, 2003). External knowledge
integration appears crucial but such processes
should be further studied. Are there specific
instruments that favour its efficiency and speed?
Based on this literature, the focus of our work is
on the time an innovative idea – shared and shaped
within an online community through suggestions,
comments, criticism, etc. – takes to be transformed
from a potential innovation into a realized one. We
argue this time is related to the support the idea
receives from community members, and that the
overall process is influenced by the intermediary
role played by the software tool used to support
the online community.
THE SOLAR SYSTEM METAPHOR
According to Morgan view (1986), we use the
explicative power of the solar system metaphor
(Figure 1) to evocate the process through which an
online community’s innovative idea is exploited by
a firm for innovation purposes. As earlier stated,
this metaphor is merely instrumental to evocate
an image in the reader’s mind. It is not meant to
depict exactly the dynamic of an online com-
657

munity, which is governed by social behaviour,
while a solar system is governed by physical laws.
We adopt a simplified solar system which
symbolizes the online community. An asteroid that
crosses the solar system towards the sun symbol-
izes an innovative idea. The sun, influencing all
the solar system activities, symbolizes the firm.
The planets of our systems symbolize sections of
the online community, focused on specific topics.
Planets are composed by both firm’s modera-
tors and online community members discussing
specific topics. All around the planets there are
space powders (such as in the Saturn’s rings) that
represent knowledge pieces freely floating. These
space powders/knowledge pieces can be stuck
on the asteroid through members’ feedbacks,
comments, discussions, ratings and so forth, thus
increasing the mass of the asteroid itself. With
some simplification, we can say that the mass of
the asteroid/innovative idea is proportional to the
number of supporters associated to it within the
online community. The asteroid/innovative idea
has also a speed that we conceive as the time an
idea takes to pass from inception to exploitation
approaching the sun.
In our metaphor the asteroid/innovative idea
follows a non linear trajectory across ‘poles of
attraction’ (i.e. the planets). When the asteroid
passes close enough to a planet, it can be attracted
by its gravitational force, i.e. the ‘constant effect’
associated to a section of the online community.
The gravitational force varies from planet to planet
and it is linked to the planet’s mass as well as to
the asteroid’s mass. The possibility of the planet
in catching and maintaining the innovative idea for
the proper amount of time within its orbit derives
from the right balance between the mass and the
speed of the asteroid itself. If the speed is too high
and the mass is too small (i.e. few member of the
section support the idea) the asteroid goes out
of the planet’s orbit and little knowledge can be
added. On the contrary, if the speed is too low, the
planets’ gravitational force can drop the asteroid
to the planet (i.e. the idea cannot continue quickly
658

Online Communities and Open Innovation
its journey towards the sun). The correct match
between planets and asteroids leads to an effective
exploitation of the idea for innovation purposes.
The effectiveness of the system is also influenced
by the overall ‘distance’ of the asteroid from the
sun: if the inceptive innovative idea is too close
the sun (i.e. the idea is too little innovative and
poor knowledge is gained) it rapidly burns (it is
dissipated). If the inceptive idea is too far (i.e. too
disruptive or too far from the business), the system
is too ‘cold’ and the meteor cannot be ‘drawn’ or,
at least, the journey is too long.
MODEL AND COMPONENTS
Our model has three components: mass, speed
and the software tool. As previously said, mass,
is defined as the number of supporters associated
to an idea. Ideas (asteroids) with greater mass are
those appreciated, supported and enriched by dis-
cussions within the online community. However,
if the idea gains too much mass without being
transformed in an innovative project it remains
only a potential not exploited by the firm. Thus
the second component is speed, i.e. the time an
idea takes to pass from inception to exploitation.
In our model mass and speed are associated. The
third component is the software tool that influ-
ences both mass and speed acting as a mediator
(Figure 2).
We start by testing the causal effect of speed
over mass. Hence, our first hypothesis is: the
mass of an idea is proportional to its speed, with
a fixed effect given by the gravitational attraction
between the idea and each planet (H1).
Figure 2. Model and components

Online Communities and Open Innovation
If the H1 is confirmed, a software tool that
increases the speed, such as a process automation
solution, will increase the performance of the
process. Through automation, the software tool
can support the firm especially in recognizing
valuable ideas discussed in the online community
(e.g. signaling the achievement of thresholds such
as the number of comments, the rating within vot-
ing systems, and so forth). Therefore, our second
hypothesis is: a software tool that increases the
speed of an idea will increase its mass (H2).
One could assume an effect of reverse causality
between speed and mass (ideas with large mass
gets higher speed, whereas ideas with higher
speed get greater mass). We represent this claim
using the constructs of software tool to obtain
a mediation effect. Therefore, we claim that: a
software tool that increases the mass will increase
the speed (H3).
METHOD AND CONTEXT
OF ANALYSIS
To test our model we have developed a program
written in Java, which analyses the posts in a forum.
Forums are often associated to software that man-
ages the users’ feedbacks, which are usually used
by companies to allow users to propose improve-
ments for their products (or services). Our software
currently focused on forums managed using the
User Voice feedback management solution, and
it is able to parse the (HTML) code of a page, to
identify the different posts, to assign an unique
identifier to each post and to extract the age of
the post and the number of supporter to the post
(i.e. people that vote it, or people that contributes
with a comment). To support our three hypotheses
we have used the Stata 10 statistical package to
perform correlation analyses, linear regressions
and quadratic regressions with fixed effect (using
the xtreg function). In order to test our model we
have adopted a single case-study methodology
(Yin, 1994), which is proper for the explorative
aims of this study. As Lee and Baskerville (2003)
provided numerous examples, the belief that the
study of a single case is undesirable or deficient
is widespread among information systems re-
searchers, even among case researchers them-
selves. However, requiring case study research
to involve multiple sites or multiple cases for the
sake of substantiating a theory is mistaken (Lee
& Hubona, 2009).
Since our study is currently ongoing, we have
tested our model using second-hand data from
Mendeley, a firm founded in November 2007
and based in London. Mendeley produces a free
reference manager and academic social network
that can help in generating bibliographies auto-
matically, in organizing research, in collaborating
with other researchers online, in finding relevant
papers within Mendeley database. Mendeley ser-
vice (www.mendeley.com) can be considered an
e-service (Scupola, Henten & Westh Nicolajsen,
2009; Di Guardo, Galvagno & Cabiddu, 2012).
Mendeley team comprises researchers, gradu-
ates, and open source developers from a variety
of academic institutions, although the software
itself is not open source. The user base includes
mainly affirmed academics, professional research-
ers as well as knowledge workers. On a basic
level, Mendeley stores citations and articles and
automatically pulls out citation information in
personal libraries. Users are required to store all
basic citation data on Mendeley servers, though
storing full copies of documents is at the user’s
discretion. Upon registration, 1 GB of free web
storage space is provided, upgradeable at a cost.
More than 163,000,000 papers are shared and the
network connects more than 1,600,000 people and
holds about 35,000 institutions as universities,
business schools and research institutes (June
2012). Furthermore, Mendeley acts as citation
social network: users can search articles, citations
and researches also in others libraries. Mendeley
is a collaborative system too: on setting up an
account with Mendeley, users create a profile of
research interests.
659

The access to the context, as a research en-
vironment, has been opportunistic (e.g. Weick,
1990; Weick, 1993). We have chosen Mendeley
as a case-study suitable for our aims because
of the high number and quality of information
available on the website (www.feedback.mendley.
com) where user’s feedbacks and suggestions are
left to improve Mendeley’s services. When a user
leaves a suggestion within the forum, the system
shows the message/idea as ‘not taken into account’
since Mendeley staff starts the reviewing process.
Mendeley staff can decide to refuse the suggestion,
or to accept the suggestion and to start the related
‘project’ in order to implement it immediately or
to plan it for a future implementation. Therefore,
messages/ideas can be classified as:
1. ‘Under review’ by Mendeley staff
2. ‘Accepted and planned’ for future
implementation
3. ‘Accepted and transformed’ in projects
4. ‘Transformed’ in completed projects
5. ‘Refused’
6. ‘Not taken into account’ yet.
All messages/idea can be voted and commented
by other online community members. Our spider
has extracted from the Mendeley feedback page
1,297 posts (June 2012), which refer to ideas/
projects that we have classed into five groups
(Table 1).
For each post we have extracted the number
of votes, which we have associated to the idea’s
Table 1. Mendeley dataset
Typology Ideas Left
Under review 170
Accepted but not transformed in 214
projects yet
Projects started and ongoing 103
Projects completed 678
Suggestions declined 132
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Online Communities and Open Innovation
mass, and the idea’s date of creation, which we
have associated to the speed. According to this
choice, we have taken into account only the first
three groups of ideas to avoid possible mistakes
due to the lack of an end date for the last ones.
FINDINGS
For the three chosen groups of feedback posts, the
distribution of the mass and the speed was skewed,
with the mean and medians set respectively at
76 and 5 votes (for the mass) and 856 and 901
days (for the speed). Therefore, all the following
analyses have been done using robust regressions.
As shown in Table 2, there is an effect between
mass and speed, which is statistically significant
for the first three groups of posts on Mendeley
(p<0.01). We have also defined the fixed effect
associated to each group, identified in our model
as the planets’ gravitational forces. The second
group has a fixed effect on speed, which is negative,
while the third group has a negative fixed effect
which is even greater than the one of the second
group. This occurrence can be easily explained by
the fact that ideas take more time to be reviewed
than to be included in the overall development
planning and then developed.
Data show the mass of an idea is proportional
to its speed, with the fixed effect. Hence, one could
say that the first hypothesis is supported.
The second and the third hypotheses refer to the
mediation effect in the relationship between speed
and mass. For our second hypothesis we test if a
software tool that increases the speed of an idea
will increase its mass. The third column of Table
2 shows that a polynomial regression has a greater
explanatory power (as shown by the greater R2
associated to the second model). This quadratic
effect corresponds to an inverted parabola. That
implies the need to find a software tool to increase
the mass until a certain level (the critical mass
to achieve speed) and to avoid gaining too much
mass (the beginning of internal disagreements

Online Communities and Open Innovation

Table 2. Overall and detailed analysis for hypothesis 1 and 2 (***p<0.01;**p<0.05;*p<0.1)

Speed = Overall (N=486) Overall (N=486) Step 1 Step 2 Step3 (N=103)

(N=170) (N=214)
Mass 0.21*** 0.45*** 0.19 1.07*** 0.55***
Mass^2 -0.0001*** -0.00002 -0.0004*** -0.0009***
Step2 -76.35*** -78.74***
Step3 -136.44*** -136.44***
Cons 902.10*** 894.85*** 905.28*** 797.86*** 748.59***
R2 0.10 0.12 0.03 0.13 0.18

within the community). Thus, one could say that DISCUSSION

the second hypothesis is supported.
The following columns shows that the poly-
nomial regression works best for the second and
third step, which have an R2 greater than 0.10.
As shown in Table 3, there is a reversed effect
between speed and mass (ideas with large mass
gets higher speed, whereas ideas with higher speed
get greater mass). By looking at the polynomial
model, we see an increase in the R2 and the de-
scription of a normal parabola. That implies the
need of a software system to fine tune the speed
of the idea (e.g. slow for brainstorming sessions,
whereas fast during ‘prototyping’). Therefore, data
seem to confirm that a software tool that increases
the mass will increase the speed, thus supporting
also the third hypothesis. The following columns
shows that even this polynomial regression works
best for the second and third step, which have an
R2 greater than 0.10.
Metaphorically speaking, a firm’s ACAP (Cohen
& Levinthal, 1990; Zara & George, 2002; Jansen
et al., 2005; Lane et al., 2006) acts at two different
levels in our solar system. On the one hand, the
idea should be close enough to the topic of the
planet(s) to be understood, caught within its orbit,
collecting new knowledge (space powders). On
the other hand, the idea cannot be too far from
the sun (i.e. quite innovative but not too much
disruptive). This is consistent with previous studies
such as those related to the cognitive distance (e.g.
Noteboom et al., 2005). Through this interpreta-
tion, a firm may increase its explorative abilities
and PACAP (Zara & George, 2002) in two dif-
ferent ways. The first one is to act on the ability
of the ‘planets’ in understanding and attracting
innovative ideas, This can be done, for example,
through trainings of community moderators (who

Table 3. Overall and detailed analysis for hypothesis 3 (***p<0.01;**p<0.05;*p<0.1)

Mass = Overall (N=486) Overall (N=486) Step 1 Step 2 Step3 (N=103)

(N=170) (N=214)
Speed 0.33*** -1.20*** -1.47 -0.68** -2.44**
Speed^2 0.001*** 0.001 0.0005** 0.002**
Step2 28.51 8.05
Step3 122.12** 80.14
Cons -246.46*** 316.12*** 533.26 202.36* 601.11**
R2 0.08 0.13 0.06 0.10 0.27

661

play a key role within the idea evaluation process)
and by integrating selected online community
members as ‘development advisors’. A firm could
also aim at increasing the number of online com-
munity members in order to increase the variety
of knowledge shared. The second way is at firm
level, i.e. trying to have planets increasingly far
from the sun, which might be able to catch more
heterogeneous and disruptive ideas for ‘fuzzy front
end’ innovations (Koen et al., 2001).
Exploiting this evocative metaphor and accept-
ing the principle of parsimony to justify our choice
to initially limit our study to a few concepts, we
have proposed a model with three components
(mass, speed and software tool). The three com-
ponents of our model have been empirically tested
through Mendeley’s case study developing three
hypotheses, all supported by data.
The exploratory case study allows us to suggest
that firms can improve their ACAP also through
a software tool. Through its mediation role, a
software tool aims at supporting the knowledge
exploration and exploitation and, thus, the ‘real-
ized to potential ACAP ratio’ suggested by Zara
and George (2002). In practice, a software tool
can decrease the time an idea, shared within an
online community, takes to be transformed from a
‘potential’ into a ‘realized’ innovation by a firm,
thus increasing the ACAP efficiency.
The software tool we envisage should have
two main functions:
• A ‘booster’ function that should automate
the process of ideas scanning and increase
the speed, thus reducing the time an idea
shared within an online community takes
to be transformed from a ‘potential innova-
tion’ into a ‘realized’ one by a firm.
• A ‘shield’ function that should protect ideas
from gaining too much mass in the second
and third steps. In fact ideas take more time
to be reviewed (first step) than to be includ-
ed in the overall development planning (sec-
ond step) and then developed (third step).
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Online Communities and Open Innovation
CONCLUSION
Although preliminary and explorative single case-
study, we believe our work represents a twofold
contribution on open innovation. Firstly, scholars
can build on this new perception of knowledge
as a trajectory across pole of attraction, rather
than a linear process. In other words, knowledge
creation through online communities may follow
a trajectory across pole of attraction (i.e. planets
in the online community specialized in topics).
Secondly, practitioners and firms can profit from
the specifications of a system, which has been
already tested once, and whose specifications are
grounded into existing theories.
We are aware of the limitations of our work. First
of all, we do not take a social or political stance
with respect to firm exploitation of knowledge,
which users decide to share with the firm and that
is stored in its repositories. Moreover, ‘asteroids’
‘mass’ and ‘speed’ are naively described and are
a poor simplification if compared to the social dy-
namics surrounding the emergence of innovation in
specific social groups. Also a deeper specification
of the ‘software tool’ is needed. Finally, the concept
of ‘gravitational force’ must be deepened. Last but
not least, it seems unlikely that a firm, which has
a high ACAP, is capable of absorbing information
from all available external sources of knowledge in
the same way. As suggested by our metaphor, each
planet (firm’s staffing as individuals or groups,
such as online community moderators or group of
moderators) could have a ‘specific’ ACAP referred
to a particular section of an online community fo-
cused on a ‘specific’ domain. We plan to explore
this issue in future research. We would also explore
in depth the types of ideas shared within an online
community and their degree of innovativeness as
well as the impacts on firm efficiency because
this data is currently not available in our case. A
study in these directions could help to understand
better the relationship between ‘exploitation and
incremental innovations’ or ‘exploration and radical
innovations’ within an online community.

Online Communities and Open Innovation
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 667

Chapter 36
Fostering Creative
Transformations in
Organizations with Chaos
Robert Pryor
Australian Catholic University, Australia

Jim Bright
Australian Catholic University, Australia

ABSTRACT
This chapter introduces the Chaos Theory of Careers (Pryor & Bright, 2003b, 2011) as applied to or-
ganizational behavior. The authors argue that organizations and the people within them can be usefully
thought of as complex dynamical open systems – or strange attractors. From this perspective, organi-
zational behavior can be understood in chaos terms such as attractors, fractal patterns, non- linearity,
emergence, and phase shifts. Understanding organizations in dynamic terms provides a coherent picture
of the inherent uncertainty and change that organizations face. This, in turn, has implications for man-
agement models that need to move from command, control, and predict, to facilitation and disruption of
closed system processes. The difference between organizational anarchy and a principled chaos-based
approach are highlighted. A model of organizational and personal creativity is presented and linked to
concepts such as fractal behavior, career development and the re-thinking of traditional goal-centered
approaches to management and change. For organizations to thrive in a world that is inevitably complex,
uncertain, and changing, the authors argue that the Chaos Theory of Careers provides a coherent man-
agement framework and suggests approaches that will foster the development of a creative and flexible
organization to meet these contemporary challenges.

INTRODUCTION in the twentieth century. Fundamentally twentieth

How can organizations function effectively in the
twenty-first century world? Probably the most ac-
curate answer that could be given to that question
is: not the way they were structured and functioned
century organizations focused on stability. Change
was typically perceived as an aberration in the
pervasive condition of stability. Organizations
were structured essentially to resist change and
disruption. The traditional hierarchical structure of

DOI: 10.4018/978-1-4666-8468-3.ch036

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Fostering Creative Transformations in Organizations with Chaos
organizations was based on an inspirational or at
least effective leader with a leadership team, who
“set the course” for the organization. The policy
and implementation strategies were developed
at higher levels and gradually filtered down the
hierarchy to the production and/or service provi-
sion levels.
Of course changes occurred but typically they
were perceived to be gradual over time so as avoid
disturbing the essential stability of the organiza-
tion as a whole. In this context there were various
forces to inhibit or resist many types of change.
These forces included organizational culture and
tradition, managerial insecurity, worker intransi-
gence, union power, technological conservatism,
risk aversive shareholder demands and community
expectations of reliability, dependability and just
generally feeling comfortable with some products,
services, and companies.
Economic depression and two World Wars
along with the threat of the Cold War, encour-
aged people in many parts of the Western World
at least, seek a level of stability and security and
a longing for a feeling of control. Organizations
also often reflected these aspirations as well.
However, as the century wore on and even more
so, in this century, other potent influences have
emerged which have subverted and often ren-
dered obsolete most of these former aspirations.
Increasingly the imperatives of globalization,
technological advances and the sheer speed
and extent of modern communication inter alia,
now present to organizations new challenges for
which there are no precedents. To quote but one
of many examples, we now live in a world that
at the time of writing, reportedly has 800 million
people registered on Facebook, about 50% of
which are daily users. Such a phenomenon was
simply inconceivable even ten years ago since the
original Facebook website was not even launched
until February 2004.
To return to the original question: how can
organizations thrive in an environment charac-
terized by such unpredictability and uncertainty;
668

continual and non-linear change across cultures,
time zones, languages and geographical location;
with such challenges for risk and failure? Most
attempts to deal with these issues are fragmentary,
piecemeal, overly specific and lacking the capacity
for integration. This new world in which we now
work does not appear to fit with traditional models
of organizations or their theoretical counterparts.
In this chapter it is proposed that chaos theory
can provide a theoretical framework through which
a coherent perspective of twenty first century
organizational challenges can be understood and
effectively met. Specifically the application of
fractality to organizations will be adumbrated
with respect to vision statements and the develop-
ment of organizational culture. The limitations of
goal setting will be outlined in light of non-linear
dynamics of change and an approach to creative
development and problem solving will be pre-
sented as a strategic way to address the challenges
of the inherent properties of strange attractors.
THE CHAOS THEORY OF CAREERS
Pryor and Bright (2011a) provides a compre-
hensive presentation of the application of Chaos
Theory to the working environment. Chaos theory
is a scientific conceptualization of reality which
emphasizes the complex, interactive and intercon-
nected nature of our world. While recognizing
the individual constituents of reality (existents)
chaos theory also draws attention to the holistic
features of our world. Pryor and Bright (2003a,
2003b) conceptualized these as complex dynami-
cal systems. Such systems are complex in the sense
that there may be many influences both within
them and impinging upon them. Such systems
are dynamical because their complexity renders
precise predictability of outcomes impossible and
because the nature of the changes within the system
are often non-linear (that is, the effects of change
can be very disproportionate to the original cause
of the change). This is popularly known as “the

Fostering Creative Transformations in Organizations with Chaos
Butterfly Effect” (Lorenz 1993). The emphasis on
systems draws attention to the interaction between
constituents that make up the whole. In fact, in
chaos terms everything ultimately is linked to
everything else (Barrabasi 2003).
Complex dynamical systems have four major
characteristics:
1. Aperiodicity: Complex dynamical systems
function in identifiably similar patterns but
these patterns do not exactly repeat one an-
other. The result is a characteristic stability
to the system and yet at the same time there
are changes which under certain conditions
have the potential to totally transform the
pattern of functioning of the system. This
is called a “phase shift.”
2. Bounds: For systems to be identifiable
as systems, they must have limits within
which they function. It is the boundaries of
systems which allow them to be recognized
as specific distinct wholes. Chaos theory is
not about total randomness and disorder,
which would be the situation if systems
were conceived as having no boundaries.
Chaos theory addresses the way in which
influences of stability and change interact
within the confines of the constituents of
the systems and which give the system its
essential identity.
3. Causality: Chaotic systems are deterministic
in the sense that their formation and func-
tioning are dependent on preceding neces-
sary and sufficient conditions. However,
although deterministic such systems are
not completely predictable; one legacy of
complexity is that it is impossible to trace
either backwards or forwards with precision
the causal chain.
4. Sensitivity to Change: Chaotic systems as
a result of their complexity and intercon-
nectedness are susceptible to change in their
initial conditions. Since they are aperiodic in
one sense, change is inherent in the way these
systems function. For example, the human
heart beats in a generally regular rhythm
but the beats are never exactly the same.
Briggs and Peat (1989) note “Disruption in
the normal fractal scaling of the heart’s time
can cause pathology in two directions. If the
heartbeat and respiration become highly pe-
riodic (regular), they can lead to congestive
heart failure. On the other hand, a rhythm
that is too aperiodic causes the defibrillation
of a heart attack. Thus the normal ‘time’ of
the heart oscillates in the borderland between
order and chaos.” (pp. 107-108)
Attractors
As complex dynamical systems can be identi-
fied by characteristic patterns, for example, the
weather can be represented as climatic patterns
or individuals’ activity preferences by vocational
interest profiles (Pryor & Bright, 2007). The
characteristic way in which a system operates is
called that system’s “attractor” (Williams, 1997).
An attractor is an influence or set of influences
which cause the system to function in a particular
fashion. For example, the organizational climate
of the now-defunct energy company ENRON
initiated by its CEO Jeffrey Skilling was based
on an “only the fittest employees survive” model
(McLean & Elkind, 2004). In such a climate
competing against other employees, assuming the
credit for success, deflecting the blame for failure
and “protecting your back at all times,” are likely
to be some of the factors influencing the system
of human communication in the company. Pre-
sumably the goal of retaining employment within
ENRON was something like “thrive to survive.”
Such a goal can be understood in Chaos Theory
terms as a “point attractor” (see below). Such an
attractor could be understood as the characteristic
trajectory of the company’s employees being to
make profits and progress in influence and power
within the organization. The feedback mechanisms
with such an attractor are likely to be to succeed
669

Fostering Creative Transformations in Organizations with Chaos
quickly and to impress or you will no longer
work for the company. The end states of such an
attractor are likely to be higher pay and benefits
for work valued by the company and greater ac-
knowledgement by management of performance
or warnings, threats, pressure and dismissal for
perceived failure. Chaos theory proponents have
typically delineated four characteristic attractors.
Point Attractor
This attractor is operative when a system seeks
to function to achieve a single end state or goal.
Examples include a river flowing to the sea, a
plane flying to a destination or an athlete seek-
ing Olympic gold. ENRON is an organizational
example of organizational climate as a point
attractor. Organizations functioning as point at-
tractors will stress deadlines, objectives, sales
targets, incentives and production output levels.
Setting and achieving goals become the major
if not the sole criteria by which organizational
success is evaluated. While such an approach
can be effective in the short-term it is subject to
a number of potential problems. In a business
environment subject to non-linear change, setting
long-term goals is unlikely to be effective, since
by the time the “long term” arrives it is likely to
be so different from what was originally envisaged
it would be, that the goals achieved are likely at
best to be irrelevant or at worst detrimental to
the organization. The authors have worked with
organizations which produced long-term specific
vision and goal statements which were repeatedly
subsequently superseded by new managers long
before the visions or goals were realized. Typically
the principal results of this process were wastage
of resources and frustration for the staff.
A further limitation of point attractor thinking
by management in terms of specific goal setting
is that it may encourage myopic inflexibility in
the form of single-minded focus on a specific
670

outcome rendering the organization insensitive
to other creative opportunities. This is discussed
in more detail later in this chapter.
Pendulum Attractor
Just as a pendulum swings one way under the
influence of one force and then back again in
response to a competing force, this pattern can
be characteristic of a variety of systems. In
psychological terms it is typical of approach-
avoidance conflict. Sociologically it is typical of
the so-called “work-life conflict.” It is frequently
in evidence in role conflicts and divided loyal-
ties. In organizational terms a pendulum attractor
could be apparent in managerial decision making
about whether “to stick to our core business” or
diversify the service or product range in ways in
which the organizational has never previously
ventured. Thus the need for change may press for
diversification to broaden the company’s stream
of income. However, the costs and risk of trying
to do new things may itself threaten the longer
term viability of the company. Such managerial
vacillation may result in wastage of resources,
missed opportunities and employee confusion.
Essentially the limitation of pendulum attractor
thinking is the tendency to conceptualize problems
or challenges in dichotomous terms, as though in
most situations presented to management can only
have one or other of two diametrically opposed
solutions. Such thinking fails to consider ways
to combine alternatives, seek further options,
undertake limited trials of alternatives, recon-
cile competing demands or develop compromise
(“middle of the road”) strategies. Pendulum attrac-
tor thinking often represents an inability to think
creatively about new and uncertain situations.
Hence the emphasis in this chapter on approaches
for organizational management such as Beyond
Corporate Mastery outlined below.

Fostering Creative Transformations in Organizations with Chaos
Torus Attractor
This attractor pattern is often characteristic of
traditional approaches to organizational structures
and functions. In order to deal with a multiplicity
of actual or potential influences and challenges,
torus attractor thinking set up clearly defined
structures to perform all the requisite functions
– sales, production, marketing, human resources,
finance and so on. The organization is intended
to function like an efficient machine, with each
department and each section within each depart-
ment all contributing cohesively to deal with the
complexity of influences and tasks that the orga-
nization has to confront in order to make a profit
to ensure its survival. The attempt is to sustain
control through procedures efficiently followed
to the letter of the law.
Managers thinking in torus attractor terms
typically place too much confidence in estab-
lished procedures and systems. As a result when
confronted with uncertain challenges or problems
they tend to respond by trying rigidly to respond
by fitting the situation into an already established
response pattern. This encourages “silo” thinking
and funding. It may result in demarcation disputes
between the various departments within the orga-
nization. It can also create a mentality based on
providing a service or manufacturing a product and
seeing if anyone wants either, rather than starting
from identifying a need and seeking to fulfill it.
Closed Systems Thinking
All three attractors outlined are essentially exam-
ples of “closed system thinking” (Pryor & Bright,
2011a). Closed systems thinking is characterized
by expectations about the fundamental stability
and predictability of systems and the belief that
as a consequence change within systems can be
foreseen and controlled. Thus, the point attractor
thinking for individuals and companies, is typically
characterized as focused on achieving specific
goals such as providing some specific services
or producing a particular set range of products.
Change is perceived typically as something to be
resisted, as a distraction to be overcome, so that
the goal or business plan can be achieved.
In the pendulum attractor change is simpli-
fied to two competing influences and decision
making is conceived typically in either/or terms.
Either we go with this change or we resist or seek
to minimize its impact. It is typical of urgent
and stressful situations and thus it illustrates the
dichotomous thinking and ambivalent indecision
of those caught in such situation.
When change is confronted by torus thinkers,
the immediate response is to try to pigeon-hole
it within existing structures. The thinking is that
because the system is so well-organized all con-
ceivable change must be able to be accommodated
somewhere already within the system. There must
be a policy relating to each new change and an
appropriate section or department to implement
the policy efficaciously.
However, it is increasingly evident that no
matter how committed we may be to our goals,
how much we try to dichotomies our options or
how well organized we endeavor to be, the com-
plex non-linear continuous and emergent changes
that confront twenty-first century organizations
will confound such (closed system thinking ef-
forts (Taleb, 2007). The fundamental problems
of closed thinking attractor thinking is that real
world systems are not closed. That is, although real
world systems are bounded, their boundaries are
invariably permeable, that is, able to be impacted
by other systems at any time. Systems theorists
(e.g. Richmond, 2000) often call this “recursiv-
ensss” – that is, all systems can influence and be
influenced by many other systems. In essence, this
makes our attempts to be able to both anticipate and
control many types of change virtually impossible.
Despite our best closed system attractor thinking,
the limits to our knowledge and power inevitably
mean that we have to confront uncertainty.
671

Fostering Creative Transformations in Organizations with Chaos
Strange Attractor
The strange attractor (Bright & Pryor, 2005; Pryor
& Bright, 2007) is an open system that has the
seemingly paradoxical characteristics of being
simultaneously self-similar and stable and yet
continually changing with the potential for radical
transformation. A strange attractor can be thought
of by considering these two hypothetical campus
universities found in the imaginary countries
proposed by Taleb (2007) of Mediocristan and
Extremistan.
The University of Mediocristan is a campus
university with a difference. On National Medioc-
rity Day 1st April, the Vice Chancellor celebrated
by issuing an order to close all of the entrances to
the University so that nobody could come in or go
out. Furthermore, all current internet connections
were cached and closed, so that the only informa-
tion available on internet was whatever existed on
that auspicious day. Telephones including mobiles
were programmed to only allow internal calls. The
mail room was shut down. Inter-library loans were
stopped, and satellite dishes, television aerials,
broadcasting and receiving systems were all shut
down. Thus over the years, the University’s fine
reputation for innovation was lost, and eventually,
the University went out of business once the last
student died of old age.
Over in Extremistan, the Vice Chancellor
identified several core values that characterized
his University, they were: continual inquiry,
education, equality and social justice. The Vice
Chancellor and her team devised new forms
of entry, invested in distance learning, offered
scholarships to the needy and hugely increased
the speed and number of communications systems
to the help the University communicate with the
outside world. Over time, the University changed,
sometimes suddenly and dramatically, as new
students came in and others left. Some disciplines
flourished with amazing research breakthroughs
and others with the popularity of their courses.
Some hitherto popular courses ceased to exist as
672

disciplines merged, de-merged, and new ways of
thinking and exploring the world changed things.
Indeed even the campus moved – and became a
world-community campus with the Vice Chancel-
lor working out of a Lincoln Smart Town Car and
a Space Station. Yet, over time, in every aspect of
research, teaching, self-learning and community
engagement, a pattern of continual inquiry, educa-
tion, equality and social justice could be identified.
Thus the strange attractor is a dynamical open
system, whose stability comes from continual
change. When the potential for change is all but
eliminated from the system by making it a complex
torus attractor, like the Mediocristan example, the
result is ironically short-term predictability and
control, but gained at the expense of longer-term
vulnerability.
It should be clear from those examples that
healthy organizations, whether they like it or
not, are strange attractors – that is, they need to
be open systems in order to achieve longer-term
stability and continuity. This somewhat obvious
fact, flies in the face of most modern management
approaches that are usually designed to close
systems down in an attempt to make them more
orderly and predictable.
However it would be a mistake as a conse-
quence, to argue for some form of organizational
anarchy as a preferred approach to managing a
business. Such entreaties which from time to time
are presented as the logical conclusion of applying
chaos theory to organizations, overly privilege
the power of self-organizing systems to create
order, without sufficient consideration of the fact
that chaotic systems work by having underlying
rules or principles that govern the interaction of
their elements. The self-organizing features of
chaotic systems do not magically emerge from a
chaotic mess, indeed dynamic order only emerges
at specific times under narrowly defined terms
hence the need for boundaries for such systems.
Consequently it is the role of managers to act as
enablers to encourage the development of effective
self-organizing systems. This is not synonymous

Fostering Creative Transformations in Organizations with Chaos
with a “free for all” in which anything goes and
anything is done. Rather it generally arises from
the rigorous and fearless application of a coherent
and consistent small set of principles. However
most organizations, in their anxiety to tame un-
predictability and to manage complexity tend to
fall into the trap of trying to over-specify and over-
control, or micro-manage organizations. Too often
in organizations uncreative management can be
observed in the over-use and over-specification of
rules. Generally this is due to a lack of a coherent
vision, a lack of courage, a lack of trust in col-
leagues and a reactive approach to management.
The result can be injurious to the culture of the
organization and may result in the diminishment
of decision-making discretion at all levels which
has been clearly established to be a causal factor
in occupational stress (e.g. Karasek, 1979, Jones
& Bright, 2001).
The overuse and over-specification of rules is
an attempt to control by transforming naturally
open systems into closed systems, or in Attractor
terms, an attempt to impose a Torus attractor on
workplace behavior. The iterative application of a
small number of principles is how chaotic systems
develop, and it is what contributes to emergent
order (Morowitz, 2002). It also provides inherent
flexibility because nothing is over-specified or
too narrowly defined. This allows for innovation,
unexpected outcomes, consistency, and creativity.
It also makes the system more resilient to those
unexpected outcomes.
The operation of the iterative application of
core principles can be graphically mapped in
Fractals. These patterns are helpful in analyzing
and understanding organizations and employees
within organizations.
Fractals
The mathematical equations that generate chaotic
patterns of the strange attractor can be plotted over
time. It turns out that the patterns generated by
strange attractors belong to a group of patterns
that were first seriously researched by Mandelbrot
(e.g. Mandelbrot, 1975, 1982) who denoted them
as “fractals” which is used to describe patterns
that are self-similar across scale. Self-similarity
across scale refers to the repeating pattern of
similarity (technically symmetry) observed as
one progressively magnifies or moves away from
the pattern. The term fractal denotes the peculiar
dimensionality of these patterns that falls between
the one dimension of a line and the two dimensions
of a plane. Fractal patterns are a powerful way to
understand the workings of a chaotic system be-
cause they represent the emergent dynamic order
of the system (Briggs & Peat, 1999).
The repeating pattern at every level within a
fractal is a concept that can be easily mapped on
to an organization or the production of a product
or service. For instance at Apple, although they
do not have a formal mission statement, CEO Tim
Cook provided the following principles during an
Investors Quarterly Conference call in January
2009, “We’re constantly focusing on innovating.
We believe in the simple, not the complex. We
believe we need to own and control the primary
technologies behind the products that we make and
participate only in markets where we can make a
significant contribution. We believe in saying no
to thousands of projects so that we can focus on
the few that are meaningful to us. We believe in
deep collaboration and cross-pollination in order
to innovate in a way others cannot. We don’t settle
for anything other than excellence in any group
in the company, and we have the self-honesty to
admit when we’re wrong and the courage to change.
Regardless of who is in what job, those values are
so embedded in this company that Apple will do
extremely well.” (Cook, 2009).
This set of values have been fearlessly imple-
mented by Apple, and by the co-founder, the
late Steve Jobs consistently throughout Apple’s
existence (Isaacson, 2001). Evidence of their
operation can be found within all Apple’s activi-
ties. Most organizations have some form of values
statements, leadership models, mission statements
673

Fostering Creative Transformations in Organizations with Chaos
or similar that can be tied directly in to managing
behaviours at every level and division from the
Board to individuals. The following is an example
of how one of the authors used this approach to
design career development interventions in a large
bank in Australia.
THE CHAOS THEORY OF CAREERS
(CTC) IN ACTION: A CASE STUDY
USING OF HOW CTC CAN BE
APPLIED IN ORGANIZATIONS
Successful managers and organizations need to
be both focused and flexible in their behavior
(Gelatt, 1989) if they are to handle the unpredict-
ability and uncertainty inherent in a complex and
changing environment. Market conditions change
continuously and sometimes unexpectedly and
dramatically. It follows that managers who are able
to respond positively to change, or preferably take
a proactive approach to change will create greater
success than less flexible managers.
Flexibility alone is not sufficient for success
and must be harnessed to a focused attitude. Flex-
ibility without focus can lead to:
• Inconsistent and contradictory behavior;
• Whim-based and impulsive behavior;
• Employee confusion and role ambiguity;
• Communication breakdowns; and
• Failure to consolidate changes.
Focus alone is also not sufficient for success
and must be harnessed to a flexible attitude. Focus
without flexibility can lead to:
• Stubbornness and rigidity;
• Ego-driven behavior;
• Failure to spot or capitalize on emerging
opportunities; and
• Failure to understand the bigger picture or
the impact of actions on outcomes.
674

Traditional career development models charac-
terize focus and flexibility as psychological traits
that are at opposite ends of a continuum. This
means that managers are typically characterized
as one or the other. The implication is that after
assessment, the manager would be best suited to
working in an area that prized focus or one that
prized flexibility. Stereotypically opposite work
environments for example might be actuarial work
(focused) and marketing (flexible).
However modern working environments be-
ing strange attractors, are much more complex,
dynamic and rapidly changing, and cannot be
simplistically divided up into two categories.
Such thinking is a reversion to pendulum attractor
thinking. Both flexibility and focus are required by
all managers, and especially in more senior roles.
Figure 1 illustrates the process. The figure
shows a system where a manager is exposed to
change influences. The manager’s response to
the change influence can be predicted from their
Fractal Behavior – that is from the repeating pattern
of behavior observed over time. The manager’s
behavior is likely to be dominated by one of the
four attractors. If the manager tends toward Point
(Goal), Pendulum (Role) or Torus (Routine)
Attractors, they will be less open to change if it
challenges their established pattern of behaving
and may act to resist that change. If the manager’s
behavior is dominated by the Strange (Complex)
Attractor they are more likely to embrace the
change or act proactively to harness the change
to create new opportunities.
The Chaos Theory of Careers (CTC) Career
Development Model states that:
• People are complex and continuously
changing.
• Work is complex and continuously
changing.
• People display characteristic core pat-
terns of behavior repeatedly over time and
situations.

Fostering Creative Transformations in Organizations with Chaos
Figure 1. The CTC career development model in organizations
• These patterns are relatively stable but sub-
ject to minor modification over time and
situations.
• Work demands particular core behavioral
patterns across time and situations.
• These demands are relatively stable but
subject to minor modification over time
and situations.
The idea of “Organizational DNA” – the
repeating pattern that exists in every aspect of
operations - is broadly similar, but it does not
convey sufficiently the existence of change that is
present in all operations. DNA+Change is a closer
analogy to the proposed model. “All organizations
are fractal. I can’t think of any organization that
isn’t deeply patterned with self-similar behaviors
evident everywhere” (Wheatley, 1991, p.128).
In this framework Fractal Career Behavior
refers to characteristic repeating patterns that are
evident at every level of behavior and at every stage
in a person’s career. Successful organizations dis-
play Fractal Values Behavior FVB) – there should
be a clearly discernible repeating pattern of each
of the values across time and situations, which
illustrates a positive responsiveness to complexity
and its implications. Career Conversations provide
an excellent opportunity to identify the extent of
FVB by using specific cues to elicit the pattern.
Figure 2 illustrates Fractal Career Behavior of
organizational leadership dimensions of people,
enterprise, business and self, through the applica-
tion of the Chaos Theory of Careers.
Career Conversations provide an excellent
opportunity to identify the extent of FVB by us-
ing specific cues to elicit the pattern. The Career
675
 
Fostering Creative Transformations in Organizations with Chaos

Figure 2. Fractal values behavior for organizational leadership (© Bright and Associates, all rights
reserved)

Conversation method focuses on the Fractal Career
Behavior part of the process, because this is the
best predictor of future behavior and leadership
potential in a complex and uncertain business
environment. A series of “career probes” can
be developed to assist in identifying the Fractal
Values Behavior. These are deliberately based
upon the values model because employees who
are not aligned with these values are unlikely to
succeed within the organization. In addition to the
organization’s values, other probes are provided
that explicitly address:
• Flexibility (e.g. “What characteristics of
team members are best able to respond to
change?”)
• Persistence (e.g. “What indicators would
you use to relinquish continuing to sell a
product?”)
• Strategy (e.g. “What could you do to
improve the ethical standards of your
organization?”)
These complement and reinforce the probes
around the organizational values to provide a

676

Fostering Creative Transformations in Organizations with Chaos
fuller picture of the manager’s behavior. The
Career Conversation Process is a free-flowing
conversation conducted with a manager. The
career development specialist is provided with a
set of specific cue questions that are designed to
address the organization’s culture via its values
but at the same time to assist the career develop-
ment specialist to identify the dominant attractors
being used by the manager. In this way the degree
to which the individual is open to change and is
flexible and focused can be ascertained across the
various relevant organizational values.
Implementation of the Career Conversation
Process technique is intended to lead to the fol-
lowing outcomes:
• Greater structure for the career
conversations.
• Maintaining the flexible nature of the
conversations.
• Clarity of purpose of career conversations.
• Identification of potential managers.
• Alignment of conversations with the orga-
nizational leadership model.
• Alignment of conversations with organiza-
tional values.
• Identification of issues arising for
managers.
• Structured data that can be readily com-
bined with other sources of information
such as the 360 degree evaluations.
• Reinforcing organizational values.
• Reinforcing messages around flexibility,
persistence and strategy.
Thus the Chaos Theory of Careers in this appli-
cation impacted the organization at the level of the
content of the fractal values that the organization
needed to pursue in a complex changing intercon-
nected world and at the same time directed the
process of implementation through the application
of the concepts of attractors and fractal behaviors.
THE CHAOS THEORY OF
CAREERS AND ORGANIZATIONAL
GOAL SETTING
Another dimension of organizational functioning
to which the Chaos Theory of Careers brings a
new perspective is that of goal setting. Goals and
goal setting are often presented the keys to both
personal and organizational success (e.g. Covey,
1989 & 2004). Most extant models of organiza-
tional change and career development depend
to a greater or lesser extent upon goal setting to
motivate change. However goal-setting carries
with it the implicit assumption that there will be
minimal change in either the environment (includ-
ing the goal posts) or in the goal-setter beyond that
change expected to occur as a result of setting the
goal. Most often there is a demand that these goals
must be explicitly and comprehensively specified
at the time of setting them. It is frequently asserted
that successful goals possess the qualities of be-
ing Specific Measurable, Achievable, Realistic
and Time-based – the so-called SMART goals.
Goals of this nature do not fit easily into the key
premises of the CTC that rests upon change, chance
and uncertainty.
It turns out that the necessary condition of goal
setting that both the person and the environment
are relatively unchanging, breaks down in real
life settings. Tubbs (1986) examined 87 separate
studies on goal setting, that showed a consistent
pattern. Goal setting tended to be effective in closed
and controlled environments like laboratories,
but was far less effective in more open real-life
situations such as those typically encountered by
organizations. This is because unlike laboratories,
real life is a more open system with the potential
for large numbers of different influences to interact
in unpredictable ways creating complexity and
change. This is very consistent with what would
have been predicted by the Chaos Theory of Ca-
reers since goals are examples of point attractor
677

Fostering Creative Transformations in Organizations with Chaos
thinking which is most effective in closed systems.
The real life problem being that real life, including
the business environment, is not a closed system.
The relationship between the predictable and
the unpredictable, between pattern and surprise
and between composition and improvisation that
is observed in all forms of organizational behavior
from career development, to teams, to organiza-
tional design is dynamic, complex and unpredict-
able in of itself (e.g. Borg, Bright & Pryor, 2006).
Such conditions fall well short of the necessary
stability required for effective goal setting.
A common response to this line of criticism
of goal setting is that commitment to one’s goals
goes a long way to overcoming turbulence caused
by naturally occurring change processes. Thus it is
argued that for goals to be effective, the person or
organization must truly want to achieve their goals.
This raises the possibility that the effectiveness
of goals in real life settings is attenuated due to a
drop off in goal commitment over time. However,
that does not seem to be the case. Donovan and
Radosovich (1998) conducted an examination
of goal commitment and performance across 12
studies over 20 years, involving 2000 participants,
and found that goal commitment accounted for
almost none of the performance variance. It seems
that being committed to your goals may give you
a feeling of purpose and direction, but may have
little or no impact upon the outcome.
The process of feedback that is so central to
complex systems may provide a method for re-
interpreting and re-applying ideas derived from
goal setting (Briggs & Peat, 1989). Feedback can
encourage (accelerate or amplify) a process, or
moderate (decelerate, diminish) a process. The
timing and nature of the feedback can also be criti-
cal in terms of its impact on system functioning,
where the same feedback delivered at different
times can have completely opposite impacts. For
instance highly critical feedback early in a cycle
may stymie or completely stop a system, whereas
later in the process the same feedback might be
motivational or helpfully guiding.
678

If we understand the central role of feedback,
then emphasis is moved away from a commitment
to an objective and goal and focused more upon
a commitment to attending to ongoing feedback.
So instead of being committed to increasing
share-holder dividends by 200%, which is an
outcome focused approach it can be replaced by
being committed to maximizing share-holder
dividends at all times, a process oriented approach.
In order for this to work, mechanisms must be
in place that provide multiple forms of feedback
capturing diverse aspects of the task. Further,
this feedback must be considered appropriately
and regularly to allow goals to be maintained,
modified or abandoned. Feedback mechanisms
need to be both positive and negative and they
need to be both continuous and intermittent. Such
a formulation provides CTC practitioners with a
method and process that allows an emphasis on
planning as much as on a plan, and helps to avoid
being captured within an inflexible point attractor
that is the side effect of adopting SMART goals.
Chaos and Organizational
and Personal Creativity
The call for innovation and creativity in Western
organizations is louder now than it has ever been.
Some commentators argue that innovation is the
main strategy to address the challenge of the glo-
balization, automation and customer choice (e.g.
Pink, 2005). While others argue that organizations
should leverage their customers as innovators and
provide government incentives for innovation (e.g.
von Hippel, 2005).
From a CTC perspective, innovation is a
rational response for organizations which are
open dynamical systems operating within and
between other similar systems. The management
literature is filled with case studies illustrating the
dire consequences for companies that have failed
to innovate (Omerod, 2005). Generally work on
creativity or innovation has tended to focus on
the special qualities of particularly innovative

Fostering Creative Transformations in Organizations with Chaos
or creative people or organizations (e.g. Gelb &
Caldicott, 2007; Burstein & Anderson, 2011) and
inevitably some psychologists have looked for
individual differences in creativity (e.g. Mumford
2003). Mumford (2003) reviews a range of differ-
ent approaches to creativity, and argues that it is
a dynamic and complex issue. However, we can
start from a relatively contentious position, that
creativity and innovation require memory.
Creativity involves making links between what
we are currently thinking of and other experi-
ences we have previously had. Creativity requires
memory. This obvious point about creativity
is largely overlooked in most treatments of the
subject that favor considerations of psychological
traits (e.g. Csikszentmihalyi, 1997) or the environ-
ments that promote creativity (e.g. Pink, 2005;
Robinson, 2009). Focusing on characteristics and
environments that promote creativity has resulted
in a plethora of studies and stories that look at
creative people and attempt to draw conclusions
about their traits, ways or worlds. Like much of
the self-improvement literature, the conclusions
are limited by a failure to study the uncreative to
see if they possess similar characteristics to the
creative people or share similar environments.
Looking at the cognitive processes involved
in creativity provides a different perspective that
offers the promise of revealing processes that
are involved in being creative. So understanding
memory may provide a key to being creative.
Creativity Defined
Creativity is generally agreed to involve the
production of something novel and worthwhile
(e.g. Mumford, 2003). Since both novelty and
value are socially determined judgments as Csík-
szentmihályi (1997) points out, we must look for
memory processes that lead to ideas that may be
contenders for the appellation of creativity, ideas
in of themselves cannot be “creative.”
Creativity is also generally agreed to involve
connecting existing ideas, things, or processes
to create the novel and worthwhile thing. This
is where memory plays a role, in the process of
making the links between the new and the old, or
even the old and the old. Our long term memory
comprises billions of traces encoding all of this
experience. When we come to recall something,
we probe our memories to make the links between
a current memory residing in working memory
and a stored memory trace in long term memory.
If we use the current experience in working
memory as a probe of our long term memory, we
can bring to mind two things in consciousness at
the same time and that allows us to make the link
and then store a new memory that is the composite
of the new experience and the old memory. The
same mechanism explains the power of reflection
in learning as it allows us to recall a previously
stored memory and then use that to probe for other
stored memories and then link those together in
a new memory.
Essentially, this is the cognitive mechanism
that underpins the Combining and Adding step
in the Beyond Corporate Mastery® model of
creativity see Figure 3.
The Beyond Corporate Mastery Model (Bright,
2009a, 2009b) comprises the Seven Action Steps
and Mind Steps required for creativity. There are
two fundamental and complementary ways of
achieving change: taking action and changing
mindsets and cultures. The seven action steps
are: Inspiration, Patterning, Learning, Emulating,
Combining and Adding, Strategizing, and Doing.
Further elaboration of these steps can be found in
Pryor and Bright (2011a).
1. Inspiration: Inspiration here equates to
taking in an experience. Creative organiza-
tions are continually open to new experi-
ences and ideas. As many staff as possible
should be given the opportunity to take in
new experiences.
2. Patterning: As new experiences are gained,
the structures, the hidden meanings, the ideas
contained within them need to be identified.
679

Fostering Creative Transformations in Organizations with Chaos
Figure 3. The beyond corporate model® (© 2009, Bright and Associates, used with permission)
3. Learning: In this stage, the patterns of the
experience are analyzed and categorized
into existing categories, or new categories
are developed to accommodate the new
information.
4. Emulating: Emulating or leveraging is
the step where Organizations attempt to
replicate, reproduce or accurately recall
the experience. However, such a strategy is
inherently limiting as it depends upon the
innovation being done elsewhere and out of
the control of the organization, which poses
even further risks. Completion of this stage
represents proof of mastery of an idea, pro-
cess or product, but to remain competitive
in a rapidly changing world, organizations
need to go beyond mastery (hence the title
of the model) to become creative.
5. Combining, Adding, and Emerging: This
is the key critical stage, where a new expe-
rience or idea is linked back to a previous
experience, and combined in a manner that
creates something new or different. Typically
organizations use brain-storming to achieve
this linking process, however simply putting
people in a room and expecting them to come
up with something novel is a hard ask, and
research shows that such activities can eas-
680

ily be derailed and dominated by verbally
confident individuals which can stymie
creativity. This underlines the importance
of having a large repository of stored collec-
tive experience that has been reflected upon
deeply, and categorized through learning for
easy retrieval. The more of these experiences
that are stored, the greater the chances of
combining them in creative ways with new
information. This is consistent with Duggan’s
(2007) notion of strategic intuition.
6. Strategizing: The next step in the process
is to develop a strategy to make the combin-
ing and adding link a reality. The critical
point here, is that strategizing comes after
the solution is discovered by making the
links. In this way it reflects Anygal’s (1941)
observation that the path one is already on
determines what choices can be made; the
goal does not set the direction, the direction
determines what can be a goal. This formu-
lation serves to keep organizations open to
creative possibilities and leaving them free
from committing to a course of action until
the last possible time.
7. Doing: Implementation is the last stage
of the model, and also the precursor to
more Inspirations as experiences from the

Fostering Creative Transformations in Organizations with Chaos
Implementation phase should be fed back
into the Inspiration step. The Doing stage
is a critical one, if creativity is seen as pro-
ducing something both novel and useful.
This stage may represent only one cycle in
a service, or product development, perhaps
an early version, a 1.0 implementation or a
prototype. Indeed the model described here
captures the rapid-prototyping approach
adopted by companies renowned for their
innovative practices such as IDEO (Kelley,
Littman & Peters (2001).
The Mind Steps represent the psychological,
motivational and emotional factors that have
been shown to foster innovation and creativity.
The seven Mind steps that complement and sup-
port the Action steps are: Optimism, Openness,
Self-Efficacy, Vision, Playfulness, Flexibility
and Persistence.
1. Optimism: The recent resurgence of inter-
est in Positive Psychology (e.g., Seligman,
1998, 2002; Gillham, 2000) highlights the
importance of optimism in change programs.
Equally, it seems highly unlikely that with-
out a culture of optimism, organizations or
individuals within it are likely to seek out
the new inspirations, or bother patterning
them, learning from them, reproducing them
or combining them with other ideas.
2. Openness: Creative organizations are con-
tinually open to new ways of doing things and
new ideas. This does not mean they are open
with their corporate or commercial secrets.
Nor does it mean the critical acceptance of
any fad ideas or crazy schemes. Rather it is
a stance of being prepared to investigate and
explore rather than dismissing out of hand.
3. Self-Efficacy: This is a concept pioneered
by psychologist Albert Bandura (1994), and
relates to the belief that you can do some-
thing or achieve something. Developing a
strong sense of corporate self-efficacy as
well as personal self-efficacy will result in
the development of a can-do culture and
more ready engagement in creativity and
innovation.
4. Vision: Vision is the general sense of having
a direction and purpose. It is often reflected
in corporate values or vision statements.
The description of Tim Cook of how Apple
operates quoted earlier is a good example of
a vision statement. This is the stage where
the fundamental repeating principles that
establish the powerful fractal patterns of the
organization are developed.
5. Playfulness and Risk: The idea of stretching
things to breaking point (failure) is used as a
potent way of testing the true limits or poten-
tial of a product. Embracing risk in this way,
is to embrace the idea of failing successfully
(Pryor & Bright, 2011b). Equally, there is a
growing awareness of the importance of play
in learning (Czsiksentmihalyi, 1997) which
is related to the idea of trial and error – or
failure as endeavor. The challenge is to pro-
cess new experiences and re-process older
ones without automatically categorizing
them according to well-learnt rules derived
from experience. Rather things need to be
looked at with new eyes.
6. Flexibility: In Organizations, flexibility is
about valuing complexity since it provides
opportunities to adopt varying perspectives
and to try out new approaches. It also means
creating structures within organizations
which allow such thinking to occur.
7. Persistence: Not all problems are easy to
solve with just a few actions or ideas. Not
all attempted solutions work, in fact, most
do not (Harford, 2011). Creativity with or-
ganizations involves the ongoing utilization
of the Beyond Corporate Mastery principles.
681

Fostering Creative Transformations in Organizations with Chaos
Strange attractors do exhibit stability and
form but not indefinitely and not predict-
ably. Modern organizations that stop being
creative most commonly end up stopping
altogether.
CONCLUSION
Omerod (2005) observed that, “stability, order and
equilibrium continue to be emphasized when the
real world is characterized by constant change,
evolution and disequilibrium. “ (p. ix). In chaos
theory terms this reflects closed systems think-
ing, that our world and the organizations we set
up in it, can be controlled and predicted if only
our managers could set better goals, establish
more clearly structured worker roles or organize
the work more effectively. The aim is to “manage
risk,” resist change and to continue to do “what
we do best” and “what we have always done.”
However, any review of the history of origi-
nations for the last 100 years, will clearly reveal
that, “it is failure rather than success which is the
distinguishing feature of corporate life.” (Omerod,
2005, p.12). The single biggest benefit that chaos
theory can bestow on organizational theory and
behavior, is the recognition that complexity cannot
be controlled, that uncertainty is intrinsic to reality
and that failure is inevitable. However, this is not
a “counsel of despair” but rather a clarion call to
open systems thinking. In this chapter the authors
have endeavored to illustrate three major ways in
which such a call can be and, in some cases, is
being answered. Thus it is when organizations
recognize their fractality and the importance of
the process of emergence within their structures
and between their employees, that risk taking,
creativity and quantum developmental leaps will
become manifest. We also sought to illustrate the
limitations of accepted notions about goal setting
such as “commitment to goals.” Too much com-
mitment is to lock in the point attractor mindset
which overlooks, denies and resists change and
682

opportunity. Attention was drawn to commitment
to feedback and to process rather than to goals per
se, which will produce more adaptation to change
and greater utilization of new possibilities.
In addition in this chapter, a Beyond Corporate
Mastery model was outlined, to exemplify the
kinds of thinking and behavior processes that
a complex dynamical systems environment is
likely to require, if organizations are to respond to
contemporary business challenges with creativity.
There is further potential for the Chaos Theory
of Careers (Pryor & Bright, 2011a) to contribute
to the management of organizations in the twenty-
first century including:
• The role of spirituality within organi-
zations has been the focus of attention
(Ashmon & Duchon, 2000; Covey, 2004;
Conger, 1994). The emphasis in the CTC
on meaning and purpose as fractal bound-
aries of attractors (Briggs & Peat, 1999)
could be applied to the investigation how
organizations might further infuse their
work with meaning and purpose for all the
relevant stakeholders;
• When systems align in some way their
combined impact on other systems is des-
ignated resonance. As an example, Bright,
Pryor, Chan, & Rijanto (2009) empirically
investigated the concatenating effects of
multiple chance events on individuals’
career development using concepts de-
rived from the CTC. Strogatz (2003) has
also drawn attention to the synchronisa-
tion of systems within a chaos theory con-
text. Complexity implies a multiplicity of
influences at least some of which will be
concurrent. This interactive influence im-
pact on organizations within chaos theory
frameworks remains a likely fruitful area
for both theory and research;
• Pryor and Bright (2011b) applied CTC
conceptualization to the issue of failure in
individuals’ career development. Similar

Fostering Creative Transformations in Organizations with Chaos
application could be made to organizations.
The strategic and the creative use of failure
has been discussed by Harford (2011). He
drew attention to the inevitability of fail-
ure, the need to accept it, the importance
of multiple experimentation, the necessity
to limit the impact of failure and the kinds
of obstacles that result in a failure to learn
from failures. The application of such is-
sues to specific organizations across differ-
ent industries presents stimulating possi-
bilities for the application of CTC concepts
such as inter alia, emergence, feedback
commitment and creative problem solving
through Beyond Corporate Mastery;
• Organizational adaptation and resilience
in a strange attractor world is necessary
for survival. From the CTC and Neault
(2002) the concept of “luck readiness”
was derived and subsequently assessed
(Pryor & Bright, 2005). Further research
into the Luck Readiness Index may assist
in the identification and application of op-
portunity awareness development within
organizations;
• Increasing globalization of business op-
erations presents organizations with many
new challenges in dealing with those from
different cultures. The CTC emphasis on
attractors and their fractals may be able
to shed some light and suggest some ad-
ditional strategies for meeting such chal-
lenges. Culture is an emergent quality from
the interaction of strange attractors across
geographic and ethnic groups (Holland,
1995 & 1998). It has properties of both sta-
bility and change – what these properties
are and how they might be used or changed
for business operation purposes, remain
topics they are likely to exercise the minds
of managers and executives in a globalized
market.
Our world and the organizational contexts
within it, are characterized by complexity, change,
interconnection, uncertainty, unpredictability and
failure (Stacey, Griffen & Shaw, 2000). They can
be viewed as forbidding and hostile environments
in which risk must be avoided, failure eschewed
and control asserted. However, such thinking
not only limits success but will, as the history
of organizations’ survival has shown, ultimately
ensure the very outcomes it is designed to avert.
However, if organizations will embrace the chaotic
nature of reality then such perceived threats may
become opportunities to discover new products
and services which can benefit us all.
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KEY TERMS AND DEFINITIONS
Beyond Personal Mastery®: A process model
of personal and organizational creativity based on
seven mind and action steps.
Dynamical System: A system that is continu-
ally moving, and cannot be completely described
or predicted. Rather general statements about its
path, stability and motion can be made.
This work was previously published in Chaos and Complexity Theory for Management edited by Santo Banerjee, pages 162-
181, copyright year 2013 by Business Science Reference (an imprint of IGI Global).
686

Emergence: The self-organisation of a system
into an identifiable and relatively stable pattern.
Fractal: The pattern created when plotting
out the trajectory of a Strange Attractor. Dis-
plays characteristic symmetry over scale – i.e.
repeating self-similar patterns at every level of
magnification.
Non Linearity: The potential for small changes
in initial system conditions to have disproportion-
ally large effects on subsequent system behavior,
or the corollary that large changes may have a
disproportionally small effect on subsequent
system behavior.
Pendulum Attractor: Limits a system to move
between two defined and fixed points (much like
the pendulum of a clock).
Phase Shift: The reconfiguration of a system
into a new way of operating – e.g. water molecules
transforming from water to ice, or water to stream.
Point Attractor: Constrains behavior of a
system to move toward or through a fixed point.
Strange Attractor: Limits a system to move
through an infinite number of points without rep-
etition, but with self-similarity, and susceptible to
sudden and dramatic alterations in the trajectories
and shapes of the system.
Torus Attractor: Limits a system to repeatedly
cycle through a range of fixed points, for instance
wrapping wire around a donut.
 687

Chapter 37
Successful Internet
Entrepreneurs Don’t Have
To Be College Dropouts:
A Model for Nurturing College Students to
Become Successful Internet Entrepreneurs

Sonya Zhang
Cal Poly Pomona, USA

ABSTRACT
Some of today’s most successful Internet entrepreneurs didn’t graduate from college. Many young people
today followed the same path to pursue their dreams however ended up failing, not a surprise because
80% of the startups fail in first 5 years. As technology innovation and market competition on Internet
continue to accelerate, college students need guidance and support more urgently now than ever before.
Meanwhile most entrepreneurship programs offered in colleges and universities provide only general
strategy-innovation-finance guidance for broad entrepreneurship while lack concentration on online
startups or connection to Internet technology. We proposed a technology-business-environment model
that could help guide universities in nurturing, building, and shaping their students’ dreams and goals
towards creating a successful Internet startup business. Finally, we demonstrated a course outline for
an Internet entrepreneurship course designed for undergraduate students. Such course can be used as
a core course in an entrepreneurship program or an elective course in Information Systems (IS), other
sub-disciplines of computing programs, or business programs.

INTRODUCTION University of Houston 2nd year drop out; Arash

Beyond Bill Gates and Steve Jobs, some of today’s
most successful entrepreneurs didn’t graduate from
college (Nisen & Giang, 2013). The recent list
include Matt Mullenweg, starter of WordPress,
Ferdowsi, co-founder of Dropbox, Massachusetts
Institute of Technology (MIT) 3rd year dropout;
Mark Zuckerberg, founder of Facebook, also a
MIT 3rd year dropout; Shawn Fanning, founder of
Napster, who dropped out of Northeaster Univer-

DOI: 10.4018/978-1-4666-8468-3.ch037

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Successful Internet Entrepreneurs Don’t Have To Be College Dropouts
sity after one year, and Daniel Ek, co-founder of
Spotify, who dropped out of MIT after merely 8
weeks. There are even a few who didn’t even go
to college: David Karp, founder of Tumblr, and
Pete Cashmore, founder of Mashable.
In rare cases, a few successful entrepreneurs
actually got inspired from the courses they took
in college. For example, Aaron Levie, founder of
Box.net, a cloud content management system for
enterprise that worth $3 billion today, formed his
business idea through a class project in which he
did a SWOT analysis for digital storage industry.
However in most of the cases, college courses
didn’t help. For example, “Fanning (founder of
Napster) became frustrated because he had al-
ready learned all the material being taught to him
by professors and tutors and eventually dropped
out of Northeastern in 1999” (Wikipedia, 2014).
And the fact that these young and talented en-
trepreneurs dropped off college is evidence that
college education is not (or no longer) providing
them what they need to succeed anymore. Instead
they are going out into the world and learning to
solve complex (both technology and business)
problems by trial and error. Of course, most of
them would wind up failing, and their story would
most likely never be told to the public as those of
whom succeeded, even though they might be just
as intelligent and hard working, and some were
even sufficiently funded.
One main reason of the startup failure simply
being that it is a highly competitive market hence
risky in nature – 80% of the startups fail in its
first 5 years (Inc.com, 2013). Even 75% of those
funded by venture capitals failed to exit, such as
acquisition or IPO (Wall Street Journal, 2012).
And the majority of the Internet entrepreneurs
who failed are experienced engineers, program-
mers, marketing or sales professionals. A com-
mon reason for startups failure is lack of market
research, which is critical to find and evaluate
product-market-fit, however often limited by the
startup company’s resources, including money and
688

time (Wall Street Journal, 2012). Albeit the high
failure rate, more young people keep pursuing
their entrepreneurship dreams, encouraged by the
explosive boom of Internet startups led by Silicon
Valley and overnight successful stories of many
young entrepreneurs. As technology innovation
and market competition continue to accelerate,
some universities have taken the opportunity and
created programs to meet such students needs,
such as the Institute for Technology Entrepreneur-
ship & Commercialization at Boston University,
many others remain the traditional settings which
separate business and technology programs. What
is the current state of Internet Entrepreneurship
education in college, and is there a model for
universities to prepare their students to become
successful Internet entrepreneurs, and reduce their
risks and costs of failure?
CURRENT STATE OF INTERNET
ENTREPRENEURSHIP EDUCATION
Among Best Business Schools – Entrepreneurship
program ranked by U.S. News, the “Technologi-
cal Innovation, Entrepreneurship, and Strategic
Management” program at MIT Sloan School of
Management demonstrates stands out as a flagship
example for Internet/technology entrepreneur-
ship education. MIT offers Entrepreneurship
and Innovation MBA Track as well as a MIT’s
legendary entrepreneurial ecosystem including the
Technological Innovation, Entrepreneurship, and
Strategic Management (TIES) Group, the Martin
Trust Center for MIT Entrepreneurship, the MIT
Deshpande Center for Technological Innovation,
the MIT Venture Mentoring Service, the Gordon-
MIT Engineering Leadership Program, and
many other entrepreneurial-focused groups and
programs across campus. TIES offers 47 courses
in academic year 2014. Table 1 only shows three
of the many Internet/technology entrepreneurship
courses offered in Spring 2014.

Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

Table 1. Selective internet/technology entrepreneurship courses at MIT and Stanford University

University Course Name Course Description

MIT Product and Service “Traditional ‘in-house’ innovation processes must be changed to benefit from emerging open-
Development in the source innovation practices. Users are now increasingly developing their own b-to-b and b-to-c
Internet Age products. Course explains proven open innovation development methods such as crowdsourcing,
innovation toolkits, tournaments and more. Includes visits from industry experts who present
cases that illustrate the art required to implement each method.” (MIT, 2014)
MIT Software and Internet “Considers key strategic concepts, especially the distinction between being a product versus a
Entrepreneurship services company, as well as a product versus a platform strategy. Reviews how software became
a business (from early developments in services to the emergence of standardized products),
and the transition to software as a service, and cloud computing. Studies critical techniques for
managing sales and marketing, as well as product development and project management for
software products. Examines how the business differs for various platforms - including new and
traditional enterprise software, social media, internet video, and mobile competitors - as well as
for entrepreneurs competing in these markets.” (MIT, 2014)
MIT Introduction to “Provides an overview of entrepreneurial theory and practice for founding, developing
Technological and growing new enterprises, primarily but not exclusively focused on companies with a
Entrepreneurship technological base. Weekly lectures and dinner discussion sessions by academic and practitioner
faculty engaged in the MIT Entrepreneurship Program, supplemented by leaders of related
activities, e.g., Trust Center for MIT Entrepreneurship, Technology Licensing Office, Deshpande
Center, and Venture Mentoring Service, as well as successful entrepreneurs and venture
capitalists. “ (MIT, 2014)
Stanford Technology “(Students) will learn the process technology entrepreneurs use to start companies. It involves
Entrepreneurship taking a technology idea and finding a high-potential commercial opportunity, gathering
resources such as talent and capital, figuring out how to sell and market the idea, and managing
rapid growth. To gain practical experience alongside the theory, students form teams and work on
startup projects in those teams.” (Stanford 1, 2014)
Stanford Startup Engineering “Bridges the gap between academic computer science and production software engineering. Fast-
paced introduction to key tools and techniques (command line, dotfiles, text editor, distributed
version control, debugging, testing, documentation, reading code, deployments), featuring guest
appearances by senior engineers from successful startups and large-scale academic projects. Over
the course of the class, students will build a command line application, expose it as a web service,
and then link other students’ applications and services together to build an HTML5 mobile app.
(Stanford 2, 2014)
Stanford Technology Venture “In this course, graduate students interested in technology driven start-ups have the opportunity
Formation to learn and practice the fundamental skills required to assess a technology concept or product
in the framework of a business opportunity. The course focuses on technology products and
services with a critical innovative advantage that will provide sustainable differentiation. We will
explore the opportunity to build a business around a realistic technology development. Learn
about the experience of an early-stage entrepreneur seeking initial investment, including: Team
Building, Opportunity Assessment, Customer Development, Product Development Planning,
Financial Modeling, Go-to-Market Strategy, and Intellectual Property. The teaching team,
mentors and lecturers include serial entrepreneurs, venture capitalists and domain experts in IP
and key technology segments. The final pitch is delivered to a panel of partners at top VC firms.”
(Stanford 3, 2014)

Another Best Business School – Entrepreneur-
ship program ranked by U.S. News is Stanford
University, naturally, because their location is right
next to the nursery of perhaps the world’s best
and most entrepreneurs - Silicon Valley. Stanford
University offers a MBA with Entrepreneurship
as one of the 18 special areas, a Stanford Innova-
tion and Entrepreneurship Certificate, and many
massive online open courses (MOOC), including
a course called “Technology Entrepreneurship”
that focuses on the business side – how to obtain
resources, sell and market an entrepreneurial
product. Because of the nature of the MOOC
setting, early 40,000 students from around the
world participated and worked in teams together
when the course was offered the first time. The top

689

Successful Internet Entrepreneurs Don’t Have To Be College Dropouts
teams were matched with Silicon Valley mentors,
and the best teams at the end of the class pitched
their ideas to investors. Another MOOC course
called “Startup Engineering,” an online version
of their on-campus course CME/CS184, focuses
on the technology side. See course description
in Table 1. In addition to the technology entre-
preneurship course/program offerings, Stanford
University’s Graduate School of Business has a
dedicated Center for Entrepreneurial Studies, and
Stanford University’s Entrepreneurship Corner
offers 3000 free videos and podcasts, featuring
entrepreneurship and innovation thought leaders.
Many research-oriented universities with ex-
cellent engineering and science programs have
also started to support Internet Entrepreneurship
education through dedicated centers and programs,
such as Technology Entrepreneur Center at Uni-
versity of Illinois - Urbana-Champaign, Institute
for Innovation at University of California – Irvine,
and Center for Innovation and Technology Entre-
preneurship at University of Texas at San Anto-
nio. However, most universities and institutions
lack the resources to build such comprehensive
Internet/technology entrepreneurship programs
and courses like the ones at MIT and Stanford.
More common, we see traditional entrepreneur-
ship courses and/or programs being offered by the
Management department, and Internet Marketing
(or eMarketing) courses offered by the Marketing
department within business schools. These courses
usually target business major students rather than
engineering or computing major students. Some
other programs, such as master program offered
by Carnegie Mellon’s Entertainment Technology
Center, brings together students from a variety
of academic backgrounds including art, engi-
neering and business to work on startup projects
together in the 2nd year of the study. California
State University (CSU), the largest four-year
public university system in the United States, is
composed of 23 campuses and eight off-campus
centers enrolling 437,000 students with 44,000
faculty members and staff. However, we hardly
690

found any comprehensive Internet/technology
entrepreneurship course or programs at any CSU
campuses. Two most relevant courses we found
were BUS 184 Business Strategy in Practice in
Technology Enterprise (an elective course in BS
in Business Administration with Concentration
in Entrepreneurship, and a required course in
Business Minor for Engineering majors) and
BUS 194 Business Organization & Management
of Technology Enterprise (a required course in
Business Minor for Engineering majors) at Cal
State San Jose. Though it was not clear that either
of these courses actually focuses on startups. Cal
State San Jose is the only CSU campus located
inside Silicon Valley.
A MODEL FOR NURTURING
COLLEGE STUDENTS TO
BECOME SUCCESSFUL
INTERNET ENTREPRENEURS
Figure 1 shows our proposed model to help guide
universities in designing Internet Entrepreneurship
curriculum with the goal of nurturing their students
to become successful Internet entrepreneurs. This
model contains 3 dimensions: Technology, Busi-
ness, and Environment. This model can be used
as an unique Internet entrepreneurship program,
an elective course or multiple elective courses
within a general entrepreneurship program, at the
undergraduate level as well as graduate level, for
students in any major who is interested in Internet
entrepreneurship. In Section 4 we will discuss
students’ preferences in terms of offering format
from the results of an online survey.
TECHNOLOGY
Teaching the Fundamentals
Fundamentals of Internet technology should con-
tinue to be taught in undergraduate curriculum for

Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

Figure 1. Model for nurturing college students to become successful internet entrepreneurs

students major in the five Association for Com-
puting Machinery (ACM) defined sub-disciplines
of computing: Computer Science, Computer
Engineering, Information Systems, Information
Technology, and Software Engineering. Table 2
shows a list of our proposed technology topics,
adapted from the most updated ACM recommen-
dation on IS core courses (ACM, 2010).
Introducing Current and
Business-driven Technologies:
As Internet technology continues to advance
and innovate in exponential speed, introducing
students to current and business-driven technolo-
gies is as important as teaching the fundamentals.
For example:

Table 2. Technology fundamentals

Category Subcategory Topics

Software and Web Dynamic Programming Languages
Development
System Analysis and Design
Database Data and information management
IT infrastructure Operating Systems
Telecom and Networking
Systems administration
Web hosting
Client-side: HTML, CSS, JavaScript
Server-side: PHP, Java, ASP.NET (VB or C#), Ruby on Rails, Python,
Objective C and Java for mobile applications development.
Object-oriented modeling (functional, structural, and behavioral),
server/client, 3-Tiered Architecture, Service Oriented Architecture
(SOA), Design patterns.
RDBMS, Object-oriented database, backup/restore, security, SAN.
Windows, Linux, Unix
LAN, Wireless network, etc.
Managing, monitoring, maintenance, tools, resources, strategies,
security
Internet Service Provider (Web hosting, domain name, email), control
panels (cPanel, Plesk)

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Successful Internet Entrepreneurs Don’t Have To Be College Dropouts
• Current technologies:
◦◦ Frameworks: PHP Zend, PHP Cake,
Ruby on Rails, Python Django, iOS
Cocoa, Twitter Bootstrap
◦◦ Platforms: Magento for eCommerce,
Wordpress for content websites
◦◦ API: Facebook Graph API, Google
API such as Google Map API, Yahoo
API such as Flickr and Yahoo RSS
Feeds
◦◦ Mobile: apps (native using Objective
C and Java vs. HTML5) and plat-
forms (Android, iOS, Windows)
◦◦ Integrated Development Environment
(Dreamweaver, NetBeans, Eclipse,
Visual Studio)
◦◦ Revision Control Systems (GitHub)
◦◦ Cloud computing: Software as a
Service, Platform as a Service,
Infrastructure as a Service
• Emerging technologies
◦◦ Native contents
◦◦ Massively online
◦◦ The Internet of things (IoT)
◦◦ Wearable technology (Google Glass,
smart watch, Cuff)
◦◦ 3-D printing
• Business-driven technologies:
◦◦ User experience
▪▪ Don’t Make Me Think: A
Common Sense Approach to
Web Usability by Steve Krug,
2005
◦◦ Wireframing/prototyping
▪▪ Resources: Axure, Balsamiq
◦◦ Search Engine Optimization (SEO)
▪▪ Resources: Google Analytics,
SEOMoz
◦◦ Analytics and Experiment (A/B test-
ing, multivariate testing)
▪▪ Lean Analytics: Use Data to
Build a Better Startup Faster by
Alistair Croll, 2013
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▪▪ Experiment!: Website conver-
sion rate optimization with A/B
and multivariate testing by
Colin McFarland, 2012.
▪▪ Naked Statistics: Stripping the
Dread from the Data by Charles
Wheelan, 2013
On the other hand, Guo (2013) indicated,
“Many professors would agree that it’s not pri-
marily to teach specific languages or technologies
(‘learn Python 2.7.1 with the NumPy module for
numerical analysis and the PyMongo library to
interface with MongoDB databases!’), since the
specifics change so fast. Rather, good IS education
should remove crucial fears of using computers
and computational thinking, and thus enable
students to pick up new computer-related tech-
nologies on-demand.” Applying this perspective
to Internet Entrepreneurship education, the focus
here should be teaching students how to find the
right technologies that meet the needs of a specific
startup business, as well as how to learn a new
technology, and apply it to solve real business
problems. Due to limited class meeting time, it
is difficult to cover a variety of technology top-
ics in addition to other relevant entrepreneurship
topics. College educators may consider lectures
(for overview) combined with alternate methods
such as group projects, research paper, or class
blogs (for deeper examination, demonstration and
discussion on a specific technology).
BUSINESS
Business aspect is also part of the ACM recom-
mended IS core curriculum however the contents
are rather limited compared to the other business
major courses, usually only including project man-
agement, IT strategies and management. Based
on our research on Internet Entrepreneurship and
industry experts’ recommendations on Quora,

Successful Internet Entrepreneurs Don’t Have To Be College Dropouts
we proposed a list of business topics (see Table
3) that are more in-depth and relevant to Internet
startups. Quora is a question-and-answer website
founded in 2009 by Adam D’Angelo and Charlie
Cheever, two early employees at Facebook. Quora
claims to have information on over 450,000 topics,
almost all posted by its registered users, and used
by average 1.5 million unique visitors per month
as of July 2012. The Quora community includes
Table 3. Business topics
Category Subcategory
Product IT commoditization
Discovery and
Evaluation
Innovation
Competitive strategies
Opportunity discovery
Online business models archetypes
Market research, Product opportunity
scorecard
Product Software development methodologies
Development & (Waterfall, Agile, Wagile)
Management
Product management (roadmaps, master
plan, metrics, cross-functional team
work), Minimal Viable Product (MVP),
Analytic-driven optimization
Outsourcing
Marketing & Search engine marketing, Social media
Sales Strategies marketing, Mobile advertising, Email
advertising, Affiliate marketing
Customer development & retention
some well-known people in high tech, such as
Mark Zuckerberg (Facebook founder), Steve Case
(AOL CEO), Craig Newmark (Craigslist founder),
Jimmy Wales (Netscape), Dustin Moskovitz (Pan-
dora founder), Tim Westergren, Reed Hastings
(Netflix CEO), and Sheryl Sandberg (Facebook
COO). The largest group of Quora users is located
in Silicon Valley, followed by New York City.
Recommended Books and Resources
• Does IT Matter? by Nicholas Carr, 2004.
• The Big Switch by Nicholas Carr, 2009.
• Diffusion of Innovations by Everett Rogers
• Crossing the Chasm: Marketing and Selling Disruptive Products to
Mainstream Customers by Geoffrey Moore, 2006
• The Innovator’s Dilemma: The Revolutionary Book That Will Change
the Way You Do Business by Clayton Christensen. M., 2011.
• Competitive Strategy: Techniques for Analyzing Industries and
Competitors by Michael Porter, 1998
• Blue Ocean Strategy by Chan Kim and Renee Mauborgne, 2004.
• Purple Cow by Seth Godin, 2009.
• Blink: The Power of Thinking Without Thinking by Malcolm Gladwell,
2007
• The invisible gorilla by Christopher Chabris and Daniel Simons, 2011.
• The luck factor by Richard Wiseman, 2011.
The Smarter Startup: A Better Approach to Online Business for
Entrepreneurs by Neal Cabage and Sonya Zhang, 2013.
Scrum: a Breathtakingly Brief and Agile Introduction by Chris Sims and
Hillary Louise Johnson, 2012.
• Inspired: How To Create Products Customers Love by Marty Cagan,
2008.
• Four Steps to the Epiphany by Steve Blank, 2013.
• The Lean Startup: How Today’s Entrepreneurs Use Continuous
Innovation to Create Radically Successful Businesses by Eric Ries,
2011.
• Outsourcing Mastery: How to Build a Thriving Internet Business with
an Army of Freelancers by Steve Scott, 2014.
• Resources: 99Designs, ODesk, Elance
• Likeable Social Media: How to Delight Your Customers, Create an
Irresistible Brand, and Be Generally Amazing on Facebook (And Other
Social Networks) by Dave Kerpen, 2011.
• Resources: Google AdWords, Facebook Advertising, Mail Chimp,
Commission Junction, Amazon Associates, Google Affiliate Network
Delivering Happiness: A Path to Profits, Passion, and Purpose by Tony
Hsieh, 2010.
continued on following page
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Successful Internet Entrepreneurs Don’t Have To Be College Dropouts
Table 3. Continued
Category Subcategory
Finance and Incorporating, Partner and adviser
Legal Issues agreement, VC terms, Vesting, Return
on Investment (ROI), Sunk cost, Capital
float, Economy of Scale, Initial Public
Offering (IPO), Employee stock options,
Acquisition and Liquidity, Copyright and
Intellectual properties
Leadership Leadership, Motivational management,
Vision, Growth
ENVIRONMENT
Aside from teaching technology and business,
it is also important that students learn about the
environment or habitat for their startup to thrive.
There are many learning, mentoring, incubating,
and funding resources out there that usually col-
lege students are not aware of. In the following we
discuss these resources as “Internal Environment”
and “External Environment,” where the Internal
Environment specifies the learning activities on
campus, and the external environment specified
the networking opportunities, incubating and
funding resources in the industry.
Internal Environment
1. Centers, Student Clubs, Competition,
Seminar, and Workshops: Entrepreneurship
centers and student clubs help students turn
their ideas and passions into their own busi-
nesses and develop future business leaders.
Center and club activities include regular
meetings, workshops, boot camps, competi-
tions, symposiums and conferences. Club ex-
amples are Stanford GSB Entrepreneur Club,
Harvard Business School Entrepreneurship
Club, and Cal Poly Pomona’s Poly Founders.
694

Recommended Books and Resources
• The Entrepreneur’s Guide to Business Law by Constance E. Bagley
and Craig E. Dauchy, 2011.
• Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
by Brad Feld, Jason Mendelson and Dick Costolo, 2012.
• Raising Venture Capital for the Serious Entrepreneur by Dermot
Berkery, 2007.
• Web blogs by Chris Dixon, Marc Andreesen, Fred Wilson, Venture
Hacks and Brad Feld.
• Quiet: The Power of Introverts in a World That Can’t Stop Talking by
Susan Cain, 2013.
• Thinking, Fast and Slow by Daniel Kahneman, 2013.
• Leaders Eat Last: Why Some Teams Pull Together and Others Don’t
Hardcover by Simon Sinek, 2014
• The Compound Effect Paperback by Darren Hardy, 2012.
• The 15 Invaluable Laws of Growth: Live Them and Reach Your
Potential Hardcover, by John C. Maxwell, 2012.
Some student clubs have more focused
interests, such as Family Business Club,
International Development Club, Retail
and Luxury Goods Club, Technology
Business Group and Social Enterprise Club
at Columbia University.
2. Senior Projects: Most academic programs
require their students to complete their
study with a senior project course, in which
students are challenged to demonstrate their
knowledge and skills in an experiential way.
This is also an excellent opportunity for
students who are pursuing entrepreneurial
career paths to identify real-world problems
to solve, find product or business ideas
and possibly business partners during the
process.
3. Campus Incubators: Campus incubators
are growing. New data from the National
Business Incubation Association show
that about one-third of the 1,250 business
incubators in the United States are at uni-
versities, up from one-fifth in 2006 (New
York Times, 2013). While some universities
provide accelerator fund to support entrepre-
neurial ventures and intellectual properties
that are created by students and show great
potential, many universities are only able

Successful Internet Entrepreneurs Don’t Have To Be College Dropouts
to provide students with limited resources
such as office, phone line, coffee machine,
mailing address, and shared secretary, they
continue to improve. The Accelerator Fund
at CSU, Chico supports emerging businesses
and intellectual properties that show great
potential.
External Environment
1. Networking Events: Various networking
events off campus such as joining local
startup meetings, visiting local startup
co-lofts, and attending startup workshops
and conferences can connect students with
industry and keep updated on the current
technology and strategy trend in the field.
2. Advisors and Mentors: Faculty can do
much more than simple providing advices on
course subject matter or 2-year course plan;
they can encourage students to communicate
students’ startup business ideas, and give
them feedback and advice. Faculty can also
help students to connect to industry advisors
and mentors, as well as let students know
about resources such as Clarity.fm (https://
clarity.fm), which connects advice seekers
with a pool of (over 6,000) experienced in-
dividuals in areas such as sales, marketing,
business development, venture capital, and
customer acquisition.
3. Internships: Working in the exciting, ever
changing business environment of a online
startup company allows the students to have
the opportunity to learn what’s involved in a
startup business’ everyday operations as well
as major business processes such as creating
business plans, conducting market research,
designing products, decision making, etc.
On the other hand, startup companies are
usually attracted to college interns because
of their high enthusiasm and energy, creative
thinking and low expectations on salary
and benefits.
4. Funding and Supporting Resources: Angel
investor, venture capital, crowdsourcing,
seed accelerator, and startup incubator
There are a variety of funding and supporting
resources that students who plan to pursue entre-
preneurship should know. Faculty can introduce
these resources in entrepreneurship courses.
Universities can also establish networks and host
events that help connect their students with the
local resources.
• Angel Investor: An angel investor is an af-
fluent individual who provides capital for a
business start-up, usually in exchange for
convertible debt or ownership equity. Angel
investment are typically high risk therefore
require high expectation on returns. Angel
investors are mostly successful business
people however thinking they are hard
to reach shouldn’t discourage students.
For examples, the aforementioned Aaron
Levie connected to Texas billionaire Mark
Cuban via a cold email and got his first
investment for Box.net; and NYU student
Stacey Ferreira connected to Virgin mo-
gul Richard Branson and Jerry Murdock,
through a charity events broadcasted via a
tweet, and raised nearly one million dollar
of capital for her MySocialCloud.com, now
a successful cloud-based bookmark vault
and password website that allows users to
log into all of their online accounts from
a single, secure website. College educators
not only should inform students about the
various available funding sources like an-
gel investors but also show them examples
of how to get in touch with these investors
and persuade them to get that important
seed money.
• Venture Capital (VC): a VC is a busi-
ness that provides financial capital to ear-
ly-stage, high-potential, high risk, growth
startup companies and in turns owns eq-
695
 
Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

uity in the companies it invests in, which
usually have a novel technology or busi-
ness model in high technology industries,
such as biotechnology, IT and software. A
few successful consumer Internet startups
funded by VCs in the recent years include
Glam Media Inc., a publisher of lifestyle
websites; Etsy Inc., an online crafts mar-
ket; Zoosk, a social-dating site; and Chegg,
a textbook-rental service. Chegg was creat-
ed by three Iowa State University students,
Josh Carlson, Mike Seager and Mark
Fiddelke, in 2001.
• Crowdsourcing: When angel investors
and venture capitals are too competitive for
most startups to obtain, there is an alter-
native: crowdsourcing. Crowdsourcing is
the practice of obtaining needed services,
ideas, or content by soliciting contributions
from a large group of people, and especially
from an online community. Crowdsourcing
platforms like Kickstarter, Indiegogo, and
Rockethub have helped launch donation-
based startup business. On these platforms,
you can pre-sell a product that doesn’t yet
exist, or just ask people for money who
want to see you do something.
• Seed Accelerators and Startup
Incubators: Seed accelerators and startup
incubators support the startups with funding,
mentoring, training and events for a definite
period (usually three months), in exchange
for equity. As of 2013, top tech startup
incubator and accelerator YCombinator
has funded over 500 companies in over 30
different markets. In 2012, YCombinator
was named the top startup incubator and
accelerator by Forbes.
A Survey on Internet
Entrepreneurship Education
To learn about students’ knowledge, experience
and perspective of Internet Entrepreneurship
Education, as well as to validate our proposed
model, we conducted an online survey (using
Google Form) to students at a public university
in the United States. The online survey contains
multiple-choice, fill-in-the-blank, and open-ended
questions, asking questions in: 1) Demographic,
2) Entrepreneurship knowledge, activities and
experience, 3) Internet Entrepreneurship Topics,
and 4) Likelihood, importance, and offering for-
mat. Email invitation was sent to multiple student
mailing lists including students majoring in busi-
ness, art, computer science, computer engineer-
ing, and electronic engineering. The survey was
anonymous and completely voluntary. 173 valid
responses were collected and analyzed.
In summary, 62% of the student participants
are male, 38% are female. 58% are computing
major (Computer Information Systems, Computer

Table 4. Other resources

Goal Resources
Learn how to found a business • The founder institute (http://fi.co)
• Launch Academy (http://www.launchacademy.com)
• Startup nation (http://www.startupnation.com/)
• Entrepreneur.com (http://www.entrepreneur.com/)
Learn how to code • Code Academy (started by a college drop out - Zach Sims, URL: http://www.codecademy.com)
• Lynda (http://www.lynda.com/)
• Coursera (https://www.coursera.org/)
• FlatIron School (http://flatironschool.com/)
• W3Schools (http://www.w3schools.com/)
Communities Startup Weekend (http://startupweekend.org/)

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Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

Science, Electrical & Computer Engineering),
36% are business major. 71% are junior or senior
students, 28% freshman or sophmore. 88% had
working experience (including full-time, part-
time, and internship). 81% participants think they
have intermediate to advanced technical skills,
however only 32% think they have intermediate
to advanced Knowledge and Skills in Internet
Entrepreneurship (e.g., creating a startup). Only
22% had some startup experience (owning, owned
one, or worked for one). 38% never had any
startup relevant college activities such as writing
a business plan or involved in an entrepreneurship
workshop, competition or student club.
94% or more of the participants think moderate-
ly to extremely important about all proposed topics
from our model except for “Internal Environment
(e.g., student clubs, senior projects, competitions,
workshops),” which probably is knowledge already
known by most students. Table 5 shows detailed
ranking from the highest rated topics.
Lastly, if an Internet Entrepreneurship/Online
Startup course were available today, 95% of the
participants will likely to take and/or recommend
the course to others. And 98% of the participants
would like to take it instead of a general entrepre-
neurship course for broad types of small businesses
startup currently available.
Detailed survey results are provided in Tables
6, 7, 8, and Figure 2.
CONCLUSION
As technology innovation and market competition
continue to accelerate, college students needs
guidance and support more urgently now than
ever before. College education can mean more
than simply mass-production of skillful workers
for established companies and organizations.
Based upon best practices from both academia
and industry, we proposed a model for Internet
entrepreneurship curriculum design. This model
contains 3 dimensions: Technology, Business,
and Environment. In additional to fundamental
technology aspect that traditional curriculum
usually focuses on, we propose further teaching
current, emerging, and business-driven tech-
nologies, business strategies related to Internet
startups, as well as on campus and off campus
environments, including Student clubs, Campus
incubators, internships, Advisors and mentors,

Table 5. Students perceived importance of course topics

Topics Percentage of Students Think It Is

Moderately to Extremely Important
Current Technologies (e.g., frameworks, platforms, APIs, cloud computing) 96%
Emerging Technologies (native contents, massively online, the Internet of things, wearable) 96%
Business-driven Technology (e.g., user experience, search engine optimization, analytics) 95%
Fundamental Technologies (web/mobile development, database) 95%
Product Opportunity Discovery & Evaluation (innovation, competitive strategies, online 95%
business models, market research)
Product Development & Management (waterfall, agile, lean, roadmap, metrics) 95%
Marketing & Sales Strategies (ads, email, social) 95%
Finance Issues (vesting, IPO, tax) 95%
Legal Issues (e.g., incorporating, intellectual properties) 94%
External Environment (network events, advisors/mentors, internships, funding sources) 94%
Internal Environment (student clubs, senior projects, competitions, workshops) 90%

697
 
Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

Table 6. Demographics Table 7. Entrepreneurship knowledge, activities,

and experience
Majors
Accounting 20 12% Technical Skills

Art 5 3% Advanced 7 4%

Computer Information Systems 41 24% Advanced/Intermediate 61 35%

Computer Science 41 24% Intermediate 72 42%

Electrical & Computer Engineering 18 10% Intermediate/Low 22 13%

Finance, Real Estate, & Law 12 7% Low 11 6%

International Business & Marketing 12 7% Knowledge and Skills in Internet Entrepreneurship

Management & Human Resources 16 9% Advanced 2 1%

Technology & Operations Management 2 1% Advanced/Intermediate 13 8%

Other 5 5% Intermediate 39 23%

School Year Intermediate/Low 58 34%

Freshman 24 14% Low 61 35%

Sophomore 24 14% Startup Experience

Junior 64 37% Previously worked for startup 22 11%

Senior 58 34% Previously founded or co-founded a startup 11 6%

Graduate 2 1% Currently owning a startup 9 5%

Other 1 1% No experience for startup, thinking about 102 52%

creating or working for one
Work Experience
No experience for startup, Not thinking about 54 27%
None 21 12% creating or working for one
Less than 6 months 27 16% Startup Relevant College Activities
6 months - 1 year 27 16% Conducted market research and analysis for a 31 12%
1-3 years 46 27% new product or technology

3-5 years 25 14% Developed a product or technology for a real 22 8%

client/customer
More than 5 years 27 16%
Given an “elevator pitch” or presentation to 16 6%
Kind of Work Experience a panel of judges about a product or business
Full time 31 18% idea

Part time 94 54% Been involved in patenting a technology or 10 4%

protecting an intellectual property
Internship 26 15%
Written a business plan 26 10%
Not applicable 22 13%
Been involved in entrepreneurship- or 24 9%
Gender: 65 or 38% of the participants are female. 108 or 62% business- related student organizations
are male.
Age: Range from 18 to 55, with average 22.8, median 22, Participated in a entrepreneurship related 16 6%
mode 20. competition (eg product development/
business plan)
Participated in entrepreneurship related 18 7%
workshops (extra-curricula, none-credit)
None 99 38%

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Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

Figure 2. Likelihood, importance, and offering format

Table 8. Internet entrepreneurship education topics

How important are the following topics to be included in Extremely Quite Moderately Slightly Not at all
an Internet Entrepreneurship/Online Startup course or Important Important Important Important Important
program to you?
Fundamental Technology (e.g., web/mobile development, database) 53% 32% 10% 3% 1%
Current Technology (e.g., frameworks, platforms, APIs, cloud 50% 35% 11% 2% 2%
computing)
Business-driven Technology (e.g., user experience, search 46% 35% 14% 3% 2%
engine optimization, analytics)
continued on following page

699
 
Successful Internet Entrepreneurs Don’t Have To Be College Dropouts

Table 8. Continued
How important are the following topics to be included in Extremely Quite Moderately Slightly Not at all
an Internet Entrepreneurship/Online Startup course or Important Important Important Important Important
program to you?
Emerging Technology (e.g., native contents, massively online, 42% 34% 20% 3% 1%
the Internet of things, wearable)
Product Opportunity Discovery & Evaluation (e.g., innovation, 42% 38% 16% 4% 1%
competitive strategies, online business models, market research)
Product Development & Management (e.g., waterfall, agile, 42% 35% 18% 5% 0%
lean, roadmap, metrics)
Marketing & Sales Strategies (e.g., ads, email, social 49% 27% 20% 4% 1%
marketing)
Finance Issues (e.g., vesting, IPO, tax) 45% 31% 18% 4% 1%
Legal Issues (e.g., incorporating, intellectual properties) 49% 34% 13% 5% 1%
Internal Environment (e.g., student clubs, senior projects, 28% 35% 27% 9% 1%
competitions, workshops)
External Environment (e.g., network events, advisors/mentors, 40% 34% 20% 5% 1%
internships, funding sources)

Senior projects, Network events, Funding and
supporting resources: angel investor, venture
capitals, crowdsourcing, seed accelerator, startup
incubator. Finally, we evaluated our proposed
model using an online survey to students at a U.S.
public university, and the survey results strongly
supported the model.
Our proposed technology-business-environ-
ment model could help guide universities to
become incubators that nurture, build, and shape
their students’ dreams and goals towards creating
a successful Internet startup business.
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from: http://online.stanford.edu/course/startup-
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(IJICTE), 10(4); edited by Lawrence A. Tomei, pages 53-69, copyright year 2014 by IGI Publishing (an imprint of IGI Global).

701
 Section 4
Cases and Applications
This section discusses a variety of applications and opportunities available that can be considered by practitioners
in developing viable and effective Economics programs and processes. This section includes 21 chapters that re-
view topics from case studies, to best practices, and ongoing research around the globe. Further chapters discuss
Economics in a variety of settings. Contributions included in this section provide excellent coverage of today’s
IT community and how research into Economics is impacting the social fabric of our present-day global village.
 703

Chapter 38
Applying Open Innovation
Strategies to eGovernment
for Better Public Services
Georgousopoulos Christos Kokkinakos Panagiotis
INTRASOFT International S.A., Luxembourg National Technical University of Athens,
Greece
Ziouvelou Xenia
Athens Information Technology, Greece Anshu Jain
IBM, India
Ramfos Antonis
INTRASOFT International S.A., Luxembourg G. R. Gangadharan
IBM, India
Taher Yehia
Tilburg University, The Netherlands

ABSTRACT
Globalization, increasing automation, and the growth of the Internet are setting up a services-driven
world at a scale and pace never before witnessed in history whose novelty is the proactive engagement
of service recipients in the process of service delivery. Such change-driving forces will inevitably drive
Government enterprises to reconsider the way that they deliver public services. As it has been real-
ized in the industry, the transition of Government enterprises to the services-driven world will call for
fundamental transformation in the provision of public services in the future, and a complete new way
for Governments to work and interact with their citizens. Towards this direction, the authors propose
an open innovation model through a process of democratic engagement between service providers
and service recipients, where citizenship is reinstated at the heart of public service delivery. A service
engineering methodology to support the proposed citizen-driven participatory design of public sector
services is also provided.

DOI: 10.4018/978-1-4666-8468-3.ch038

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Applying Open Innovation Strategies to eGovernment for Better Public Services
INTRODUCTION
Today’s environment is characterized by pervasive
globalization, dynamic change, persistent flow of
information and communication, and proliferation
of technology. The emergence of the Internet has
changed the way people communicate, work, col-
laborate, research, and innovate amongst others,
actively contributing to the creation of a “con-
nected world” driven by users.
This new environment has stimulated not only
technological advancements and innovations in the
way of doing business and collaborating, but it has
also transformed the capabilities of individuals at
a scale and pace never before witnessed in history.
Individuals have evolved from simple spectators,
to active participants and creators. This empow-
erment has brought about technology-mediated
virtual communities of users that collectively
create knowledge, products, and services, making
the world a truly user-driven cosmos.
Moreover, this “perfect storm of forces” (Tap-
scott et al., 2008) has also changed the rules of the
innovation game. The Internet and the new wave
of social networking have enabled not only indi-
viduals to communicate and collaborate but also
companies to interact, collaborate, and co-create
with their customers and business stakeholders.
Companies are “moving away of the structures
of the past that are based on hierarchies, discrete
groups and teams and moving towards those based
on more fluid and emergent organizational forms
such as networks and communities” (Hildreth and
Kimble, 2004).
As such, the (innovation) activity that was
traditionally characterized as a closed, linear, pro-
prietary, intra-company, central and lengthy one,
has now become an open, public, inter-company,
distributed and quick activity.
The open innovation concept (Chesbrough,
2003a, 2003b) extends the boundaries of the
firms, enabling business entities to harness “out-
side ideas to advance their own businesses while
leveraging their internal ideas outside their cur-
704

rent operations” (p. 41). Anchored in the notion
of “abundant knowledge” (Chesbrough, 2003a),
this new innovation logic enables companies to
create business value by opening up their inno-
vation processes and amalgamating internal and
external sources of ideas by deploying outside and
in-house pathways to the market. This integration
of multiple external sources is highly expected
to lead to added value for organizations that will
achieve greater return on innovative activities
(West and Gallagher, 2004).
Existing indications on the benefits of adhering
to an open innovation model are mainly focusing on
a corporate level; placing special emphasis upon
the high technology industries such as informa-
tion technology, computers and pharmaceuticals,
even though academics indicate that the model’s
applicability extends far beyond (Chesbrough and
Crowther, 2006). Hence, one may wonder whether
the model of open and user-driven innovation may
be applied in the context of government as well.
And if so, how could governments utilize the user-
centric model of open innovation to stimulate the
development and delivery of more efficient and
effective public services.
Despite the vast research attention of open
innovation at a corporate level, there is limited re-
search examining open innovation strategies in the
context of government (Fuglsang, 2008; Feller et
al., 2010; Nam, 2010). As a result, public services
are often delivered with a low level of satisfaction
and trust from the citizen perspective. To close the
gap between governments and citizens, a key trend
in the public service reform agenda is to empower
the citizens’ voices in the public service design
process. To achieve this, governments need to
find novel ways of connecting with their citizens,
and to listen and respond in ways that reassure
them that they are being understood. Taken a step
further, governments should effectively engage
people in the public service design and delivery
process. Engaging the citizen in a dialogue about
how and where services should be provided, and
which services are most important, are essential

Applying Open Innovation Strategies to eGovernment for Better Public Services
if government organizations are to move from a
system of “organizations that provide services”
to one of “services provided by or on behalf of
organizations.”
In this chapter, we argue that the change-driving
forces of today’s technologically and socially
mediated cosmos are critical for the reform of
the public sector, and we propose a participatory
design of public sector services along with a
public service engineering methodology which
involves all the involved stakeholders (from citi-
zens up to decision makers) into the conception,
reinvention, analysis, design and optimization of
existing or new public services. Such a distinctive
open innovation approach to shape public service
offerings around the experiences and interactions
of citizens, will present a major opportunity for
the next stages of public service reform.
The remaining of this chapter is organized as
follows. The “Open and closed innovation strate-
gies” section provides an overview of the open
innovation paradigm, and considers the differences
between open and closed innovation models. Focus
on Governance context is set in section “Open
innovation in Government,” where the different
dimensions of public sector innovation along with
a classification of the possible innovative models
that may exist are presented. Within “Governance
model of public service delivery” section we
describe the current Governance model of public
service delivery applied within Europe, and we
propose an alternative innovative approach that
engages citizens in the public service delivery
decision making process; which in turn enables
governments to better understand and address
the citizens’ needs during public service concep-
tualization and design, while contributing to the
services’ adoption. The realization of the pro-
posed next generation citizen-driven Governance
model for public service delivery via ICT means
is discussed within the last section. Finally, the
chapter concludes with a provision on directions
for future research work in the area.
OPEN AND CLOSED
INNOVATION STRATEGIES
Although the trend towards openness in the context
of innovation has become more prominent in the
recent years, it is not a new one, neither in practice
nor in scholarly literature (Acha, 2007; OECD,
2008). The innovation literature provides many
examples that reveal that companies nourished
collaboration with external partners rather than
focusing on isolated company-centric innovation
systems (OECD, 2008). In specific, academics
have defined the significance of collaboration at
a corporate level (Porter, 1980), suggesting that
inter-firm cooperation may act as an enabler for
partners to achieve a stronger competitive position
than isolated business actors.
The emphasis on open innovation observed
during the last decade is attributed both to the
changing economic and social conditions, that
have led to the disruption of the “virtuous cycle
that sustained closed innovation” (Chesbrough,
2003a), as well as to the maturity of the organiza-
tion of innovative activities, of technological and
non-technological focus, across firm boundaries
and the evenly balancing of internal and external
sources of innovation (Acha, 2007).
Particularly, towards the end of the 20th
century, changes in the societal and industrial
structure contributed to the disintegration of the
boundaries of the traditional process of innovation,
as it became increasingly difficult for companies
to dominate their proprietary intellectual capital;
mainly due to the global competition, the rise in
the number and mobility of knowledge workers
and the development of new financial structures
of private venture capital (Chesbrough, 2003a).
These contextual changes shifted the dynamics of
innovation and the prevalent “closed” innovation
practices of the past, towards new forms of “open”
innovation. The traditional model of linear, intra-
company and centralized innovation which relies
primarily on in-house Research and Development
705
 
Applying Open Innovation Strategies to eGovernment for Better Public Services

(R&D) investments to bring about innovation and
develop new products and services has evolved
into an open model of innovation that is based on
the exchange of knowledge and ideas, cooperation
agreements and innovative output jointly carried
out by firms, individuals and other collaborative
entities.
Innovation System Antithesis
Coined by Chesbrough (2003a, 2003b), the open
innovation concept is an “antithesis” to the tra-
ditional innovation approach. Companies, rather
than focusing on the self-reliance1 approaches of
the past, they adopt new methodologies to their
innovation strategies, and commercialize external
ideas in addition to internal ones by deploying in-
house as well as outside pathways to the market
(Chesbrough, 2003a).
Firms following the old model of closed in-
novation, are able of achieving market success by
investing heavily in internal R&D and capitalizing
on attracting and hiring knowledgeable employees
to “reap the rewards of the industry’s smartest
people” (Chesbrough, 2003a, p. 36); See Figure
1a. Despite the high costs involved within this
process, firms are being “compensated” by the
competitive advantage of strategic entry deter-

Figure 1. Innovation models: (a) closed; (b) open (source: Chesbrough, 2006)

706

Applying Open Innovation Strategies to eGovernment for Better Public Services
rence. Ideas and innovation efforts are usually
being protected with Intellectual Property Rights
(IPR)–a strategic asset for firms–towards an at-
tempt of preventing any type of imitation and/or
direct competition by third parties. The derived
profits are then being reinvested in R&D for en-
hancing the innovative potential of the company,
sustaining in this way the closed “virtuous cycle
of innovation” (Chesbrough, 2003a).
Overall, the traditional closed innovation model
involves private investment of funds, time and
talent while at the same companies do not share
the innovation process, intellectual property,
profits or losses. The innovation process is purely
centralized, maintained within the organizational
boundaries protecting its results with IP policies,
since any infringements are bound to diminish the
projected returns. In addition, a company following
this approach is bound to communicate with the
exterior only via well-defined secured channels.
In the open innovation process, the generation
of knowledge is no longer exclusively the respon-
sibility of corporate R&D. The development of
new products and services is not a linear, in-house
process of an organization but rather a dynamic,
inter-company, open process in which companies
look both “inside-out” and “outside-in” (OECD,
2008). New business models and innovation sys-
tems are quickly transforming business functions
and supplement traditional approaches to getting
ideas in the market place. This new innovation
logic enables companies to create business value
by opening up their innovation processes and amal-
gamating internal and external sources of ideas by
deploying outside pathways to the market via the
porous surrounding environment; See Figure 1b.
In essence, the open innovation model infringes
the thick protective walls around the traditional
innovation model and is highly connected with
the external environment, enabling in this instance
companies which are willing in attracting and
commercializing innovation to share with exter-
nal third parties intellectual property and profits.
Open innovation changes the rules of the innova-
tion game and becomes a necessity in the current
business environment, where companies aim at
increasing their value-adding potential by utilizing
different open innovation types (Gassmann and
Enkel, 2004) that reflect the inbound, outbound or
coupled aspects. These types are: outside-in pro-
cess, where companies enrich their own knowledge
base by integrating external knowledge provided
by different actors (i.e., customers, suppliers,
universities, competitors, collaborators, etc.);
inside-out process that involves bringing ideas
to market, selling/licensing intellectual property;
and coupled process, which is a combination of
the outside-in and inside-out process.
In the context of the open and closed innova-
tion model, value added can be seen as a com-
position of two dimensions: value creation and
value capture (Chesbrough and Appleyard, 2007).
With reference to the closed innovation, these
two dimensions are company-specific processes
that focus on the intra-company creation of value
(in-house value creation) and capture value by
protecting innovation with intellectual property
rights (company value capture). In contrast, within
the open innovation the value creation process
is a joint one, given the openness of the model,
and it can be either fueled by resources within a
company or be community driven (Chesbrough
and Appleyard, 2007). Companies are able to
leverage not only their internal knowledge assets
but also harness external ideas to generate value.
Consumers, suppliers and collaborators can
freely engage in the design, production or com-
mercialization of goods and services, lowering
the costs of corporate research and development,
and enabling the company to prosper in new areas
outside its current operations. On the value cap-
ture dimension, it can be the company itself that
captures the positive value differentials depend-
ing on its ability to exploit and engage external
knowledge which will have a high impact on its
innovation performance (Cohen and Levinthal,
707

Applying Open Innovation Strategies to eGovernment for Better Public Services
1990) or the broader ecosystem captures most of
the value relative to the originator (Chesbrough
and Appleyard, 2007).
OPEN INNOVATION IN
GOVERNMENT
The “perfect storm of forces,” after revolutioniz-
ing the private sector is now moving towards the
public sector, and highlights the need for reaching
the community while utilizing this external col-
laboration so as to transform the current form and
nature of public service development and delivery
(Tapscott et al., 2008). Of course, in order for such
public transformations to take place, it is critical
to ensure civic participation and engagement. Citi-
zens can become deeply immersed in government
affairs and in particularly public service delivery
not only for fulfilling their need for helping out their
community (pure altruistic motives) but also due
to a number of motives ranging from intrinsic i.e.,
recognition, enjoyment, interest to extrinsic ones
i.e., lower taxation, monetary rewards etc. (Lara
and Naval, 2012). Although governments across
the world are slowly starting to adopt citizen-
centric approaches to public service provision, and
collaborative schemes at an intra-governmental
level they still seek to harness the full potential of
open and citizen-driven innovation that can reform
the public sector. However, despite the fact that
there has been a persistent need for government
change that dates back to 1992 when Osborne and
Gaebler elaborated upon the notion of “govern-
ment reinvention,” only in recent years we see
public agencies slowly embracing the emergent
opportunities of the technological advancements
and social phenomena.
The shift from a closed to an open innovation
model has been widely discussed by many scholars
(Chesbrough, 2003a, 2003b, 2004, 2006; Laursen
and Salter, 2006; Chesbrough and Appleyard,
2007; Acha, 2007), whose context of analysis is
almost exclusively at the corporate level. In their
708

vast majority, scholars examine high technology
industries such as computers, information technol-
ogy and pharmaceuticals, despite the fact that the
concept of open innovation is finding applications
in firms outside the high technology industries
(Chesbrough and Crowther, 2006). As such,
although open innovation research in the com-
mercial field has to date received a lot of attention,
research examining open innovation strategies for
the context of the government is starting to emerge
(Fuglsang, 2008, 2010; Feller et al., 2010; Nam,
2010; Sharama et al. 2011) and existing studies
in the area validate the relevance of the theory
of open innovation in the public sector context.
Fuglsang’s (2008) examination of four distinct
frameworks of innovation (i.e., open innovation,
entrepreneurial innovation, institutional innova-
tion, and strategic reflexive innovation) revealed
the open innovation model to be more pertinent
to service development in the public sector. Re-
garding the ways that open innovation strategies
can transform public administrations; Feller’s
et al. (2010) analysis of a network of Swedish
municipalities further highlighted the significant
potential of open innovation in the public sector
context. The authors pointed out the radically
transformational powers of open innovation that
change the value configuration component of the
public authorities business model as well as their
value creation and service delivery, proposing
four typologies of governmental reform (aggrega-
tion, syndication, consumption and co-creation
typologies).
Dimensions of Public
Sector Innovation
In seeking to understand innovation in the public
sector, this study draws on three distinct aspects,
namely: (a) innovation model, (b) distinct actor
involvement in the innovation process, and (c)
type of public innovation. We argue that, these
dimensions are critical for analyzing the underly-
ing logic of innovation in the public sector context

Applying Open Innovation Strategies to eGovernment for Better Public Services
and positioning the innovation activities of public
organizations. Thus, we extend our conceptual
grounding by proposing an architecture that depicts
the innovation logic in the public sector context,
as depicted in Figure 2.
The innovation model dimension, similar to the
commercial context, varies between two extremes.
The traditional “closed” innovation model of lin-
ear, intra-government and centralized innovation
which relies primarily on in-house public invest-
ments to bring about innovation and develop new
services, new ways of delivering services or new
internal processes amongst others, and the “open”
model of innovation. In the public sector context,
open innovation implies that public organizations
and administrations rather than developing their
own solutions to their problems, they must open
their boundaries, seek and integrate relevant
knowledge from external sources, while at the
Figure 2. Dimensions of public sector innovation
same time increase their exploitation capacity by
transferring internal innovations for external use.
As such, public authorities can utilize the open
innovation model so as to enhance their innovative
output, jointly carried out by a variety of actors.
In the context of open innovation, public au-
thorities can utilize a number of external innova-
tion actors, in conjunction to their internal ones
(i.e., civil servants, public organizations, local and
regional authorities, etc.). Citizens can be seen
as an important external innovation source with
respect to public service development and knowl-
edge creation. Scholars have long acknowledged
the productive role of citizens as co-producers
on public service delivery, which may result to a
potential mean of increasing public sector’s ef-
fectiveness, efficiency, and transparency (Percy,
1978; Kiser and Percy, 1980; Whitaker, 1980;
Parks et al., 1981). According to Parks et al. (1981)
709

Applying Open Innovation Strategies to eGovernment for Better Public Services
the co-production, or otherwise co-creation, of
public services occurs as a result of three types
of influences: technological, economic and in-
stitutional. In particular, technology determines
the technical feasibility of the co-production that
occurs if the quantity of co-produced output ex-
ceeds production inputs2, economic considerations
determine the economic efficiency of producing
services via mixing regular and consumer pro-
ducer activities, and institutional considerations
determine the extent to which co-production is
institutionally appropriate when it is technical
feasible and economically efficient. For instance,
critical institutional arrangements that may affect
a decision on public service delivery include
those that limit the use of particular inputs, those
that do not provide sufficient incentives for the
employment of particular inputs, and those that
mandate the employment of particular inputs
(Parks et al., 1981).
With respect to the distinct actor involvement in
the innovation process dimension, the co-produc-
tion of innovative public services can occur with a
direct and/or an indirect involvement of a number
of internal/external actors that can independently
or jointly contribute to the innovation process. In-
ternal actors correspond to civil servants, decision
and policy makers, public organizations, local and
regional authorities etc., whereas external ones
may be perceived as to citizens, private business
and research organizations, civil society, social
media groups etc. Related to the involvement of
actors in the decision making process/delivery of
public services, the direct approach refers to the
utilization of direct soliciting, analysis of data
gathered via polls and questionnaires, as well as
other means of deliberative communication. On
the contrary, an indirect approach concerns only
the mining of existing information captured on
electronic and/or paper sources, such as articles,
newspapers, Web 2.0 sources etc. Therefore, while
in the context of closed innovation, the focus of
generating innovation is placed principally on the
710

direct involvement of internal actors in addition
to the indirect one, in the open innovation model,
the innovation process is opened up to external
actors as well that can be directly or indirectly be
involved in the whole process.
The type of public innovation dimension is
directly related to the different public-sector
innovation categories that exist up to date. In
the context of the private sector, innovation has
been classified, by the third edition of the Oslo
Manual (OECD-Eurostat, 2005) into four primary
categories: product, process, marketing, and orga-
nizational innovation3. Whilst a substantial body
of research exists in the private sector innova-
tion categories, limited research can be found
on innovation categories of the public sector.
Baker (2002) presented a typology for both the
private and the public sector, which differentiates
between: process, product/service, and strategy/
business concept innovation. In 2008, Windrum
proposed a classification of public sector innova-
tion which incorporated three categories of private
sector innovation (service, service delivery and
administrative/organizational innovation) with
three relatively ignored categories in the public
sector context (conceptual, policy and systemic
innovation). According to Windrum (2008), the
six public sector innovation categories involve:
service innovation (i.e. new or altered service
features and design), service delivery innovation
(i.e. new or altered ways of delivering services
or interacting with citizens), administrative/or-
ganisational innovation (i.e. new or altered orga-
nizational methods in the public sector practices,
workplace organization or external relations,
increasing public sector’s performance by reduc-
ing administrative/transaction costs, improving
workplace satisfaction etc.), conceptual innova-
tion (i.e. the development of new world views
that challenge assumptions that underpin existing
service products, processes and organizational
forms), policy innovation (i.e. change the thought
or behavioral intentions associated with a policy/

Applying Open Innovation Strategies to eGovernment for Better Public Services

new or altered missions, objectives, strategies and
rationales), and systemic innovation (i.e. involves
new or improved ways of interacting with other
organization and knowledge bases).
Classification of Public
Sector Innovation
Given the holistic approach of Windrum (2008),
we adopt his taxonomy in our proposed classifica-
tion of public sector innovation. The taxonomy of
public sector innovation across the three distinct
dimensions: (a) innovation model, (b) actor in-
volvement in the innovation process, and (c) type
of public innovation enables us to classify the
governmental innovation logic across its distinct
types; as outlined in Table 1. As such, in the
closed innovation model, public sector innovation
involves intra-government innovation, primarily
via the direct involvement of internal innovation
actors, and rarely by the indirect involvement of
the same set of actors. On the other hand, in the
open innovation model, public sector innovation
involves primarily the direct involvement of inter-
nal and external innovation actors, and rarely their
indirect involvement across all six types of public
sector innovation. However, the open innovation
potential could further be exploited by focusing
both on the direct and the indirect involvement
of both types of innovation actors.
In the remaining of this chapter, we argue that
the change-driving forces of today’s technologi-
cally and socially mediated cosmos are critical for
the reform of the public sector, and we propose
a participatory design of public sector services,
along with a public service engineering methodol-
ogy which involves all the involved stakeholders
(actors) into the conception and/or reinvention,
analysis, design and optimization of existing or
new public services taking into consideration
both the direct as well as the indirect approach
of actors’ involvement.
GOVERNANCE MODEL OF
PUBLIC SERVICE DELIVERY
The first and necessary step towards recognizing
the potential opportunities for applying innova-
tive approaches in Governmental procedures is to
get to know in depth the current status in public
service delivery.

Table 1. Classification of the public sector innovation

Innovation Model, Innovation Actors & Actor Involvement

Closed Innovation Model Open Innovation Model
Types of Public Sector Innovation Direct Indirect Direct Indirect
(Windrum, 2008) Involvement Involvement Involvement Involvement
Internal External Internal External Internal External Internal External
Actors Actors Actors Actors Actors Actors Actors Actors
Service innovation ● - ○ - ● ● ○ ○
Service delivery innovation ● - ○ - ● ● ○ ○
Administrative & Organizational ● - ○ - ● ● ○ ○
innovation
Conceptual innovation ● - ○ - ● ● ○ ○
Policy innovation ● - ○ - ● ● ○ ○
Systemic innovation ● - ○ - ● ● ○ ○
●: utilized, ○: possible but not utilized, -: not applicable

711

Applying Open Innovation Strategies to eGovernment for Better Public Services
The imprint of the current Governance model
for public service delivery, described in Figure 3, is
based on the results of a study that was conducted
in the context of the COCKPIT4 project, focusing
on the way Governmental procedures currently
operate within Europe, and in specific Greece,
Italy and the Netherlands. Despite the peculiari-
ties observed in every Governmental institution,
a number of major and significant common pro-
cedures were recognised and captured concluding
on a four-stage scheme of public service delivery,
as illustrated in Figure 3.
The first stage corresponds to the Service
Conceptualization and Implementation Decision
which refers to the procedures that deal with the
conceptualization and decisions made on imple-
menting a new service or optimizing an existing
one. The input primarily concerned within this
stage comes from obligations towards (local and
EC) Directives and strategic plans, statistical
data of service operation, demands from partner
services, optimization needs of already operating
services, and visionary conceptualizations by
decision and policy makers.
The second stage, which is referred as to
Service Modelling involves the identification of
the participating entities within the execution
Figure 3. Current governance model for public service delivery
712

of a service, the documentation of the distinct
processes involved, a validity check towards the
legislative framework in force, and the derivation
of the associated communication protocols and
data exchange specifications.
The Service Deployment concerns the third
stage of public service delivery and deals with the
actual provision of a service to the citizens. The
main deployment approaches range from central
points of service provision (e.g. Governmental
portals) and individual deployment points (e.g.
service points set up by smaller entities) up to
intermediaries (e.g. service kiosks).
The final stage is the Service Delivery Evalua-
tion that measures and evaluates a deployed service
in terms of both functional and non-functional as-
pects. This process involves primarily the analysis
of data manually gathered via statistical researches,
evaluation forms, service logs, and in rare cases
data collected from opinion sampling approaches;
mostly related to outdated first generation opinion
mining techniques.
The current Governance model on public
service delivery previously described adheres to
a closed type of innovation model that capital-
izes mostly on the direct involvement of internal
actors. Only at its fourth stage, a kind of open

Applying Open Innovation Strategies to eGovernment for Better Public Services
innovation characteristic may be observed due
to the direct involvement of external actors (e.g.
citizens) within the evaluation process of a public
service under operation. Although an indirect
involvement of external actors may also exist (at
the fourth stage), the effect that may have on the
adopted model is limited due to the utilization of
premature opinion mining means.
As it has been realized in the industry (Rouse
and Baba, 2006), the transition of Government
enterprises to the services-driven world will call
for fundamental transformation in public service
delivery. Business process improvement, or even
business process reengineering, will not be suf-
ficient as it is not just a matter of getting better at
what Governments currently do, but it is an issue
of doing new things in new ways. This requires
fundamental change in the current provision of
public services and a complete new way for Gov-
ernments to work and interact with their citizens
i.e. the external actors
Next Generation Citizen-
Driven Governance Model for
Public Service Delivery
Governments have put reform and innovation of
the public sector into their programs, striving to
deliver more efficient and effective public ser-
vices, in order to meet the increasing expectations
of citizens with shrinking public budgets. The
common features of the reform agenda include a
more citizen-oriented and transparent government,
improved public sector performance, new forms
of accountability and control, the use of market
mechanisms, and more decentralized and merito-
cratic management of employees (OECD, 2005).
The delivery of public services at both domestic
and European levels in the service-driven world
is becoming a subject of considerable interest to
public service theorists and policy makers alike
(Denhardt, 2003; Bourgon, 2007). Since early
1980s, various market-based approaches to pub-
lic service delivery have been used as a vehicle
for public sector reform in the EU, including
Compulsory Competitive Tendering, Market
Testing, Best Value procurement, and Public
Private Partnerships, among others. In the earli-
est days, the market-based approaches were seen
by policy makers primarily as a way to cut costs
and improve efficiency in public service delivery.
However, more sophisticated approaches are now
considered by public service theorists (Mark and
Sciarra, 1998; Moore, 1995; Horner et al., 2006;
Benington, 2007) who realise that public service
delivery, like the private sector, creates value
but, unlike the private sector, this value cannot
be simply reduced to financial profit and loss in
the way it usually is by commercial organizations.
It is now understood that the value of public
services can only be identified and assessed
through a process of democratic engagement
between service providers and service recipients
where citizenship is reinstated at the heart of pub-
lic service delivery (OECD, 2001; Osimo, 2008;
Buccoliero L. Bellio El., 2009). In essence, with
reference to the classification matrix of public
service innovation models (See Table 1), a mixture
of internal and external involvement of actors with
particular focus to the latter.
Nevertheless, the new theories on public ser-
vice delivery are not naive and idealistic. They
recognize that public services come at a very
great financial cost. They acknowledge that the
taxpayer is a stakeholder in any public service
value negotiation, and also that value for money
must be a priority. Indeed, public service theorists
have gone so far as to specifically define public
service value as the provision of public services
to a community in a way determined by that com-
munity but in as cost-efficient a way as possible
(Cole and Parston, 2006).
Moreover, ICT has long been recognized as a
key strategic tool to enable reforms in the public
sector. Since the late 90s, it has been central in
enabling the policies for reforming government
(Demmke and Meyer, 2006). Today, public ad-
ministrations are striving to leverage modern ICT
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Applying Open Innovation Strategies to eGovernment for Better Public Services
to improve the quality of their services to citizens
and businesses (Scholl and Klischewski, 2007),
to provide multiple communication channels
(Osimo, 2008) and to make their internal and
cross-organization operations more efficient, even
if this requires changing their modus operandi.
Along the previous lines, and taking into
consideration the limitations of the current
Governance model of public service delivery,
we present an innovative ICT-driven approach
which engages citizens in the public service
delivery decision making process; and hence,
enables governments to better understand and
address the citizens’ needs during public service
conceptualization and design, while contributing
to the services’ adoption. The next generation
citizen-driven approach of the Governance model
that is proposed within this chapter is mainly
based on the finding of the COCKPIT project
(Hartman A. et al. 2010; Taher Y. et al., 2011),
and has as its primarily objective the delivery of
next-generation public services that as a matter
of course: (1) balance the interests of the public
Figure 4. Next generation citizen-driven governance model for public service delivery
714

realm and the market, (2) consider individuals to
be citizens, not just consumers, and thus balance
the interests of communities and individuals, and
(3) consider wider social concerns, not just narrow
financial concerns.
In addition, as it is believed that Govern-
ments must also take account of business con-
siderations in public service delivery (such as
the need to optimize the costs and efficiency of
public service, and the need for increased com-
petitiveness in an increasingly global economic
environment), the proposed model capitalises as
well on the adoption of technological means that
can accurately estimate public service delivery
costs and provide user-friendly simulation and
visualization of public service operation. In this
instance, citizens of the future will be empowered
with accurate information to engage themselves
in the decision-making processes over the value
of next-generation public service delivery, in a
substantiated and responsible way.
The proposed next Governance model depicted
in Figure 4, shares the same structure as with the

Applying Open Innovation Strategies to eGovernment for Better Public Services
current one, but with a number of optimizations
and addition of new features within each of its four
stages. Although, the current Governance model
is doubtlessly deprecated in many of its parts,
the most remarkable, practical and indispensable
characteristics of it have been maintained since
they are considered as a solid base for modern
initiatives and approaches. The items surrounded
by the dotted boxes form the new features that
may be introduced into each stage for enforcing
a more citizen-driven approach, whereas a star
positioned next by an item indicates those modules
that offer fertile ground to support the targeted
citizen centered idea.
In the first stage (i.e. the Service Conceptualisa-
tion and Implementation Decision), the introduc-
tion of both the direct and indirect involvement of
external actors constitutes the new entry. Indirect
involvement is possible to be achieved via the ex-
ploitation of opinion mining means that can crawl
Web 2.0 sources and extract citizens’ opinions on
already existing services or trends for new ones.
Direct involvement among internal (aka decision
makers) and external (aka citizens) actors may
be realised via deliberative dialogs made within
forums, blogs, etc. Therefore, although in the cur-
rent Governance model, decision makers–elected
or not–bear the responsibility of deciding which
are the most appropriate fields for new services,
and which services are the most suitable ones to
cover the existing gap, a citizen-driven approach
comes into place and offers Governments the abil-
ity to truly exploit the real needs of their citizens.
The second stage concerns the most appropri-
ate place for the implementation of technological
innovations. As commented earlier, a major con-
sideration during the conceptualisation/design of
a public service is related to its associated costs.
Currently, existing cost estimation (if any), in
most of the cases is based on comparisons of
the services under considerations with existing
ones and arbitrary estimations. Therefore, the
introduction of Cost Centres is now considered
to be more than a necessity, as documented cost
calculation has to take place and costs have to be
contacted not only to the public sector, but also
to decision makers. In addition, emphasis is also
given to the notion of Service Value Modelling
which may enable the visualisation of costs and
derivation of different service alternatives, along
with the delivery of simulation versions of public
services prior to their deployment phase. All these,
apart from constituting an important set of tools
with which decision and policy makers may be
equipped with, they also contribute by raising the
motivation of citizens on participating even at this
stage of Service Modelling. For instance, having
a citizen the ability to configure and parameterize
a simulated public service is something that can
certainly generate buzz and initiate a deliberative
dialog among citizens themselves and among
citizens and the public sector.
The third stage of the current Governance
model is perceived as to the most mature stage
(out of the four), as Service Deployment is already
conducted almost via every possible way that any-
one can think of. Nevertheless, the citizen-driven
aspect of the next generation Governance model
stimulates the need for an enhanced profiling
mechanism. Thus, the innovation here should lay
on an effort to offer citizens friendly and intuitive
systems that can easily be adapted to the particular
needs of every individual service client.
At the last stage, opinion mining is met once
again. Similarly to the first stage, advanced opin-
ion mining techniques may be applied, resulting
to a more quantitative and qualitative set of data
pertinent to the evaluation of a public service, in
a more cost-effective and rapid fashion.
As it can be inferred, the proposed Governance
model engages and empowers citizens in the
public service delivery decision-making process.
The model capitalizes on the Web 2.0 mass col-
laboration applications, as the emerging platform
for innovative creation, sharing and tracking of
citizens’ needs and wishes on public services
delivery. At the same time, it employs innovative
technological advances for the simulation and
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Applying Open Innovation Strategies to eGovernment for Better Public Services
visualization of public services, and empowers
citizens with accurate information about the cost
and operation of those, so that they can make
informed judgments and responsibly engage
themselves in the decision making process; prior
the phase of actual deployment. This conforms
to an open innovation model that features both a
direct and an indirect involvement of internal and
external actors throughout all the involved stages
of public service delivery.
REALIZATION OF THE
PROPOSED CITIZEN-DRIVEN,
OPEN INNOVATION APPROACH
FOR PUBLIC SERVICE
DELIVERY VIA ICT MEANS
The next generation citizen-driven Governance
model of public service delivery described in
previous section concerns a really complex multi-
dimensional process. Nowadays, despite the fact
that the latest advances in the research and ICT
field can support the realization of the proposed
model, there exist no such a tool that can bring
up the full potential of it. Only, COCKPIT project
that has been referenced earlier attempts to provide
an integrated solution to address this issue, and is
explained in detail in the following sub-section.
The main ingredients that can lead to the
development of such a solution concerns the
conception and implementation of a number of
distinct innovative approaches and methodologies
related to:
• The automatic extraction of citizens’ needs
on public services delivery from Web 2.0
mass collaboration applications, based on
the utilisation of ontology-based opinion
mining techniques over citizens’ public
service related interactions in blogs, fora,
wikis, etc.
• The modelling of public services delivery,
capitalising upon a formal representation
716

of the multi-disciplinary nature of public
services as complex service systems of
Web 2.0 collaborative society. This implies
the extension of the current advances in the
Service Science Management Engineering
field to the public sector realm, in order to
arrive at a formal public service represen-
tation. It addition, it will require the estab-
lishment of a method for the generation of
critical information about public service
delivery, including reliable estimation of
the cost and performance of public service
delivery, as well as user-friendly simula-
tion and visualisation approaches to the
operation of public services.
• A deliberative approach to citizens’ en-
gagement in the public service delivery
decision making process, based on a Web-
based two-way dialogue between decision
makers and citizens, who are empow-
ered in making informed judgement with
disclosed information on public service
delivery cost, and corresponding simula-
tions and visualisations of public services’
operation.
The methodology employed5 by the COCKPIT
integrated ICT toolkit that adheres to the proposed
next generation citizen-driven Governance model
is illustrated in Figure 5; the small rectangle sign
pinned on top of an item of the diagram indicates
the direct usage of the toolkit. The overall concept
is that citizens’ interactions with Web 2.0 social
media are monitored for their opinions and needs
on public services in a specified domain. These
requirements are fed into the initial service design
process, and Government decision makers start
modelling the service using the service engineer-
ing tool. What follows is the input of the high-level
requirements for the service outcomes, taking into
consideration the citizens’ opinions and wishes
on the selected public services that are available.
During the design phase of a service, the sup-
porting policy and legal framework related to the

Applying Open Innovation Strategies to eGovernment for Better Public Services

Figure 5. Open innovative process of public service delivery

717

Applying Open Innovation Strategies to eGovernment for Better Public Services
corresponding service is consulted using existing
text retrieval technology on policy and legal digital
libraries. After that, experts in service delivery
input their constraints related to resources and
infrastructure requirements, and the output of
the public service engineering tool is fed into the
public service simulation and visualization tools.
This enables the decision makers to make adjust-
ments that will reflect budgetary and operational
constraints. Once decision makers have arrived at a
specification for the delivery of the public service,
citizens are presented with a visual simulation of
the service in a deliberative platform. Citizens’
informed judgment on the simulated operation
and related costs of the selected public services
are then expressed and returned to the decision
makers for further consideration and final deci-
sions. The subsequent section provides further
insights to the internal structure of the COCKPIT
integrated ICT toolkit.
COCKPIT Supportive
Integrated ICT Toolkit
The COCKPIT integrated ICT toolkit consists of
a number of distinct components/toolkits loosely
coupled, following the Service-Oriented Archi-
tecture (SOA) paradigm, as illustrated in Figure
6. These are referred as to:
• Opinion Mining (OM)
• Policy and Law Retrieval Tool (PL)
• Citizens’ Deliberative Engagement
Platform (DP)
• Service Engineering Tool (SE)
• Cost & Value Estimation Tool (CV)
• Service Simulation & Visualisation Tool
(SV)
The Opinion Mining (OM) component consists
of an ontology-based extraction and a sentiment
analysis module. Ontology-based extraction uses
a generic public service ontology and specific
718

domain resources (pertinent to a public service)
to build a uniform domain ontology that is being
extracted and prepared for sentiment analysis.
Sentiment analysis concerns the identification
and definition of input parameters, as well as an
iterative offline validation of sources and senti-
ment knowledge. During the initial phase of OM
training, the results generated are evaluated and
filtered with polarity analysis so as to optimise
the accuracy of the employed opinion mining
algorithm. The output of the OM results after the
training phase includes: (1) the identification of
positive and negative statements related to citizens’
opinions expressed on specific public service(s),
(2) the categorization of those opinions to dif-
ferent public service aspects such as cost, time,
enhancements etc., as well as (3) the frequency at
which people are talking about a specific public
service; visualised in a statistical graph form. OM
is presented to the service designers through a
management dashboard that is provided within
the SE toolkit which forms, among others, the
front-end of the COCKPIT integrated ICT toolkit
as it is described in Figure 6. The OM dashboard
provides an intuitive interface with the required
functionality for enabling the visualisation of re-
sults, searching of sources, definition of specific
queries, and feed of bulk queries.
The Policy and Law Retrieval (PL) toolkit
forms a document repository system with an ad-
vanced searching mechanism, based on Google
engine, which supports the maintenance, searching
and retrieval of documentations related to policy
and legal framework on EU and local level. Search-
ing may be either performed based on a simple set
of keywords or additionally by defining a set of
criteria. The sources searchable by PL are either
static or dynamic. Static information are stored and
maintained within a DBMS, where dynamic ones
are retrieved via external sources over the Internet.
A default list of EU policy and legacy sources
(e.g. EURO-Lex) is provided by the toolkit itself
that may be easily amended by the administrator.

Applying Open Innovation Strategies to eGovernment for Better Public Services

Figure 6. Conceptual view of COCKPIT integrated toolkit architecture

PL is offered in the form of a Web-service and is
accessible both by service designers and citizens
via the SE toolkit and DP accordingly.
The citizens’ Deliberative Engagement Plat-
form (DP) is a Web-based component featuring
a front-end interface that enables potential stake-
holders to be engaged in a deliberative dialogue
with the public service decision makers through-
out the use of forums designed specifically for
the public services under design/development.
Additionally, within this type of portal, decision
makers disclose alternatives for getting stakeholder
preferences, as well as visual simulations of the
public service delivery outcomes, where citizens

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Applying Open Innovation Strategies to eGovernment for Better Public Services
can simulate different operational scenarios in-
teractively and arrive at an informed judgment
about how they would wish the public service to
be delivered. The DP enables service designers
to gauge stakeholder opinions on available design
choices and aggregate these opinions to provide
a preferred design configuration. These opinions
are sought through Polls, the responses to which
are fed through an Analytic Hierarchical Process
(Saaty, 2008), which then helps determine the
overall preference of stakeholders. Moreover, the
DP embraces the core Public Service Simulation
& Visualisation Environment (SV) and integrates
its visualised output, as an “inline frame” to each
public service discussion thread. Due to this fea-
ture, citizens are capable to seamlessly access and
alter from within the DP the simulation engine’s
parameters and provide feedback on the results of
the simulations performed. Moreover, statistical
information generated by the OM component is
fed into the DP in a graphical representation to
portrait the citizens’ perception on specific aspects
of a public service prior and after its design phase;
for instance the 75% of the opinion-mined popu-
lation believes that the current offered service is
costly, the 80% that it is time-consuming, and the
20% that is of low transparency. This interface is
built upon Web2.0 technologies and plugs into a
comprehensive and efficient graphical interface.
The Service Engineering (SE) toolkit, realised
as a specific Eclipse IDE, is the core module
of the COCKPIT toolkit where primarily the
design of public services takes place; including
the description of requirements, and modelling
of required processed to realise a public service
taking into consideration service costs and value
estimations. The SE toolkit based on subsets of
the information captured, aims at generating a
simulation model which can be imported and
executed into the Service Simulation & Visualisa-
tion Toolkit (SV). The formal representation of
a public service (meta-model) is an integral part
of SE, defining not only traditional functional
and extra-functional properties, but also other
720

social and economic considerations including
uncertainty, costs, potential value, goals, political
considerations and public constraints including
legislations and regulatory frameworks.
This meta-model is endowed with concepts and
mechanisms to facilitate co-definition of public
services. The intended meta-model is specified
using the Eclipse Modelling Framework (EMF),
so that the bulk of the Java code for graphically
editing, manipulating, reading, and serialising
data is automatically generated. Moreover, it
stands a platform that can support any future
capability related to automatic generation of
software services, based on the adopted formal
representation. The iterative development of a new
public service starts by identifying the abstract
citizen needs, and results in a concise COCKPIT
generic service meta-model that captures all the
elements of the public service (concept, goals,
requirements, stakeholders, resources, processes,
tasks) designated for simulation and evaluation.
Looking into a potential scenario, a designer
utilises the SE toolkit to model a public service.
Based on a subset of modelling information i.e.
provided by the designer, SE exports a file (simu-
lation model) into a format that can be read by
AnyLogic6 software.
The Service Cost and Value estimation (CV)
toolkit capitalises upon the input of service ar-
chitecture models, and value categories and cost
factors for creating service cost models and ser-
vice value models. Cost models are instances of
a framework for activity based costing of public
services, whereas value models provide a struc-
ture of the different value categories associated
with a service and the possible options of their
occurrence.
The Service Cost and Value Modelling com-
ponent (CV/mod), a sub-module of CV integrated
within the SE as an Eclipse plug-in, assists the
designing of cost and value models for a given
service, which are presented in the form of formal
feature diagrams. Cost estimations are calculated
by the CV/srv module for the different options

Applying Open Innovation Strategies to eGovernment for Better Public Services
of service value categories in the service value
model. In the value model, value categories are
defined with respect to underlying goals. Goals and
their value categories are defined both manually
by designers, and automatically based on mining
information on citizens’ preferences. The value
categories are however not used for cost estima-
tion. The cost model estimates the costs of specific
(more technical) service elements, such as tasks or
processes based on different cost factors. Service
valuation is based on pairwise comparison of
scenarios, service variants, that specify options
and associated costs. Public opinions derived
from OM, influences patterns in terms of goals
and value categories, and architecture through
valuation of options/scenarios. In addition to that,
this information also contributes to the better
improvement of costs estimation.
The Service Cost Calculation component (CV/
calc) computes cost estimations for a service
cost model based on static (fixed cost units) and
dynamic (resource consumption over time) cost
data. CV/calc takes as input a service cost model
from CV/mod, and produces as output value cat-
egory costs and/or an aggregated cost estimation.
Feedback of cost estimations into the SE can lead
into a cost optimisation cycle. Cost estimations are
also calculated for the different options of service
value categories in the service value model.
In general, the CV incorporated within COCK-
PIT integrated toolkit features an innovative
modelling approach (Wittern and Zirpins, 2011a,
2011b) to model alternative service designs of a
single service, and to model how different stake-
holders value these alternatives. To measure and
balance the value to stakeholder, the properties
of features that influence the value-perception of
different stakeholders need to first be modelled.
To realise this, feature attributes are used to model
a feature’s value-relevant properties which may
be either of functional or non-functional nature.
Based on these attributes, appropriate configura-
tions are determined which maximize the value
for a certain stakeholders.
The Service Simulation and Visualisation
(SV) toolkit utilises AnyLogic for supporting the
execution, visualisation and interactive simulation
of the models generated by SE. In general, a ser-
vice designer designs a process model according
to the resource utilisations, time to service, cost
of service and value as indicated by the potential
stakeholders in order to meet the respective objec-
tives and requirements of that service. In essence,
the previously mentioned input parameters are
modelled as variables of the public service mod-
els. The process defined in the service design is
then transformed into an event-driven simulation
model, which can be executed with various pos-
sible values of the input parameters; configured
directly by the designer on the simulation platform.
Depending on the complexities of output, the ser-
vice designer can define custom metrics and the
relation of those metrics to the inputs, which can
also help to calculate the custom metrics during
the simulation. Before publishing a simulation
models to citizens, the service designer may also
study the output of the variations of these input
parameters, on the expected outputs iteratively
and pre-select the ones, which are closer to op-
timum result.
The output of SV in embedded within DP to
allow citizens to simulate and visualise a public
service prior its actual deployment. SV hides the
complexity of the underlined processes related to
a specific public service, and enables citizens to
interact with the parameters of the corresponding
simulated version of the envisaged public service,
and observe different behaviour in terms of costs,
utilisation of resources, functionalities etc. SV
acts as a type of incentive to citizens for raising
their participation during the conceptualisation
and design phase of public service delivery. The
experience from their interaction with the simu-
lated version of a public service may be expressed
within the DP, and taken under consideration for
further improvement. This may be done manually
by reading through the posts and discussion threads
of the corresponding public service (within DP),
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Applying Open Innovation Strategies to eGovernment for Better Public Services
or automatically by instructing OM to perform its
mining activities on the respective source.
Currently the 1st version the COCKPIT inte-
grated ICT toolkit7 that was built within 2011is in
operation within three different Public institutions,
that is the Greek Ministry of Interior, the Italian
Municipality of city of Venice, and the Nether-
land Municipality of city of Tilburg. The toolkit
along with the proposed citizen-drive Governance
model of public service delivery was adopted by
the Public Institutions and it is being evaluated
under realistic conditions throughout the follow-
ing public service (1) the Greek access, extracts
of insurance record in Social Security Institute
public service that allows employees to access
and get an extract of their records, held by the
Social Security institute, regarding the working
days that have been paid for by their employer, (2)
the Italian Internet Reporting Information System
(IRIS) on-line public service which enables citi-
zens to connect to the local authorities in order to
guarantee the urban maintenance of streets, green
areas, public lighting and intervene on graffiti,
irregular waste, irregular parking etc., and (3)
the Dutch Werkplein Job intermediation public
service that enables job intermediation involving
social security and unemployment administration
with the aim to improve the efficiency of matching
businesses requiring employees and job seekers
requiring work. The evaluation phase is expected
to be completed by the end of 2012.
FUTURE RESEARCH DIRECTIONS
As it has been described, within the proposed
approach of new Governance model of public
service delivery, citizens’ involvement is highly
present within the Service Conceptualisation and
Implementation Decision, and Service Delivery
Evaluation process of public service delivery.
We believe that the next step towards exploiting
the full potential of citizens’ contribution would
employ their involvement within the Service
722

Modelling and Service Deployment process; in
other words, introduce the notion of co-creation
in Public sector, not just within the design phase
but within development as well. After all, due to
the current worldwide economic crisis that creates
the need for shrinking budgets, it is envisaged that
Governments will start looking at the innovation
potential of crowd sourcing, as a way to meet
higher service level, higher citizen satisfaction
and increased productivity. As such, co-creating
with citizens will come with the benefit for Gov-
ernments of tapping the most uniquely qualified
pool of intellectual capital ever assembled, a res-
ervoir of fresh talent that is keenly and uniquely
enthusiastic about creating a great public service
as the public sector is.
Co-creation therefore will turn the public ser-
vices of the future into complex service systems,
created as reconfigurable and editable citizen-
driven assemblies of modular services provided
by public agencies, and available in open data
catalogues and public sector information portals.
In this instance, public services are expected to
make bigger impact with fewer resources. It is
anticipated that they will scale in ways that cen-
trally designed systems cannot, and Governments
will benefit from positive feedback loops. They
will innovate more rapidly and engage citizens
and businesses in loyal communities, because the
players will create the rules of the game, own their
intellectual property rights, and even volunteer to
provide citizen support.
Of course, although the expansion of the inno-
vative model proposed within this chapter into the
direction described previously is something that
cannot be supported at present due to a number
of dependencies, it is believed that in the near
future it will set the new era of citizen-developed
applications that will make it as easy for citizens
to co-create with their Government as it is now for
them to co-create with the rest of the networked
world. It is just a matter of time for Governments
to publish large amounts of government data via
open API modules that are easy to exploit, the

Applying Open Innovation Strategies to eGovernment for Better Public Services
establishment of standards for the publication of
modular public services to ensure configurability
and interoperability, the conception of co-creation
design and validity principles, as well as the exis-
tence of a platform that will facilitate the design,
validation and deployment of co-created public
services. Given the central role of innovation and
co-creation in the reform of the public sector, fu-
ture research should focus upon both the potential
implementation barriers, such as risk aversion and
lack of pressure for “innovation,” as well as of this
new citizen-cantered Governance model. Further-
more, in order to ensure the successful transition
to the proposed model it is critical to consider
civic participation and engagement. Citizens can
become deeply immersed in government affairs
and in particularly public service development
not only for fulfilling their need for helping out
their community (pure altruistic motives) but also
due to a number of motives ranging from intrinsic
i.e., recognition, enjoyment, interest to extrinsic
ones, i.e., lower taxation, monetary rewards, etc.
As such, future research could examine the most
important motivations for active citizen participa-
tion in public service development.
Further future research directions will be
focused on the compliance issues in the public
service design and delivery process. In particular,
public services delivered in terms of public or-
ganizational processes form the foundation of all
public administrations, and as such are governed
by laws and regulations. Ensuring the compliance
of public organizational processes with applicable
law and regulations is a key concern to avoid in-
cident that may result in the enactment of strict
legislations. Therefore, a need of a compliance and
structured compliance management solution for
absolute compliance assurance becomes a must
in the public service design and delivery process.
Process compliance management is characterized
by being multidisciplinary, which has its root in
computer science, distributed computing, business
process management, Service Oriented Comput-
ing, modeling, and formal methods. A major area
in this research is to bridge the gap and combine
knowledge from these areas of research to realize
the need for an automated comprehensive com-
pliance management solution for public service
design and delivery. Such a solution will aids
service designers to ensure and maintain continu-
ous absolute compliance.
CONCLUSION
Within this chapter, we have discussed the im-
portance of open innovation strategies and how
these may be applied in the context of Public
sector. In particular, we have concentrated on
the current Government model of public service
delivery–as it is applied within Europe–and we
proposed an alternative innovative approach that
engages citizens (apart from decision makers)
in the public service delivery decision making
process, so as to enable governments to better
understand and address the citizens’ needs. We
strongly believe that the next-generation Gover-
nance model described within this chapter, along
with its associated service engineering methodol-
ogy that can realise the former via ICT means will
inevitably result into more efficient and effective
public services, as citizenship is reinstated at the
heart of public service delivery. Nevertheless, the
question is whether citizens’ participation may be
further increased, and if so at what level so as to
enhance the current proposed innovative model.
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ENDNOTES
1
Approach adhered to by a company that relies
on its own resources to develop, manufacture,
market, distribute, and service itself.
2
According to Parks et al. (1981), production
inputs can derive from “regular producers”
of public goods and services, and “consumer
producers” that act outside their regular
consumption roles. Co-production involves
mixing regular and consumer producer pro-
ductive efforts.
3
According to the Oslo Manual (3rd edition):
product innovation involves the introduction
of a new or significantly improved good or
service; process innovation involves the
implementation of a new or significantly
improved production or delivery method;
marketing innovation involves the imple-
mentation of a new marketing method involv-
ing changes in product design, packaging,
product placement, promotion or pricing,
and organizational innovation involves the
implementation of a new organizational
method in the firm’s business practices
(OECD-Eurostat, 2005).

Applying Open Innovation Strategies to eGovernment for Better Public Services

4
COCKPIT (Contr. no.: FP7-248222) is a
research project co-funded by European
Commission under the seventh Framework
Program - Theme 3 (ICT for Governance
and Policy Modelling). Its acronym stands
for ‘Citizens Collaboration and Co-Creation
in Public Service Delivery’, Retrieved July
10, 2012 from http://www.cockpit-project.
eu.
5
A storyboard demonstrating the next gen-
eration citizen-driven Governance model of
public service delivery may be found at http://
www.youtube.com/watch?feature=player_
embedded&v=_2K54hMcDCs.
6
AnyLogic is a multi-method simulation
modeling tool developed by XJ Technolo-
gies, http://www.xjtek.com.
7
A demonstration of the 1st release of the
COCKPIT integrated ICT Toolkit that ad-
heres to the proposed citizen-driven Gover-
nance model of public service delivery may
be found at http://www.youtube.com/watch?
v=TYon9qYnxpE&feature=player_embed-
ded.

This work was previously published in E-Government Success Factors and Measures edited by J. Ramon Gil-Garcia, pages
308-331, copyright year 2013 by Information Science Reference (an imprint of IGI Global).

727
728

Chapter 39
Relationship between
Company’s Intellectual
Capital and Performance:
A Study of Indian IT Industry

Karam Pal Narwal

Guru Jambheshwar University of Science and Technology, India

Sushila Soriya
Central University of Rajasthan, India

ABSTRACT
This chapter examines the relationship between Financial Reporting of Intellectual Capital and Company’s
Performances in Indian Information Technology Industry. The sample consisted of 60 companies listed
on NSE for a time period of 1999-00 to 2008-09. Value-Added Intellectual Coefficient (VAICTM) method
developed by Pulic (1998) was used for the analysis of the data. The chapter uses VAICTM model and
regression equation for the evaluation of intellectual capital and their relationship with productivity,
profitability, and market valuation of the companies. The result of the chapter supports the hypothesis
that profitability of the company can be explained by the intellectual capital. However, there is no sig-
nificant association of intellectual capital with productivity and market capitalization of the companies
for the selected time period of year 1999-00 to 2008-09.

INTRODUCTION in the financial statements of the company was

Financial reporting of intellectual capital is
one of the most debatable issues among the ac-
counting professionals because of its intangible
nature. Many researchers have tried to define it
and developed different models to identify the
accurate value of it. The information provided
DOI: 10.4018/978-1-4666-8468-3.ch039
not able to capture the intellectual assets of the
company. Different measures were used to cal-
culate the amount of intellectual assets present
in the company’s annual reports particularly the
balance sheet. Various scholars and researchers
have divided intellectual capital into three groups.
These were human capital, structural capital and

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Relationship between Company’s Intellectual Capital and Performance
relationship capital or customer capital. Relation-
ship between intellectual capital of the company
and its market value of the companies has always
gathered the attention of the academician and
corporate.
Seleim, Ashour & Bontis (2004) investigated
Egyptian software firms to know the components
of the intellectual capital i.e. human, structural
and relational capital present in them. These
components were essential for the proper devel-
opment of the theory and the model. The study
found that intellectual capital which was widely
present in software firms can be measured and
utilized. Oliver & Porta (2006) developed a cluster
model to analyze the components of the intellec-
tual capital namely Intellectual Capital Cluster
Index (ICCI®). It was developed to measure the
intellectual capital in clusters. Many conceptual,
exploratory and empirical studies have been car-
ried out (Roos, 2005; Pike & Roos, 2004; Guthrie,
2001) to enhance the awareness of the concept.
Intangible and tangible assets cannot be treated
separately as both are necessary for the proper
functioning of the organization. In fact intellectual
capital is gaining importance over the physical
assets of the company. This study is a modest at-
tempt to analyze the relationship of intellectual
capital with profitability, productivity and market
valuation of the companies.
The chapter is divided into five sections.
Section 1 gives overview of Indian IT Industry,
Section 2 reviews literature of the exiting studies.
Table 1. India IT/ITES Industry Size (2007-2012) (value in Crores)
2007 2008
Domestic IT/ITES
Market 90,014 110,177
IT/ITES
Export Revenue 156,594 186,142
India IT/ITES
Industry Size 246,609 296,319
Source: NASSCOM
Section 3 presents the methodology followed in
this paper. Section 4 discusses the results and
Section 5 concludes the paper.
1. AN OVERVIEW OF
INDIAN IT INDUSTRY
Information Technology (IT) industry is one of
the growing sectors in India making its presence
well felt all over the world. The IT industry sector
is one of the many knowledge based industries.
The growth of the IT industry may be due to the
presence of intellectual capital in it. Table 1 shows
industry size of IT and IT enables services (ITES)
from the year 2007 to 2012 with compound annual
growth rate (CAGR).
IT industry is major contributor to Indian
economy in terms of foreign exchange services and
employment opportunities. Indian IT companies
are expanding their business at the global level by
various mergers and acquisitions done by these
companies. In terms of Gross Domestic Product
(GDP), IT sector has increased its share from 1.2%
in Financial Year (hereafter FY) FY98 to 5.2%
in FY07. Export earning was also approximately
USD 40.0 billion with a growth rate of 36% in year
FY08. This sector is also providing employment
to a large part of the population. In the year 2006,
out of total merger and acquisition, 23% were in
IT industry. This industry is also one of the largest
distributors of dividends to shareholders.
CAGR
2009 2010 2011 2012 07-12
133,100 158,053 182,991 209,698 18.4%
218,104 250,087 284,666 320,278 15.4%
315,207 408,139 467,657 529,976 16.5%
729

Relationship between Company’s Intellectual Capital and Performance
Contributions of IT sector in the foreign earn-
ings have shown remarkable growth of 32.6%
in FY07. This industry also became the largest
employer in private sector having a growth Com-
pound Annual Growth Rate (CAGR) of 26% in
the last decade.
Traditionally Indian export was limited to
only few products like gems, jewelleries and
garments few more. But with the growth of IT
industry, India made its presence felt in the global
arena for its products and services. Acquisition
of foreign companies by Indian companies rose
to 125 foreign acquisitions in the year 2006 with
a value of about $10 million. It was about 23%
of the total number of international acquisitions.
The production performance of various industry
groups in the hardware and software sector in
2008-09 is given in Figure 1.
2. REVIEW OF LITERATURE
The term intellectual capital constitutes different
variables which are difficult to measure in the
quantitative terms. Accounting Standard (AS) 26
specifies stringent criteria needed to be fulfilled
by an intangible asset to be reported as intangible
assets in company. Studies were conducted to check
the inter-relationship between components of intel-
lectual capital i.e. human, structural and relation-
Figure 1. Production performance of IT industry
730

ship capital and overall company’s performance.
Bozzolan, Favotto & Ricceri (2003) analyzed
Italian listed companies to check the intellectual
capital disclosure pattern and the various reasons
behind the disclosure or non-disclosure. It was
summarized that disclosure of companies related
mainly with external structure, size and industry.
Abeysekera & Guthrie (2005) examined annual
reports of Sri Lanka’s Colombo Stock Exchange
using content analysis method. The study focused
on the intellectual capital covering a wide variety
of intellectual capital items but that has not specifi-
cally mentioned under any heading. Ghose & Wu
(2007); Dumay & Tull (2007) and Chen, Cheng &
Hwang (2005) have also carried out the study to
investigate relationship between the presence of
intellectual capital in the company and its impact
on the performance of the company.
Kamath (2007) investigated 98 banks by using
VAIC to measure the performance of intellectual
capital in India. The study confirmed the overall
performance of banks in India. There was a great
diversity found among the banks regarding their
performance. Foreign banks were overall better
performers in terms of human capital efficiency as
compared to others. Public sector banks were better
in case of capital employed efficiency. Gilaninia
& Matak (2012) also confirmed the relationship
between intellectual capital and the small business
enterprises performance in Guilan Province of

Relationship between Company’s Intellectual Capital and Performance
116 enterprises. It was concluded that there was
relationship between the dimensions of intellectual
capital i.e. human capital, relational capital and
structural capital and enterprises performance.
Khan, Khan & Khan (2012) in Pakistan’s banks
found that intellectual capital has significant
impact on the financial performance. It was also
found that structural capital resource and relation-
ship with stakeholders have significant impact on
financial performance. The reason behind it may
be the HR practices which may create innovation
indirectly helping in the financial performance of
the organization. Mohammed-Sani, Youngsun &
Junghoon, (2012) investigates three Nations i.e.
India, Ireland and Israel to examine the relation-
ship between intellectual capital elements and
performance of software firms in West Africa.
The results have shown significant relationship
between the elements of intellectual capital and
competitive capabilities.
Chen, Cheng & Hwang (2005) investigated
Taiwanese companies to examine the association
between intellectual capital efficiency and firms’
financial performance. The results of the study
supported the argument that the intellectual capital
was positively related with the market value and
financial performance of the company. It also
highlighted the fact that investors were giving more
importance to the firms with higher intellectual
capital efficiency and in turn greater profitability.
Basuki & Sianipar (2009) indicated for 22 banks
and 10 publicly traded banking and insurance
firms results outlined the association between
value added efficiency and return on asset, return
on equity and capital gain were insignificant.
Bollen, Vergauwen & Schnieders (2005)
conducted the survey in German pharmaceutical
industry to check the relationship between intel-
lectual property and performance of the firms. For
the purpose of this study the intellectual capital was
divided into four main heads i.e. human capital,
structural capital, relationship capital and intel-
lectual property. The results highlighted that the
intellectual property has major impact on the com-
pany’s overall performance which was influenced
by human capital, structural capital and relational
capital. It implied that pharmaceutical companies
have to focus on the intellectual property of the
company to enhance the company’s performance.
Bontis, Keow & Richardson (2000) investi-
gated Malaysian industry with three components
of intellectual capital i.e. human capital, structural
capital and customer capital and their inter rela-
tionships using questionnaire method. The result
of the study emphasized that intellectual capital
have significant relationship with the business
performance in any industry. Garcia-Meca (2005)
examined intellectual capital disclosure in Spanish
companies and its usefulness in the investment
decision making process. The Disclosure Index
(DI) and Analyst Index (AI) were used for the
study. The study confirmed that the information
regarding the intellectual capital was disclosed by
way of meetings with the analysts and later on this
information was used for the earnings forecast.
Ong, Yeoh & Teh (2011) investigated that intel-
lectual capital efficiency in Public Listed food and
beverage companies in Malaysia. Result revealed
that beverage companies have greater intellectual
capital efficiency as compared to food companies.
Rahman & Ahmed (2012) implied that intellectual
capital and its components did not significantly
influence the financial performance and its market
value in banking, textiles and pharmaceuticals in
Bangladesh.
La’lbar, Ghaemmaghami & Farshidpoor
(2012) implied that there was positive relation-
ship between physical capital efficiency, human
capital efficiency and structural capital efficiency
with market to the book value in the companies
listed on Tehran Stock Exchange. Alipour (2012)
also revealed that intellectual capital and its com-
ponents have a significant positive relationship
with companies’ profitability. Shiri et al. (2012)
examine the relationship between intellectual
capital and market value added (MVA) in Tehran
731

Relationship between Company’s Intellectual Capital and Performance
Stock Exchange. VAIC and its components have
a significant and positive relationship with MVA.
But Mehralian et al. (2012) failed to support the
impact of IC on market value in pharmaceutical
companies from Iranian Exchange Stock.
Guo, Shiah-Hou & Chien (2012) implied that
the association between patents and Research
and Development (R&D) expenditure was found
to be positive in 279 biotech firms listed in the
US market. Huang & Hsueh (2007) found that
in engineering consulting firms, the structural
capital and relational capital have shown better
performance while human capital has poorer
performance. Only relational capital has a direct
influence on business performance. Young et al.
(2009) explored commercial banks in eight Asian
economies highlighted that both physical and hu-
man capitals were main factors creating value for
banks. Ghasemi & Tehrani (2013) have showed
that in Iranian stock market, physical capital ef-
ficiency has the highest coefficient.
Fathi, Farahmand & Khorasani (2013) in 49
Iranian companies listed in the Tehran Stock Ex-
change found that there was significant positive
relationship between intellectual capital and value
added efficiency of structural capital component
with the three financial performance measures.
Boekestein (2006) analyzed a sample of 52 larg-
est pharmaceutical companies. The information
provided in the balance sheet and the annual
reports were more of qualitative kind and not in
quantitative form. From the study it was found
that there was not any significant relationship
between the profitability and intangible assets of
the company.
Abeysekera & Guthrie (2003) examined 30
companies in Sri Lanka using content analysis
method. Intellectual capital was divided into three
parts namely internal, external and human capital.
The result of the study indicated that external
capital which was followed by the human capital
were most reported items. It was found that the
qualitative means not in the numerical terms.
The outcome of the study was that Sri Lankan
732

companies although not using the term intellectual
capital, were disclosing lot of information about
it in the sundry section of the annual reports.
Mavridis (2004) examined a set of Japanese
banks with the VAICTM to know the value added by
the intellectual capital in the banks of Japan. Best
Performance Index (BPI) was used to supplement
the VAICTM model. Increase in the Best Perfor-
mance Index (BPI) was complemented by both
physical capital and human resource capital. The
results highlighted that the banks which were per-
forming better than others were those with higher
intellectual capital than the physical capital. Guo,
Shiah-Hou & Pan (2011) in their study implied that
intangibles and human capital in the balance sheet
and firms’ performance were positively related.
R&D of the company was found to be negatively
associated with the sales growth rate. It was also
analysed that balance sheet intangibles, advertising
expenses, bonus and salary of the managers were
also significantly associated with performance in
small and middle size firms.
Kamath (2008) carried out the study to analyze
the association between the intellectual capital
components and pharmaceutical firms’ corporate
performance. VAIC model was used for this pur-
pose. The study was conducted on a sample size
was of 25 pharmaceutical firms for a period of
1996 to 2006. The study found that components
of intellectual capital i.e. Value Added Capital
Co-efficient (VACA), Human Capital Co-efficient
(VAHU) and Structural Capital Co-efficient
(SCVA) individually have a significant impact
on the dependent variable. It was also found that
human assets were important and have an impact
on profitability and productivity in this industry.
Bhasin (2006) studied different components
of intellectual capital and has given diverse ar-
guments both in support and against of not dis-
closing intellectual capital in the annual reports
of the companies. The reasons discussed for the
disclosure of intellectual capital being the reduc-
tion of borrowing cost by providing transparency
to the stakeholders. It would help in minimizing

Relationship between Company’s Intellectual Capital and Performance
the information gap between the two parties. Tan,
Plowman & Hancock (2007) used Pulic’s model
to evaluate 150 public listed companies on Singa-
pore Exchange. Company’s ratios such as return
on investment, earnings and shares’ performance
on the stock market were used to measure the
company’s performance.
In Indian context only few studies were done
to check the impact of financial reporting of
intellectual capital on the traditional valuation
methods. This study tries to find the association
of intellectual capital with that of firms’ profit-
ability, productivity and market valuation. This
paper follows the methodology used by Firer &
Stainbank (2003) to check the relationship between
intellectual capital firms’ profitability, productiv-
ity and market valuation in South African context
and Ghose & Mondal (2009) in pharmaceutical
and software industry in India with a sample of
80 firms.
3. RESEARCH METHODOLOGY
In research, the methodology needs to be cau-
tiously designed to obtain results that are as ob-
jective as realistic. A well comprehensible modus
operandi empowers the innovative researcher to
revisit the study setting. Good methodology fol-
lows the standards of the established conventions.
For the present chapter, a number of obligatory
inimitabilities of the research methodology are
defined here.
Objectives of the Chapter
• To evaluate the VAICTM of 60 companies
in Indian IT sector for a period of ten year
from 1999-00 to 2008-09;
• To study the relationship between intellec-
tual capital and profitability in IT sector in
India for a period of ten year from 1999-00
to 2008-09;
• To study the relationship between intellec-
tual capital and productivity in IT sector in
India for a period of ten year from 1999-00
to 2008-09; and
• To investigate the relationship between in-
tellectual capital and market valuation of
the firm for a period of ten year from 1999-
00 to 2008-09.
Hypothesis
H01: Intellectual capital and company’s profit-
ability is not associated with each other.
H02: Intellectual capital and company’s productiv-
ity is not associated with each other.
:
H03 Intellectual capital and market value of
company is not associated with each other.
Data Collection
For the purpose of this study, sixty companies
listed on National Stock Exchange (NSE) are
taken. The data used for the study is secondary
data. The data is collected from the Centre for
Monitoring Indian Economy (CMIE), Prowess
database. The time period for the study is from
1999-00 to 2008-09.
For the purpose of this study, variables are
divided into dependent, independent and control
variables. VAICTM is considered as independent
variable and dependent variables are Return on
Assets (ROA), Assets Turnover Ratio (ATO) and
Market to Book Value (MB). Control variables are
LCAP (Market Capitalization of the company),
Debt Equity Ratio (DER) and Physical intensity
(PC) measured to know the amount of fixed assets
of a company over its total assets.
Statistical Tools for the Study
Value Added Intellectual Co-efficient (VAICTM)
method developed by Ante Pulic (1999) used to
measure the intellectual capital efficiency of the
733

Relationship between Company’s Intellectual Capital and Performance
company. This method measures the value added
of a company by the presence of the intellectual
capital in it. The main advantage of using VAICTM
model as the measuring technique is that it is
based on the information provided in the annual
reports which are already audited and a reliable
source of information. VAICTM method provides
consistent results and therefore comparisons of
different companies can be done in an effective
way. The results of value added intellectual co-
efficient can be analyzed easily as higher the value
of VAIC better it is. Nazari & Herremans (2007)
suggested the extension of VAIC models to have
better results.
Correlation and linear regression equations
used to analyze the company’s performance in
form of profitability, productivity and market
valuation of the company (shown in Box 1).
Ho & Williams (2003) used VAICTM model
but did not included wages and salaries in the
calculation of value added by the companies for
the reason being the major role of human capital
in the value added of the firms. Many researchers
have given arguments in favor of using wages and
salaries items for the calculation of value added.
Value Added of the companies is measured by
the summation of the following items.
VAi= Ii + DPi + Di + Ti +Mi + Ri + WSi VAICTM = CEEi + HCEi + SCEi
where
• VAi is the value added by the company;
• Ii is the interest expenses;
• DPi is the depreciation expenses;
• Di is the dividend paid;
• Ti represents the taxes paid;
• Mi for equity of minority shareholders in
net income of the subsidiaries;
Box 1.­
Value Added (VA) = OUT – IN
Where OUT = Output of the firm and IN = Input of the firm
734

• Ri represents the profits retained of the
company; and
• WSi represents the wages and salaries of
the personnel in the company.
Chen, Cheng & Hwang (2005) calculated
value added in a broader term. Similar method
is followed for the calculation of value added of
the companies. It is calculated by using the fol-
lowing formula.
VAi = Wi + Ii + Ti + NIi
where
• VAi is the value added by the company;
• WSi represents the wages and salaries of
the personnel in the company;
• Ii is the interest expenses;
• Ti represents the taxed paid;
• NIi represents Net Income.
Value added of the firm can be divided into
three main factors Capital Employed Efficiency
(CEE), Human Capital Efficiency (HCE) and
Structural Capital Efficiency (SCE). It can be
explained in the form of equation;
where CEEi = VAi/CEi
where
• VAi is the value added efficiency of the
firm i.
• CEi is capital employed by the firm mea-
sured by the book value of net assets of the
firm i.
HCEi = VAi/HCi
• VAi is the value added efficiency of the
firm i.

Relationship between Company’s Intellectual Capital and Performance

• HCi is the sum of total salaries and wages
of the firm i.
SCEi = VAi/SCi tor of the profits relative to the total assets
• VAi is the value added efficiency of the
firm i.
• SCi is the structural capital of the firm i.
where
SCi = VAi – HCi riod 1999-00 to 2008-09. This paper uses
After calculation of VAICTM of firm the fol-
lowing regression equation should be calculated
to check the respective association between the
Return on Assets, Assets Turnover Ratio and
Market to Book value of the companies. The three
equations are shown in Box 2 (Firer & Stainbank,
2003 and Ghose & Mondal, 2009).
The remaining are α and ε are intercept and
residual terms respectively and β1 to β6 are the
slope co-efficient.
Explanation of the terms used:
• Assets Turnover Ratio (ATO) is the ratio
of total assets to the book value of assets. It
is used to show the efficiency of the com-
pany’s use of its assets in generating sales
of the company for the period 1999-00 to
2008-09.
• Return on Assets (ROA) is the ratio of
net income (less preference dividends)
to the book value of assets. It is indica-
of the company for the period 1999-00 to
2008-09.
• Market to Book value (MB) is the ratio of
market capitalization which is measured by
the multiplying total number of outstand-
ing shares with the share price of the com-
pany to book value of net assets for the pe-
the average 365 days prices of the shares.
4. ANALYSIS AND INTERPRETATION
Tables 3 and 4 show the mean and standard de-
viation of the variables from the year 1999-00 to
2008-09. The mean value of the VAIC of different
companies in the 2000 is 4.006 but started declin-
ing afterwards. The table shows that the presence
of intellectual capital has declined in the reports
of the companies but has increased moderately in
the last second two years of the studies.
Profitability of the IT companies measured
by the return on assets (ROA) is also somewhat
resolves around 12 percent from the year from
the 2000 to 2003 but declines afterwards till
2009. The productivity (ATO) of the companies

Box 2.­

ATO = α + β1(VAICTM) + β2(PC) + β3(LCAP) + β4(DER) + ε (1)

ROA = α + β1(VAICTM) + β2(PC) + β3(LCAP) + β4(DER) + β5(ATO) + ε (2)
MB = α + β1(VAICTM) + β2(PC) + β3(LCAP) + β4(DER) + β5(ATO) + β6(ROA) + ε (3)
where
VAICTM: Intellectual capital performance measured by Value Added Intellectual Co-efficient TM.
ATO: Asset turnover ratio that shows company’s productivity.
PC: Physical intensity measured by fixed assets divided by total assets.
LCAP: Company size natural log of market capitalization.
DER: Leverage of the company measured by the debt equity ratio of that period.
ROA: Return on assets measured to know the company’s profitability.
MB: Market to book value of the company.

735
 
Relationship between Company’s Intellectual Capital and Performance

Table 2. Name of the IT companies Table 2. Continued

Sl. No. Name of the IT Companies Market Sl. No. Name of the IT Companies Market
Capitalization Capitalization
(In Crores) (In Crores)
1 3I Infotech Ltd. 973.25 37 Nucleus Software Exports Ltd. 431.95
2 Accel Frontline Ltd. 159.41 38 Oracle Financial Services 7691.24
3 Allsec Technologies Ltd. 58.21 Software Ltd.

4 Axis-I T & T Ltd. 37.97 39 Panoramic Universal Ltd. 236.76

5 Blue Star Infotech Ltd. 58.67 40 Patni Computer Systems Ltd. 2487.32

6 C M C Ltd. 724.38 41 Polaris Software Lab Ltd. 678.65

7 Cranes Software Intl. Ltd. 1110.09 42 R Systems International Ltd. 95.99

8 Datamatics Global Services Ltd. 97.56 43 Ramco Systems Ltd. 128.49

9 Educomp Solutions Ltd. 4845.21 44 Rolta India Ltd. 3064.43

10 F C S Software Solutions Ltd. 78.87 45 Saksoft Ltd. 85.38

11 Financial Technologies (India) 4974.43 46 Sasken Communication 291.96

Ltd. Technologies Ltd.

12 Firstsource Solutions Ltd. 1141.63 47 Smartlink Network Systems 188.06

Ltd.
13 Four Soft Ltd. 84.17
48 Softpro Systems Ltd. 87.88
14 G T L Ltd. 2031.63
49 T V S Electronics Ltd. 43.30
15 Geodesic Ltd. 1165.50
50 Tanla Solutions Ltd. 1497.47
16 Geometric Ltd. 237.85
51 Tata Consultancy Services Ltd. 67847.81
17 Glodyne Technoserve Ltd. 421.13
52 Tata Elxsi Ltd. 428.11
18 H C L Infosystems Ltd. 1930.99
53 Tech Mahindra Ltd. 6539.59
19 H C L Technologies Ltd. 12775.02
54 Tricom India Ltd. 112.68
20 Hexaware Technologies Ltd. 563.89
55 Tulip Telecom Ltd. 2087.95
21 Hinduja Ventures Ltd. 393.98
56 Vakrangee Softwares Ltd. 269.59
22 I C S A (India) Ltd. 1086.58
57 Wipro Ltd. 50421.92
23 Infosys Technologies Ltd. 84608.37
58 Zenith Computers Ltd. 35.48
24 Infotech Enterprises Ltd. 915.88
59 Zenith Infotech Ltd. 329.89
25 K L G Systel Ltd. 351.76
60 Zensar Technologies Ltd. 259.97
26 K P I T Cummins Infosystems 369.29
Ltd.
27 Kale Consultants Ltd. 46.15
28 Kernex Microsystems (India) 124.73 showing a declining trend up to 2003 and starts
Ltd. increasing after that but it is again declined from
29 Logix Microsystems Ltd. 121.23 the year 2008.
30 Mastek Ltd. 722.35 Market capitalization of the companies from
31 Mindtree Ltd. 1203.84 the year 2000 started decreasing up to the year
32 Moser Baer India Ltd. 1709.70 2004 and increased till the year 2007 but again
33 Mphasis Ltd. 4042.87 declined. The debt equity ratio of the companies
34 Mro-Tek Ltd. 79.87 has declined but again increased. Physical inten-
35 N I I T Ltd. 542.58 sity of the companies measured by fixed assets
36 N I I T Technologies Ltd. 542.58 by total assets is also increased till the year 2005
and declined afterwards and it shows than the
continued in next column

736

Relationship between Company’s Intellectual Capital and Performance

Table 3. Mean of the selected companies

YEAR VAIC PC DER ATO ROA LCAP MB

2000 5.391 0.239 0.874 0.741 0.121 3374.872 8.039
2001 4.533 0.257 0.531 0.869 0.142 5291.434 6.176
2002 3.254 0.308 0.545 0.917 0.087 2671.454 2.443
2003 2.793 0.326 0.624 0.966 0.075 2560.044 2.695
2004 2.957 0.491 0.712 1.072 0.101 2511.099 2.609
2005 3.112 0.513 0.698 1.083 0.118 4744.175 3.289
2006 3.290 0.317 0.593 1.085 0.122 5345.751 3.706
2007 3.872 0.337 0.803 0.992 0.137 6601.420 3.928
2008 3.624 0.433 0.819 0.960 0.109 6740.368 3.479
2009 3.458 0.466 0.900 0.943 0.096 4594.558 1.836

Table 4. Standard deviation of the selected companies

YEAR VAIC PC DER ATO ROA LCAP MB

2000 4.006 0.155 1.318 0.606 0.122 8596.010 8.039
2001 3.816 0.181 0.772 0.582 0.111 14678.959 8.456
2002 2.722 0.177 0.639 0.567 0.131 7818.886 3.129
2003 1.464 0.174 0.727 0.520 0.149 7522.377 2.472
2004 1.698 1.082 0.836 0.652 0.094 6856.661 2.022
2005 1.833 1.176 0.695 0.661 0.104 13296.181 3.069
2006 1.577 0.161 0.494 0.760 0.081 15916.802 2.962
2007 2.837 0.173 0.758 0.770 0.157 21201.355 3.702
2008 2.078 0.619 0.706 0.661 0.091 20440.139 2.774
2009 1.916 0.771 0.742 0.592 0.080 15077.563 1.623

dependence on the physical assets has increased
till the year 2005 and dependence decreased in
the last four years.
Results of the Linear
Multiple Regressions
An important assumption of Linear Multiple Re-
gressions is met by taking normally distributed
data. Natural logarithm and inverse transforma-
tion are carried out for those variables which are
not normally distributed. Data which are having
negative or zero values are used by transforming
the data. The key variables where data was not
available for that particular period are excluded
from the study. The problem of multi-collinearity
is checked by taking Variance Inflation Factor
(VIF) below 5. There was not the problem of
multi-collinearity as the VIF of the variables are
below 5.
Table 5 shows that productivity (ATO) of the
companies explains 21.8 percent to 86.9 percent
of the variables which is significant at 5% level
and is influenced by the factors like VAIC, DER,
and PC. But for year 2002 and 2003 is showing
the significance level 1% but by this conclusion

737
 
Relationship between Company’s Intellectual Capital and Performance

Table 5. The results of the linear multiple regression of productivity

Year N Adjusted F- Statistics Significance Independent Standard T- Significance Standard

R2 and Control Beta Statistic Error
Variables
2000 11 0.869 14.267 0.012** VAIC -0.620 -4.733 0.009* 0.076
PC 0.020 0.124 0.907 0.353
LCAP 0.450 2.910 0.044** 0.085
DER 0.480 3.657 0.022** 0.039
2001 27 0.391 5.166 0.004* VAIC -0.207 -1.235 0.230 0.216
PC 0.100 0.612 0.547 0.169
LCAP 0.300 1.857 0.077*** 0.066
DER 0.679 4.323 0.000* 0.110
2002 27 0.304 3.838 0.016** VAIC 0.063 0.328 0.746 0.075
PC -0.373 -2.092 0.048** 0.482
LCAP -0.096 -0.503 0.620 0.013
DER 0.402 2.175 0.041** 0.025
2003 30 0.274 3.741 0.016** VAIC 0.069 0.333 0.742 0.501
PC 0.444 2.633 0.014** 0.473
LCAP 0.023 0.117 0.908 0.095
DER -0.355 -2.090 0.047** 0.174
2004 33 0.218 3.224 0.027** VAIC 0.201 1.139 0.264 0.945
PC -0.350 -2.146 0.041** 0.200
LCAP 0.150 0.901 0.375 0.052
DER 0.497 2.903 0.007* 0.125
2005 39 0.027 1.414 0.241 VAIC -0.224 -1.600 0.115 0.166
PC -0.188 -1.381 0.173 0.264
LCAP 0.047 0.354 0.725 0.022
DER 0.267 1.960 0.055*** 0.049
2006 48 -0.052 0.420 0.793 VAIC -0.089 -0.541 0.591 0.875
PC -0.101 -0.604 0.549 0.743
LCAP -0.021 -0.135 0.893 0.142
DER 0.110 0.736 0.466 0.122
2007 59 -0.026 0.628 0.645 VAIC 0.114 0.777 0.440 0.315
PC -0.042 -0.279 0.781 0.268
LCAP 0.130 0.942 0.350 0.026
DER 0.170 1.240 0.220 0.040
2008 60 0.017 1.251 0.301 VAIC -0.207 -1.533 0.131 0.151
PC -0.133 -0.964 0.340 0.279
LCAP 0.036 0.270 0.788 0.022
DER 0.255 1.871 0.067*** 0.049
2009 60 0.012 1.179 0.330 VAIC 0.107 0.706 0.483 0.331
PC 0.048 0.362 0.718 0.072
LCAP -0.038 -0.261 0.795 0.395
DER 0.281 2.131 0.038** 0.102

738

Relationship between Company’s Intellectual Capital and Performance

can be made that productivity of the companies
is affected by other factors which may not be
included in this study. So, more variables can be
included in the study to get more accurate results.
Table 6 shows the profitability measured by
ROA is explaining 36.9 to 55.6% of the variances
in the multiple regressions on return of assets of the
companies. The variables which are significantly
explaining the productivity are VAIC, DER and
ATO. The results are significant in nine years
except the year 2000. It means that the overall
variables are significant in nine cases out of
ten. VAIC is significant in seven cases. So, the
researcher can conclude that the profitability of
the companies can be explained by the presence
of intellectual capital in the companies. This result
is contradictory to Boekestein (2006) as the study
found no relation between intellectual capital and
profitability in pharmaceuticals companies.
Table 7 explains the market to book value
(MB) of the companies. Market to book value is
explained by the VAIC, PC, LCAP, DER, ATO
and ROA. It is collectively significant only in
all the ten years. But VAIC is significant only in
three years out of ten years. So, the conclusion can
be made that market valuation of the companies
is not explained by the presence of intellectual
capital. This is also supported by the previous
studies (Firer & Stainbank, 2003), (Ghose &
Mondal, 2009). But on the contrary Chen, Cheng
& Hwang (2005) found that intellectual capital
has positive impact on the market valuation and
financial performance in Taiwan companies.
Other variables in this study which explain the
market valuation of the companies are ROA, PC
and LCAP. It shows that intellectual capital is not
taken into consideration for the market valuation
of the company.
From the results it can be concluded that inves-
tors in India give preference to physical assets and
company’s profitability and company size are other
major factors for the market valuation of the com-
pany. Our results are also supported by the study of
Firer & Stainbank (2003) as they found that there
was positive association with the profitability and
it was negative in case of productivity. There was
no explanatory power for the market valuation of
the company in South African context. Contrary
to our results Bontis, Knew & Richardson (2000)
found inter-relationship between structural capital
one of the components of intellectual capital and
company’s performance. That was explained by
the reporting of structural capitals in by having
competitive advantage through it and resulting

Table 6. The results of the linear multiple regression of profitability

Year N Adjusted F- Significance Independent and Standard T- Significance Standard

R2 Statistics Control Variables Beta Statistic Error
2000 11 -0.802 0.288 0.893 VAIC -0.284 -0.228 0.834 1.935
PC -0.075 -0.128 0.906 3.514
LCAP 0.690 0.681 0.545 1.493
DER 0.421 0.414 0.706 0.808
ATO -1.173 -0.633 0.572 4.967
2001 27 0.488 5.963 0.001* VAIC 0.525 3.305 0.003* 0.021
PC 0.022 0.144 0.887 0.016
LCAP 0.235 1.477 0.154 0.007
DER -0.353 -1.801 0.086*** 0.014
ATO 0.603 3.088 0.006* 0.021
2002 27 0.556 7.519 0.000* VAIC 0.568 3.672 0.001* 0.018

continued on following page

739
 
Relationship between Company’s Intellectual Capital and Performance

Table 6. Continued

Year N Adjusted F- Significance Independent and Standard T- Significance Standard

R2 Statistics Control Variables Beta Statistic Error
PC -0.064 -0.409 0.687 0.127
LCAP 0.271 1.778 0.090*** 0.003
DER -0.408 -2.510 0.020** 0.007
ATO 0.413 2.426 0.024** 0.051
2003 30 0.535 7.661 0.000* VAIC -0.064 -0.381 0.706 0.029
PC -0.017 -0.109 0.914 0.030
LCAP 0.343 2.140 0.043** 0.005
DER -0.537 -3.641 0.001* 0.011
ATO -0.582 -3.633 0.001* 0.011
2004 33 0.369 4.740 0.003* VAIC -0.035 -0.217 0.830 0.040
PC -0.163 -1.031 0.312 0.009
LCAP 0.371 2.445 0.021** 0.002
DER -0.400 -2.281 0.031** 0.006
ATO 0.346 2.038 0.051*** 0.008
2005 39 0.538 14.733 0.000* VAIC 0.625 6.333 0.000* 0.028
PC 0.092 0.966 0.339 0.045
LCAP 0.344 3.778 0.000* 0.004
DER -0.342 -3.518 0.001* 0.008
ATO 0.303 3.258 0.002* 0.023
2006 48 0.513 10.915 0.000* VAIC -0.459 -4.112 0.000* 0.063
PC -0.030 -0.263 0.794 0.054
LCAP 0.248 2.361 0.023** 0.010
DER -0.309 -3.012 0.004* 0.009
ATO 0.396 3.814 0.000* 0.011
2007 59 0.424 9.256 0.000* VAIC -0.493 -4.512 0.000* 0.108
PC -0.130 -1.198 0.237 0.083
LCAP 0.112 1.079 0.286 0.008
DER -0.358 -3.329 0.002* 0.013
ATO 0.371 3.562 0.001* 0.042
2008 60 0.540 14.860 0.000* VAIC 0.598 6.349 0.000* 0.026
PC -0.003 -0.031 0.975 0.047
LCAP 0.355 3.868 0.000* 0.004
DER -0.296 -3.073 0.003* 0.008
ATO 0.298 3.233 0.002* 0.022
2009 60 0.490 12.340 0.000* VAIC -0.430 -3.946 0.000* 0.024
PC -0.017 -0.176 0.861 0.005
LCAP -0.240 -2.267 0.027** 0.029
DER -0.375 -3.806 0.000* 0.008
ATO 0.477 4.922 0.000* 0.010

740

Relationship between Company’s Intellectual Capital and Performance

Table 7. Results of the linear multiple regression of market valuation

Year N Adjusted F- Significance Independent Standard T- Significance Standard

R2 Statistics and Control Beta Statistic Error
Variables
2000 11 0.977 57.697 0.017** VAIC -1.098 -7.724 0.016** 0.165
PC 0.161 2.426 0.136 0.298
LCAP 0.146 1.185 0.358 0.136
DER 0.476 4.041 0.056*** 0.070
ATO -0.311 -1.394 0.298 0.447
ROA 0.056 0.861 0.480 0.049
2001 27 0.775 15.884 0.000* VAIC -0.432 -3.323 0.003* 0.193
PC -0.080 -0.796 0.435 0.120
LCAP 0.693 6.236 0.000* 0.053
DER 0.256 1.833 0.082*** 0.113
ATO -0.067 -0.426 0.674 0.180
ROA 0.493 3.400 0.003* 1.589
2002 27 0.746 13.743 0.000* VAIC -0.334 -2.227 0.038** 0.397
PC -0.007 -0.059 0.954 2.193
LCAP 0.748 6.046 0.000* 0.059
DER 0.230 1.638 0.117 0.130
ATO 0.196 1.349 0.193 0.999
ROA 0.373 2.261 0.035** 3.754
2003 30 0.595 8.091 0.000* VAIC 0.104 0.665 0.513 0.857
PC -0.149 -1.048 0.306 0.909
LCAP 0.567 3.472 0.002* 0.176
DER 0.361 2.107 0.046** 0.400
ATO -0.045 -0.243 0.810 0.423
ROA 0.334 1.751 0.093*** 6.103
2004 33 0.670 11.841 0.000* VAIC -0.086 -0.734 0.470 0.878
PC -0.217 -1.863 0.074*** 0.200
LCAP 0.582 4.805 0.000* 0.053
DER 0.232 1.680 0.105 0.141
ATO 0.089 0.673 0.507 0.184
ROA 0.203 1.457 0.157 4.187
2005 39 0.585 14.881 0.000* VAIC 0.151 1.226 0.226 0.308
PC -0.055 -0.607 0.547 0.372
LCAP 0.677 6.978 0.000* 0.034
DER 0.190 1.863 0.068*** 0.077
ATO -0.061 -0.634 0.529 0.203
ROA 0.058 0.449 0.655 1.118
2006 48 0.607 15.495 0.000* VAIC 0.123 1.039 0.305 0.207
PC -0.093 -0.848 0.401 0.364

continued on following page

741
 
Relationship between Company’s Intellectual Capital and Performance

Table 7. Continued

Year N Adjusted F- Significance Independent Standard T- Significance Standard

R2 Statistics and Control Beta Statistic Error
Variables
LCAP -0.484 -4.552 0.000* 0.007
DER 0.166 1.521 0.136 0.168
ATO -0.103 -0.971 0.337 0.138
ROA 0.408 3.088 0.004* 0.750
2007 59 0.573 13.543 0.000* VAIC -0.008 -0.076 0.940 0.197
PC -0.045 -0.471 0.639 0.129
LCAP -0.534 -5.887 0.000* 0.013
DER -0.373 -3.654 0.001* 0.021
ATO 0.067 0.666 0.508 0.072
ROA -0.483 -4.006 0.000* 0.215
2008 60 0.575 14.326 0.000* VAIC 0.053 0.446 0.657 0.281
PC -0.087 -0.960 0.341 0.388
LCAP 0.658 6.600 0.000* 0.035
DER 0.241 2.399 0.020** 0.076
ATO -0.089 -0.922 0.361 0.204
ROA 0.121 0.927 0.358 1.134
2009 60 0.429 8.394 0.000* VAIC 0.062 0.472 0.639 0.285
PC 0.202 1.992 0.051*** 0.054
LCAP -0.414 -3.532 0.001* 0.312
DER 0.305 2.602 0.012** 0.090
ATO -0.242 -1.962 0.055*** 0.122
ROA 0.363 2.523 0.015** 1.412

into higher business performance. A similar type
of study was done by Tan, Plowman & Hancock
(2007) to check the relationship between intellec-
tual capital and company’s performance measured
in terms of Return on Equity (ROE), Earning Per
Share (EPS) and Annual Stock Return (ASR) and
found correlation between the them.
5. FINDINGS AND CONCLUSION
The present study has analyzed the intellectual
capital with Valued Added Intellectual Co-effi-
cient (VAICTM) model and then compared with
companies’ performance in terms of productiv-
ity, profitability and market valuation of the
companies. The results supports the hypothesis
that intellectual capital has a positive relation
with that of profitability but fails to explain the
relation with productivity and market valuation
of the companies. The results can be explained
as there are other factors which may be the rea-
son for market valuation of the companies other
than the intellectual capital of the company. The
productivity of the company may have influence
from the proper management of the structural
capital which is measured as a component of the
intellectual capital. The presence of structural
capital is largely present in the company’s annual
reports which may be the reason for increase in

742

Relationship between Company’s Intellectual Capital and Performance
profitability of the selected IT firms. Salman et
al. (2012) in 20 Nigerian manufacturing compa-
nies found that there was a relationship between
intellectual capital efficiencies and company per-
formance. Additionally, human capital influences
productivity performance. Jafari (2013) showed
that there was a significant relationship between
IC and market value and financial performance.
Rehman et al. (2012) in banking sector in Pakistan
revealed that human capital efficiency has positive
relationship with financial performance measured
by ROE and ROA. Structural capital efficiency
with financial performance and capital employed
efficiency with financial performance (ROE).
Shortening the findings, it may be summarized
that intellectual capital may be considered as an
important factor for the increase in the profitability
of the companies. It may be used as a competitive
tool to enhance the performance of the company’s.
The discovery provide a significant implications
to researchers, policy makers, corporate that intel-
lectual capital if used and measured appropriately
can contribute to knowledge and financial perfor-
mance of the firm.
REFERENCES
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tellectual capital being reported in a developing
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745
 
Relationship between Company’s Intellectual Capital and Performance

KEY TERMS AND DEFINITIONS Productivity: It the measure effectiveness

Intellectual Capital: Intellectual capital
consists of all intangible assets of the company
including employees and intellectual property and
relationship with the stakeholders.
IT Sector: Sector related to information tech-
nology and related services.
Market Valuation: It is the market capitaliza-
tion of shares.
of a person, machine or system to convert inputs
into outputs.
Profitability: It the condition in which the
organisation yields financial profits.
Value Added Intellectual Co-Efficient
(VAICTM): It is the model developed by Ante
Pulic to measure intellectual capital efficiency
in any organisation.

This work was previously published in Asian Business and Management Practices edited by Dasho Karma Ura and Patricia
Ordoñez de Pablos, pages 190-209, copyright year 2015 by Business Science Reference (an imprint of IGI Global).

746
 747

Chapter 40
Women’s Entrepreneurship
Development in Bangladesh
Golam Rabbani
University of Rajshahi, Bangladesh

Solaiman Chowdhury
University of Rajshahi, Bangladesh

ABSTRACT
Women’s entrepreneurship is important for women’s position in society and for economic development
of a country. It opens up new avenues for creating employment opportunities for women and men. It
is a matter of encouraging that a good number of women are contributing in the economic progress of
Bangladesh, making them involved in medium and small enterprises. In this process, policy-related fac-
tors and institutional factors play a vital role. Government agencies provide policy, legal, and financial
support, taking active support from non-state actors. Specially, NGOs have been working in Bangladesh
from 1980s to create a viable social environment for business women. Though more women are now in-
volved in economic activities than in the past, women constitute less than 10 percent of the country’s total
business entrepreneurs. Women do business in a masculine society where they encounter policy-related
problems, and they do not get proper supports from all respective institutions because of corruption and
lack of information. It is assumed that combined initiatives of government and non-government institutes
will be successful in encountering the changes of business women in Bangladesh.

INTRODUCTION patriarchy. Also, they do not get the same access

Women in Bangladesh face many challenges in
doing business when their traditional roles make
them responsible for preparing food to feed their
families and supplying household needs. The
opportunity to expand their work beyond a house-
hold level or develop other kinds of businesses
is often hindered because of the dominance of
to training, services, equipment, and financing as
men. Women are also often constrained by laws
or social discrimination that prevent them from
owning property, borrowing money, and gaining
access to land and natural resources. Despite these
obstacles, many women are involved in income-
generating activities, particularly small-scale
business activities. Recently, that an increasing

DOI: 10.4018/978-1-4666-8468-3.ch040

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Women’s Entrepreneurship Development in Bangladesh
trend has been found in the involvement of women
in small business is well- recognized in Bangla-
desh. In this article, we would like to identify
the factors, with special attention to policy- and
institution-related factors, which play important
roles in the progress of women in small enterprise
development in Bangladesh.
Women’s entrepreneurship is important for
women’s position in society, and for the economic
development of a country. It opens up new avenues
for creating employment opportunities for women
and men. Increased participation of women in the
labour force is considered a prerequisite for im-
proving the position of women in society because
women can begin to contribute economically
in their families, From the broader perspective,
empowering women in economic activity is es-
sential for building just societies, for achieving
internationally-settled targets for development,
sustainability and human rights; and for improv-
ing the quality of life for women, men, families
and communities (ILO, 2007)
Contribution of women’s business to a na-
tional economy has been well-documented in
different countries of the world. In Canada, the
Prime Minister’s Task Force on Women Entre-
preneurs (2003) reported that more than 821,000
Canadian women entrepreneurs were engaged in
economic activities and that their contribution
to the economy of Canada is in excess of CAD
18.109 billion annually. In the United States, the
female-owned and -managed firms represent 28%
of total firms and these firms created employment
opportunities for 9.2 million people. In Germany,,
women-owned entrepreneurship have a good share
in the business having annual turnover of at least
Euro 16.620 billion per year and provide jobs for
2 million employees. In the United Kingdom and
Korea, a growing trend of self-employment was
found among women (26% of all self-employed
in the UK in 1999 and 36% of all firms in Korea
in 2001) (OECD, 2004).
Business women are also contributing in the
national economy of Bangladesh. According to
748

the Bangladesh Economic Review 2009, around
6 percent of the country’s $ 90 billion economy
comes from SMEs, which is also the largest sector
in terms of employment generation. (Daily Star De-
cember 29, 2009).Women’s involvement in small
and medium business is increasing day-by-day in
Bangladesh. It is heartening to note that, despite
many barriers, a new women’s entrepreneur class
has risen in the country, taking on the challenge
to work in a male-dominated, competitive and
complex economic and business environment.
Not only has their entrepreneurship improved their
living conditions and earned them more respect,
in their families and in the society generally, but
they are also contributing to business and export
growth, supplies, employment generation, pro-
ductivity and skills development in Bangladesh.
A recent United Nations report concluded that the
economic development of Bangladesh is closely
linked to the advancement of women (Cited in,
SMEF and MIDAS, 2009).
A survey found that a woman first established
business in Bangladesh (then East Pakistan) in
1954. Although women first established enter-
prises in the mid-fifties, most woman-owned
enterprises were developed after the independence
of Bangladesh was declared in 1971. A sample
survey found that 14 enterprises were established
between 1976-1980, 24 during 1981-1985, 43
during 1986-1990, 85 enterprises were established
during 1991-95, 195 during 1996-2000 and 78
between 2006 and 2009. After 2000, Bangladeshi
people observed a different scenario in the case
of women’s involvement in small business: nearly
50% of enterprises established in between 2000
to 2010 were owned by women (SMEF, 2009)
(For more details, see Table 3 in the Appendix).
Another recent report revealed that, from 1996 to
2005, about two- thirds of the women entrepre-
neurs surveyed started their business (BWCCI,
2008: 8). This trend is not only increasing from
the previous level in Bangladesh, but it is also
comparatively better than in some countries of
the South Asia region (For more details see Table

Women’s Entrepreneurship Development in Bangladesh
4 in the Appendix).This evidence indicates that
women’s visibility in the economic sector is in-
creasing despite the existing challenges.
Dominance of patriarchy in Bangladesh is an
influential factor in all sectors of Bangladesh.
Patriarchy of Bangladesh has been characterized
with some concepts such as izzat (honour, focusing
in particular on the control of women’s sexual-
ity), lajja-sharam (shame) and parda (purdah,
restrictions on women’s mobility) (Drinkwater,
2005). These concepts shaped the social norms
and values which act as hindrances in the way of
the social movement of women. In other words,
these patriarchal features snatch away their fun-
damental rights. Ignoring the dominance of pa-
triarchy more and more, women are now engaged
in business activities and employed in public and
private sector offices. One may ask the question
why women are getting involved in business now.
Different actors and factors are playing important
roles to create a viable environment for women’s
participation: this hypothesis can be a probable
answer to this question. This article seeks to find
what factors play important roles, both positive
and negative, in the case of women’s business or
entrepreneurship development.
This paper is analytical in nature. A mixed
method approach (both qualitative and quanti-
tative data) has been used in this study, where
the “case study” was the key method. In this
project, “women’s entrepreneurship development
in Bangladesh” has been considered as a case.
Researchers reviewed literature, which included
recent publications, journals, books, research
reports, and newspapers, to meet the objectives
of the research.
JUSTIFICATION OF THE RESEARCH
From the perspective of economics, the economy
of Bangladesh is characterized by small- and
medium- enterprises (Majumder, 2006). From
the sociological and feminist perspectives, with-
out involving women in economic activities, no
economy can achieve its targets (Hanson, 2009).
From the sociological and economic perspective,
it can be said that “women entrepreneurship” is
a real life-oriented issue, which invites more in-
vestigation throughout the world. Also, different
dimensional evidence is required to visualize the
real scenario of women’s involvement in business.
Chowdhury (2007) found that low capitaliza-
tion and limited assets, poor knowledge about
credit, very limited access to formal sources of
credit, cash intensity in transactions, very limited
record-keeping habits, poor financial disclosure
on account of tax issues and high-risk perception
are the main barriers to women’s entrepreneur-
ship development in Bangladesh. Ahmed (1991)
reported that capacity development initiatives
of NGO were essentials to deliver management
training to landless and marginal women in rural
and urban areas to engage them in SME activities.
Saleh (1995) described the motivational issues
of women entrepreneurs in getting into business
and assessed the entrepreneurial skills of the
women entrepreneurs. He also tried to evaluate
the performance of women entrepreneurs in their
businesses. BWCCI (2008) and SMEF and MIDA
(2009) depicted a detailed scenario of women’s
entrepreneurship in Bangladesh, highlighting the
socio-economic background of women entrepre-
neurs and also discussed training, financial fac-
tors and constraining factors. Other studies, for
example Uddin (2008), Chowdhury (2007) and
Miah (2007), have detailed the macro-economic
environment, including the policy framework
that acts as a determining factor for the economic
efficiency and overall performance of the SMEs
in the developing countries. Even though some
researchers have stated some policy issues, they
have not been considered as “push factors” to cre-
ate a viable environment for smooth functioning
749
 
Women’s Entrepreneurship Development in Bangladesh

of women’s business. Against this backdrop, this
paper has sought to sketch the role of the insti-
tutional and policy framework and institutional
issues in women entrepreneurship’s development
in Bangladesh.
CONCEPTUAL FRAMEWORK
Gender-related factors are important factors of
entrepreneurship which are closely linked with
other factors in creating an enabling environ-
ment for entrepreneurship. Gender inequalities
are considered as the vital factors that influence
the processes in launching and sustaining a busi-
ness. Feminist theories enhance understanding of
entrepreneurship, by giving special attention to
gender relations in the society. Public policy and
institutional factors are examples of such factors
which bring changes in gender-related factors
(Hanson, 2009).
Torjman (2005) explains that policy is created
in the context of perceived problems or to address
specific needs in a society. In some cases, policy
emerges to tackle a concern or crisis: this is called
“reactive policy.” “Proactive policy” consists of
a deliberate strategy to develop a facet of society.
Public policy, according to Torjman, is a guidance
to achieve targets that are likely to be in the best
interest of the whole community, often by aiming
at specific groups within society. Dionco-Adetayo,
Makinde&Adetayo (2005) investigated the role
of public polices in women entrepreneurship de-
velopment in the context of Osun State, Nigeria.
This study found a good relationship between
public policy implementation and women’s entre-
preneurship development. UN (2007) found that,
to increase women’s involvement in information
and communication technology (ICT) and green-
business cultural and gender dimensions in the
social institutions, public policies and institutional
arrangements, including credit and infrastructure
support, plays vital role. State or local authorities
should formulate and implement policy to remove
the barriers to the start-up, formalization and
growth of women’s enterprises. Time-demanding
policies are needed to create access to market
and policies. Without proper policies regarding
social protection for “business women,” it would
be tough to create a more-supportive enterprise
culture and context, and a more-favorable busi-
ness environment for women entrepreneurs (For
specific policy aspects, see Box 1).
This theoretical discussion reveals that no one
can think of progressing entrepreneurship devel-
opment without formulating and implementing
women-friendly public policies. Basically, sound
policy formulation and implementation depend on
the capacity and initiatives of respective organi-
zations or institutions. To measure the effective-
ness of policies and respective institution OECD
prepared a framework which is developed on the
basis of five broad aspects: (1) policy leadership
(2) institutional support for business women (3)
access to credit and financial services (4) busi-
ness development services and information and
(5) data collection and research. Features of these
indicators are shown in Table 1.
Considering the socio-economic context
of Bangladesh, the authors of this paper have

Box 1. Policies for creating enabling environment

• Policies to remove barriers to the start-up, formalization and growth of women’s enterprises;
• Policies to improve women’s access to markets;
• Policies to improve women’s access to and control over economic and financial resources;
• Policies to strengthen social protection and social inclusion, and to reduce the risks and vulnerabilities facing women entrepreneurs and
their women workers, including women entrepreneurs with disabilities; and
• Policies to create a more supportive enterprise culture and context, and more favorable business environment for women entrepreneurs
(ILO, 2007: 4-5)

750

Women’s Entrepreneurship Development in Bangladesh

Table 1. Framework for mapping women enterprise development

Actions Features
Policy Leadership Design an Integrated Policy Framework making consultation with stakeholder.
Adopt an Action Plan for Implementing and monitoring the policy ensuring coordination with all stakeholder.
Establish an inter-ministerial Working Group with representation from business women’s association to
coordinate the inter-organizational activities.
Carry out large scale promotional activities to encourage the businesswomen and community people.
Carry out research to provide the clear picture about the existing situation.
Institutional Support Setup an office for women entrepreneurship development under the ministry or agency which is responsible for
for Business Women SME, and aiming to assess the needs of women entrepreneurs and co-ordinate the entrepreneurial programs/
projects.
Making business registration process transparent and accountable, and women friendly.
Offer capacity building activities of central government, local government and private employee for providing
women friendly services.
Generic business associations are open.
Access to Credit and Financial initiatives or facilities seek to improve the provision of financing in women entrepreneurship.
Financial Services
Business Initiatives of public and private service providers to promote the women entrepreneurship development
Development Services activities.
and information
Information dissemination mechanism and access to information.
Efforts to women’s access to market opportunities.
Initiatives to provide entrepreneurial and management training to the nascent and established business women.
Data Collection and Gender Disaggregated Data on gender issues and business.
research
State of research on women entrepreneurship.
Source: Adopted and Modified from, OECD, 2012: 44-43.

modified the mapping indicators. Using these Policy Leadership

indicators, the researchers have unearthed the
state of women’s entrepreneurship development
in Bangladesh.
WOMEN ENTREPRENEURSHIP
DEVELOPMENT IN BANGLADESH:
FACTORS BEHIND THE REALITY
This section evaluated some key factors which are
taken from the “Framework for Mapping Women
Enterprise Development.” These factors are:
policy leadership, institutional support for busi-
ness women and business development services.
A “level playing field” is essential for establish-
ing and enhancing women’s enterprises in any
economy. A level playing field is created by ef-
fective implementation of fair and equalizing poli-
cies which help women. A transparent regulatory
environment and policy framework are precondi-
tions to create an enabling environment for doing
business, including entering the market, operating
a business venture, and exiting from the market
(APO, 2007). To create a favourable environment
for women, the following policy initiatives have
been taken in Bangladesh.

751

Women’s Entrepreneurship Development in Bangladesh
Public Policies
Industrial Policy 2010
The Government of Bangladesh has considered
women’s empowerment as one of the principles
of governance and so women’s contribution in
economic development has received paramount
interest. The State’s Industrial Policy 2010 em-
phasized some issues for ensuring greater female
participation in the industrial sector. One of its
major initiatives is to create greater employment
opportunities through creating a large number of
women entrepreneurs. This policy framework also
encourages private-public partnership for provid-
ing inducement, and financial help for women to
establish themselves in SMEs (GOB, 2010).
Gender Action Plan/2008-2012
This action plan has identified the key issues
and problems which are very closely associated
with women’s entrepreneurship development and
for creating a favorable environment for women
entrepreneurs. In the policy paper, some policy
initiatives were highlighted to bring them into
the mainstream of the development process. This
would be done by creating opportunities to ensure
full participation of women entrepreneurs in the
economic development of the country, improve
efficiency of women entrepreneurs, to enhance
female participation in the decision- making
process in business, and in enhancing capacity
to establish and run SMEs.
Industrial Policy 2005 and Poverty
Reduction Strategy Paper 2004
The Industrial Policy-2005 states that the SME
sector, including women entrepreneurship should
be taken as a privileged sector. The PRSP noted
that Government will take initiatives to create
employment-intensive industrialization, with
emphasis on SMEs and export-oriented industries.
752

So, it can be said that Government is committed
to prompt industrialization, led by the private
sector entrepreneurs.
SME Policy 2005
The SME policy focused on capacity develop-
ment of women entrepreneurs in the SME sector
to promote their activities to translate women’s
endeavors in business as successful initiatives. The
SME Policy of the Government also promoted
bringing other women into business and motivating
them to involve themselves in economic activities.
This would empower themselves along with the
society, in a broader perspective (Cited in, SMEF
and MIDA, 2009).
Inter-Ministerial Task Force
In Bangladesh, an inter-ministerial, high-powered
committee, named “Task Force on Women and
Children,” has been established in The Ministry
of Women and Children Affairs. The task Force
follows up the implementation of action plans to
attain the objectives of national policies and the
National Development Plan, and for development
and empowerment of women and protection of
women’s rights (DCCI, no date?). According to
the objectives of the Task Force, it is supposed to
oversee the results of the above-mentioned poli-
cies, which are aimed at improving the develop-
ment of women’s entrepreneurship development
in Bangladesh.
Institutional Support for
Business Women
Policy only gives guidance to the implementing
agencies and actors to take necessary actions for
achieving the ultimate target. Without translating
the policy’s goals into actions, it cannot bring
about any result for the target group. To what

Women’s Entrepreneurship Development in Bangladesh
extent the policy framework of Bangladesh is
supportive for businesswomen depends on the
implementation of these polices. It can be argued
that different government policies have heightened
awareness of the issues of women’s entrepreneur-
ship development in Bangladesh. In this paper
policy implementation will be measured by the
actions taken by government and non-government
organizations.
Focal Point (Office) for Women’s
Entrepreneurship Development
The Small & Medium Enterprise Foundation
(SMEF) has been working as an independent center
of excellence, created and generously-financed
by the Government of Bangladesh, since July 17,
2007. The SME Foundation is providing different
types of support to help the SME entrepreneurs,
including the women entrepreneurs. To create an
enabling environment for SMEs, this foundation
has implemented a policy advocacy program, ac-
cess to information and finance, a business support
service and access to technology. Furthermore,
special activities for women entrepreneurs have
been undertaken by SMEF (2008-2009):
• SMEF has organized 109 different capaci-
ty building training for 3227 persons, 2010
of whom were women.
• SMEF has conducted a national-lev-
el study, entitled “A Study on Women
Entrepreneurs in SMEs: Bangladesh per-
spectives,” aiming to set out the situation
of the entrepreneurs.
• SMEF awarded eight outstanding women
in Bangladesh for their ‘role model’ per-
formance in business. It is expected that
this award will encourage other interested
women to become involved in business
activities.
• The SME foundation has arranged two re-
gional conferences (one in Chittagong and
another in Khulna) to demonstrate the suc-
cess, present situation, problems and fu-
ture prospects of women entrepreneurship
development.
• This foundation has conducted a gender-
sensitive training for 40 senior-level bank-
ers in collaboration with Bangladesh Bank
Training Academy.
• To solve the problem of financing this
foundation created a wholesaling program
giving special emphasis to women entre-
preneurs. The capital of this program is
BDT 200,000,000 and it is being imple-
mented by MIDAS Financing Limited and
Shakti Foundation on pilot basis (SME
Foundation Factsheet, 2009).
Business Registration Process
Getting a trade license is one of the initial steps to
start a business in Bangladesh but a large number
of entrepreneurs, especially, women do not show
any interest in getting Trade Licenses because of
complex bureaucratic procedures. In this con-
nection, owners of SME’s in rural areas run their
businesses informally. A survey found that 51.49%
of respondents do not have trade licenses, which
indicates that nearly fifty percent of the women
entrepreneurs (48.50%) were doing their business
without having valid trade licenses. Due to lack
formal reorganisation of their businesses, they
have limited access to finance, various govern-
ment services, information and critical advisory
services to operate a business efficiently. Govern-
ment has started to take initiatives, from 2000, to
make the business registration process simpler and
women-friendly. As a consequence of the policy
initiatives, the highest number, 38.93% of women
entrepreneurs, registered their businesses in 2000-
2009, compared to 10.72% in 1990-1999 (SMEF
and MIDAS, 2009: 97). Although Government
has taken some initiatives to improve the formal
registration process of women business, most of
the women entrepreneurs fell victim to corruption
while they were getting trade licenses. A study
753

Women’s Entrepreneurship Development in Bangladesh
found that about 37% of women entrepreneurs
have experienced corruption while applying for
a trade licence: 60% were asked to pay a bribe
and 10% paid to get the trade license (The Daily
Star, 6 November 2010).
Business Associations
In any country, more specifically in a developing
or underdeveloped country, networking bodies or
trade organizations play a vital role in improving
bargaining capacity and business networking,
which help women entrepreneurs by creating
an enabling environment for doing business. A
research finding showed that only 58% women
entrepreneurs are members of formal trade bodies.
Among the respondents (42%) who did not have
any membership in any formal trade body, 32.5%
mentioned that they were not well aware about
trade bodies available in their localities and 15%
mentioned that they well-informed about the trade
bodies but the process to get membership seemed
to them too complicated (BWCCI 2008: 33).
Access to Credit and
Financial Services
Financial access is regarded as first and foremost
factor of being successful by women entrepreneurs
(Bitler, Robb,&Wolken, 2001). In Bangladesh,
some special packages have been started for
women entrepreneurship development by the
commercial banks. Most of the banks and finical
institutions have been providing special services to
women entrepreneurs through SME Cells/Service
Centers for ensuring financial service for SMEs
in Bangladesh. Although the absolute number of
women entrepreneurs covered under the scheme
is low, some 19,194 women entrepreneurs had
received SME credit by the end of 2010. The
total amount of loans disbursed to women entre-
preneurs also increased from BDT 354 million
in December 2009 to BDT 2.103 billion (BIDS,
754

2010; Priyodesk, 2011). According to the BIDS
report, the number of SME service centers has
increased to 179 in December, 2009 from 148
in June, 2009 (BIDS, 2010). In the FY 2012-13,
Government of Bangladesh has allocated BDT 1
billion for the women entrepreneurs.
In spite of these policy initiatives, women are
not getting access to financial services due to bank
interest rates, which are around 13% for SMEs
loans and 10% for women entrepreneurs, higher
than in neighboring countries (India charges 5 to
7%). Moreover, bank loan procedures are complex
for women entrepreneurs. Lack of tax identifica-
tion numbers (TINs) and other necessary papers
like bank account records and guarantees required
for bank loans also hamper women in the banking
process (The Financial Express, 31 January, 2012).
Business Development Services
Initiatives of Public and
Private Service Providers
Different types of government and non-govern-
ment organizations are working to develop the
women’s capacity for carrying on successful busi-
ness. A number of specialized institutions at the
national and local level are involved for providing
training, technical support, information support
and financial supports. A study (SMEF and MI-
DAS, 2011: 157), identifying the organizations
which provide product development support, found
that that there were as many as 24 organizations
that had provided various services to 162 (16%)
women entrepreneurs for their product develop-
ment. The same study uncovered that 29.4% of
women entrepreneurs had approached Govern-
ment organizations supporting SME development
(SMEF and MIDAS, 2011:103)
In Bangladesh non-government organizations
(NGOs), mostly known as women’s organizations,
are working as networking organizations to pro-
mote the women’s entrepreneurship development.

Women’s Entrepreneurship Development in Bangladesh

There are 1800 NGOs registered with the NGO
Bureau in Bangladesh, working on gender equality
and gender mainstreaming. They cover an impres-
sively wide range of activities. It is very tough to
provide a breakdown with respect to NGO focus.
In general, the organizations are more vocal about
the women’s rights. For empowering women in
every aspect of their lives, NGOs are providing
them training and finance. Furthermore, some
central level and local level advocacy initiatives
have been taken to create an enabling environment
for women’s free movement and work. A network
with 700 or so members, which is popularly known
as National Coalition for the Beijing Process
(NCBP), mostly works at the grassroots level,
committed to achieve the declarations of CEDAW
and the Beijing Platform for Action (Siddiqi,
2006). Some other organizations established by
the women business leaders have been working
for creating an enabling environment for woman
entrepreneurs. A list of supporting organizations is
given as:Bangladesh Small and Cottage Industries
Corporation (BSCIC, Bangladesh Bank, State and
private commercial bank, Financial institution,
Bangladesh Rural Development Board (BRDB,
Bangladesh Management Development Institute
(BMDI), Directorate of Women Affairs (DWA),
Development of Youth Development (DYD),
Bangladesh Manpower Training Bureau (BMTB),
Micro-industries Development and Assistance,
Services (MIDAS), Job Opportunities and Busi-
ness Support (JOBS), NGO-MFIs MSME program.
Public-private initiatives try to provide infor-
mation to the entrepreneurs and create an enabling
environment, so that women entrepreneurs get
access to training and markets. Also, State and
non-State actors provide data support for the
policy-makers and other actors, to give need-
oriented policy guidance.
CONCLUSION
It is encouraging news that Bangladeshi women are
coming forward in the economic world, ignoring
the hardships of doing so. In this success, initia-
tives of Government, donors and non-government
organizations played significant roles. Although
more women are now involved in economic activi-
ties than in the past, women constitute only less
than 10 per cent of the country’s total business
entrepreneurs. They have enormous potential.
Government and other stakeholders failed to
ensure the maximum utilization of this potential
and they (business women) are, up to now, facing
challenges in doing their business. State and civil
society actors should take time- worthy initiatives
to support the business women in Bangladesh,
which will ultimately bring success in the eco-
nomic and social sector of Bangladesh.

Table 2. Some specific aspects of business development services

Indicators
Access to Information
Access entrepreneurial and
management training
Access to Market
Gender Disaggregated Data on
gender issues and business
Source: Prepared by Authors from Different Sources
Status
Information creating and dissemination culture is not women- and poor-friendly, especially for the
rural women.
Regarding training before business, 53.7% of the respondents informed that they had received
training before business, 19.5% received training during business and 26.7% had not received any
training (SMEF and MIDAS, 2011:106)
27% of women entrepreneurs participated in trade fairs (SMEF and MIDAS, 2011:106)
SME Foundation, a state owned enterprise has published nationwide survey reports and other sector
wise reports in Bangladesh but that are not updated.

755

Women’s Entrepreneurship Development in Bangladesh
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tional SME development program, lessons for OIC
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in the MENA region. OECD Publishing. Retrieved
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Priyodesk, A. (2011). Refutes allegation on im-
proper utilisation of SME loans, priyodesk internet
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KEY TERMS AND DEFINITIONS
Capacity Development: Approaches to de-
velop the skills and capabilities of assigned persons
to perform a specific job effectively.
Entrepreneurship Development: Establish-
ment of innovative and new business activities for
brining social and economic changes.
This work was previously published in Globalization and Governance in the International Political Economy edited by Ümit
Hacioglu and Hasan Dinçer, pages 141-152, copyright year 2014 by Information Science Reference (an imprint of IGI Global).
Institutional Arrangement: The institutional
arrangement refers to the delegation, distribution,
or sharing of power among the related institutions
to take decisions and translate these decisions
into practice.
Patriarchy: A social system where male takes
decisions on all aspects of individual or social
lives, and their counterpart (woman) remains as
their sub-ordinate.
Policy Framework: A set of public policies
that show the ways to the government and non-
government actors to take necessary initiatives
for attaining objective/s.
ENDNOTES
1
Here, the report only considered one and a
half years
757
 Women’s Entrepreneurship Development in Bangladesh

APPENDIX

Table 3. Trends of women entrepreneurship development in Bangladesh

Year No Percent
1951-55 1 .09
1956-60 0 0
1961-65 0 0
1966-70 0 0
1971-75 1 .09
1976-80 14 1.3
1981-85 24 2.3
1986-90 43 4.1
1991-95 85 8.2
1996-2000 197 19.0
2001-2005 397 38.3
2006-2008 1
78 7.5
No Response 195 18.8
Total 1035 100
Source: SMEF and MIDA, 2009

Table 4. Regional situation

Indicator Regional Bangladesh India Pakistan Nepal Sri Lanka

(2007) (2007) (2004)
Firms With Female Participation in 15.56 16.08 9.11 6.70 27.35 -
Ownership
Female permanent Full-time Non- 2.12 0.96 - 0.09 6.71 2.33
production workers
% of Firms With Female Top Manager 5.13 1.27 - - 13.37 -
Source: http://www.enterprisesurveys.org/ExploreTopics/?topicid=6. Accessed on, 18.02.10

758
 759

Chapter 41
Entrepreneurial Intentions
among Higher Education
Students in Finland and Spain:
Developing and Piloting a
Survey Instrument

Elina Varamäki Kari Ristimäki

Seinäjoki University of Applied Sciences, Seinäjoki University of Applied Sciences,
Finland Finland

Erno Tornikoski Andreu Blesa

Grenoble Ecole de Management, France Universitat Jaume I, Spain

Sanna Joensuu Maria Ripolles

Seinäjoki University of Applied Sciences, Universitat Jaume I, Spain
Finland

ABSTRACT
The purpose of this article is to present the results of a pilot study in which the new instrument was de-
veloped and tested to measure the formation of entrepreneurial intentions in multi-country context. The
developed instrument was largely based on the Theory of Planned Behavior (Ajzen (1991). In the pilot
study, the authors were also paying attention to two issues, namely (i) whether the level of entrepreneur-
ial intentions varies as a function of country of origin, (ii) whether the relative importance of the three
antecedents of entrepreneurial intentions varies as a function of country of origin, and (iii) whether the
background variables exercise similar effects on the formation of entrepreneurial intentions in different
countries. The empirical context of the pilot study is made of two higher education institutions (one in
Finland, one in Spain) and concerns their first-year students at undergraduate programs. In the end of
this paper, the authors will discuss the implications of the empirical observations of their pilot study.

DOI: 10.4018/978-1-4666-8468-3.ch041

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
INTRODUCTION
At current societies, especially in Western coun-
tries, a large number of different initiatives to pro-
mote entrepreneurial actions have been initiated
to respond to different societal challenges (such
as aging population, regional inequalities, etc.).
However, there seems to be a lack of systematic
approaches to evaluate the impact of these various
entrepreneurial initiatives at the individual level.
This kind of information would help the further
development of these initiatives. As a result to this
challenge, an effort is currently under the way to
develop an instrument (called Entre Intention) to
measure the impact of entrepreneurial initiatives
at the individual level. This development effort is
motivated by the call of Linan and Chen (2009)
to standardize measurement instruments and use
them in cross-cultural settings.
The developed instrument is largely built on
the Theory of Planned Behavior (TPB) by Ajzen
(1991) because of its detailed and consistent
theoretical specification and the great amount
of cross-disciplinary research devoted to testing,
advancing and criticizing the model (Armitage
& Conner, 2001; Sheeran, 2001). According to
Ajzen (1991), the TPB is designed to predict and
explain human behavior in specific contexts by
looking at the individuals’ intention to perform
a given behavior. Intentions are assumed to be
“indications of how hard individuals are willing
to try, of how much of an effort they are planning
to exert, to perform the behavior” (Ajzen, 1991,
p.181). The stronger the intention to engage in
a behavior, the more likely should be its actual
performance. As such, the intention to perform
a behavior has been described as the best single
predictor of an individual’s actual behavior
(Bagozzi et al., 1989; Fishbein & Ajzen, 1975;
Krueger & Carsrud, 1993). We set a purpose to
develop an instrument to measure the impact of
entrepreneurial initiatives on the development
760

of entrepreneurial intentions and its antecedents,
that is, attitudes, perceived behavioral control,
and subjective norm.
While the overall purpose our research program
is to develop and test an instrument to measure
the impact of entrepreneurial initiatives on the
development of entrepreneurial intentions and its
antecedents, in this paper our objective is to pres-
ent the results of the pilot study where we tested
the instrument for the first time in multi-country
setting. In our empirical testing we are interested
in investigating (i) whether the level of entrepre-
neurial intentions varies as a function of country
of origin, (ii) whether the relative importance of
the three antecedents of entrepreneurial intentions
varies as a function of country of origin, and (iii)
whether the background variables exercise similar
effects on the formation of entrepreneurial inten-
tions in different countries. As such, our study will
try to explore whether the relative importance of
the antecedents of entrepreneurial intentions vary
according to different country context as proposed
by the literature (e.g. Ajzen & Fishbein, 2004).
The fact that the relative importance of intention
antecedents would vary in different countries
would able educational institutions to better tailor
their entrepreneurship related initiatives.
Next, we will develop the theoretical rationale
of our study, before explaining the empirical
context of the pilot study, which is made of two
higher education institutions (one in Finland, one
in Spain) and concerns their first-year students at
undergraduate programs. In the end of this paper,
we will discuss the implications of the empirical
observations of our pilot study.
LITERATURE REVIEW AND
CONCEPTUAL FRAMEWORK
In order to study the relative importance of in-
tention antecedents, we will adopt an existing

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
intention model, namely the Theory of Planned
Behavior by Ajzen (1988; 1991), which has be-
come one of the most widely used psychological
theories to explain and predict human behavior
(Kolvereid, 1996; Tkachev & Kolvereid, 1999).
The TPB suggests that intention is the immediate
antecedent of behaviour and, thus, the stronger
the intention to engage in specific behaviour,
the more likely should be its actual performance
(Ajzen, 1991). The linkage between intentions
and actual behavior has received support in
the entrepreneurial context (e.g. Kautonen, van
Gelderen, & Tornikoski, forthcoming). The core
of the TPB is the idea that intentions have three
conceptually independent determinants, namely
attitude towards the behavior, subjective norm and
perceived behavioral control (Ajzen, 1991, p.188).
Attitude towards the behavior refers to the
degree to which a person has a favorable or un-
favorable evaluation or appraisal of the behavior
in question. The more positive an individual’s
perception is regarding the outcome of starting
a business (see e.g. Shapero, 1982; Autio et al.,
1997; Krueger et al., 2000; Pruett et al., 2009;
Segal et al., 2005; Van Gelderen & Jansen, 2006)
the more favourable their attitude towards that be-
haviour should be and, consequently, the stronger
the individual’s intention to go ahead and start a
business should be.
Subjective norm refers to the perceived social
pressure to perform or not to perform that behavior.
It is based on beliefs concerning whether important
referent individuals or groups approve or disap-
prove of an individual establishing a business, and
to what extent this approval or disapproval matters
to the individual (Ajzen, 1991, 195). Generally
speaking, the more the opinion of a particular ref-
erent group or individual matters to the individual
and the more encouraging the individual thinks
it is of enterprising activity, the stronger should
be the individual’s intention to start a business.
Cialdini and Trost (1998) suggested that social
norms have the greatest impact when conditions
are uncertain. Pruett et al. (2009) operationalized
social norms as family experience and support in
addition to knowledge of others who had started
businesses.
Perceived behavioral control refers to the
perceived ease or difficulty of performing the
behavior. It is based on beliefs regarding the
presence or absence of requisite resources and
opportunities for performing a given (see (Ban-
dura et al., 1980; Swan et al., 2007). In general,
the greater this perceived behavioural control, the
stronger the individual’s intention to start up in
business should be. According to Ajzen (1991)
this is most compatible with Bandura’s (1982)
concept of perceived self-efficacy.
According to Ajzen and Fishbein (2004), the
three theoretical antecedents should be sufficient
to predict intentions, but only one or two may
be necessary in any given application. In other
words, the theory of planned behavior posits that
the relative importance of the three factors can
vary from one context to another.
Closely related to the perceived behavioral
control is the perception of one’s entrepreneurial
skills. The better one evaluates his/her skills in
carrying out entrepreneurial task, the more posi-
tive impact this should have on the development
of entrepreneurial intentions. Entrepreneurial
skills refer to abilities that are usually linked
to entrepreneurs such as risk taking propensity
(Cantillon), ability to organize (Say) and innova-
tiveness (Schumpeter). As such, a new scale was
included in the instrument to measure respondent’s
entrepreneurial skills.
Demographic characteristics and other char-
acteristics related to the individual’s background
are not directly included in TPB. The TPB expects
these factors not to have a direct impact on inten-
tions, but an indirect one mediated by attitude,
subjective norm and perceived behavioral control
(Kolvereid, 1996; Krueger & Carsrud, 1993).
Even though some scholars have observed that
demographic variables could have direct effects
on intentions (e.g. Kautonen, Tornikoski, &
Kibler, 2011), we assume that the three immediate
761

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
intention antecedents (attitudes, subjective norm,
perceived behavior control) mediate the impact
of demographic characteristics on entrepreneurial
intentions.
Figure 1 presents the conceptual model of
our study.
Ajzen´s (1991) model has been widely used
in entrepreneurial research, and almost without
exceptions amongst student populations (ex-
ceptions to this tendency include, for example,
Kautonen, Luoto, & Tornikoski, 2010; Tornikoski
& Kautonen, 2009). For example, Krueger (1993)
and Krueger, Reilly and Carsrud (2000) looked
at the entrepreneurial intentions of US university
business students, whereas Fayolle, Gailly and
Lassas-Clerc (2005) focused on students in a
French elite business school. Kolvereid (1996)
investigated the employment status choice inten-
tions of Norwegian undergraduate business stu-
dents, Tkachev and Kolvereid (1999) studied the
Figure 1. Conceptual model
762

entrepreneurial intentions of Russian students and
Autio et al. (2001) Scandinavian and US students
(see also Devonish et al., 2010).
Moreover, all the above mentioned studies
have found support for the Theory of Planned
Behavior (that is, attitudes, subjective norm and
perceived behavioral control) all contributed
significantly to the explanation of the variance
in intentions, with some interesting nuances.
Kolvereid’s (1996) results show that demographic
variables such as gender, family background and
former self-employment have only an indirect
influence on intention. The study of Krueger
and his colleagues (2000) offered strong statisti-
cal, though not complete, support for the model.
More specifically, the subjective norm was non-
significant. The authors suggest that subjective
norm may only be important in ethnic groups who
have strong traditions of entrepreneurship. These
results are consistent with Boissin et al. (2009),

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
who also used the TPB model of Ajzen to ana-
lyze the differences among French and American
students. Their results show that entrepreneurial
intentions are more positive and advanced among
American students than among French students.
TPB explained more than 50% of total variance
in both countries. However, the subjective norm
was insignificant factor in explaining the formation
of entrepreneurial intentions. Thus, Boissin et al.
(2009) question the influence of subjective norm
in the TPB model as well as the effect of culture
and context on subjective norm. In their recent
study, Engle and his colleagues (2010) come to a
different conclusion. The authors observed among
twelve-country study that the antecedents of entre-
preneurial intentions vary according to the studied
countries and that subjective norm was significant
contributor to the development of entrepreneurial
intentions in every country. Moreover, in Engle’s
study only two countries (Finland and Russia) had
all three antecedents of intention as statistically
significant predictors (attitude towards behavior,
social norms, perceived self-control). In no coun-
try were all three components of attitude towards
behavior found significant, although at least one of
the three attitudinal elements (autonomy, personal
wealth, achievement motivation) was found to be
a significant predictor of entrepreneurial intent in
half of the countries studied and all three attitude
components were significant in at least one coun-
try. With the exception of Costa Rica, which had
only one model element significant (social norms),
all the countries had at least two of Ajzen’s three
antecedents as significant predictors of entrepre-
neurial intent. There were six countries (China,
Finland, Ghana, Russia, Sweden, and the USA)
that had social norms and one or more elements
of attitude towards the behavior as significant
predictors, while seven countries (Bangladesh,
Egypt, Finland, France, Germany, Russia, and
Spain) had social norms and perceived self-control
as significant predictors. These findings support
Ajzen’s (1991) assertion that all three anteced-
ents are important but not in every situation and
country and not to the same degree. Thus, these
findings suggest the need to study all three of
Ajzen’s intention antecedents when examining
entrepreneurial intention, especially when such
an examination involves multiple countries.
Spanish students were found to have perceived
self-efficacy and social norms as significant pre-
dictors of entrepreneurial intentions. These two
elements resulted in explaining 42 percent of the
variance in intention in Spain. In Finland all three
predictors explained 38 per cent of the variance
in intention. In addition to Engle’s study, Spanish
university students have been studied by Pruett et
al. (2009), Veciana, Aponte and Urbano (2005);
Linan and Chen (2005) and Moriano (2011), and
Finnish university students by Autio et al. (2001).
In Table 1, some results of the recent GEM
study have been described to illustrate entrepre-
neurial attitudes and activity in Finland and Spain.
At attitudinal level, Finnish people have a little bit
higher entrepreneurial intentions and perceived
opportunities while Spanish people score higher
perceived capabilities and they prefer entrepre-
neurship as a better career choice than Finnish do.
At activity level Finland has higher rate in each
of the following: nascent entrepreneurship rate,
Table 1. Entrepreneurial attitudes and activity in
Finland and Spain (GEM 2010)
Finland Spain
% %
Entrepreneurial intentions 5.9 5.8
Entrepreneurship as a good career 46.1
choice
65.4
Perceived opportunities 51.1 18.8
Perceived capabilities 39.5 50.2
Nascent entrepreneurship rate 2.4 2.2
New business ownership rate (3,5 3.4
2.1
years old or less)
Total early-stage entrepreneurship 5.7
4.3
activity
Established business ownership rate 9.4
7.7
(more than 3,5 years)
763

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
new business ownership rate (3,5 years or younger
companies), total early-stage entrepreneurship
activity and established business ownership rate
(more than 3,5 years old companies)
To summarize, in this study we are interested
in exploring the relative importance of intention
antecedents in multi-country context. These inten-
tion antecedents are related to the three antecedents
present in the Theory of Planned Behavior (i.e.
attitudes, subjective norm, and perceived behavior
control) and different background characteristics
of individuals. As such, in this study we do not
test the TPB model itself. Instead we use it to
discover whether there are structural differences
in the model when applying it to different country
settings. Next, we will explain the methodological
design of our study.
METHODOLOGY
Data Collection Method
The Entre Intention instrument has been developed
and piloted in Finland by the authors. The scales
for this Finnish version were developed largely
based on Kolvereid (1996). However, in some
parts of the instrument, new scales (e.g. attitudes,
entrepreneurial skills) were proposed and tested
using national data during 2008-2009. Common
method variance did not seem to be of concern
(using Harman’s one factor test).
The data for the pilot study was collected using
a self-administered questionnaire in fall 2010. In
each degree program, a teacher was responsible
in administrating a printed questionnaire to the
first-year and second year students in their educa-
tional field (in Finland 6 and in Spain 7 different
educational fields). From Finland we got 662
responses (response rate app. 85%) and from Spain
1096 responses (response rate app. 48%). For the
final analysis, we took away the respondents who
were in the process of starting a new business at
764

the time of the first data collection (in Spain 1%
of the respondents and in Finland 1%). In the final
analysis, there were 1712 respondents of which
655 were Finnish and 1057 Spanish.
The selection of these two countries for this
study was made based on access to data. The
research program has been initiated in Finland.
The first partner to join this research program
was from Spain. As such, one could character-
ize the sample as convenient based. We discuss
the limitations of this approach at the end of our
Discussion section.
Variables
Entrepreneurial Intentions: An index of entrepre-
neurial intention was created by averaging the four
items (min = 1, max = 7, mean = 3.8, Std. Dev.
= 1.4). The variable demonstrates good reliability
(Cronbach’s Alpha = 0.81).
Subjective Norm: The variable Subjective
Norm has three items. Originally each item had
a seven-point scale from 1-7. For the statistical
analysis the scales were transformed to -3 - +3
scale. In addition, motivation to comply was
measured by three items (seven-point scale from
1 to 7) referring to each of the aforementioned
belief questions. The belief based items (coded
as ranging from -3 to 3) and the corresponding
motivation to comply items (coded as ranging
from 1 to 7) were multiplied, and then added to
create an index of Subjective Norm (min = -63,
max = 63, mean = 2.10 Std. Dev. = 16.5). The
variable demonstrates good reliability (Cronbach’s
Alpha = 0.77).
Perceived Behavioral Control: An index of
Perceived Behavioral Control was created by
averaging the five item scores (min = 1, max
= 7, mean = 3.9, Std. Dev. 0.99). The variable
demonstrates acceptable reliability (Cronbach’s
Alpha = 0.67).
Attitudes Towards Entrepreneurship: In index
of Entrepreneurial Attitude was created by averag-

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
ing seven item scores (min = 1.6, max = 7, mean
= 5.2, Std. Dv. = 0.89). The variable demonstrates
good reliability (Cronbach’s Alpha = 0.77).
Entrepreneurial Skills: An index of entrepre-
neurial skills was created by averaging eight item
scores (min = 1, max = 7, mean = 5.1, Std. Dev. =
0.88). The variable demonstrates good reliability
(Cronbach’s Alpha = 0.86).
Background Characteristics
Several background characteristics of individuals
were chosen for investigation. Entrepreneurship
research has demonstrated that women have less
desire to start new businesses than men (e.g. Crant,
1996; Kourislky & Walstad, 1998; Shay & Terje-
sen, 2005; Wilson, Marlino & Kickul, 2004; Wang
& Wong, 2004; Linan, & Chen, 2009; cf. Pruett et
al., 2009). As such, gender is operationalized as
the gender of the respondent and is included as a
dummy variable, with a value of zero for female
respondents and one for male respondents. Various
scholars have also pointed out that age place an
important role in explaining start-up activity (e.g.
Tornikoski, Kautonen & Delmar, 2009). In our
study, age is operationalized as the age in years
of the respondent.
Research has also demonstrated that past ex-
periences may lead to more positive intentions.
For example, current entrepreneurial intentions
can be influenced by the earlier experiences in
entrepreneurship (e.g. Davey, Plewa & Struwig,
2011; Kraaijenbrink, Bos & Groen, 2010, Linan,
& Chen, 2009). Therefore, we control for three
different kinds of past experiences. First, earlier
start-up experience is controlled for by the inclu-
sion of a dummy variable with a value of one for
respondents who had started earlier their own
business and a value of zero otherwise. Second,
earlier work experience is controlled for by the
inclusion of a dummy variable with a value of
one for respondents who had more than 6 months’
work experience before the current studies and a
value of zero otherwise. Third, earlier entrepre-
neurial courses is controlled for by the inclusion
of a dummy variable with a value of one for re-
spondents who had participated in entrepreneurial
courses before their current studies and a value
of zero otherwise.
Finally, the presence of entrepreneurial role
models also seems to be connected to more positive
attitudes and intentions to start businesses (Feld-
man, Koberg, & Dean, 1991; Crant, 1996; Chen,
Greene & Crick, 1998; Wang & Wong, 2004;
Linan, & Chen, 2009; Zhao, Seibert & Hills, 2005;
Van Auken, Stephens, Fry & Silva, 2006; Pruett
et al., 2009). Mother’s professional background
was included in the analysis as a dummy variable
with the value one given to respondents who
indicated that mother used to be an entrepreneur
and a value of zero otherwise. Father’s profes-
sional background was included in the analysis
as a dummy variable with the value one given to
respondents who indicated that father used to be
an entrepreneur and a value of zero otherwise.
Common Method Variance
We tested the possible effects of common method
variance for the variables collected using Harman’s
one factor test (Harman, 1976). If common method
variance was a serious problem in the study, we
would expect a single factor to emerge from a
factor analysis or one general factor to account for
most of the covariances in the independent and
dependent variables (Podsakoff & Organ, 1986).
All the items used to create the main variables,
a total of 27 items, were factor analysed using
principal axis factoring where the unrotated factor
solution was examined, which was recommended
by Podsakoff, MacKenzie, Lee and Podsakoff
(2003, p. 889). Kaiser’s criterion for retention of
factors was followed. The sample size seemed to be
high enough for the factor analysis, at least based
on the Kaiser-Meyer-Olkin measure of sampling
adequacy (KMO = 0.888).
Factor analytic results indicated the existence
of seven factors with eigenvalues greater than
765

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
1.0. The seven factors explained 61 percent of
the variance among the 27 items, and the first
factor accounted for 25 percent of the variance.
Since several factors, as opposed to one single
factor, were identified and since the first factor
did not account for the majority of the variance, a
substantial amount of common method variance
does not appear to be present. Thus, we conclude
that common method variance bias is not a threat
to the validity of the results. One should bear in
mind though that this procedure does nothing to
statistically control for the common method effect:
it is just a diagnostic technique (Podsakoff et al.,
2003, p. 889). As a result, the presence of com-
mon method problems cannot be fully discarded.
Respondents
The mean age of the respondents in Finland was
21.4 and in Spain 20.4 years. In Finnish data 58%
of the respondents were female, while in Spain it
was 57%. In Finland, 4% of the students had an
earlier experience of establishing an own business
at the moment when their started their studies at
the university. Correspondingly, in Spain also 2%
of the students had an earlier experience of estab-
lishing an own business. The Table 2 describes the
other background variables and earlier experiences
of the respondents.
Table 2. Background characteristics of the re-
spondents
Background Characteristics of the Finland
Spain
Respondents
Earlier an entrepreneur (succession) 1% 2%
Earlier an entrepreneur (start-up) 4% 2%
Earlier participation in entrepreneurship 25%
14%
courses
Earlier work experience more than 6 54%
51%
months
Mother’s professional background as an 16%
entrepreneur
15%
Father’s professional background as an 31%
26%
entrepreneur
766

ANALYSIS AND RESULTS
Table 6 in the Appendix lists the means, standard
deviations, and correlations between the study
variables. Multiple linear regression analysis
was used to assess the relationship between the
independent variables and the dependent variable.
Intercorrelations between independent variables
(Table 5 in Appendix) are low.
The first research question was concerned
whether the level of entrepreneurial intentions
varies as a function of country of origin. Table 3
presents the level of intentions.
As can be seen in Table 3, the level of entrepre-
neurial intentions varies according to the country
of origin as the Spanish students had statistically
significant higher level of entrepreneurial inten-
tions. In fact, the Spanish students had consistently
higher values in all of the variables studied, except
in Perceived behavioral control. More specifically,
Spanish students seem to demonstrate higher
level of entrepreneurial intentions, possess more
positive entrepreneurial attitudes and perceive
having higher entrepreneurial skills compared to
their Finnish colleagues. The Finnish students, on
the contrary, perceive having higher behavioral
control over starting a new business compared to
their Spanish colleagues. As such, it seems that
while Finnish students perceive of being capable
of starting new businesses more than their Spanish
colleagues, they have less desire to start businesses
compared to their Spanish colleagues. It is also
notable that perception of behavioral control and
entrepreneurial skills do not seems to follow a clear
logic: Finnish students score higher in perceived
behavioral than their Spanish colleagues but lower
in entrepreneurial skills. As such, we can conclude
that the level of entrepreneurial intentions seem
to vary according to the country of origin. This
result follows the findings of GEM survey (Kelley,
Bosma & Amoros, 2011).
Table 4 presents the results of linear regression
analysis. Models 1a and 1b concern the Finnish
data, and models 2a and 2b the Spanish data.

Entrepreneurial Intentions among Higher Education Students in Finland and Spain

Table 3. General results in Finland and Spain

Variable/ Entrepreneurial Subjective Entrepreneurial Perceived Behavioural Entrepreneurial

Sample Intentions Norm* Attitudes Control Skills
Spanish 3.97 (1.41) 4.84 (15.99) 5.29 (0.87) 3.71 (1.02) 5.17 (0.89)
Finnish 3.48 (1.39) -2.31 (16.32) 5.08 (0.81) 4.22 (0.83) 4.86 (0.82)
Sig. *** *** *** *** ***
+ p<.10. * p<.05. ** p<.01. *** p<.001

Table 4. Linear regression with control variables The second research question was concerned
whether the relative importance of the three an-
Model Model Model Model
1a 1b 2a 2b
tecedents of entrepreneurial intentions varies as a
-0.10
function of country of origin. When investigating
Age -0.02 0.02 -0.06
** the models 1b (Finnish data), and 2b (Spanish
Gender 0.05 0.04 0.09 ** 0.09 ** data), we can conclude that the explained variance
Mother are more or less similar to each other. The models
0.05 0.05 0.10 ** 0.07 *
entrepreneur explain between 38% and 43% of the variance
Father in intentions depending of the model. While the
Control Variables

0.12 * 0.06 0.11 ** 0.06 *

entrepreneur
most important contributor of intentions seems
Entre
to be Attitudes, the role of Subjective norms dif-
experience 0.04 0.00 -0.02 -0.02
(start-up) fers between the models. Indeed, it seems that in
Entre Finland the role of Subjective norm is somewhat
experience 0.06 0.07 * 0.02 -0.00 minor compared to the Spanish data. Our post-
(succession)
hoc analysis revealed that the relative difference
Entre courses 0.12 * 0.04 0.05 0.02
in subjective norm between Spanish and Finnish
Work
experience
-0.03 -0.08 * 0.04 -0.00 respondents was almost statistically significant
(p =.058). Therefore, we can conclude with some
0.42 0.33
Attitudes certainty that the relative importance of the three
*** ***
Independent Variables

Subjective 0.11 0.22 antecedents of entrepreneurial intentions vary as

norm ** *** a function of country of origin.
Perceived
0.26 0.22 The third research question was concerned
behavioral
control
*** *** whether the background characteristics of indi-
Entrepreneurial 0.11 0.11
viduals exercise similar effects on the formation
skills ** *** of entrepreneurial intentions in different countries.
Adjusted R2 0.04 0.43 0.05 0.38 Concerning the models related to these background
characteristics (Models 1a, 2a), couple interesting
Model Fit
Statistics

3.45 32.02 6.62 48.22

F-statistics
*** *** *** *** observations emerge. The Finnish data seems to
Change in 84.36 124.4 behave differently than the Spanish data. While
F-statistics *** ***
the background characteristics of gender, and
* p<.05. ** p<.01. *** p<.001 mother’s and fathers’ entrepreneurial background
Standardized coefficients reported.
are statistically significant covariates of intentions

767

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
in the Spanish data (model 2b), they all are not
statistically significant contributors to intentions
in the Finnish data (model 1b). Correspondingly,
earlier entrepreneurial experience through succes-
sion and earlier work experience were significant
covariates in the Finnish data but not in the Spanish
data. Our post-hoc analysis revealed that between
Spanish and Finnish respondents, the difference
in earlier work-experience (p =.004) seems to be
statistically significant. The relative importance
of earlier entrepreneurial experience through
succession (p =.060) and gender (p =.056) were
almost significantly different between Spanish
and Finnish respondents. Moreover, while the
F-statistics signal that the control models are
statistically significant, they succeed to explain, at
best, 5% of the variance in intentions. As such, we
can answer the third research question by stating
that the control variables seem to exercise differ-
ent influence on the formation of entrepreneurial
intentions depending on the country of origin, and
that the influence of background variables is, at
best, very minor on intentions.
DISCUSSION AND THEORETICAL
CONTRIBUTION
Our development project has produced the first
version of the instrument to measure the impact
of entrepreneurial initiatives on the individuals.
We have pilot tested the instruments among first
year students of undergraduate programs in two
higher education institutes in Finland and Spain.
This paper examined the determinants of entre-
preneurial intentions among Finnish and Span-
ish students. Three research questions were put
forward. The first questioned concerned whether
the level of entrepreneurial intentions would differ
based on the country of origin. As it turned out,
the Spanish students have higher entrepreneurial
intentions than their Finnish colleagues. Coupled
with the GEM 2010 study (see Table 1), it seems
that while there are slightly less people in Spain
768

who have entrepreneurial intentions, their inten-
tions seem to be stronger than the intentions of
Finnish students based on our own observations.
And yet, the established new firm rate is higher
in Finland than in Spain (see Table 1). That is,
there are relatively more people in Finland than
in Spain who actually start new businesses. These
diverse observations beg the question whether
intentions have a strong correlation with actual/
realized behavior. There is a clear need for the
future studies to investigate the linkage between
intentions and actual behavior, certainly among
student populations, to validate the intention model
and to justify the use of student populations in
entrepreneurial intention studies.
The second research question asked whether
the relative importance of the antecedents vary as
a function of country of origin. It turned out that
the relative importance of the antecedents varies
according to the country of origin. We observed
that there is a difference between Spain (a Latin
country) and Finland (a Nordic country) in terms
of subjective norm: in Latin countries it seems
that subjective norm holds relatively more power
in explaining the formation of entrepreneurial in-
tentions than in Nordic countries. Further studies
could explore this preliminary observation to con-
clude whether there really exists a cultural related
difference regarding the influence of important
others on entrepreneurial intentions. Moreover,
the fact that the biggest contributor to the forma-
tion of entrepreneurial intentions is attitudes, at
least in the beginning of bachelor level studies,
begs the question how we should design our en-
trepreneurship initiatives so that their impact on
attitudes would be maximum.
Our observations point out that the Finnish
students seem to show a greater self-confidence
in starting businesses (unlike in Engle’s et al.,
2010 study), while the Spanish students demon-
strate superior trust in their own skills. And yet,
the role of entrepreneurial skills in explaining
the formation of entrepreneurial intentions was
found to be somewhat questionable. In front of

Entrepreneurial Intentions among Higher Education Students in Finland and Spain
such an observation, one could ask whether we
should focus our educational system on fostering
the ‘sense of control’ in our students, rather than
their entrepreneurial skills.
The third and final research question asked
whether the relative importance of different
background/control variables would vary ac-
cording to the country of origin. We observed
some variation in this regard. The importance
of earlier work experience, and to some extent
earlier entrepreneurial experience through suc-
cession and gender, is different between Spanish
and Finnish bachelor level students. The results
suggest that predictors of entrepreneurial inten-
tions may differ by culture. More importantly,
these observations also suggest that background
characteristics seem to exercise direct influence on
intentions, which is contrary to what Ajzen (1991)
has presented himself, but confirms what others
have observed in the entrepreneurship field (e.g.
Kautonen, Tornikoski, & Kibler, 2011). Scholars
should make efforts to integrate the background
variables to the intentions model to make evolve
the original theory of planned behavior.
While we believe that the results presented
herein add to our understanding of the role back-
ground characteristics play in the formation of
entrepreneurial intentions in multi-cultural con-
texts, we acknowledge that the present research
is not entirely beyond reproach. From empirical
point of view, the sample of university students
in two countries was limited to one university in
both of the countries. Increasing our knowledge
of the potential effects of the cultural environment
on the formation of entrepreneurial intentions
requires further research using versatile cross-
border samples.
Later, follow-up studies with the same stu-
dents will allow us to use longitudinal designs to
detect development patterns in the formation of
entrepreneurial intentions and analyze what kind
of factors and education have a possible effect on
changes in entrepreneurial intentions. The next
follow-up of data collection will be implemented
in the autumn of 2011. Moreover, more interna-
tional partners will join this research project in the
future, and this will provide us with a good basis
for international benchmarking and comparison
in recognizing good and working practices in
promoting student entrepreneurship. One sig-
nificant practical contribution of developing this
Entre Intentio measure has been to “catch” those
students most likely to embark on entrepreneur-
ship, to whom special measures can be targeted
right from the beginning of their studies.
ACKNOWLEDGMENT
This research project has been funded by European
Regional Development Fund and Foundation for
Economic Education and the support is gratefully
acknowledged.
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diating role of self.-efficacy in the development of
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edited by John Wang, pages 1-16, copyright year 2013 by IGI Publishing (an imprint of IGI Global).

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Entrepreneurial Intentions among Higher Education Students in Finland and Spain

APPENDIX

Table 5. Variables and their items

Entrepreneurial Intention (Cronbach’s Alpha = 0.81)

How likely are you to start your own business and work as an entrepreneur after graduation (or while still studying)?
If you were supposed to choose between entrepreneurship and salaried work after graduation, which one would you choose?
How strong is your intention to embark on entrepreneurship at some point of your professional career?
How likely are you to embark on entrepreneurship after you have gathered a sufficient amount of work experience?
Subjective Norm* (Cronbach’s Alpha = 0.75)
I believe that my closest family members think I should not/should strive to start my own business and to work as an entrepreneur after
graduation.
How much attention do you pay to what your closest family members think if you strive to start your own business and to work as an
entrepreneur after graduation?
I believe that my best friends think I should not/should strive to start my own business and to work as an entrepreneur after graduation.
How much attention do you pay to what your best friends think if you strive to start your own business and to work as an entrepreneur
after graduation?
I believe that my significant others think I should not/should strive to start my own business and to work as an entrepreneur after
graduation.
How much attention do you pay to what your significant others think if you strive to start your own business and to work as an
entrepreneur after graduation?
If you were supposed to choose between entrepreneurship and unemployment after graduation, which one would you choose?
Perceived Behavioural Control (Cronbach’s Alpha = 0.67)
If I established a business and started to work as an entrepreneur after graduation, my chance of success would be (good/bad)
If I really wanted to, I could easily start a business and work as an entrepreneur after graduati
There are very few/numerous things that are beyond my own control but could prevent me from starting my own business and working as
an entrepreneur after graduation.
For me, starting my own business and working as an entrepreneur after graduation (very easy/very difficult)
If I established my own business and started to work as an entrepreneur after graduation, my risk of failure would be (very small/very
big)
Attitudes towards Entrepreneurship (Cronbach’s Alpha = 0.77)
To what extent do the following attributes correspond to your perceptions of entrepreneurship (i.e. establishing a business and working as
an entrepreneur)? (not at all - completely)
Interesting
Esteemed
Worth pursuing
Boring
Fascinating
Despised
Good income level
Entrepreneurial Skills (Cronbach’s Alpha = 0.86).
Please assess your own current abilities in regard to these things (disagree completely, agree completely).
I am able to generate new ideas
I am able to view things in another light
I am able to solve different problems
I am able to organize a group’s activities and tasks
I am able to take risks
I am able to tolerate insecurity
I am able to design and develop new products and/or services
I am able to engage others in some activity
* For the statistical analysis the scales were transformed to -3 - +3 scale. In addition, motivation to comply was measured by three items
(seven-point scale from 1 to 7) referring to each of the aforementioned belief questions. The belief based items (coded as ranging from -3 to
3) and the corresponding motivation to comply items (coded as ranging from 1 to 7) were multiplied, and then added to create an index of
Subjective Norm

773
774
Table 6. Means, standard deviations and correlations between the study variables

Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13
Age 20.80 4.16 Correlation 1
Sig. (2-tailed)
N 1707
Sex (men = 1) 0.42 0.49 Correlation ,112** 1
Sig. (2-tailed) ,000
N 1705 1708
Work 0.52 0.50 Correlation ,356** ,116** 1
Experience
Sig. (2-tailed) ,000 ,000
(no = 0)
N 1692 1693 1696
Entre Courses 0.18 0.38 Correlation ,137** ,020 ,116** 1
(no = 0=
Sig. (2-tailed) ,000 ,402 ,000
N 1691 1692 1691 1695
ENTRE 0.03 0.17 Correlation ,274** ,031 ,053* ,147** 1
EXPERIENCE
Sig. (2-tailed) ,000 ,201 ,030 ,000
(Start-up)
N 1678 1679 1671 1670 1683
Entre 0.01 0.12 Correlation ,193** ,112** ,076** ,049* ,223** 1
Experience
Sig. (2-tailed) ,000 ,000 ,002 ,047 ,000
(Succession)
N 1645 1647 1644 1642 1636 1650
Mother 0.16 0.37 Correlation ,040 ,010 ,066** ,055* ,014 ,115** 1
Entrepreneur
Sig. (2-tailed) ,099 ,689 ,006 ,024 ,572 ,000
(no = 0)
N 1682 1684 1682 1680 1663 1635 1687
Father 0.28 0.45 Correlation ,010 ,008 ,060* ,058* ,034 ,082** ,340** 1
Entrepreneur
Sig. (2-tailed) ,690 ,746 ,017 ,021 ,176 ,001 ,000
(no = 0)
N 1572 1573 1573 1571 1557 1529 1566 1577

continued on following page


Entrepreneurial Intentions among Higher Education Students in Finland and Spain
 Table 6. Continued

Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13
Attitudes, 7 5.2 0.89 Correlation -,039 ,017 ,058* ,035 -,056* ,004 ,036 ,071** 1
items, Alpha
Sig. (2-tailed) ,108 ,489 ,017 ,157 ,023 ,873 ,141 ,005
0.77
N 1681 1682 1671 1670 1657 1625 1662 1553 1686
SN, Alpha 2.10 16.48 Correlation -,088** -,065** ,004 -,012 -,018 -,003 ,055* ,041 ,244** 1
0.77
Sig. (2-tailed) ,000 ,007 ,880 ,616 ,465 ,888 ,023 ,103 ,000
N 1698 1699 1688 1686 1674 1642 1679 1569 1680 1703
PBC, 5 items, 3.90 0.99 Correlation ,028 ,045 ,044 ,140** ,072** ,071** ,061* ,112** ,201** ,040 1
Alpha 0.670
Sig. (2-tailed) ,255 ,062 ,073 ,000 ,003 ,004 ,013 ,000 ,000 ,100
N 1695 1696 1685 1684 1671 1639 1676 1566 1676 1692 1700
Skills, 8 items, 5.05 0.88 Correlation ,026 ,015 ,134** ,075** ,023 -,014 ,033 ,011 ,395** ,180** ,265** 1
Alpha 0.86
Sig. (2-tailed) ,281 ,527 ,000 ,002 ,353 ,575 ,178 ,656 ,000 ,000 ,000
N 1692 1693 1682 1681 1668 1637 1673 1564 1673 1690 1687 1697
Intentio, 4 3.78 1.42 Correlation -,071** ,071** ,027 ,065** -,030 ,036 ,139** ,134** ,522** ,314** ,335** ,369** 1
items, Alpha
Sig. (2-tailed) ,003 ,003 ,271 ,008 ,219 ,150 ,000 ,000 ,000 ,000 ,000 ,000
0.806
Entrepreneurial Intentions among Higher Education Students in Finland and Spain

N 1694 1695 1684 1682 1670 1638 1675 1565 1674 1692 1689 1687 1699
* Correlation is significant at 0.05 level (bilateral).
** Correlation is significant at 0.01 level (bilateral).

775
776

Chapter 42
Gender, Entrepreneurship, and
Informal Markets in Africa:
Understanding How Ghanaian Women
Traders Self-Organize with Digital Tools

Janet D. Kwami
Furman University, USA

ABSTRACT
Mainstream scholarship on entrepreneurship focuses on firms in the global north as the dominant para-
digm, neglecting potential lessons to be found in the informal sector, in the global south, particularly
in Africa, and among women. Local entrepreneurship practices present a valuable case study for un-
derstanding the nature of entrepreneurship in emerging economies and their contribution to social and
economic development. Drawing on ethnographic data, this chapter examines gender and information
and communication technology use in the Ghanaian marketplace. Market women’s entrepreneurship is
influenced by social capital derived from social networks drawn from strong community ties. The study
found that ICTs such as mobile phone, while gendered, are central to organizing and managing these
micro-enterprises. This chapter contributes to studies on entrepreneurship by drawing attention to the
under-researched intersections of female entrepreneurship in the Ghanaian marketplace and ICTs in
emerging economies.

INTRODUCTION spaces for buying and selling of informal market-

In many African countries, trade and enterprise
revolve around informal networks that are both
local and international. African markets are one of
the most dynamic spaces and are at the heart of the
economic sphere where local and global exchanges
have implications for socio-economic growth at
both the macro and micro levels. The well-defined
DOI: 10.4018/978-1-4666-8468-3.ch042
places are expanding with the wave of globalization
and neoliberal government policies. Women are
a driving force behind Africa’s economy. Nearly
a third of businesses in Sub-Saharan Africa are
female-owned and women grow an estimated
80% of the food. The marketplace in Ghana is
often constructed as a female space where gender
intersects with social structures to define women’s

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Gender, Entrepreneurship, and Informal Markets in Africa
roles in the informal economy. Ghanaian women’s
entrepreneurial activities are relevant to both the
household and local economy. In fact it has been
established that female entrepreneurship is a key
driver of economic growth and development in
many countries (Gender-GEDI Report, 2013).
Entrepreneurship has been part of the Gha-
naian culture even before the arrival of the first
Europeans in the fifteenth-century and prior to
colonization (Buame 1996; House-Madimba &
Ekechi, 1995; Takyi-Asiedu 1993). Chamlee-
Wright (1997) notes the established practice of
Ghanaians engaging in long-distance trade in
salt and fish well before the arrival of the first
Europeans. Cultural institutions and traditional
practices provided the necessary foundations that
promoted the extension of local and long-distance
trading (Chamlee-Wright 1997; Robson, Haugh &
Obeng 2008). In Ghana, entrepreneurs are heavily
dependent on family connections and ties to ac-
cess financiers, suppliers, officials and customers
(Buame, 1996). Additionally, entrepreneurs in the
informal sector rely on the support from family
members in the form of training via apprentice-
ship, startup capital and network associations
(Adeya, 2006; Clark 1994, 2010; Robson and
Obeng, 2008). Thus, the importance of social
capital cannot be underestimated as critical to
entrepreneurial success in the informal sector in
Ghana. The cultivation of social networks, thus,
is central to garnering both social and human
capital (Granovetter, 1973; Bordieu, 1980/1995;
Burt, 2000, 2002; Putnam, 1994) which is a focal
part of entrepreneurship.
With the advent of digital tools and networked
technologies, mobile phones have become an
important part of trading practices through local
appropriation to meet specific needs as well as har-
nessing and maintaining multiple social networks.
Mobile applications allow access to banking
services, farm prices in the West African produce
market, and enable market women to carry out their
business in ways that increases both spatial and
social mobility as well as enabling them organize
their trading practices more efficiently. Women
entrepreneurs in the informal sector employ
strategies embedded in socio-cultural practices in
organizing both formal and informal livelihood
networks. Even though Ghanaian market women
play an integral role in the local economy there
is very little understanding of how they organize
trading practices and income generation via ICTs
such as mobile phones. This chapter explores the
following questions:
1. What is the nature of entrepreneurship among
Ghanaian women in the informal sector?
2. How do Ghanaian women entrepreneurs
organize trade in the marketplace and how
do new digital technologies facilitate this?
3. How do gender, class and geographic loca-
tion intersect in the informal marketplace as
women entrepreneurs appropriate and use
mobile phones in their trading practices, and
as part of the larger discourse on using ICTs
for socio-economic development by margin-
alized groups in emerging economies?
This chapter addresses these questions through
a case study based on interviews, field observa-
tion and literature review of how gender and
new technologies intersect in the practices of
entrepreneurship in the informal sector in Ghana.
This study departs from previous studies in sev-
eral ways. First, it moves women in the informal
sector from the margins and places them at the
center of economic development as active par-
ticipants Secondly, this study focuses attention
on the importance of placing value on the work
and contribution of women entrepreneurs in the
informal sector. The contribution of Ghanaian
market women to socio-economic development
is deemed valuable.
777

Gender, Entrepreneurship, and Informal Markets in Africa
THEORETICAL FRAMEWORK
Postcolonial Theory, ICTs,
and Entrepreneurship in
Emerging Economies
The theoretical lens that guides this study is mul-
tidisciplinary and addresses the gendered lives of
African women pertaining to entrepreneurship,
socio-economic development and the appropria-
tion and use of technology in Ghana. The main-
stream theoretical perspectives underpinning the
study of ICTs, gender, and entrepreneurship often
fail to clearly deal with ICTs as a colonial artifact
that is repurposed and appropriated within local
contexts. The use of ICT for entrepreneurship in
emerging economies such as Ghana requires a
theoretical perspective that addresses the postco-
lonial relationship between the North and South
in the deployment of these technologies. Shome
and Hegde (2002) define postcolonial studies as
“a commitment to theorizing the problematics of
colonization and decolonization” (p. 250). Thus,
applying a postcolonial lens to understanding ICT
practices by Ghanaian women traders is appropri-
ate because both ICTs and entrepreneurship are
not neutral of themselves but socially constructed.
Additionally, it is important to recognize that
Southern women’s experiences with ICTs and en-
trepreneurship occur within a system of structural
inequities that perpetuate their marginalization
and invisibility. The interdisciplinary nature of
postcolonial theory allows for drawing from dif-
ferent perspectives both in terms of philosophical
and methodological approaches as well as the
application of a multiplicity of lenses ranging
from Marxism, feminism, and political economy
to understand the complexity of a social phenom-
enon. This theoretical perspective questions eth-
nocentric and universal discourses on modernity
and provides a lens through which to understand
the normalization of western modernity as well as
the tools to deconstruct the complex relationships
and connections of privilege, power and culture
778

within the context of entrepreneurship practices
that are very much informed by cultural practices.
There tends to be a typical Orientalist discourse
in studies on entrepreneurship and development in
the global South. Postcolonial theorists, such as
Prasad (2003) and Said (1978) note how certain
non-Western business practices are perceived
and constructed as residues of ‘traditional’,
primitive and backward cultural practices that
are an obstacle to organizational efficiency and
effectiveness (Essers and Benschop, 2009). My
application of a postcolonial lens stems from a
spirit of resistant enquiry to disrupt “the colonial
gaze” (Shome and Hegde, 2002, p. 264) that char-
acterize North–South relationships with regard to
situated knowledge of local business practice and
technology transfer, use, and appropriation. But
the current tide of globalization flows and circula-
tion of goods, peoples, cultures, and ideas make
it more difficult to break from the notions and
ideas of Western modernity. These flows, which
Apparadui (1990, 1996) refers to as ethnoscapes,
mediascapes, finanscapes and technoscapes to-
gether create ‘imagined worlds’ for persons and
groups located in different parts of the world,
creating a heightened sense of interconnectedness
between the local and the global, facilitated by new
digital technologies. However, these flows consist
of various sites of marginalization and resistance
with regards to the adoption and appropriation of
Western technologies in global contexts.
Postcolonial Feminism and
ICTs in Entrepreneurship
in Emerging Societies
Extending the discussions of the application of
postcolonial theory to ICT and entrepreneurship
practices in emerging economies such as Ghana,
this study is also informed by postcolonial feminist
standpoint theory, a response to scholars in the
global North. As aptly noted by Adomako Am-
pofo, Beoku-Betts & Osirim (2008) that African
centered feminists reject the notion of a unified

Gender, Entrepreneurship, and Informal Markets in Africa
feminist sisterhood pointing to the “objectification
and commodification of African women” (p. 4).
Within the corpus of work in the field of feminism
and gender studies, theorizing women’s lives re-
quires interrogating the complex web of multiple
and differentiated experiences, standpoints, and
issues of concern to women (Hill Collins, 2000;
Hooks, 1988; Mohanty, 1991, 2003) as women
are situated in multiple social locations leading
to different individual and collective outcomes.
Thus, it is important in theorizing about African
women to note that there is no such thing as a
generic “African” woman or man for that matter.
There is no static exemplar of African women and
men’s lives; instead, the lives of men and women
in Africa are in constant flux and are affected by
multiple factors including class, age, geographic
location and kinship (Adomako Ampofo, Beoku-
Betts & Osirim, 2008).
Postcolonial feminist theories also provide the
analytical framework for addressing structural in-
equities as it pertains to historically marginalized
groups who have to consider a myriad of challenges
in their entrepreneurial practices. Postcolonial
feminists such as Spivak, Bhabha, Mohanty and
Harding attempt to unmask oppressive structures
that marginalize minority groups in postcolonial
contexts which impact the nature, process and
challenges involved in entrepreneurship in these
contexts. For postcolonial feminists, theorizing
emerges from the voices of the subjugated, sub-
altern, and gendered, with the sole purpose of
interrupting ‘master’ narratives (Anderson et al.,
2007). Harding (2006; 2008) provides the vital link
between postcolonial theory, feminism, technol-
ogy (science) and socio-economic development.
Harding (2008) sums up the thread that connects
postcolonial and feminism theories to the study
of ICTs, gender and development in emerging
economies by noting the widespread use of the
modernity and tradition binary that obscures the
problems of “Western ways of thinking about so-
cial progress, especially about possible scientific
and technological contributions to such way of
thinking” (p.214). Harding alternatively proposes
the idea of multiple modernities as a way of en-
gaging in theorizing from below that reproduce
social projects that overcome the narrow framing
of the interrelationships between gender, socio
economic development and technology.
The purpose for drawing from these theoretical
perspectives is the important insights they provide
on the concepts of knowledge and power, which
are central to how we think about entrepreneur-
ship in emerging societies, as well as how gender
and new technologies are implicated in the local
practices of doing and sustaining businesses in
the Ghanaian marketplace. Social constructivists,
postcolonial scholars and feminists like Donna
Haraway (1995) and Sandra Harding (1991) dis-
cuss how the bias of knowledge construction is
based on power and the dominance or inferiority
of knowledge based on gender, class and power:
knowledge legitimizes power and power legiti-
mizes knowledge. The discussion of knowledge
and power is important in the analyses and social
construction of entrepreneurship, as practiced
in African countries such as Ghana, as having
some legitimacy and worthy of study. This is
particularly important when local knowledge
is often discounted as a hindrance to economic
development and often displaced with Western
knowledge, which is often seen as the standard,
the norm and, therefore, more legitimate. I draw
on these theoretical lenses because they provide an
important perspective for engaging in an alterna-
tive bottom-up discourse about entrepreneurship,
ICTs, gender and development in the context of
emerging economies.
The Case for Studying
Entrepreneurship among
Ghanaian Women Traders
Lingelbach, de la Viña and Asel (2005) argue that
the nature of entrepreneurship in emerging econo-
mies is distinctive from that practiced in more
developed countries. Thus, they call for a better
779

Gender, Entrepreneurship, and Informal Markets in Africa
understanding of these distinctions, as they are
key to socio-economic development in the global
South. Bruton, Ahlstrom & Obloj (2008) make
the case for the need to expand entrepreneurship
research outside the domains of North American
and European research sites. They note that there
is the tendency to treat emerging economies as
a monolithic group without acknowledging the
differences in history, size, culture and socio-
economic development policies that impact
the nature and practice of entrepreneurship and
thereby requires a better understanding of the
unique contextual differences reflected in each
country’s context.
This section presents a brief review of the
literature on informal sector entrepreneurship
with the aim of moving beyond the conventional
thinking about entrepreneurship by traders in the
informal sector of emerging economies. Drawing
on recent empirical studies, this review of the lit-
erature seeks to draw out the gaps in the literature
to address the dual perspective on entrepreneurship
in the informal sector as both a survival route and
an opportunity-driven and strategic positioning
as a means for people in developing countries
to create their own versions of development and
social change through the use of digital tools such
as mobile phones. Additionally, this review of the
literature shows how few studies have evaluated
the gender issues pertaining to informal entre-
preneurship in emerging economies in Africa
and the appropriation and use of digital tools in
such contexts.
Gender, Entrepreneurship, and
Informal Markets in Ghana
While the literature provides no conclusive defini-
tion of the informal sector, there is the tendency to
distinguish informal sector from the formal sector.
Spring and McDade (1998) used this distinction in
their book, African Entrepreneurship: Theory and
780

Reality. On the one hand, the term “informal” has
been used to describe the self-organized energies
of people escaping government strictures (Hart,
1970, 1973, 2001; Spring, 2009) and is associated
with unregistered, unregulated, and untaxed busi-
nesses, including service enterprises, production
activities, and street vendor sales (Spring, 2009).
On the other hand, the formal sector is described
as taxed, registered, and regulated businesses.
However, the distinctions between the formal and
informal sectors are not so clear-cut. Scholars
have argued that the formal and informal sectors
are not discrete entities as the boundaries are
increasingly blurred.
The ILO makes a further distinction between
the informal sector and informal employment. The
informal sector is defined as “private unincorpo-
rated enterprises that are unregistered or small in
terms of the number of employed persons” (ILO,
2013). Informal employment, on the other hand,
is defined as comprising: own-account workers
and people employed in their own informal enter-
prises; producing goods exclusively for one’s own
final use by their household; employees holding
informal jobs in formal enterprises, informal en-
terprises, or as paid domestic workers employed by
households (ILO, 2013). Marginalized groups are
mostly involved in informal sectors of the economy
as they are often excluded from the formal sec-
tors due to several constraining variables. While
the informal economy has been defined in many
ways, it could simply be described as income-
earning activities “unregulated by the institutions
of society, in a legal and social environment in
which similar activities are regulated” (Castells
and Portes, 1989, p. 12). There are several income
opportunities both legitimate and illegitimate
available to marginalized groups in the informal
economy and Ghanaian market women fall within
the spectrum of informal sector as well as the
category of informal employment as they meet the
aforementioned definitions. Ghanaian traders in

Gender, Entrepreneurship, and Informal Markets in Africa
the Ghanaian marketplace range from small-scale
entrepreneurs who are involved in both local and
transnational trade to street entrepreneurs who
include street hawkers and vendors of goods and
services.
Gender and Informal
Entrepreneurship in the
Marketplace: Survival vs. Strategic/
Opportunity-Based Enterprises
There is general consensus that entrepreneurship
is central to economic growth and development
(Audretch 2007; Caree and Thurik, 2006). Ac-
cording to the ILO (2007), women’s informal
entrepreneurship paves the path to “decent work”
and is key to achieving the millennium develop-
ment goals. Scholars have also noted the impor-
tance of women entrepreneurship to economic
development in developing countries (Boserup,
1970). Minniti (2010) notes that while there has
been focus on the gendered differences in entre-
preneurship, there is a lack of consensus on the
causes of these differences and to what extent
these gendered differences are linked to the the
per-capita GDP of a country. In a study of 34 na-
tions, Minniti (2010) found gender difference in
entrepreneurship is associated with differences in
perceptions and with the per capita GDP of the
country. While entrepreneurship from emerging
economies in Africa have received marginal at-
tention until recently, there is growing body of
work on entrepreneurship in the informal sector
in Ghana, particularly with regards to women’s
informal entrepreneurship (Adom and Williams,
2012; Boachie-Mensah and Marfo-Yiadom, 2005;
Chamlee-Wright, 1997; Chu et al., 2007; Dovi,
2006; Dzisi, 2008).
The construction of gender in Ghanaian so-
ciety is reflected in the culturally and socially
constructed roles and responsibilities assigned
to women and men in a Ghanaian culture. What
gender means and how we express it depends on
a society’s values, beliefs, and preferred ways of
organizing collective life (Wood, 2009). In Ghana,
women’s reproductive roles construct trading in
the informal sector as the best option that allows
women to perform socially and culturally assigned
gendered roles. While early marriage requirement
is changing with more girls getting educated, in
many rural communities, early marriage still
persists because of a woman’s responsibility to
reproduce heirs for the family (Kuenyehia and
Ofei-Aboagye, 1998). Ghana Children’s Act, 1998,
Act 560, section 14 (2) sets the minimum age of
marriage at eighteen. For many Ghanaian women,
the ethnographic record indicates that child bear-
ing and care giving has historically been a very
important source of status. Migrant girls from
rural communities travel down to urban market
sites to accumulate capital for various reasons.
Additionally, young girls are likely to drop out
of school due to early marriage, pregnancy or
the lack of family support or financial resources
to further their education. For a long time, male
education was privileged in Ghanaian society,
due to the belief that a woman’s role was mainly
to get married and stay at home to bear and raise
children. As a result, many young women are
likely to drop out of middle school and enter the
informal labor market into lower paying jobs that
require little to no education, few literacy skills,
and little investments. Most of these young women
end up working in the informal economy as micro-
entrepreneurs and micro-retailers (Agboli, 2007).
Thus, businesses in the informal sector such as
the Ghanaian marketplace have been described as
survivalist enterprises (Rogerson, 1996; Hampel-
Milagrosa, 2009; Temkin, 2009; Berner et al.,
2012). Women typically run survivalist enterprises
because they are unable to secure regular wage
employment or access an economic sector of their
choice. Incomes from survivalist enterprises usu-
ally fall below minimum income standards and
opportunities for expansion are heavily constrained
(Hampel-Milagrosa, 2009). Many of these schol-
781

Gender, Entrepreneurship, and Informal Markets in Africa
ars argue that while some women may be able to
break through and accumulate wealth, most of
these women remain in survivalist mode.
There are, however, scholars who argue that
contrary to the construction of entrepreneurship in
the marketplace as “low-paid endeavor conducted
by poorly educated, marginalized populations out
of necessity and as a last resort in the absence of
alternatives,” therefore constituted by survival
enterprises, there are strategic/opportunity-based
enterprises that emanate from the informal sector
as entrepreneurs voluntarily exit the formal sector
to engage in informal entrepreneurial activities as
a practice of agency towards wealth building and
a strategy towards upward social mobility (Wil-
liams and Yousseff, 2013, p. 135-43). The choice
to enter the marketplace is carefully calculated
and regarding rational decision-making processes
based on profit-making, opportunity through
need forecast and strategic goals (Williams and
Yousseff, 2013) highly motivated by social capital
accrued from social networks.
Social Capital, Social Networks, and
Entrepreneurship in the Marketplace
Social capital is central to entrepreneurship in the
marketplace. Social capital is multidimensional,
and occurs at both the individual and the organi-
zational levels. Social capital theory refers to the
ability of actors to derive benefits from their social
structures, networks, and associations (Portes,
1998). Barr (2000) notes that trust and networks
create social capital. This type of capital refers to
social aspects of economic activities that essen-
tially boil down to “who you know” or what local
parlance refers to as “connections” (Bourdieu,
1993, p. 32; Maloney, 2004). Social networks
provided by extended family, community-based
or organizational relationships are theorized to
supplement the effects of education, experience,
and financial capital (Bourdieu, 1983; Coleman,
1988; 1990). Thus, social networks affect entre-
782

preneurs directly by providing them with both
cultural and social capital that are crucial for the
survival of any given enterprise. Additionally,
entrepreneurs benefit from social networks as they
facilitate flows of knowledge between enterprises
(Barr, 2000). Many studies on network structures
and entrepreneurship (Burt, 2000; Granovetter
1983; Watson 2007) have shown that the structure
and nature of social networks (in terms of strong
or weak ties) could impact entrepreneurship, this
is particularly important in the informal sector in
cultures that are more communal. Weak ties such
as acquaintances, coworkers, business contacts,
coworkers, etc. are said to be more likely to influ-
ence how well an enterprise does than networks of
strong ties such as family and kin relations (Burt,
2000; Granovetter, 1983; Watson, 2007). Accord-
ing to Aldrich et al. (1997) personal networks
are crucial assets for entrepreneurs struggling to
survive in competitive markets and allows them
to enlarge their span of action, save time and gain
access to resources and opportunities otherwise
unavailable (Aldrich et al., 1997). Granovetter on
the other hand (1973: 1367) asserts that weak ties
act as “bridges” to information sources not neces-
sarily contained within an entrepreneur’s immedi-
ate personal and familial (strong-ties) networks
and thus, vital to successful entrepreneurship.
Studies conducted in Ghana (Adeya, 2006; Barr,
1999, 2000; Buame, 1996; Takyi-Asiedu, 1993)
reveal that strong ties dominate social networks
among Ghanaian businesses. However, ICTs such
as mobile phones could provide opportunities for
Ghanaian entrepreneurs to cultivate more weak
ties into their social networks.
Gender, Entrepreneurship, and
ICTs in the Ghanaian Marketplace
The evolving ICT landscape presents women
entrepreneurs in emerging economies with new
opportunities to strengthen their businesses
through more effective and efficient management

Gender, Entrepreneurship, and Informal Markets in Africa
of livelihood activities. With the rapid diffusion of
ICTs such as mobile phones and the convergence
of digital platforms and networks such as internet,
radio, television, film etc., women entrepreneurs
are presented with new possibilities for conduct-
ing business. With many economies becoming
information-driven, there is the need to be more
attentive to gender issues in relation to access to
and use of ICTs (Michota, 2013) as technology is
not merely an artifact but is a socially constructed
engagement (Kennedy et al., 2003). As Henwood
(1993) notes in explaining the co-construction of
gender and technology: “Gender relations shape
technology and technology in turn shapes gender
relations” (p. 39).
A recent World Bank study reports that three-
fourths of the world’s population has access to
mobile technology and this is creating economic
growth opportunities in both developed and
developing countries. The report indicates that
the global mobile industry is a major source of
employment opportunities, through direct jobs,
indirect jobs, and jobs on the demand side. In
many developing countries, mobile phones and
digital tools are central to enhancing livelihood
opportunities. The report states, “in some devel-
oping countries, more people have access to a
mobile phone than to a bank account, electricity,
or even clean water.” Thus, mobile technologies
are stimulating entrepreneurial activity (Andjel-
kovic and Imaizumi, 2012; McKendrick, 2012;
World Bank, 2012).
The above review of the literature shows
the need to address the gap in entrepreneurship
literature with regard to the dearth of studies of
entrepreneurship in the informal sector in develop-
ing countries and particularly understanding the
interrelationship between gender and ICTs in the
processes of entrepreneurship in such contexts.
The next section explains the methodology used
in the study of gender, ICT and entrepreneurship
among Ghanaian market women.
Methods: Situating Market
Women Entrepreneurs
To present a well-grounded analysis of gender,
ICT and entrepreneurship in Ghana, this study
adopted a qualitative methodology. The research
is an ethnographic study of Ghanaian market
women that explores the intersection of entrepre-
neurship, socioeconomic development and new
digital technologies. Ethnographic fieldwork1 was
carried out over a period of about eight months
from July 2011 through August 2013 in two ma-
jor markets–Makola market in Accra and Tema
market; and two smaller markets–Baatsona and
Malata markets in Accra. I conducted in-depth
interviews with a total of sixty-seven Ghanaian
women traders and several hours of field observa-
tion at the market sites. Selection of participants
for the interviews and participant observation was
purposive through snowball sampling, based on
informant recommendations and guided by the
research questions.
Data collection involved extensive interviews
of how respondents started trading, the reasons
they decided to trade in the marketplace, the nature
of entrepreneurial activity in the marketplace, their
use and appropriation of digital technologies for
organizing trade and livelihood practices. Table
1 provides a brief demographic profile of market
women who participated in this study and from
which ethnographic data was collected through
hours of participant observation of their everyday
practices in the marketplace and through in-depth
interviews in situ.
This chapter draws on five illustrative stories
with regards to entrepreneurship practices and
ICT use to represent how the Ghanaian market
women do business in the marketplace and how
digital tools such as mobile phones are implicated
in their livelihood practices. The narratives of the
five women traders are presented here to provide
insights into the lived practices Ghanaian market
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Gender, Entrepreneurship, and Informal Markets in Africa

Table 1. Demographic profile of ghanaian market women respondents (N=67)2

Makola Tema Other All

(n=36) (n=24) (n=7) (N=67)
Age No response 2 (5.6%) 0 (0.0%) 0 (0.0%) 2 (3.0%)
≤29 years 3 (8.3%) 1 (4.2%) 1 (14.2%) 5 (7.5%)
30-39 7 (19.4%) 14 (58.3%) 4 (57.1%) 25 (37.3%)
40-49 11 (30.6%) 8 (33.3%) 2 (28.6%) 21 (31.3%)
50-59 7 (19.4%) 0 (0.0%) 0 (0.0%) 7 (10.4%)
60-69 6 (16.7%) 1 (4.2%) 0 (0.0%) 7 (10.4%)
Education No response 8 (22.2%) 0 (0.0%) 0 (0.0%) 8 (11.9%)
None 2 (5.6%) 2 (8.3%) 2 (28.6%) 6 (9.0%)
Primary 4 (11.1%) 1 (4.2%) 0 (0.0%) 5 (7.5%)
Post primary 9 (41.5%) 10 (41.7%) 0 (0.0%) 19 (28.4%)
Secondary 10 (27.8%) 7 (29.2%) 1 (14.3%) 18 (26.9%)
Post secondary 3 (8.3%) 1 (4.2%) 4 (57.1%) 8 (11.9%)
Tertiary 0 (0.0%) 3 (12.5%) 0 (0.0%) 3 (4.5%)
Marital status No response 6 (16.7%) 2 (8.3%) 0 (0.0%) 8 (11.9%)
Single 6 (16.7%) 3 (12.5%) 2 (28.6%) 11 (16.4%)
Married 19 (52.8%) 16 (66.7%) 4 (57.1%) 39 (58.2%)
Divorced 4 (11.1%) 2 (8.3%) 1 (14.3%) 7 (10.4%)
Widowed 1 (2.8%) 1 (4.2%) 0 (0.0%) 2 (3.0%)
BusinessSize 0 20 (55.6%) 18 (75.0%) 5 (71.4%) 43 (64.2%)
#Employed 1-5 12 (33.3%) 5 (20.8%) 2 (28.6%) 19 (29.4%)
6-10 2 (5.6%) 1 (4.2%) 0 (0.0%) 3 (4.5%)
11 or more 2 (5.6%) 0 (0.0%) 0 (0.0%) 2 (3.0%)
Religion Christian 33 (91.7%) 24(100.1%) 5 (71.4%) 62 (92.5%)
Muslim 2 (5.6%) 0 (0.0%) 1 (14.3%) 3 (4.5%)
Traditional 1 (2.8%) 0 (0.0%) 1 (1.5%) 2 (3.0%)

women as entrepreneurs in the informal sector
as well as help frame the emerging patterns and
themes gathered from the data collected from
the research project in order to present a more
nuanced analysis.
Entrepreneurship in the
Marketplace: Narratives from
Ghanaian Women Traders
Hallward-Driemeier (2013) in a study on entrepre-
neurs in Sub-Saharan Africa found that the deci-
sion to be an entrepreneur and what type of business
to run requires decision making considerations in
the following areas: (1) becoming an entrepreneur,
(2) operating in the formal or informal sector, and
(3) choosing the line of business. Lingelbach et
al. (2005) also note three distinctive attributes
of entrepreneurship in developing countries that
may improve the probability of success or hinder
growth: (1) opportunity, (2) financial resources
and (3) apprenticeship and human resources. Both
of these reflect the importance of social capital at
the core of entrepreneurship start up. Here, trust
is central to drawing upon the resources in ones’
social network in order to start an enterprise in
the Ghanaian marketplace. For the purposes of
analyzing data gathered from in-depth interviews
with five women traders and hours of observa-
tion of the women in the marketplace organizing
livelihood, the next section discusses the nature of
entrepreneurship among Ghanaian women traders.
Demographic Profiles
Table 2 provides the demographic profile of the
five women traders that will be highlighted in
this chapter to frame the findings from this study.

784

Gender, Entrepreneurship, and Informal Markets in Africa

Table 2. Demographic profiles of five ghanaian women traders

Name3 Market Business Type Age MaritalStatus Ethnicity Education

Location
Adoley Mensah Makola Retails cosmetic products, has 30s Single Kwawu Tertiary
a hairdressing salon and helps Education;
manage her family stores Degree
Auntie Dede Makola Retails “imitation jewelry” and 52 Married with 4 Ga Middle School
fashion accessories children Form four
Mary Addo Makola Operates family-owned 40s Single Kwawu Secondary
business that retails apparel Education
and other household goods.
Auntie Ama Tema Rents a stall and retails spices 52 Married with Ewe Elementary
and canned food children Education
Grace Narh Tema Retails clothes and shoes 32 Widow with two Akuapim Middle School
children Form four

I concur with Clark (2010) that showcasing the
agency of these market women through their nar-
ratives contradicts the dominant stereotypes that
construct these women as passive victims of global
and local inequities. These women are perceptive,
hard-working, and strategic, striving to succeed
in spite of the tall odds stacked against them as
African women at the margins. What follows in
this section are excerpts of the most articulate
narratives from five Ghanaian women traders.
Adoley is in her thirties and a university gradu-
ate who worked at a local bank for a number of
years before exiting the formal sector into the
marketplace. She is single and comes from a
family line of entrepreneurs who have been in
the cosmetic business for over five generations.
Her mother is also an ex-banker, who also quit
her work in the formal sector to start the current
shop in Makola market as well as her grandparents
who were both successful traders. Adoley owns
multiple businesses. She owns a cosmetic shop
and has one employee, a salon with two employees
and two apprentices. Additionally, she manages the
family property, a three-story shopping complex
that she rents out to other traders in the market-
place. Adoley engages in transnational trade and
uses both mobile phone and internet to organize
her trading activities.
Auntie Dede is a 52-year-old woman who owns
a jewelry and fashion accessories business. She
got into trading out of necessity, as she did not
have the resources and family support to continue
her education. She decided to get into trading as
a survival strategy. She started with petty trading
and then went through apprenticeship with her
Aunt who sold locally made jewelry. She started
her own jewelry business and has since expanded
her business transnationally with suppliers from
Togo, Hong Kong and recently from China. While
she has never used the internet before, she uses
mainly mobile phone for organizing both local
and transnational trade. The mobile phone is
central to managing home-related activities from
the market as she negotiates her roles as a mother
and a woman entrepreneur. The mobile phone
enables multiple mobilities that allow her to be
in multiple places at the same time.
Mary Addo is in her forties and currently
manages her family’s general goods business
that provides both wholesale and retail services.
Her mother owns the business and Mary is now
managing it, having worked with her mother for
a number of years. She has been in charge of the
business for the past 15 years and has expanded it.
Due to the large size of the business, Mary found
the need to computerize the shop to manage inven-

785

Gender, Entrepreneurship, and Informal Markets in Africa
tory and sales. The computerized system makes
it easy to audit the shop and keep an eye on sales,
inventory and to reduce theft. Mary uses mobile
technologies in transnational business transactions
as she has to deal with multiple agents in China
where most of her goods are manufactured.
Auntie Ama is 52 years old and she sells spices
and provisions in a makeshift wooden stall at the
weekend market at Baastona market. Her stall is
well stocked with long grain rice, tin tomatoes,
oil, spices and other canned foods–refered to
as “provisions” in local parlance. She went to
vocational school, learnt carpentry and worked
as a carpenter for some time. However, the jobs
she got were seasonal and she needed to do other
things to generate income. She started trading by
making and selling Nkate cake (peanut truffle)
and now has her own provision shop and sells in
the market on Saturdays and Sundays. During the
week, she has a stall at home were she sells her
wares in front of her house. The mobile phone is
central to her coordinating activities of her trade,
from managing prices to planning purchases from
her suppliers. She is dependent on her son in the
operation of her mobile phone.
Grace is a single 32-year-old entrepreneur from
a village in Asamankese who runs her Canada-
based sister’s clothing and shoe retail business.
She had to end her education after middle school
because her parents could not afford to further her
education. She got married at 25 years old but after
the death of her husband, she turned to trading
to support her two children. She took a loan and
began trading in used clothes in Katamanto but
lost her capital and had to exit trading for two
years, returning to manage her sister’s clothing
and shoe shop in the market.
Enterprises in the Marketplace:
Survival vs. Strategic/
Opportunity-Based
While the market is a last resort strategy for some
traders to address poverty, and constitutes a space
786

for survival enterprises, for others it is a space
of economic opportunity that allows for social
mobility through strategically building a busi-
ness enterprise. What follows here are snippets
from the narratives of five market women with
regard to motivations for creating enterprises in
the informal sector, the processes and practices
around informal entrepreneurship in the Ghanaian
marketplace, the challenges faced, and lessons they
provide for entrepreneurship practice in emerg-
ing economies. In discussing these narratives, I
draw out emerging themes from interviews and
several hours of participant observation to inter-
rogate how gender and digital tools factor into the
informal entrepreneurial practices of Ghanaian
market women.
Entry and Take-Off: Commencement
of Entrepreneurship Endeavor
While the marketplace may appear to be an open
place with people coming and going without
restriction, entry into the marketplace requires
strategies by women traders in order to start a busi-
ness. Several reasons were given by respondents
for beginning an entrepreneurship endeavor in
the marketplace. Some saw trading in the market
as a survival strategy, while other respondents’
decisions to start a business in the marketplace
was very strategic and well thought out. Adoley,
a university graduate explains why she decided
to start a business trading in cosmetics in Makola
market after working as a banker in the formal
sector:
Well after school, I worked a little with Unique
Trust Bank but it wasn’t challenging enough. This
was because I realized that everything was proce-
dure. You sit behind some PC, put in something,
and something will come out. I wanted something
more challenging; something that I needed to think.
Something I wanted to do for myself. And then
basically to create an empire for myself. –Adoley

Gender, Entrepreneurship, and Informal Markets in Africa
For Adoley, formal employment was mo-
notonous and creating her own business in the
informal sector presented her with the opportunity
to create an alternative vision of wealth creation
for herself. Trading in the marketplace provides
an opportunity her to leave a legacy–a mark of
accomplishment. Adoley also represents a group
of traders who exit formal sector professions and
make entry into the informal sector in a calculated
strategy towards capital accumulation that is not
easily achievable in the formal sector.
There is another group of traders who start
business in the marketplace because it is part of
the family tradition. They come to the marketplace
because that is the expectation for them trading
in the market is one of the gendered practices as-
signed to women in Ghanaian society:
The cosmetics business has been a family line and
it’s been a personal passion, and the salon has also
been a personal passion and I just thought that
sometimes you sell the product, some get broken
and you have to throw it away, if I have a salon I
can use it to do someone’s hair and then charge
the person. I have a salon right up there [on the
top floor of the building]…my mother owns the
property. -Adoley
Family businesses predominate in the Gha-
naian informal sector that requires the younger
generation to take over from the older generation.
There is the practice of business entrepreneurs
handing over their business to their children,
as they grow older. Thus, after completing her
secondary education, Mary made entry into the
informal sector to help with her mother’s house-
hold goods store in Makola market which she had
built over three decades. Mary explains her entry
into trading in the marketplace as follows:
It was a family business, my mum owns it so I had
to be here to help her. Now she is old so I had to
help her. She was in this business in the 70s, that
was long ago, trading in general goods... I used to
help her during vacation and now she is grown old
so I have to take care of it… I have been in charge
of the business for about 15 years… it [trading]
was something I wanted to do for myself and I
had to take over for the family. She [mother] was
old and it was a good business so I just decided
to come in.–Mary
Not all women traders enter the marketplace
as a result of family links to business. Auntie
Ama is an example of entry into the marketplace
as a necessity:
Trading is not really part of my family. I actually
started off in vocational school and did carpentry
but the carpentry job was not very lucrative…So
I started making and selling nkate cake (peanut
truffles). I use to go hawking and sold this (nkate
cake–peanut truffles) for some time before start-
ing this provisions and spices business here in the
market.–Auntie Ama
Many women traders, like Auntie Ama and
Auntie Dede, make entry into the marketplace
because of family hardship and the need for sur-
vival livelihood. Auntie Dede explains:
I went to school and completed form four but
there was no one there to help me further my
education and unfortunately, I lost my mother
when I was four years old so my grandfather’s
sister took care of me... After school and with no
one to help me, I decided I would sell anything I
laid my hands on–from gari to soap. My grand-
mother was working here in Makola. She was
selling children’s clothes. We came to the market
together on Saturdays and during vacations. She
would give me a small tray with some few items
to sell. I would go to the roadside, sell them and
go back to her… I had an aunt who sold locally
made earrings in the market so I went to her and
asked her to give me some of the earrings to sell
787

Gender, Entrepreneurship, and Informal Markets in Africa
for her. Some people would take the earrings but
would not pay. Every morning I went to my auntie’s
place to get earrings to sell and she would give
me the extra money from the sales.–Auntie Dede
Some women traders may make multiple
entries into the marketplace as entrepreneurs for
various reasons, including the lack of success,
family tragedy, impact of a traumatic life event.
Grace recounts her experience:
This is my sister’s business and I trade with her
here. Prior to this, I traded for a long time at
Kantonmanto and then I left there to this place…
Things were not going the way I wanted so I even
stopped trading for about two years before starting
here. Even these things were sent by my sister from
Canada for me to sell. For my part, I don’t have
any capital to trade, the little that had I used it
to take care of my children so if she doesn’t bring
me the things to sell I have nothing.
When I was trading in Katamanto, I was buying
bales [of used clothing] to sell using loans but
when you take the loan instead of it helping you to
get profit, it becomes a debt. I am a single parent,
I pay my children’s school fees, feed them, clothe
them, do almost everything, so whatever amount
of money I have, it gets finished. Because of that
I was always behind on my loan payments, that
was why I stopped trading there [Kantamanto] and
my sister decided to bring me these things to sell.
Since I started life, I have always traded in clothing;
I have not done any other trade. I went to school
when I got to form four I had to stop because I
didn’t have any helper, I was taking care of myself
when it became very difficult along the way I had
to stop school and I started trading. During that
time, I also got married and after a short time my
husband died. I have been struggling by myself
with the children since then. My parents wished
they could help but they couldn’t because they
were farmers in the village.
788

The above narratives reflect various reasons
for entry into the marketplace to start entrepre-
neurial activity that encompasses the calculated
plan to establish a business as well as the entry of
survivalist enterprises. However, over time with
the necessary network of support, some survivalist
enterprises move into more opportunity based/
strategic enterprises with the potential to grow.
The network of support include social networks
such as family, business associations, capital,
positive regulatory and structural environments,
safety nets, etc. as well as the use of ICTs.
Managing Trade and Livelihood
in the Marketplace
The maintenance of trade and livelihood in the
marketplace requires identifying opportunities
and mitigating risks. For many of these women
traders, they have to be intentional in seeking
funding, cultivating capital, integrating technology
and expanding trade. All these different strategic
decisions were critical for moving some survival-
ist enterprises into strategic/opportunity-based
businesses.
As women entrepreneurs, Ghanaian market
traders have to navigate between their gendered
roles as mothers, wives, sisters, caregivers as well
as business women. Thus, they are constantly
navigating between home and work. These spheres
are not separate and are constantly negotiated and
highly incorporated into their livelihood strategies.
Within the context of the marketplace, live-
lihood practices and strategies among women
traders include:
1. Determining what kind of product or service
to trade.
2. Deciding the physical location of the enter-
prise. Finding a space in the marketplace to
do business.
3. Sourcing seed or startup capital to begin the
enterprise.

Gender, Entrepreneurship, and Informal Markets in Africa
4. Identifying and cultivating a network of
suppliers and customers.
5. Finding organizational support through hu-
man resources and social networks.
6. Data gathering on 4Ps/4Cs 4 –product
(consumer needs and wants), place (conve-
nience), price (cost to the user) and promo-
tion (communication).
7. Integrating information and communication
technologies (ICTs) to achieve competitive
advantage through increased social con-
nectivity and enabling multiple mobilities.
ICTs Appropriation and
Entrepreneurship by
Ghanaian Market Traders
Digital tools, particularly the mobile phone, are
increasingly important communication tools
that help women traders in the Ghanaian infor-
mal economy to navigate both trade and family
relations and obligations. The women traders
interviewed in this study used mobile phones to
navigate home and the marketplace to perform their
multiple roles as caregivers and breadwinners.
As a communicative space, the marketplace
is a network of information sources and com-
munication media. Face-to-face communication,
a predominant form of communication, radios
(used as a companion medium), preaching from
megaphones and loudspeakers are all integral part
of the communicative ecology of the marketplace.
While earlier research (e.g., Darkwah, 1994)
revealed a well-laid out hierarchy of leadership
in the marketplace, with commodity queens, this
study found that due to modernization, the orga-
nizational structure in most markets was shifting
from the traditional commodity queens to a less
hierarchical system of both formal and informal
collectives that focus on the welfare needs of
members in the group. Here, mobile phones were
central to organizing and mobilizing women to-
wards self-organizing for collective action with
regards to addressing welfare needs of members.
However, the direct use of mobile phone ap-
plications is limited to keeping up with customers
and suppliers, organizing welfare groups and for
cutting down on trade related commute that is both
expensive and physically exhausting. Thus, in spite
of the claims about the transformative power of
ICTs in developing countries, findings from field
interviews indicate that such impact maybe often
exaggerated and requires a better understanding of
the contexts within which ICTs are adopted and
used. This study revealed, for example, that several
policy and industry initiatives sought to provide
different mobile applications for market women
ranging from market information systems, mobile
banking, and money transfer systems. Many of
these services target “unbanked” marginalized
groups that do not have access to formal bank-
ing facilities or are premised on traders’ need for
transparency in pricing for the purposes of buying
and selling fresh produce. Unfortunately many
of these ICT-based platforms are examples of
top-down approaches to ICT4D from the various
service providers based on the notion (in the case
of market information services) that the market-
place is merely a space for transactions between
suppliers and customers based on the best prices.
On the contrary, interviews with market women
revealed that the marketplace is more than a space
for buying and selling, it is a social space where
social interaction, relationship building and the
welfare of community members are all an inte-
gral part of practices in the market space. Mobile
phones are central to social connectivity and are
central to market women’s trade practices and
entrepreneurial endeavors in the following ways:
1. Enabling and managing multiple mobilities,
spatial and social. (local/transnational mo-
bilities; home and marketplace mobilities;)
2. Managing opportunities and risks.
3. Managing social networks.
4. Extending social networks
5. Managing inventory and pricing.
789

Gender, Entrepreneurship, and Informal Markets in Africa
6. Managing finances. (credit, banking, debt,
customer relations)
7. Enabling social organizing.
Usage Patterns: Social and Cultural
Appropriation of Digital Tools
Mobile phones have increasingly become an
everyday fixture in the lives of many Ghanaians.
In the market space, different people from differ-
ent walks of life (ranging from large wholesale
business women to migrant girl porters known
as kayaye) rely on the mobile phone as a tool
for social connectivity. Ghanaian market women
appropriate digital tools in many ways and for
various purposes. Digital tools, particularly the
mobile phone, play a significant role in livelihood
strategies and engender social connectivity. Fac-
tors that have made the mobile phone a central
part of everyday life in Ghana include: the need for
constant communication with members in one’s
social network, the lower costs of mobile phone
accessibility, and increased mobility afforded by
mobile phones that reduce the hassle associated
with everyday commuting.
The need to stay in touch with friends and
family was central for most of the participants.
The women traders saw access and ownership of
a mobile device as central to maintaining social
relations between immediate and extended fam-
ily relations that are often scattered and require
considerable time investment and human resource
to maintain and manage. The mobile phone
enables them to perform both family and busi-
ness obligations and responsibilities in a more
efficient manner. Particularly, the use of the
mobile phone reduces the burden and costs of the
long distance commute needed to maintain these
familial relationships and obligations. Another
factor facilitating the use of mobile phones, is
the relatively cheaper investment required for the
acquisition and maintenance of the mobile. The
availability of cheaper mobile phone handsets
790

and lower denomination mobile prepaid credit
have lowered the entry bar, thereby making it
easier for more people to own and have access to
mobile phones. Additionally, competition among
service providers has led to lower call prices for
users. As a result, fewer people “flash” or “beep”
with more people preferring voice calls over text
messaging as the price differences are minimal
(except among younger educated participants).
Mobile phones are the most relevant ICTs used
by Ghanaian market women, even though the bulk
of use was for making and receiving voice calls.
In negotiating the use of new digital tools in trade
and livelihood, mobile phone usage patterns were
affected by multiple factors including generational
difference, level of mobile phone literacy, level of
trust in the technology and service, and relevance
of digital tools to improving or enhancing liveli-
hood. The factors influencing mobile phone use
by Ghanaian women traders are expanded upon
as follows:
1. Generational Difference
Generational differences were observed between
younger educated market women and older women
and their use of digital tools for self-organizing. For
many older market women, maintaining a mobile
phone required the assistance of younger people in
their social networks (relatives, helpers, employees
or community members). Younger women are
more likely to use both Internet and mobile phones
in doing business as compared to older market
women/business women. The internet remains
an imaginary tool for many of the older market
women, while the mobile phone is more relevant
to managing their livelihoods and social networks.
Some younger educated and more affluent market
women were savvier in their use of digital tools in
organizing trade locally and globally, using both
internet and mobile phones. Younger traders who
are more familiar with newer digital technologies
and applications used both the internet and mobile

Gender, Entrepreneurship, and Informal Markets in Africa
phones for navigating trade activities. For many
of the older women, the internet was perceived
as a tool for the younger generation.
2. Type and Size of Trade
The kind of digital tool used by Ghanaian market
women was influenced by the nature and type of
trade a person was engaged in. Those engaged in
international trade were more likely to use both
the internet and mobile phones in their business
while those who traded locally, were most likely
to use only the mobile phone for livelihood and
trade purposes. Additionally, the type of goods
that they traded in was also a factor in determining
the kind of digital tools that were used. Women
who traded in perishable produce (foodstuff) were
likely to use only mobile phones compared to those
who traded in consumer goods such as cloth or
cosmetic retailers. Finally, the scale of the business
enterprise was a determinant of the kind of digital
tools that was used in trade. Traders with bigger
businesses were more likely to use both internet
and mobile phones in trade. Large-scale wholesale
traders used both the internet and mobile phones
in organizing trade while small scale counter-top,
open space and transient hawkers were likely to
marginally use just the mobile phone in their
trading activities.
3. Level of Education
The educational level of traders factored into their
choice of digital technology. Traders or business
women with higher levels of education were more
likely to use both the internet and mobile phones
as well as other digital tools for doing business
compared to traders with lower levels of educa-
tion. Younger educated and more affluent market
women used digital tools such as the internet and
mobile phones to organize trade. Most older less
educated traders, had never used the internet and
felt their lack of education was a barrier to their
ability to use it.
4. Digital Literacy
Having the know-how to navigate the use of digital
tools affected what kind of digital tool was appro-
priated for use by Ghanaian traders. Traders who
do not know how to use digital tools are less likely
to use those tools and features. Younger traders
were more comfortable using both internet and
mobile phones and navigated several features on
their digital devices as they were more likely to
be digitally literate than older traders. The learn-
ing curve tended to be steep for older and less
educated traders. Such traders tended to depend
on younger members within their social networks
(usually family members–children or relatives) to
aid and mediate their use of features on their mobile
phones. It was common for older traders to call
on their children or younger relatives to perform
tasks such as making a call, reading or sending a
text message, saving names or retrieving names
to the address book, changing network chips or
charging mobile phones.
5. Gender
While gender was not observed as major factor
in the access and use of digital tools for trade,
respondents had varying views about gender dif-
ferences with regards to access and use of digital
tools such as the internet and mobile phones in
doing business. Some respondents felt there were
gendered differences in terms of use and access to
digital tools. For example, some respondents felt
men made more calls than women because men
tend to have more disposable income and find it
easy to purchase credit than women. However,
this sentiment was expressed by respondents in
791

Gender, Entrepreneurship, and Informal Markets in Africa
lower income groups. There was also the tendency
among some male respondents to claim that men
were technologically savvier than women. This
was because there continues to be a construction
of technology as being within the purview of
men. There were other respondents who did not
see any gendered differences or felt women were
“catching up” in terms of their use of digital tools.
While some men in the marketplace used both the
internet and mobile phone and appeared more
proficient in the use of various features on their
mobile devices, however, these tended to be more
generational than gendered. Among middle and
upper income bracket there appeared to be little
or no gendered differences in terms of access and
use of digital tools.
Overall, the main influencing factor in the
level of engagement with digital tools for business
was more generational than any of the other fac-
tors stated above. The next section looks at how
Ghanaian women entrepreneurs self-organize with
digital tools for social change.
Self-Organizing with Digital
Tools for Social Change
Ghanaian women entrepreneurs in the informal
sector enact social change through their appro-
priation and use of old and new digital tools.
Ghanaian women’s notions of social change are
connected to the paradox of re-locating “the
African person as an agent in human history in
an effort to eliminate the illusion of the fringes”
(Molefi Kete Asante, 2003). In this regard, digital
tools are implicated in the enactment of everyday
practices of survival and livelihood as well as
maintaining and accumulating social capital as
a means to move from the margins to the center
of socio-economic development. Self-organizing
occurs in two main ways. First, market women
self-organize with digital tools to manage market
space and networked relations. Second, they self-
organize around philanthropic and welfare groups
792

to collectively address social inequity issues within
the society. Thus, social change is constructed and
enacted in ways that are personal, communal and
often apolitical focusing on welfare and safety
nets provided through mainly informal networks.
Self-Organizing: Managing Market
Space and Networked Relations
Ghanaian market women conduct their own forms
of socio-economic development through the ways
they manage market space and their networked
relations. As already discussed, the trading ac-
tivities of Ghanaian market women increasingly
involve communication technologies (mainly the
mobile phone) for negotiation and coordination
of livelihood activities. Market women engage in
their own grassroots development through their
enterprise in trading in various commodities and
the strategies they adopted in ensuring that they are
profitable in their trade. This is often in the form
of price checking with suppliers and other traders
using mobile phone voice calls, text messaging and
face-to-face communication. In this regard, some
market women find the mobile phone very useful
in keeping in touch with suppliers and cultivating
customers. For some traders, especially those who
trade in perishable farm produce such as vegetables
and fruits, collective pooling of resources when
embarking on buying trips is essential to cutting
costs of travel, increasing their bargaining power
during long distance trips and thereby increas-
ing profits. Even for marginalized groups such
as hawkers, being in the marketplace itself is a
well thought out strategy for survival and poverty
reduction for themselves and their dependents.
The mobile phone is central to maintaining con-
nectivity that enables actors in the market to be
easily reached by both kin and non-kin networks
as well as networks within the marketplace that
are central to livelihood practices. Digital tools,
particularly the mobile phone enables management
and maintenance of multiple network relations.

Gender, Entrepreneurship, and Informal Markets in Africa
Self-Organizing: Welfare and
Philanthropic Groups
Another way by which women traders enact social
change through their entrepreneurial activities is
through welfare and philanthropic groups. Most
Ghanaian market spaces are organized around
trade associations or welfare groups that focus
on providing a social safety net for members
through monthly and annual member contribu-
tions towards major life events such as the birth
of a child, death and marriage. For members of
the market group, the marketplace and the trade
association networks they belong to provide a
social support system. In the organization of
these welfare collectives, the role of ICTs, such
as mobile phones, were central for organizing and
coordinating activities related to the group. Such
activities included collecting membership dues,
attending group meetings, traveling to support
group members during important life cycle events
such as marriage, outdooring/naming ceremonies,
and bereavement (by attending/participating in
funerals). Not all market women were interested
in being part of a welfare associations–often, more
affluent and educated market women were less
likely to belong to a welfare association.
Beyond meeting individual member needs,
some welfare groups focus more on reaching out
to the community to address community needs
through philanthropic activities. More affluent
market women traders felt the need to make a dif-
ference in their communities by forming welfare
groups that focused on addressing social inequities
in their communities. The Women Empowerment
Fellowship (WEF) is a Christian philanthropic
group made up of market women from Makola
and other markets in Accra, with a branch recently
established in Kumasi that seeks to address pov-
erty in Ghanaian society. This group was formed
through self-organizing efforts of a group of market
women to address poverty by raising funds to help
poor and orphaned children in various parts of the
country through financial support that focuses on
education and improving health care facilities. This
group currently supports several underprivileged
and needy children by sponsoring their education
from elementary through to tertiary level. They
have also partnered to improve the health facili-
ties at the Korle Bu Teaching Hospital (the main
tertiary referral hospital) and Osu children’s home
(a local orphanage).
Digital Mobility and
Transnational Trade
Transnational trade missions reflect another
form of socio-economic development enacted by
Ghanaian women traders as they look for ways to
overcome obstacles doing transnational trading
Europe and North America as well as look for
opportunities presented by new markets in China,
Dubai and India in their calculated efforts to move
from the margins through their trading activi-
ties. In Ghana, China is a recurring theme in the
marketplace, and is fraught with contradictions.
China represents a new trade route and opportu-
nity for some Ghanaians to expand their trading
activities internationally, while for others, China
represents a powerful competition, encroaching
upon the Ghanaian market with cheap products
and practices that further marginalizes Ghana-
ian market women in the global economy. Thus,
many Ghanaian market women see the Chinese
and Chinese products both as an opportunity
and a problem. While Chinese products have the
potential to increase the profit margins of trad-
ers, the poor quality of the Chinese products on
the Ghanaian market make profits from trading
in Chinese products marginal or could actually
result in traders suffering huge losses. In spite of
these contradictions, Chinese products seem to
be thriving on the Ghanaian market.
Understanding how digital tools are implicated
in organizing trade and travel transnationally re-
quires more interrogation. Due to language and
793

Gender, Entrepreneurship, and Informal Markets in Africa
cultural differences, Ghanaian women’s transna-
tional trade expeditions require a network of people
and digital tools to help facilitate such trade. The
role of intermediaries such as the shipping agents
and buyer agents are central for the success and
viability for such trade missions. Additionally,
a network of trade associations and human and
non-human networks in other countries as well
as in Ghana are central to the success of these
trade missions.
Traders involved in Ghana-China trade are
intentional about the choice of goods, quantity
and quality of goods and the timing of their or-
der. All these actions that are central to doing
Ghana-China trade requires careful planning to
facilitate effective communication between trade
partners both in Ghana and China. The internet,
mobile voice and text messaging are critical to
planning and executing a successful trade trip. A
successful trip requires a lot of advance planning
that involves contacting customers and retailers
via mobile phone communication and face-to-
face communication as to the types and quantity
of goods they would want. Traders also have to
anticipate what type of goods is or will be in de-
mand. For those who trade in apparel and shoes,
keeping up with global fashion trends is essential
and the internet was a very useful tool in helping
determine the samples to be produced in China.
Another important aspect of Ghana-China trade
revolves around strategies around transferring
money for overseas transactions. This required
several follow up calls and emails to ensure that
the banks make payments to the suppliers. Others
look for ways to convert Ghanaian cedi into dollars
and carry the money physically transnationally.
In spite of the innovative ways Ghanaian market
women entrepreneurs do business in the informal
sector; they face many challenges that affect the
success of their business. What follows is a discus-
sion of some of the challenges faced by Ghanaian
market women in their entrepreneurial pursuit.
794

Challenges Faced by Ghanaian
Market Women Traders
Ghanaian women entrepreneurs in the market face
several challenges that hinder the growth of their
micro businesses and prevent their businesses from
thriving. Some of these are enumerated below:
1. Lack of Financial Services
There is documented evidence that small business-
es in many emerging economies find it difficult
to access funds to support their entrepreneurial
activities. Women in Ghana, as elsewhere, usually
do not have access to formal financial services.
They are dependent on their informal networks
and collectives to circulate micro-loans. As a result
of this challenge, many survivalist enterprises are
unable to grow into more strategic enterprises.
Additionally, recent micro-finance programs
available through private banks charge exorbitant
interest and hidden fees that sometimes cripple
many of these enterprises. Rotating lending groups
have become an alternative for pooling collective
resources within the network of market traders.
2. Lack of Savings and Safety Net
Lack of savings and a safety net to mitigate negative
family events such as death, sickness, etc. have a
direct impact on the sustainability of entrepre-
neurial activities of Ghanaian women traders.
While the findings from this study found that kin
networks and welfare associations provided the
traders with some level of protection to mitigate
such unforeseen events, such support was mainly
limited to funerals and the support was often not
enough to lessen negative impacts of unforeseen
life events. Even though some traders engage in
daily micro-saving schemes known as susu, these
are often not adequate for ensuring the survival and
sustenance of these micro-business in the event

Gender, Entrepreneurship, and Informal Markets in Africa
of a negative event. There were instances where
loans acquired by some traders for expanding
their businesses ended up being used for paying
medical bills in the event of serious ailment of a
trader or close relative.
3. Lack of Insurance
Market traders face several risk factors such as
theft, fire, family events such as death or terminal
illness that can cripple these micro-enterprises.
Unfortunately, many of these enterprises lack
any form insurance for their micro-enterprises to
protect entrepreneurs against the negative impacts
from human and natural disasters such as flooding,
fire outbreaks, vandalism and theft. For several
traders such as hawkers and micro-businesses
operating from stalls, they lack the necessary
monetary resource to purchase insurance plans
and as a result their businesses cannot withstand
such unforeseen risk events.
4. Negotiating Gendered Roles
Women entrepreneurs have the additional chal-
lenge of negotiating gendered roles that ascribe
caregiving primarily to women, thus requiring
them to balance various socio-cultural roles. This
sometimes requires women traders to put entre-
preneurial activity on hold to take care of family
needs during family emergencies. Traders are often
dependent on relatives and kin networks to provide
support both at home and in the marketplace to
enable them perform the various roles.
5. Lack of Strategy to Grow Business
Many Ghanaian market women depend on in-
tuition and “street smarts” in decision-making
regarding the kinds of products to sell or how to
expand their businesses. While some traders are
more strategic in forecasting need and demand of
product and services, many lack a well-planned
strategy for growing their business. For many
survivalist enterprises, the focus of their entrepre-
neurial practice tends to be short term. As a result,
some of these entrepreneurs in the marketplace
lack innovation and foresight to grow their business
from a survival enterprise into a more strategic/
opportunity-based business.
6. Risks Associated with
Transnational Trade
Traders engaged in transnational trade face a
myriad of challenges ranging from currency de-
valuation, inflation, fluctuating foreign exchange
rates and international charges on bank transfers
and international payments. Additional challenges
have to do with problems arising from dealing
with manufacturing and shipping agents. Several
of the women engaged in transnational trade are
increasingly doing business in Asia–China, Dubai,
India and Hong Kong, and as a result, many of
these women have to navigate cross cultural com-
munication issues including language barriers
that have implications for the success of their
entrepreneurial pursuit.
7. Digital Literacies
As access issues are addressed with the penetra-
tion and diffusion of new ICTs such as mobile
phones, the lack of digital literacies further
marginalizes some of the market women from
reaping the potential benefits for entrepreneurial
growth derived from the appropriation and use of
these new digital technologies. Women make up
the majority of the globally marginalized, thus,
their ability to actively engage and leverage the
benefits derived from ICTs such as mobile phone
and internet for business in the informal sector
have implication for addressing socio-economic
development from the ground up. In light of this,
795

Gender, Entrepreneurship, and Informal Markets in Africa
more relevant and appropriate technology that is
embedded in the everyday practical concerns of
managing livelihood and trade is necessary for
the active engagement of women entrepreneurs
in a digital age.
POLICY AND RESEARCH
IMPLICATIONS
Entrepreneurship in developing countries is un-
derstudied and this chapter has highlighted some
important features and practices pertaining to the
nature of entrepreneurship among market women
traders in Ghana and how ICTs are implicated
in these practices. While the chapter has inter-
rogated the interplay of gender, entrepreneurship
and ICTs within the context of socio-economic
development, many questions remain that have
both policy and research implications.
1. There is the need to address gender-specific
issues in entrepreneurship in the context of
developing countries where gender assigned
roles and constructions affect women’s suc-
cess in entrepreneurship.
2. There is the need for a shift in social beliefs,
attitudes and behavior that construct the
Ghanaian marketplace as mainly a space
for survival enterprises as such framing
tend to negatively impact the perception of
women entrepreneurs in the informal sector.
To encourage entry into the marketplace by
business-savvy as well as educated women,
Ghanaian markets need to be reframed and
constructed as spaces where opportunity-
based businesses can thrive.
3. There is the need to improve conditions in in-
stitutional systems and market environments
that enable micro businesses in the informal
sector to move from survival enterprises to
strategic/opportunity based ones.
796

4. ICTs such as mobile phones remain relevant
to managing livelihood in emerging econo-
mies and have to be harnessed in ways that
embed these tools in the everyday livelihood
practices of everyday people. Mobile phones
in particular present many possibilities from
addressing issues in relation to entrepreneur-
ship in emerging economies and require a
grassroots approach in designing problem
solving applications.
CONCLUSION
This chapter has discussed entrepreneurship
among Ghanaian market women and their use and
appropriation of ICTs in livelihood practices. The
study revealed a series of socio-cultural practices
in relation to how Ghanaian market women use
digital tools to self-organize livelihood and social
networks. The mobile phone is more than a com-
munication tool, it is configured as a part of trad-
ing strategies and practices for managing social
networks, accumulating social capital, and pro-
moting local enterprise. The chapter also reveals
that while several policy and industry initiatives
seek to provide different mobile applications for
market women ranging from market information
systems, mobile banking, and money transfer sys-
tems, they fail to have widespread reach as many
of these ICT-based platforms adopt a top-down
approach to ICT4D or M4D and are based on the
notion (in the case of market information services)
that the marketplace is merely a space for transac-
tions between suppliers and customers based on
the best prices. On the contrary, narratives from
market women revealed that the marketplace is
more than a space for buying and selling, it is a
social space where social interaction, relationship
building and the welfare of community members
are all an integral part of practices in the market
space. Trust, social networks and multiple mobili-

Gender, Entrepreneurship, and Informal Markets in Africa
ties factor in and must be addressed if we are to
harness the possibilities and opportunities that
mobile applications offer for different segments
of the population emerging economies. These
findings have practical, theoretical and policy im-
plications for incorporating digital tools for social
change in the context of marginalized groups in
the global South. The findings discussed in this
chapter call for a critical analysis of ICT4D poli-
cies that acknowledge that ICTs are laden with
values and ideologies that perpetuate hegemonic
relationships between the sites of production and
consumption, between haves and have-nots, and
reproduce a host of complex relationships that
need to be addressed in order to harness more
equitable and empowering applications of ICTs.
ACKNOWLEDGMENT
This work is part of a larger National Science
Foundation funded research project in collabora-
tion with Jenna Burrell, University of California.
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KEY TERMS AND DEFINITIONS
Entrepreneurship: It is the capacity and abil-
ity to create, organize and manage a business with
the purpose of making a profit and or facilitat-
ing social change. It involves the processes and
practices of starting and managing a business or
livelihood venture and is usually characterized by
innovation and risk-taking.
Gender: Socially constructed roles, behaviors,
activities, and attributes that a given society con-
siders appropriate for men and women.
Ghana: A country located in West Africa and
bordered by the countries of Burkina Faso, Cote
d’Ivoire, and Togo, as well as the Atlantic Ocean.
It is the first country in Sub-Sahara Africa to gain
independence from British colonial rule.
ICT: ICT (information and communication
technology) is a term that refers to a wide range
of tools, applications and services that enable the
production, distribution, processing and transfor-
mation of information and communication. They
include telecommunications, electronic and digital
technologies such as radio, television, phones
(landline and mobile), computers, Internet, net-
work hardware and software and satellite systems.
Informal Markets: Buying and selling legal
goods or services through distribution chan-
nels that are not part of the formal economy. In
Ghana, informal markets include designated and
non-designated open spaces for buying and sell-
ing. These markets are important to the national
economy and are dominated by women traders.
This work was previously published in Comparative Case Studies on Entrepreneurship in Developed and Developing Countries
edited by Joseph Ofori-Dankwa and Kwame Boasiako Omane-Antwi, pages 19-49, copyright year 2015 by Business Science
Reference (an imprint of IGI Global).
804

Market Women: Women who engage in entre-
preneurial activity in the market place. They range
from hawkers who tend to be transient traders to
transnational wholesalers in the informal sector.
Self-Organize: Organic arrangement of com-
ponents, elements or collectives of a system in a
purposeful manner without external agency. In the
context of economics, self-organizing is an evolv-
ing model of human agency and organizing that
shows intentionality in terms of designed roles,
rules, and practices of management by localized
communities without external policing or adher-
ence to external regulations.
ENDNOTES
1
This chapter focuses on data gathered by
the author or with co-investigator, Jenna
Burrell. Ethnographic data was also collected
from the Lapaz market in Accra that is not
included here.
2
Data collected from the Lapaz market in
Accra is not included here.
3
For the sake of anonymity the names of
respondents are withheld. In cases where
names are used, pseudonyms are used to
preserve the anonymity of respondents.
4
There are two theories based on four Cs:
Lauterborn’s four Cs (consumer, cost, com-
munication, convenience), and Shimizu’s
four Cs (commodity, cost, communication,
channel).
Gender, Entrepreneurship, and Informal Markets in Africa

APPENDIX

Discussion Questions

1. What is the nature of entrepreneurship among Ghanaian women traders in the informal sector?
2. How are ICTs embedded in everyday practices of doing business in the informal marketplace in
Ghana?
3. What factors would you consider as a policy maker to help move survival enterprises into oppor-
tunity-based enterprises in the Ghanaian marketplace?
4. How do gender, social location and other forms of marginalization factor into entrepreneurship in
developing countries?
5. Discuss some of the challenges faced by Ghanaian women traders in the marketplace? How are
these challenges similar or different in other developed and/or developing countries?
6. What lessons about entrepreneurship can we derive from the narratives presented in this chapter
of Ghanaian women traders in the informal sector?

805
806

Chapter 43
Kama Group Limited
Lydia Andoh-Quainoo
Pentecost University College, Ghana

ABSTRACT
Family businesses and entrepreneurship research has grown but with few studies in Africa. This case
study fills that gap in the research on entrepreneurship and family business cases in the African conti-
nent. The case is explored to assess the motivation and challenges influencing entrepreneurial startup
businesses and founders of family businesses. Using both qualitative and quantitative methods for data
collection, the research confirms some differences and similarities in the motivational factors and chal-
lenges associated with starting a business in an African context, specifically Ghanaian. This entrepre-
neur’s family business encountered a number of challenges in its startup. However, due to strong mental
attributes such as personal motivation, persistence, commitment, and hard work, he has overcome these
challenges and grown the business successfully. Although environmental challenges may be greater in
an emerging economy such as Ghana, personal attributes can play a key role in building and sustaining
a successful family business.

INTRODUCTION There have been several studies on entrepre-

Family business and entrepreneurial businesses
account for over 60% of businesses in the world,
according to the 2012 European Family Businesses
Report (EFB, 2012). In the U.S it is estimated
that about 90% of all business are family owned.
Studies also indicate that family businesses are
more profitable and contribute better to GDP in
most economies (EFB, 2012). Consequently, there
has been a growing interest in family business
and entrepreneurship research (Low & MacMil-
lan, 1988).
neurship and family businesses worldwide. A
review of literature points out that while there
have a number of research studies conducted
on entrepreneurship, there is still a wide gap in
developing economies such as Africa. Indeed re-
viewing earlier studies such as Kent et al. (1982),
Low & MacMillan (1988) and more recent ones
such as Bruton et al. (2008), one notices that there
is still a general lack of research carried out on
entrepreneurship on the African continent.
Hence, this chapter about an entrepreneur in
Ghana, Dr. Michael Agyekum Addo, is in line

DOI: 10.4018/978-1-4666-8468-3.ch043

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Kama Group Limited
with the substantial lack of research in this area
and in response to a more recent call by Bruton,
et al. (2008) in which it was suggested that more
entrepreneurial research should be geared towards
under researched areas such as Africa and Ghana
for that matter.
Interestingly enough, a review of literature in
Family Business research also shows a lack of re-
search in this area in Africa. For instance, reviews
by Sharma, (2004); Casillas and Acedo, (2007);
Debicke et al. (2009) and Litz et al. (2012). All
these point out that there has been virtually not
much family business researches conducted in
Africa. In view of this general lack of research in
Africa on entrepreneurship and family businesses,
this chapter seeks to remedy this situation by ad-
dressing the following issues:
1. To describe a successful Ghanaian entrepre-
neur Dr. Michael Agyekum Addo who started
a family business and has grown the busi-
ness to this point. Specifically, this chapter
will describe the relative poverty and harsh
socioeconomic situations including lack of
capital in which the Ghanaian started with
and the motivation and driving force which
enabled him to initiate such business. In
addition the chapter will describe in detail
the tremendous challenges and obstacles
associated with starting a business in Ghana
particularly the institutional and socio-
cultural barriers that he encountered in the
early days when he started and the ways by
which he managed to overcome these.
2. This study will also seek to describe the
success of this entrepreneur and identify
the key mental or cognitive attributes and
characteristic which this entrepreneur sug-
gests are needed to run an effective family
business in Ghana.
3. Finally, the case study will address the dif-
ferent ways and means by which the KAMA
Group is giving back to society both at the
larger societal level and specific community
levels particularly in the Eastern region of
Ghana.
LITERATURE REVIEW
Entrepreneurship
On the entrepreneurial fronts there has been several
calls for further research to increase knowledge and
understanding of entrepreneurs and the organiza-
tions they start (Low & MacMillan, 1988; Bruton
et al., 2008). Entrepreneurial studies have become
important due to socio-economic and develop-
mental contributions entrepreneurial ventures
contribute to society and the global economy. It is
considered to be a major contributor of economic
growth, economic efficiencies and innovation to
markets in many nations. Due to this, it has at-
tracted political and philanthropic commitment
in some parts of the world (Zhao et al., 2005;
Gaddam, 2007; Low & Macmillan, 2008).
Entrepreneurship has been studied from the
individual factors and characteristics, organiza-
tional creation processes and management and the
socio cultural context of operation. These three
major strands of research have yielded various
dimensions and levels of analysis which have
also yielded unique insights and contribution to
knowledge across a number of disciplines of stud-
ies. The three main levels of analysis have been
the (a) firm, (b) individual characteristics and (c)
environmental context. Hence, an entreprenuer
is considered to be an individual with certain
characteristics and abilities who find themselves
in a certain environment conducive to business
venture (Bird & Jelinek, 1998). Calvo and Garcia
(2010), further divides organization factors into
factors intrinsic to the venture and the process
of creation referred to as the procedural factors.
807

These factors are considered to be the major vari-
ables affecting the success of an entrepreneurship
venture and are reviewed below.
Individual Factors in
Entrepreneurship
There are a numbers of individual factors which
have been found as significant contributors to suc-
cessful entrepreneurs. These have been categorized
into personality/psychological factors and social
demographic and background factors.
Personality/Psychological Factors
Early studies in entrepreneurship suggest that
personality factors or characteristics of the entre-
preneur play a fundamental role in entrepreneurial
success. This is because personality traits are an
enduring make-up of the person that can motivate
someone into a business venture. Findings suggest
personality factors such as, need for achievement,
locus of control, attitude towards risk or propensity
towards risk and self-efficacy (Bird & Jelinek,
1988; Zhao, et al., 2005; Ahmad, 20011).
Scholars believe that there are a trio of basic
needs: the needs for power, for affiliation, and for
achievement. Studies’ findings established the
achievement motive is the drive for higher level
of attainment of goals. It reveals itself in efforts to
meet high standards of performance and compete
against other people successfully. A considerable
number of research studies have focused on the
achievement need. Individuals with strong need
for achievement often regard personal accomplish-
ment as an end in itself. People with a high need
for achievement tend to be more self-confident,
they enjoy taking calculated risks, they actively
research their environments, and they value feed-
back. Monetary rewards provide an important type
of feedback as to how they are doing. People with
high achievement needs prefer situations in which
they can take personal responsibility for finding
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solutions. Achievement need is considered to be
a key psychological characteristic of an entrepre-
neur. Studies have also shown that achievement
changes with other demographic variables such
as age, sex and education. Begley & Boyd (1987),
found that founders of businesses in New England
have a higher need for achievement, higher risk
taking propensity and tolerance for ambiguity
than non-founders.
Another major psychological characteristic
of entrepreneurs widely discussed in literature is
locus of control. Social learning theory suggests
that the locus of control can be external or internal.
People with external loci of control are controlled
by events and situations in their outside environ-
ment which they consider out of control while indi-
viduals with internal loci of control are controlled
by their own fate without externalities. Internal
locus of control is connected to entrepreneurship
because they relate the outcome of their actions to
themselves. However, studies in entrepreneurship
have not found a significant correlation between
entrepreneurs and non-entrepreneurs in locus of
control (Begley & Boyd, 1987).
Another personality factor is attitude towards
risk, whether an individual is a risk lover or risk
averse. Research evidence suggests that there
could be contradictory results. Low & MacMil-
lan (1988) suggest that it is more possible to view
entrepreneurs as good risk managers than people
with high propensity toward risk. Other authors
also confirm that entrepreneurs are people who
take calculated risks. Other psychological factors
such as innovativeness and tolerance for ambi-
guity have also been suggested as personality
factors in exerting some level of influence on
entrepreneurship.
Self-efficacy has also been found to mediate
individual level factors and entrepreneurial inten-
tion and behaviour. According to social cognitive
theory, self-efficacy can be a strong motivational
force which drives people toward goal oriented
behaviour, choice, persistence and performance.

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In a study by Zhao et al. (2005), it was discovered
that entrepreneurial self-efficacy influences en-
trepreneurial intentions and behaviour.
Although a number of studies have confirmed
that psychological variables play a pivotal role
in the success of an entrepreneurs, these studies
have been criticized as having methodological
problems such as biases and non-comparable
samples. Others also indicate that these factors are
not strong predictors of entrepreneurial success.
Consequently, some studies have shifted the focus
of analysis to social factors and context and the
organizational context.
Social Demographic
Background Factors
Aside from psychological factors and social de-
mographic background, factors such as education,
gender and experience have also been indicated
as influencing entrepreneurs. Studies confirm
that there is a relationship between entrepreneurs
and the level of education they acquire which
influences the drive towards achievement and the
successful management of the business.
Gender issues have also been another social
factor which has shown up consistently in the
entrepreneurship literature. Findings suggest that
although some traits or attributes are common
to most successful entrepreneurs, women who
have also achieved some level of success have
also exhibited traits such as autonomy, persis-
tence, competitiveness, achievement drive, risk
taking and leadership qualities. Although female
businesses tend to be smaller in nature than their
male counterparts, it more likely that what drives
entrepreneurship in males might not be too differ-
ent from that of females (Ahmad, 2011). While
some studies agree that women differ greatly in
entrepreneurship and should be studied as a differ-
ent group, other researchers are of the view that,
it is the society that has made the term entrepre-
neurship a masculine terminology and has made
some women believe entrepreneurship is for men.
Due to this the number of women entrepreneurs
has been low and studies in that area has also
been low, however there has been an increase
in women business owners in some parts of the
world especially in developed economies (Brush,
1992; Ahl, 2006).
Life experiences encountered in the environ-
ment and studies suggesting that experiences
growing up socialize children into developing
interest in entrepreneurship in adult life.
Firm and Organizational Factors
This level of analysis stresses the organizational
processes involved in entrepreneurship and man-
agement philosophies. The processes involve the
business startup from the identification of need
or opportunity, defining the business concept,
assessing resources, acquiring and deploying
resources, building, managing and sustaining the
business for harvesting.
Environmental Context
and Entrepreneurship
As entrepreneurship research advances, more
research calls are geared toward contextual issues
such as cultural parity and diversity in entrepre-
neurship. At this macro level research suggests
that, as entrepreneurship advances, there is a need
to focus on contextual issues and environmental
issues rather individual characteristics. Entrepre-
neurship at this level is described as a response
to certain environmental conditions and factors
propelling individuals into business ventures.
This level of analysis also assumes that there are
a number of environmental factors or variables
which hinder or drive people to establish busi-
nesses (Lee & Peterson, 2000).
In reviewing the literature on entrepreneurship
across the globe it has been found that entrepre-
neurship has been embraced in some parts of the
809

world more than other and has transformed a lot
of economies. This discussion has been along
the lines of developed economies and emerging
economies.
Entrepreneurship in Developed
and Emerging Economies
There has been a global demand for goods and
services from several developed economies par-
ticularly from America and Europe and in more
recent times Asia. Such cultures have been found
to provide a favorable and conducive environment
which fosters entrepreneurship development in
individuals causing a significant economic growth
and fostering world trade among other things.
Some of the drivers of entrepreneurship devel-
opment in such economies are access to capital,
cultural values and orientation, infrastructure and
technology and systems which generally encour-
ages entrepreneurial ventures. This has also been
catalyzed by the emergence of digital technologies
and the World Wide Web making it possible to
demand products from the developed economies
from all over the world (Lee &Peterson, 2000). In
other parts of the developed world such as Europe
and Japan similar cultures have been emulated.
Adequate infrastructure and systems such as
access to funding, infrastructure and technology
have made a significant contributions toward the
advancement of entrepreneurship. For instance,
there are several funds and venture capital groups
and Non-Governmental Organizations (NGO)
supporting such ventures.
There are also role models who serve as men-
tors for young people in society to dream big for
entrepreneurship. As young people observe these
developments and are socialized into it more,
entrepreneurship values are inculcated into them
and more entrepreneurial businesses are likely to
be born. Hence, entrepreneurship appears to be
better developed and entrepreneurs well-resourced
in developed economies. It could also be possible
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that, aside the favorable environment, there ap-
pears a general leadership commitment toward
entrepreneurship in such countries.
Emerging economies such as china and Mexico
are characterized by increasing market orientation
and expanding economic foundation and gradu-
ally growing strong economically. They have also
been influenced by the global development in
entrepreneurship and entrepreneurship is playing
a major role in such development. Although the
Chinese culture is considered to be conservative
and yet there is been a major strides in their en-
trepreneurial activities causing a rapid economic
growth in these nations. Perhaps globalization has
had a lot of influence on such factors (Bruton et
al., 2008).
There have been a lot of studies in entrepre-
neurship across the globe and one would think
that the emerging economies literature would
capture that of African but such studies does not
seem to capture African studies. Although there
have some studies on entrepreneurship in the
emerging economies, these are mainly found in
Asia and South American. For instance, Sackey
et al. (2013) found that entrepreneurial and SMEs
studies in developing countries are in a limited
degree. Thus there is an extant literature on entre-
preneurship in African context which serves as a
major motivation for this study. All his contextual
issues bother on the socio cultural dimensions of
entrepreneurship which need further exploration.
Culture and Entrepreneurship
Another level of analysis is to assess entrepreneur-
ship from the cultural perspective. A number of
studies have compared culture and entrepreneur-
ship, but the most extensive has been by Hofst-
ede (1980) which is cited as the basis for most
researches on cultural comparatives. According to
Hofstede (1980), it appears that entrepreneurship
seem to be more readily accepted and advanced in
some cultures than others. Using cultural values

Kama Group Limited
as dimensions and cultural characteristics, Hof-
stede identified that certain cultural value such
as individuality verses collectivity, masculinity
v. femininity, achievement v. ascription and uni-
versalism verses particularism. Hofstede study
highlighted that entrepreneurship appears to be
high in cultures found be more individualistic,
masculine, achievement oriented and ascription.
Lee and Peterson (2000) also found that a grow-
ing body of literature suggests that Entrepreneurial
Orientation (EO) in a country or culture influences
growth of companies and economic growth in
general. Accordingly entrepreneurial development
is a function of a unique blend of cultural values,
attitudes and behaviour. The dimension of EO
include; autonomy, risk taken, innovativeness,
proactiveness, competitive aggressiveness.
Other cultural factors behind entrepreneur-
ship development are favourable environmental
factors such as economic factors, political legal
factors and social factors. When the culture and
environmental factors influences entrepreneurial
orientation positively, it develops high level of
entrepreneurial drive which drives global com-
petitiveness (Lee & Peterson, 2000).
In Africa little is known about entrepreneurship
and culture, although there are numerous SMEs.
Hofestedes’ findings depicted Africa as collective
and yet has several business startups which are
growing and surviving though not as rapidly as
in other developed countries. Could the African
case be like the Chinese case? This calls for more
studies, which is one major reason why this case
is being presented.
Entrepreneurship in Ghana
Ghana as an emerging African economy has a lot
of SMEs own by entrepreneurs and some of these
entrepreneurs have crossed the early hurdles and
difficulties while others still in the early stages
battling initial challenges. SMEs are considered
to be the backbone of Ghana’s economy and yet
they saddled with a number of constraints which
impede their progress and make them less com-
petitive in today’s global business environment.
Nunoo (2014) identified a number of chal-
lenges that SMEs and entrepreneurial startups
currently face in Ghana. He categorized the
challenges into: human capital, financial capital,
legal and regulatory challenges, infrastructure,
technology, marketing and customer issues, socio-
cultural attitudes.
It appears these challenges are not new but
they are a number of them previous challenges
which Dr. Addo encountered while he was start-
ing his own business decades ago. Even though
there has been several efforts from government,
the financial community and SMEs and Entre-
preneurial groups some of these challenges are
lingering on. If Dr. Addo had these attributes and
has been able to make it and yet others have also
made it successfully on their entrepreneurship
journeys in Ghana, then it is possible that strong
individuals with the right attributes and positive
responses to the environment can still overcome
these challenges.
Sackey et al. (2013) also suggest that there
a number of ethical dilemmas which Ghanian
entrepreneurs are saddled with which pose a
number of challenges in dealing with the legal
framework of business and tax issues. These sug-
gest that Ghana might have individuals with traits
of entrepreneurship and organizations willing to
explore global opportunities yet might not obtain
the requisite environmental and cultural support
conducive for business growth. Therefore, it not
surprising that individuals who went through such
harsh business environmental conditions needed
more internal and mental attributes, factors such as
strong motivation, determination, hard work, etc.
as possessed by Dr. Addo to become successful.
FAMILY BUSINESS
Family businesses have been described as distinct
and should be studied as such. Ibrahim et al.
811

(2003) assets that family businesses are identified
as unique due their ownership and management
characteristics. A family business has about 51%
and above ownership to family members and two
or more members of its management team are
family members. While the family relates on the
emotional attachments, the business relationship
is based on an economic rational system. Increas-
ingly researchers are paying more attention to
family business issues across the globe due to
a number of factors such as the contribution to
economic growth (Craig & Salvato, 2012) there
has several calls to widen the scope of family
business research as the discipline grows (Casillas
& Acedo, 2007; Sharma, 2004). In recent times
Litz et al. (2012) have also added their voices to
the several earlier calls to study family businesses
as distinct from several other kinds businesses.
The family business literature has been dis-
cussed from has several dimensions including; it
uniqueness and definition, family involvement,
identification and the advantages and disadvan-
tages of the family to the firm.
COMPETITIVE ADVANTAGES
OF FAMILY BUSINESS
In terms of family business management and
ownership, studies indicate that when family
members serve as CEO their performance is better
than non-family member. Although other views
suggest that limiting the organizational manage-
ment to only family members limits the prob-
ability of benefiting from a large pool of talents
and professionals which can be a disadvantage,
available literature also shows a continued success
in management in family members managing and
owning the majority of shares. Anderson & Reeb,
(2003) found that Family related CEO managed
organizations exhibit positive relation toward
accounting profitability measures and founder
CEO managed firms also exhibit better market
performance. General family related firms whether
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managed by CEO’s or non CEO’s show a better
performance than non-family firms. However,
quantitative performance indicators might be
generalized and also its possible performance
might change as the performance is assessed by
qualitative performance indicators.
Early studies suggest that although too much
control and ownership in family business can
cause poor performance in family business, fam-
ily influence has also been noted as a source of
competitive advantage to a family business. It is
suggested that families can have a long presence
and view of the firm enhancing the sustainability
of the firm.
Although family businesses might have their
own challenges, studies suggest that the perfor-
mance of family business could be better than
non-family businesses on several parameters (An-
derson & Reeb, 2003). These parameters include;
better management, finance and corporate image
and reputation.
Kotey (2005) found that Family SMEs and
Non-Family SME all have similar levels of per-
formance, however changes can occur at different
growth levels. Also, Family SMEs have long term
profitability focus and efficient use of resources.
In a more recent study, Intithar and Pollack
(2012) suggested that Family businesses may
be able to differentiate themselves and be more
competitive by establishing themselves in special-
ized niche market segments and building strong
relationships based on trust.
Although family business account for a larger
proportion of entrepreneurial businesses in emerg-
ing economies, very little is known about family
business especially from the African perspective.
Hence this case which is an entrepreneurial and
a family business seeks to respond to this gap.
An Institutional Theory View
of the Family Business
The study of organizations and their interac-
tions has been an area of academic research over

Kama Group Limited
years. The old institutional theory views the
family business as responding to environmental
pressures and adapting to them internally in its
interactions. However, the neo-institutional theory
proposes that businesses have symbolic mean-
ings and structures that do not result from the
move towards higher efficiency and effectiveness
(Leaptrott, 2005). Based on the symbolic nature
of organizations, Family business offers symbols
which allows family members to fulfill needs
such as identity, security and self-actualization
and interacts with the environment by engaging
in social responsibility and giving back to society.
Qualitative Research
Methodology in Family Business
and Entrepreneurship
Entrepreneurial research has been conducted us-
ing both qualitative and quantitative approaches
with the former dominating the later. Both have
their advantages and their disadvantages. While
qualitative yields detailed information, qualita-
tive research is able to predict variable accurately
with models. Sackey et al. (2013) suggest that to
gain a fuller detailed and trustworthy picture of
the case qualitative measures such as in-depth
interviews and content analysis are preferred for
entrepreneurship studies.
In this study both quantitative and qualitative
methods were employed to collect primary and sec-
ondary data from the case company. With respect to
primary data sources, the researcher developed an
interview questionnaire and protocol and carried
out an in depth and comprehensive interview of
the founders and some key selected management
staff both family and non-family members in the
businesses. Specifically, the questionnaire sought
to find out Dr. Addo’s motivations for starting an
entrepreneurial family business, how he got capital
to get started, and the biggest challenges/obstacles
which he faced when starting out, the successes as
well as the “future” vision of the business.
BACKGROUND AND BUSINESS
CONTEXT OF THE CASE
KAMA Group Limited was founded by Dr. Mi-
chael Agyekum Addo in Accra, Ghana when he
was 31 years old. Dr. Addo, a pharmacist, is also
the CEO of the business. KAMA which means
excellence in the Akan language is a group of
companies including
• KAMA Industries: The pharmaceutical
production unit and the major arm of the
KAMA Group
• KAMA Health Services and Clinic
• KAMA Forex Bureau
• KAMA Estate and Conference Centre
Pharmaceutical production is the major aspect
of the 27-year old business with 11 outlets of phar-
macy shops spread throughout Ghana. The firm
also represents other multinational pharmaceuti-
cal companies from Europe, Asia and the USA.
When the KAMA group was started as KAMA
Health Services in February 1986 with Dr. Addo’s
sister as the only employee, there was only one
pharmacy outlet in the Kumasi business centre
called Kejetia. By 1988, the owner of the shop
threw the company out due to debt. There was
no initial capital to start the business with, but
the only capital was from goodwill. He virtually
started with nothing that is zero capital, and could
not afford his rent so he was ejected.
By 1990, he had a second shop and could begin
again. This scenario presents some of the cultural
and national differences in term of support and
favorable environment for business startups in
developing economies (Lee & Peterson, 2000;
Tan, 2002). Like a seed the company started again
without giving up hope and has grown to become
a success story with eleven outlets from Accra to
Mamfe, Tamale, Sunyani, Kumasi, d Koforidua,
and Takoradi.
813

Ghana is one of the fastest growing economies
in West Africa. The Ghanaian Economy like many
emerging and developing economies is dependent
on Agricultural businesses and SMEs. The SMEs
constitute about 85% of the manufacturing sector.
Other SMEs and entrepreneurial businesses are
scattered over the other sectors and industry. In
Ghana, the development of credit bureaus and
financial support for startups entrepreneurial and
family businesses are very low compared to the
U.S. and other developed economies; hence capital
is not readily available. Also business incubators
do not exist, and academic courses such as fam-
ily business are not available. These and other
factors as discussed earlier such as technology
infrastructure etc. present challenging business
context for entrepreneurship success.
The Pharmaceutical industry in Ghana is in the
growth stage and continues to outperform its other
counterparts in the West African Sub-Region.
Most pharmaceutical products are distributed
from Ghana to other West African countries.
This growth is predicted to continue for the
next 10 years or more. However, the industry is
suffering from heavy importation of counterfeit
drug and pharmaceutical devices. Due to this
there is a strong political drive to increase local
manufacturing and strengthen existing industries.
This suggests that entering into Pharmaceutical
production definitely requires strong motivation
and entrepreneurial mental attributes. It is against
this context that Kama Group emerged as Phar-
maceutical industry in Ghana.
Start-Up Motivation
Successful entrepreneurs are the ones who are
able to start out ventures which survive and
grow. Motivation to start a business is a major
issue. Motivation is the intention which pushes
people toward action and a specific goal and it
is considered to be the pathway to success and
achievement. (Bird & Jelinek, 1988).
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Entrepreneurship takes place in different in-
dustry and geographical contexts, but there may
be commonalities that cut across these contexts
(Stokes & Wilson, 2010). One such variable is the
different motivational factors and intentions as to
why an individual would enter into entrepreneur-
ship venture. Some of the reasons identified in
literature are internal or psychological reasons and
others are environmental. Some internal motiva-
tors are autonomy, financial independence, etc.,
as well as external factors such as employment
or loss of job, business opportunities and other
environmental triggers such role models and ex-
periences (Stokes & Wilson, 2010). Some are also
motivated to create something new or innovate,
driven by a desire for achievement, a personal
or psychological attribute which has been long
discovered as a characteristic of entrepreneurs.
According the CEO he had an intention to
start his own business and was planning towards
it but decided to inform his employer the owner
of the Pharmaceutical Company, Wrosubon Phar-
maceuticals of his intentions to start his own and
that led to his loss of his job:
I thought of resigning the following year to start my
own business because that was the burning desire
but I decided to inform my employer earlier in
order not to sever the relationship. To my surprise
I was told to go home that very day within a single
minute not even pick up my personal belongings.
So the internal motivation was high but it was
speeded up by my employers. My unemployment
situation served as an external motivator and a
catalyst for the business.
At that time it was a very painful experience
but that is what has yielded into such a success
story in entrepreneurship. As the story continues,
Dr. Addo added:
My manager at that time misinterpreted my prior
notice and perceived it to be a very big issue of

Kama Group Limited
disloyalty, in his view, ‘a man cannot divorce his
partner and still sleep on the same bed with her.’
In other words, he disagreed with earlier notice
for resignation.
The motivation to start a business was very
high internally for Dr. Addo because he had an
initial intention, a dream and a passion to start his
own business motivated by the drive to achieve,
gain independence, and contribute to human-
ity and with the moderating effects of trading
socialization from childhood from his mother.
So both the internal and external motivation was
strong because he wanted to but the environmental
condition facilitated it untimely emergence. This
experience may be unique but research supports
issues motivating factors of entrepreneurship such
as loss of job, achievement drive, a passion and a
dream (Bird & Jelinek, 1988; Stokes & Wilson,
2010). This experience also brings to bear the at-
tributes of determination, courage, and persistence
as identified by Dr. Addo.
The Specific Challenges of
Starting a Business in Ghana
The road to success is never smooth and there
always are vision-destroying people and circum-
stances that can push you to quit (Dr. Addo, 2010).
There are several challenges which entrepreneurial
startup businesses encounter. Escalante and Tur-
vey (2006) in their study of startup entrepreneurial
business found that there various challenges such
undercapitalization and liquidity constraints, low
quality labour, labour inefficiencies, managerial
skills deficiencies, and lack of facilities among oth-
ers. All these were challenges encountered by this
entrepreneur. According to Dr. Addo, there were
many challenges at the initial stage of starting the
business but the major challenges, bottlenecks, ob-
stacles, etc., which were particularly encountered
were the business location and business capital.
Because his plans to start a business had not fully
matured, there were no savings whatsoever or a
venue where he could start. He sums up the initial
challenges as follows:
Lack of Capital
The whole business started as an emergency with
no well-planned strategy to take off. The busi-
ness started with one shop which he managed to
rent so he could retail pharmaceutical products
located in the central business district of Kumasi,
the second largest city of Ghana called Kejetia.
Soon after commencement of business in three
months without any profit the landlady increased
the rent for the shop which made the entrepreneur
very frustrated and not knowing what to do. As
business proceeded he managed the payment of
rent for two years after which it was unbearable.
In the second year the business could not afford
it and had to close down because he was kicked
out of business in 1986. Several studies confirm
that capital constraints and funding or access to
capital are major challenges in different cultures
where entrepreneurs begin their business. These
suggest that entrepreneurship challenges are com-
mon around the globe.
At that time banks were not willing to part with
their resources for entrepreneurial startups, so it
became very stressful. This confirms some of the
institutional and national differences identified in
developed economies and emerging economies.
Dr. Addo would have had access to capital if he
were in a developed country, (Lee & Peterson,
2000; Tan, 2002). “Through an unknown hand of
God” as he narrated his story, another door was
opened for him in 1989. He was able to restart
his business in the same area. Due to his focus
and endurance he did not give up on his dream to
become a successful entrepreneur. These attributes
are discussed in the later sections of the case.
Staffing
Escalante and Turvey (2006) identified that for
many startups getting the right personnel to work
815

with was a big challenge. Even if an entrepreneur
is able to get employees, they are usually low
quality and unskilled labour because the startup
entrepreneur will not be able to pay well for high
quality professionals. If he is fortunate enough
to employ some, because of financial challenges
labour turnover can be very high. KAMA in his
initial stages could afford to employ only one
relative, his sister who come and assist him as a
shop assistant. Mbonyane & Ladzani (2010) also
found that in South Africa Small business startups
do not have a skilled labour force because they do
not have the financial resources to train them. This
also appears to a general problem for entrepreneurs
worldwide particularly entrepreneurs in emerg-
ing economies. This challenge again could have
frustrated Dr. Addo and forced him to quit, but he
forged ahead and today he has several employees.
Office Location
Infrastructure for initial startup entrepreneurial
business is also a challenge. Poor infrastructure
including lack of office space, lack of utilities, poor
roads and accessibility just to name a few impede
the growth and stability of small business. The
case of KAMA was not found to be too different
from many emerging economies (Escalante and
Turvey, 2006; Mbonyane & Ladzani, 2011). He
suffered from ejection and had to close his business
for more than two years. Today the company has
its own factory located in a good business area in
Accra the capital of Ghana with about 11 other
pharmaceutical outlets.
Marketing
As an industrial pharmacist without any business
education background, retailing was a problem.
As he puts it, he could only rely on his childhood
sales experiences learnt from his mother who
was a trader. Meanwhile, there were established
retailers who had existing customers and wider
distribution networks making the competition
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tough. Studies also suggest that these challenges
are real in startup businesses in all economies. In
every industry depending on the growth stage of
the economy and the industry, startups generally
face competition which they need to penetrate.
According to Dr. Addo, he did not have estab-
lished customers and his business had no brand
name, but he survived in the market. There was
nothing to work with, e.g., no vehicles or vans to
run the business, no financial or human resources,
etc. There were also some other environmental
challenges Dr. Addo had to contend with. The
pharmaceutical industry was small and was in an
infant stage of its development at that time. It was
without appropriate technology, infrastructure,
and other resources.
The economic conditions in Ghana were very
harsh because Ghana was recovering from famine
and severe economic hardship under the military
rule of President Rawlings. Attitudes were bad
and everyone was interested only in ‘what is in
it for me.’ No one was willing to help anyone in
starting up a business.
Entrepreneurial research shows that business
startups in emerging economies also encounter
several environmental challenges such as po-
litical, legal and ethical issues, economic issues,
technological and industry factors which may
impede their growth and performance (Escalante
and Turvey, 2006; Bruton et al., 2008; Sackey
et al., 2013). Sackey et al. (2013) found that
Ghanaian entrepreneurs face ethical challenges
and dilemmas in situations when they are apply-
ing for business information and permits, when
competing for business contracts and financing
and when dealing with tax authorities. Real life
situation challenges include issues of truth and
disclosure in tax, paying your way through and
using influential others in the business process.
Such environmental challenges affect the success
of entrepreneurial practices in Ghana.
Currently the company is a group of companies
comprising Kama Estates, financial services, hos-
pital, NGO, conferencing, salon and barbering and

Kama Group Limited
pharmaceuticals. There are seven pharmaceutical
outlets spread all over Ghana, there is a factory
where we manufacture our drugs.
CRITICAL MENTAL ATTRIBUTES
FOR SETTING UP BUSINESS
Entrepreneurship success and individual character
traits have been found to correlate significantly
in most of the entrepreneurship literature. The
five most important attributes necessary for any
startup and for successful business enterprise are:
determination, persistence, hard work, courage,
and optimism and are discussed below.
Determination
Determination is the ability to have definiteness
of purpose and resolution to succeed no matter the
situation or circumstance. It is a deliberate decision
to maintain focus. Determination is persistence
and willingness not to give up. This attribute is
very essential for achieving any purpose in life.
As narrated by Dr. Addo, all the challenges he
encountered throughout life such as a difficult
childhood and schooling experiences and several
difficulties in the early days of his business es-
tablishment, he never gave up but persisted with
a determination to succeed. Rather, he developed
better emotional strength to stand the test of time.
Entrepreneurial studies have consistently yielded
results indicating that individual psychological
or personality is connected to entrepreneurial
success. One of the major traits is self-efficacy
which is the motivational force of persistence
towards a choice.
This is characteristic of Dr. Addo confirming
several studies which have indicated a strong link
between this trait and entrepreneurial success
(Zhao et al., 2005; Tang, 2008). In his book on the
seven principles of success and wealth creation he
added that determination is about being focused
and the discipline to pursue a dream was crucial
for entrepreneurial success. From his startup story
it could be observed that the initial difficulties of
lack of capital, ejection, lack of labour, etc. could
have frustrated his dream but due to this mental
attribute he was able to sail through the storm of
business challenges and general life challenges
and indeed if it had not been this trait he would
not have been able to make it through school,
and arrive at the point of starting a business. So,
this mental attribute has played a very significant
role in his life. Some studies have referred to this
phenomenon as a pool factor of the environment
because it was the tough environment that devel-
oped such attributes in him. Tang (2008) suggests
that it is the environmental factors which interacted
with internal factors for these traits to be formed.
Persistence
Persistence is a refusal to give up or to let go or
to hold on to something and continue steadfastly
with a firm attitude. As Dr. Addo points out in
his own words “By dint of hard work, determina-
tion and persistence I have been able to get some
working experiences from various spheres of life”
this attribute is in line with the general description
of people with self-efficacy who shows a strong
drive towards a goal, who make certain choices,
are persistent and perform. This has been supported
by Zhao et al. (2005) as a major psychological
trait for entrepreneurial venture. From the back-
ground of Dr.Addo, it could also be observed that
circumstances surrounding his startup were very
tough which might have caused him to give up,
especially when he was ejected from his shop due
to debt, and it resulted in a two year break in the
business. It takes persistence and and an internal
locus of control to start up again.
Optimism
To be optimistic is to have a positive outlook in
life. This attribute is also related to the propensity
for risk and internal locus of control (Zhao et al.,
817

2005). People who are internally motivated see the
light even in the darkest hour. This is what gave
hope to Dr. Addo to hold on because he could
see a light at end of a tunnel. With a very tough
childhood and rough environmental conditions and
support from nowhere this successful entrepreneur
was very positive that he could make a success no
matter what it took. This is possibility thinking
and it drives persistence. Where there is a bright
future it is difficult to give up.
Courage
This is the tendency to have a boldness to step into
the waters where nobody is willing to go. It is being
confident in character and not feeling intimidated.
It shows an attitude of fearlessness and convic-
tion. This is consistent with propensity for risk. It
possible that through all the harsh conditions and
tough times in his life experiences he encountered
several experiences which built such an attribute
in him. Although a number of studies confirm
that entrepreneurs have high propensity towards
risk, Low & MacMillan (1998) suggest that it is
better to view entrepreneurs as good risk manag-
ers than people with high propensity towards risk
because everyone encounters some level of risk
but managing the risk is the challenge. It took a
lot of courage to step out on this entrepreneurship
journey especially at that time when entrepreneurs
were very few in this part of the world.
Hard Work
This is a trait characterized by diligence, duty and
a sense of responsibility. As Dr.Addo explains,
hardworking is having the ability to work extra mile
before normal work begins and after the normal
hours of work. He believes that it is not possible to
be successful without hard work. Hard work is the
second principle Dr. Addo describes in his book
entitled the Seven Principles of Success. Hard work
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he considers as a priceless attribute which yields
social, economic, health and emotional benefits.
Hard workers are selfless, disciplined, focused,
happy and above all do not have a complaining
attitude. This again supports existing literature
that successful entrepreneurs have certain traits
and attributes that make them distinctive. Hard
work appears to be connected to Murray’s drive
for achievement and Rotter’s self-efficacy and is
one of the cardinal traits of entrepreneurs.
Of these determination is the most important
attribute an entrepreneur must have to start a
business in Ghana. The challenges are so great
that if you have not resolved mentally to stay on
course you are likely to give up. “Though it was
difficult, I was ready to take the risk and face the
consequences. I started taking care of myself at
the age of 7 and by age 36, I had seen a lot of
difficulties which gave me the edge to move on.”
To manage and sustain your business one needs
hard work and persistence to survive.
CURRENT BUSINESS
Business Location
The business started in Adum, Kumasi, which cur-
rently, has eleven outlets: Accra, Mamfe, Tamale,
Sunyani, Kumasi, Koforidua, and Takoradi with
the Head Office in Labone, Accra.
Breadth of Businesses
The current business includes
• Hospital
• Financial services
• Conferencing and commercial estates
• Education projects for brilliant but needy
students
• Salons for barbering and hair dressing

Kama Group Limited
Pharmaceutical Products
KAMA industries has about 68 products which
are manufactured in Ghana for all age groups and
for the treatment of various conditions. According
to the production manager, we are still working
on other new products with two of these products
on their way to be launched and a list of twelve
products soon to be introduced to the market.
Business Performance
The company has been growing steadily and at a
fast rate after being able to overcome its early chal-
lenges. Currently, the organization which started
with only one employee, employs 250 people and
has a very good brand name, image and position
in the country’s pharmaceutical industry and the
business environment in general. The business
can be described as in its young adulthood stage
of development with 68 products or brands. Sales
growth has been high and it is hoped that this growth
will continue. The company is also going interna-
tional by exploring the entire West African Market.
KAMA group is also a member of the Ghana club
100, a prestigious group of businesses in Ghana.
The sales growth for the past five years is
presented in Table 1.
This suggests consistent growth in sales per-
formance and hence profitability.
There are two manufacturing plants located at
Labone and Tema. The company currently is us-
ing state of the art technology for manufacturing
and has a seven member board of directors and a
management team. There is no doubt that the sky
is the limit for KAMA Group Ltd. For information
about KAMA Group and its products, visit the
company’s website (http://kamagroupltd.com/).
Table 1. Sales trends for the past five years
Years 2009 2010 2011 2012 2013
Sales in USD 11m 12.5 14m 17m 20m
m projected
Company Vision
The vision of the company is to become the
number one pharmaceutical company and to be
of great service to mankind by not only focusing
on pharmacy, but touching the lives of people in
different ways.
Community Relations
The relationship between the business and the
community is a very cordial one and the main
corporate social responsibility activity of the
organization is educational scholarships and
sponsorship for young people who are needy but
brilliant, business advisory services and entrepre-
neurial training for schools from basic level to the
tertiary level. Every year the firm organizes such
training activities, donates books and sets aside
an amount for scholarships. Due to the harsh eco-
nomic background and challenges Dr. Addo went
through in his early developmental stages, he has a
passion for people who find themselves in similar
challenging situations. He has an NGO he has
named, KAMA Educational Project which is for
the training of young talented entrepreneur. This
Dr. Addo considers being his Legacy for Ghana.
Aside from these he is offering his knowledge
and experiences as a resource person to many
gatherings and he has also employed a number
of people. These are the many ways in which this
successful entrepreneur is giving back to society
and his community.
Family Relations
According to Dr. Addo, the company has some
family members who are working there as part of
the employees and management. He stressed that
“My first son is the general manager, my daughter
is the Pharmacist in charge of manufacturing and
another daughter is in charge of sales and market-
ing. They are all pharmacists so they understand
the business. This shows that Dr. Addo’s children
819

and the entire family are highly identified with the
business which makes it possible for all to protect
the reputation of the business. “I also have some
sisters, nieces and nephews working with me and
even some people from my village.” It is possible
that the emotional bond and image issues drive the
children to be more committed to the organization.
Concerning the succession and continuity of
the business, the owner of the business said he
knows his business will survive because he has
able people he has trained to take over. “In my
absence, my children and other management staff
who are committed to the organization will be
there to take over from me.” This also suggests
that socio-emotional wealth is also high as it is
depicted by Dr. Addo’s willingness to hand the
business over to the next generation. In his own
word he said “Am training my son who is the
current General Manager to take over from me to
be supported by his sisters.” This is an indication
that the business is a family business because it is
owned by the family and their involvement is very
high both at the nuclear level and the extended
family level and also at management level. All
these characteristics are supported (Anderson
& Reeb, 2003; Deephouse & Jaskiewics, 2013).
The growth and success could be attributed to
the involvement of the family and the competitive
advantage it presents such as emotional involve-
ment, better use of resources, favorable reputation,
etc. Although they may have their differences and
disagree on some issues they are able to push it
aside and move on in the interest of the organiza-
tion. In the next 20 years, his vision is to see about
twenty of his caliber of entrepreneurs in Ghana.
CONCLUSION
Lack of literature on entrepreneurship and family
business in Africa has been identified as a major
gap. Hence, several researchers have answered
calls to fill this gap in research (Bruton et al.,
2008; Sharma, 2004; Low & MacMillan, 1988).
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Kama Group Limited
This study addresses this gap by studying
the entrepreneurial and Family Business by Dr.
Michael Agyekum Addo in Ghana, West Africa.
The case unravels the secret of his success and the
entrepreneurial challenges which he has managed
to pass through successfully.
Dr. Addo has a general passion for entrepre-
neurship which is contagious as he tries to pass
on this passion for business drive to students and
the academic community as well. He believes that
everyone can be an entrepreneur because he did
not actually plan to be one but it met him in the
journey of life and has successfully gone through
it and is currently making a positive impact on his
society. He is willingly sharing his knowledge and
experiences with the younger generation.
In his concluding remarks the successful
entrepreneur advised that to run your business
successfully in Ghana as an entrepreneur you need
good control systems,an understanding of people
and ability to manage them effectively, commu-
nicate effectively, train the staff, remunerate your
employees well and learn to delegate. One should
also understand the cultural issues and be control
of the business. “The communication skill must
be good; the Ghanaian wants to feel important
and does not easily accept mistakes.” The major
lessons learnt are highlighted below.
LESSONS LEARNED
FROM DR. ADDO
This case provides valuable lessons to the academic
community on entrepreneurship and family busi-
ness. Dr. Addo’s lessons are captured in his recent
book entitled The Seven Principles of Success and
Wealth Creation: Experiences of an Accomplished
Entrepreneur published in 2010. In this book Dr.
Addo laid down the 7 principles of success in en-
trepreneurship and family business management
as well as in wealth creation. He has emphasized
the key lessons of this case study. He stresses that

Kama Group Limited
these 7 principles were the bedrock and fundamental
basis of his success and are summarized below.
1. Honesty and Reliability
According to Addo, people have several excuses
which they give which in the end tend to make them
dishonest and unreliable. He however stressed that
you have to be very reliable by eliminating all your
excuses before you can be successful. To him, “if
you cannot keep a promise do not make it at all.”
2. Hard Work
As he puts it hard work is the additional hours an
individual adds before working hours and after
work to the normal number of hours of each day.
Dr. Addo emphasized that hard work produces
the results of success and it’s a vital ingredient
in success in any entrepreneurship venture. For
instance, he suggests that your day start at 3.30
am and organize your day by prayer, meditation,
creation of a to do list. He pointed out that con-
sistent hard work can only be achieved through:
• Discipline
• Focus
• Lack of complaining attitude and
• Selflessness
3. Do Not Spend It All
Dr. Addo strongly recommends that whatever you
are earning, savings should be a key attitude and
culture. This he said creates the roots to self-sus-
tenance. Savings again requires strong discipline
in spending, willingness and frugality (pg.68).
4. Invest It
Dr. Addo believes that savings and investment
have ripple effects on your income because little
drops of water make a mighty ocean. Investment
puts shoes on your income and allows the money
to grow and be more useful (pg.67).
5. Do Not Forget Your History
Another critical principle which Dr. Addo sug-
gests is to give back to your community where you
come from. Having grown up in a typical rural
community Sushen near Koforidua, the Eastern
Regional capital of Ghana and from a very poor
background, Dr. Addo understand what it means to
offer help to needy but brilliant children. Although
the environmental conditions and circumstances
under which he grew were very tough and harsh,
he believes all these have shaped him and made
him emotionally stable and resilient and therefore
he can appreciate the people there by supporting
them to become better people in society. Besides,
he has also acquired many values and virtues from
the community which has made him successful.
Success without giving back to society cannot be
success. One can offer help in terms of advice,
conflict resolution, being a role model and above
all offering cash support and donations to schools,
hospitals and other community development ac-
tivities. As mentioned earlier on, Dr. Addo runs
an NGO, The KAMA Educational Project where
young people who want to be trained as entrepre-
neurs are trained and provided with resources to
start up their own businesses (pg.82).
6. Fear of God
Entrepreneurship can be associated with beliefs
which might vary from culture to culture (Ahmad,
2011). Apparently Dr. Addo believes that it is his
belief and faith in God which has contributed
significantly to his success. “The more religious
you are the more upright you are likely to be, and
the more uprightness the more successful you are
likely to be.” Achievement comes through posi-
tive mental attributes, self-control, and discipline
which all religions teach their followers.
821

7. Patience
Business grows through a process and if an indi-
vidual does not have any patience the person will
soon give up against the prospect of the future.
Every big dream takes time to grow just like a big
tree takes to become big. He suggests that young
people must be patient like a farmer who plants
crops until they grow before you can succeed as
entrepreneur. Patience requires endurance and
willingness to go through the processes.
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PMID:16316279
KEY TERMS AND DEFINITIONS
Entrepreneurship: Process of identifying
opportunities and developing business structures
to take advantage of them.
Mental Attributes: Cognitive characteristics
of individuals.
Mental Challenges: Perceived adversarial
obstacles that individuals have.
Motivation: Drive and intense desire to ac-
complish a goal.
Success: Achieving a desired objective or goal.
823
 Kama Group Limited

APPENDIX

Review Questions

1. Review each of the seven (7) principles of success and wealth creation as proposed by Dr. Addo.
Explain which is the most important principle and why you think so?
2. Identify several reasons why you think entrepreneurship is particularly difficult in a country such
as Ghana?
3. Critically review the five (5) most important attributes of entrepreneurial success which Dr. Addo
highlighted. In your opinion, which is the most important one for business success and why.
4. Visit the website of KAMA Group and describe the current organization.
5. Dr. Addo is described as a “successful” entrepreneur, explain why.
6. Discuss why you agree or disagree that family involvement has contributed to the success of KAMA.

824
 825

Chapter 44
Global Lighting Centre Ltd.
Lydia Andoh-Quainoo
Pentecost University College, Ghana

ABSTRACT
The purpose of this case study is to examine the motivation and challenges influencing entrepreneurial
startup of family businesses from Africa, specifically Ghana. The case brings out how the founder of
a family business has been able to manage these challenges and incorporate non-family members for
business success. The case further explores the differences and similarities in the motivational factors
and challenges associated with starting a business in an African context, specifically Ghanaian context,
as compared to the other parts of the world. A questionnaire and in-depth interview was used to gather
data. The findings suggest that though there are several personal and environmental challenges faced
when starting a family business in Ghana, entrepreneurs with strong mental and personality qualities
or characteristics are able to make it.

INTRODUCTION tion to market, generates new jobs, and sustains

Bird and Jelinek (2005) established that entre-
preneurs distinguish themselves from others by
purposely joining and forming their own busi-
nesses and using others’ resources to build a firm,
which adds value. Successful entrepreneurs are
those who start business ventures that survive and
grow, and are distinguished from less successful
ones by the interaction of these broad determinants
and the intentional processes that go into venture
formation.
Zhao and Seibert (2005) expressed that en-
trepreneurship is important because it leads to
improved economic efficiencies, brings innova-
employment levels. This has been supported by
several other authors (e.g., Shane & Venkataraman,
2000; Gaddam, 2007; Low & Macmillan, 2008).
Hence, entrepreneurship research has gained
a level of acceptance worldwide with different
authors both in academia and industry focusing
on various dimensions of the subject. However,
available literature shows that with the breadth in
entrepreneurial research, there is still an extant
literature on entrepreneurship information from
developing countries such as Ghana. Several
calls have been made over the years from past
researchers such as Kent et al. (1986); Low &
MacMillan, (1988) and more recent ones such as

DOI: 10.4018/978-1-4666-8468-3.ch044

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Bruton et al. (2008), it should be noted that there
is still a general lack of research on the subject of
entrepreneurship on the African continent.
Another related area to entrepreneurship is fam-
ily business because family businesses emerges
from entrepreneurship. Surprisingly, a review of
literature in family business research also shows
a lack of research in this area in the developing
world. Consequently, there have been several calls
for the extension of family business to other geo-
graphic locations where there is little or no family
business information (Sharma, 2004; Casillas &
Acedo, 2007; Debicke et al., 2009 & Litz, et al.,
2012). These calls in both entrepreneurship and
family business indicate enough evidence that
there little known about Africa in the literature.
In view of this general lack of researches in Africa
on entrepreneurship and family businesses, this
chapter seeks to fill this gap in knowledge. To this
end, this chapter seeks to address the situation by
addressing the following issues:
To describe a successful Ghanaian family
business Global Lighting Centre and the entre-
preneur who has grown the business to this point.
Specifically, this chapter describes the challenging
environmental conditions under which the busi-
ness emerged, including lack of capital and poor
consumer attitudes, lack of infrastructure, etc.,
and under which the young Ghanaian started and
with passion and determination has been able to
become a leader in the industry. In addition the
chapter will describe in detail the tremendous
challenges and obstacles associated with starting
a business in such an environment, particularly
the institutional and socio-cultural barriers that
entrepreneurs encountered in the early days of
their business and the innovative ways in which
these challenges are managed for business growth
and sustainability.
This study will also seek to describe the suc-
cess of this entrepreneur and identify the key
mental or cognitive attributes or characteristics
826

Global Lighting Centre Ltd.
which this entrepreneur suggests are needed to
run an effective family business from the Ghana-
ian perspective.
Finally, the case study will address how this
entrepreneur has been able to manage family rela-
tions and incorporated external people, into the
management team for progress and the benefit
to society.
LITERATURE REVIEW
Entreprenuership
The literature on entrepreneurship and successful
start-ups shows that the most predominant areas of
focus have been individual factors and characteris-
tics of successful entrepreneurs such as intention,
risk, motivation, etc., organizational factors and
processes including management and leadership as
well the organizational cultural or environmental
context of business operation. These three major
directions of research have contributed immensely
to knowledge in different fields of endeavour and
would bethe focus of this review.
FACTORS INFLUENCING
ENTREPRENUERAL SUCCESS
A number of studies have indicated that there are
certain individual factors, qualities or personal
characteristics which contribute immensely to
influencing entrepreneurship and the starting of a
business success. These have been classified into
personality or psychological factors and social
background factors and organizational factors.
Personality/Psychological Factors
Personality characteristics play a crucial role in
the success of any entrepreneur. This is because

Global Lighting Centre Ltd.
the disposition, the qualities of a person, is an
enduring make-up of the person that can inspire
someone to a business endeavor. Discoveries on
the subject propose personality factors such as,
self- efficacy, achievement drive, locus of control,
and propensity towards risk (Bird & Jelinek, 1988;
Zhao, et al., 2005; Ahmad, 2011). These have
been noted as traits exhibited by persons with
entrepreneurial success and are discussed below.
Self-Efficacy
Self-efficacy has a motivational construct that
has been shown to impact an individual’s choice
of activities, goal levels, persistence, and perfor-
mance in a range of contexts. Numerous pedagogi-
cal practices naturally used in entrepreneurship
courses can be related to all four mechanisms of
self-efficacy development. Self-efficacy has also
been found to mediate individual level factors
and entrepreneurial intention and behaviour. Ac-
cording to the social cognitive theory by Albert
Bandura (1986) self-efficacy can be a strong
motivational force which drive people towards
goal oriented behaviour, choice, persistence and
performance. In a study by Zhao et al., 2005, it was
discovered that entrepreneurial self-efficacy influ-
ences entrepreneurial intentions and behaviour.
Entrepreneurship courses also typically of-
fer the chance to witness successful role models
and thus the prospect for vicarious learning to
take place. These prospects take the form of
lectures given by local entrepreneurs, case stud-
ies of prominent entrepreneurs, or work with an
entrepreneur on a course project. Entrepreneur-
ship instructors also use social urging to enhance
students’ self-efficacy when assessing students’
course projects or mentoring students concerning
their career goals.
According to the social cognitive theory, self-
efficacy represents a vital mechanism of personal
agency. It is thought to influence not only one’s
level of effort and perseverance on a specific task
but one’s very choice of activities and behavioral
settings. High self-efficacy prospects regarding
performance in a specific behavioral setting lead
individuals to approach that setting, whereas low
self-efficacy expectations lead individuals to avoid
that setting (Wood & Bandura, 1989). An earlier
review by Chen et al. (1998) found support for
a positive relationship between entrepreneurial
self-efficacy and entrepreneurial intentions with
a sample of business and psychology students.
Although this hypothesis is a replication of that
earlier finding, we note the value of testing a model
in which self-efficacy is the theoretical link be-
tween antecedents and entrepreneurial intentions.
It is also expected that previous entrepreneurial
experience tends to increase one’s entrepreneurial
self-efficacy because it provides opportunities for
enactive mastery and role modeling. Skills and
performance strategies useful for the entrepre-
neurial role are likely to be acquired from previous
experience as an entrepreneur, even in the case or
event of past failure (Minniti & Bygrave, 2001).
Thus, previous experience can be seen as a form
of enactive mastery. Previous entrepreneurial
experience may also expose individuals to other
entrepreneurs on occasions such as training, club
meetings, or business dealings. Individuals with
previous entrepreneurial experience will thus
have had more chances to observe and learn from
successful models.
Attitude towards Risk
Further discussions also suggest a possibility of
a direct relationship between risk propensity and
entrepreneurial intentions. Entrepreneurial self-
efficacy is viewed as the mediating mechanism re-
lating risk propensity to entrepreneurial intentions.
That is, persons with greater risk propensity were
more likely to want to pursue an entrepreneurial
career because they felt more confident that they
could fulfill the roles and accomplish the tasks
necessary to succeed as an entrepreneur. Risk
propensity is expected to be associated to the in-
dividual’s judgment of his or her own likely physi-
827

ological state while following an entrepreneurial
venture, counting levels of anxiety and arousal
(Gist & Mitchell, 1992). Persons with great risk
propensity tend to be more relaxed dealing with
situations of risk and in fact notice objectively the
same situation as less risky than do others (Sitkin
& Weingart, 1995). They are, therefore, likely to
expect experiencing less debilitating anxiety about
an entrepreneurial career, perceive a greater sense
of control over outcomes, judge the likelihood of
receiving positive rewards more highly and, thus,
possess higher self-efficacy.
Need for Achievement
Henry Murray (1938), David McClelland and
John Atkinson (1978) have confidence in a trio of
basic needs: the needs for power, for affiliation,
and for achievement. Murray (1938) asserts that
the achievement motive is the determination for
greater level of attainment of goals. It divulges
itself in efforts to attain high values of performance
and participate against other successful people.
There is considerable research on the achievement
need. Persons with resilient need for achievement
often esteem their own triumph as an end in itself.
Persons with a great need for achievement are
mostly more self-confident, they relish taking
thought-out risks, they dynamically explore their
surroundings, and they value response. Financial
rewards provide an imperative type of response
as to their status whether they are doing well
or not. Persons with great achievement needs
prefer situations in which they can take personal
accountability for finding a result. Psychologi-
cal characteristics of an entrepreneur is a key to
achievement need. Studies indicate that achieve-
ment fluctuates with other demographic variables
such as age, sex and education. Begley & Boyd
(2007), creators of businesses in New England
have a greater need for achievement and also a
greater risk taking tendency and forbearance than
non-creators (Begley& Boyd, 2007).
828

Global Lighting Centre Ltd.
Locus of Control
This is the degree to which people feel they are in
control of their own lives. A personal characteris-
tic of entrepreneurs widely explored in literature
is locus of control. This concept was originally
developed by Rotter (1966) in his social learning
theory. As described by Rotter, a locus of control
can be external or internal. People with an external
locus of control are ruled by events and circum-
stances in their outside atmosphere which they
consider out of their control while persons with
an internal locus of control are ruled by their own
fortune devoid of externalities. An internal locus
control is connected to entrepreneurship because
they relate the consequence of their actions to
themselves. An internal locus of control makes
people feel that they are behind the wheels of their
own lives and ready to take full responsibility for
their actions. Such people are more ready to accept
change and move on with their lives. They are
independent thinkers, set goals and work hard to
achieve these goals. However, other researchers
have not found significant correlation between
entrepreneurs and non-entrepreneurs in locus of
control (Begley & Boyd, 2007).
Social Background Factors
Apart from psychological factors, social demo-
graphic background factors such as education,
gender and experience have also been shown as
swaying entrepreneurs.
Educational Background
Research indicates that there a relationship be-
tween entrepreneurs and their level of education.
This influences the initiative towards attainment
and the fruitful administration of the business.
Formal education can offer examples of the
lifestyles and working styles of fruitful entrepre-
neurs that will help persons develop their own

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psychological coping strategies. Psychological
coping strategies may help individuals maintain
incentive and control work or career-related anxi-
ety, leading to higher prospects of success (Stumpf,
Brief, & Hartman, 1987). All of these learning
opportunities are likely to be tailored to provide
positive outcomes that individuals will attribute to
their own ability, effort, and performance strate-
gies. Such attributions should lead to increased
self-efficacy for entrepreneurial tasks. Because,
even within the same formal educational program,
not all individuals will avail themselves of the
relevant learning opportunities to the same extent,
we focus not on the number of classes taken but on
the amount of entrepreneurship-related learning
the individuals themselves report.
Gender Factor
Gender issues have also been another social fac-
tor which has been presented progressively in
the entrepreneurship literature. The prototypical
entrepreneur was perceived as possessing stereo-
typically masculine traits (Baron, Markman, &
Hirsa, 2001) and most entrepreneurs are in fact
men (Moore & Buttner, 1997). Scherer, Brodzin-
ski, and Wiebe (1990) provided initial empirical
evidence displaying that female undergraduate
students had lower entrepreneurial self-efficacy
than male undergraduate students. Numerous
scholars had speculated that women had fewer
early career experiences, social support, or role
models related to entrepreneurship than their male
counterparts (Dyer, 1994).
Findings show that albeit some traits or attri-
butes are common to most successful entrepre-
neurs and women who have also achieved some
level of success have also displayed traits such
as independence, diligence, keenness, achieve-
ment drive, risk taking and leadership makings.
Granted that female businesses tend to be small
in nature than their male counterparts, it is more
likely that what pushes entrepreneurship in males
might not be too different from that of female
(Ahmed, 2011). Notably, some studies agree that
women vary greatly in entrepreneurship attributes
and should be studied as different groups. Other
researchers are also of the opinion that, society
and socialization could be responsible for the
concept of entrepreneurship as a masculine
terminology and have succeeded in convincing
some women that entrepreneurship is for men.
Due to this, there is a lower percentage of women
in entrepreneurship and studies in that area have
also been small, however due to globalization
and technological advancement there has been an
increase in women business owners in some parts
of the world especially in developed economies
(Brush, 1992; Ahl, 2006).
FIRM AND ORGANIZATIONAL
FACTORS
This level of analysis stresses the organizational
procedures involved in entrepreneurship and man-
agement viewpoints. The procedures comprises
the business startup route from the identification
of need or opportunity, defining the business
model, evaluating resources, obtaining and posi-
tioning resources, constructing, supervision and
nourishing the business for harvesting.
Intellectuals perceive that differences in the
survival and success of any organization are de-
pendent on the organization’s abilities to adapt
their inner structures to the contingencies related
to their technologies or tasks.
Organizations that are successful are those
that best adapt to fit the prospects provided and
restrictions imposed by their environments. Such
adaptation depends mostly on the choices and ac-
tions an organization’s leader makes. Leaders dif-
fer based on their psychological traits, experience,
and skills needed to accomplish the entrepreneurial
829

and managerial tasks necessary for organizational
survival and growth (Cummings, 1988). Studies
of entrepreneurship help explain why some orga-
nizations are more successful than others.
The relation between an organization’s age and
its survival and success demonstrates the diver-
gence of the two dimensions of performance. We
would expect an organization’s age to be generally
positively related to its survival. Carroll (1983)
asserted that the most common finding of the
major empirical studies of mortality is that the
death rate of business organizations declines with
increasing age. This indicates that, most organiza-
tions are likely to fail in the first few years of their
operation. Young organizations and organizational
forms suffer liabilities of newness involving both
internal processes, such as coordinating and
defining roles and developing trust and loyalty
among employees, and external problems like
acquiring resources and stabilizing supplier and
customer relationships (Stinchcombe, 1965). By
contrast, the liabilities of newness are not likely
to matter as much once organizations are past a
certain age. Therefore, it is not expected that an
organization’s age will be necessarily related to
its success (Meyer & Zucker, 1989).
ENVIRONMENTAL CONTEXT
AND ENTREPRENEURSHIP
As entrepreneurship research advances, more
research calls are geared toward contextual issues
such as cultural parity and diversity in entrepre-
neurship. At this macro level research suggests
that as entrepreneurship advances there is a need
to focus on contextual issues and environmental
issues rather than individual characteristics.
Entrepreneurship at this level is described as a
response to certain environmental conditions
and factors propelling individuals into business
ventures. This level of analysis also assumes that
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there are a number of environmental factors or
variables which hinder or drive people to establish
businesses (Lee & Peterson, 2000).
In reviewing the literature on entrepreneurship
across the globe it has been found that entrepre-
neurship has been embraced in some parts of the
world more than others and has transformed a lot
of economies. The discussions have been along the
developed economies and emerging economies.
At the micro level, studies indicate that as
entrepreneurship advances it becomes essential to
concentrate on contextual issues and environmen-
tal issues rather than individual characteristics.
At this level, entrepreneurship is described as
a response to certain environmental conditions
and factors driving individuals into business
ventures. In analysis at this level, it is assumed
there are some factors or variables which hinder
or drive people to establish businesses. Studies
also indicate that in spite of entrepreneurship
being globalized; some areas of the world have
embraced it more than others.
ENTREPRENEURSHIP
IN DEVELOPED AND
EMERGING ECONOMIES
In recent times, there has been an upsurge in the
global demand for goods and services from several
developed economies especially from America
and Europe and Asia. Research indicates that
such cultures have been found to provide favor-
able and conducive environments which nurture
entrepreneurship development in individuals. This
causes a significant economic growth and fosters
world trade among others. Some drivers of entre-
preneurship development in such economies are
access to capital, cultural values and orientation,
infrastructure and technology and systems which
generally encourage entrepreneurial ventures.
Also the emergence of digital technologies and the

Global Lighting Centre Ltd.
internet has made it possible to demand products
from developed countries all over the world (Lee
& Peterson, 2000).
Again, based on adequate infrastructure sys-
tems such as access to funding, infrastructure
and technology, significant contributions have
been made toward entrepreneurship. For instance,
there are several venture capital groups and Non-
Governmental Organisations (NGO) supporting
such ventures.
Furthermore, there are also models available to
serve as mentorship for young people aspiring to
enter the field of entrepreneurship. Young people
observe these developments to acquire values in
order to generate more businesses. This indicates
that, entrepreneurship appears to be developed
and entrepreneurs well-resourced in developed
economies.
On the other hand, emerging countries such
as China and Mexico are branded by increasing
market orientation and expanding economic
foundation and gradually mounting economically.
Their growth can also be attributed to global de-
velopment. It could also be said that the Chinese
culture is to be conservative and yet there have
been a major strides in its entrepreneurial actions
causing rapid economic growth in nations.
A study by Escalante and Turvey,(2006) of
startup entrepreneurial business in emerging
economies, it was observed that such startups have
various challenges such undercapitalization and
liquidity constraints, low quality labour, labour
inefficiencies, managerial skills deficiencies, lack
of facilities among others. This is also supported
by the Mbonyane & Ladzani (2010) study in
South Africa which also revealed that small busi-
ness startups do not have a skilled labour force
because they do not have the financial resources
to train them.
Albeit many studies have been conducted
worldwide with regard to entrepreneurship, most
of these do not capture African studies. Most of
the studies focus on emerging economies such as
those found in Asia and South America. Literature
on entrepreneurship in the African Context is
almost non-existent and thus serves as a motiva-
tion for this study.
Culture and Entrepreneurship
Another level of analysis in environmental con-
text and entrepreneurship involves assessing
entrepreneurship from the cultural perspective.
Comparisons of culture and entrepreneurship has
been done in some studies, but the most extensive
has been by Hofstede (1980) which is cited as the
basis for most research on cultural comparatives.
According to Hofstede (1980), it appears that
entrepreneurship seems to be readily accepted
and advances in some cultures more than others.
Using cultural values as dimensions and cultural
characteristics, Hofstede identified some cultural
values such as individuality verses collectivity,
masculinity vs. femininity, achievement vs. ascrip-
tion and universalism vs. particularism. On the
one hand, according to Hofstede’s study, entre-
preneurship appears to be high in cultures found
be more individualistic, masculine, achievement
oriented and ascribed.
Lee and Peterson (2000) also discovered that
a growing body of literature proposes that Entre-
preneurial Orientation (EO) in a country or culture
may be supportive for growth of companies and
economic growth in general. Accordingly entre-
preneurial development is a function of a unique
blend of cultural values, attitudes and behaviour.
The dimension of EO include; Autonomy, risk
taken, innovativeness, proactiveness, competitive
aggressiveness.
Behind entrepreneurship development are
favorable cultural factors such as environmental
factors such as economic factors, political legal
factors and social factors. When the culture and
environmental factors effects entrepreneurial
831

orientation positively, it develops high level of
entrepreneurial drive which drives global com-
petitiveness (Lee & Peterson, 2000).
In Africa, there exists little literature about
entrepreneurship and culture although there are
numerous SMEs. Hofestedes findings depict Af-
rica as a collective and yet have several business
startups which are growing and surviving nonethe-
less not as rapidly as other developed countries.
Could African’s case be like that of the Chinese?
This calls for more studies, which is one major
reason why this case is being presented.
Entrepreneurship in Ghana
Ghana as an evolving African economy has a lot
of SMEs owned by entrepreneurs and some of
these entrepreneurs have crossed the early hurdles
and difficulties in early start while others are still
in the early stages battling initial challenges. The
backbone of Ghana’s economy is considered to
be SME and yet they are saddled with a number
of restrictions which impede their progress and
make them less competitive in today’s global
business environment.
Nunoo (2014), identified a number of chal-
lenges that SMEs and entrepreneurial start ups
face currently in Ghana. He categorized the
challenges into; human capital, financial capital,
legal and regulatory challenges, infrastructure,
tchnology, marketing and customer issues, and
socio-cultural attitudes.
It appears these challenges are not new, because
a number of them have been previously uncounted
by business startup owners while starting his own
business decades ago. In spite of several efforts
from government, the financial community, as well
as the SMEs and entrepreneurial groups, some
of these challenges are still lingering on. Sackey
et al. (2013) also concentrated on ethical dilem-
mas as challenges which Ghanaian entrepreneurs
are saddled with when it comes to dealing with
the legal framework of business and tax issues.
These suggest that Ghana might have individuals
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with motivation for entrepreneurship for explor-
ing global opportunities but might not obtain
the requisite environmental and cultural support
conducive for business growth.
FAMILY BUSINESS
Family business may be considered just one par-
ticular area of business within the management
field. Family businesses have been described as
distinct in different ways and should be studied
as such. Ibrahim et al. (2003) asserts that, family
businesses are branded as unique due to their own-
ership and management characteristics. A family
business has about 51% and above ownership by
family members and two or more members of its
management team are family members. However,
research rooted in its concepts offers a different
view, showing how it is developing into a formal
paradigm within the organization of the science.
To validate this assertion, one must try to identify
the characteristics of the main trends within the
field of study and the characterization of family
business studies from the philosophy of science
perspective. The analysis and understanding of the
intellectual structure and evolution of a scientific
discipline can be useful for academics, students,
and practitioners (Borkhovich, Bricker, & Sim-
kins, 1994; Locke & Perera, 2001). For academics,
on the one hand, its usefulness derives from the
opportunity to position their investigations within
the field of study, identify potential new direc-
tions and declining perspectives, and summarize
the most relevant literature and the relationships
between key works in the area. For students, on
the other hand, having a map of the conceptual
structure of a discipline can be of great interest in
order to develop an overview of the field of study,
understand the relationships between paradigms,
and identify the essential works on each one of
them. Finally, practitioners can find a guide to
understanding how the concepts and perspectives
within a discipline have evolved over time, and

Global Lighting Centre Ltd.
determine which are the most analyzed topics,
which the conceptual bases, and which areas
deserve special attention in order to implement
them in business.
In the case of family business, the study of the
intellectual structure is of particular relevance
for two main reasons. First, family business is
a relatively new field of study. In fact, although
Wortman (1994) dates the start of the discipline
to the late 1970s, according to Handler (1989), the
research carried on before 1975 was rather limited.
In this regard, Neubauer and Lank (1998) point
to the second half of the 1980s and, especially,
the 1990s as the period when family business
consolidated as a field of study. It is therefore
an emerging discipline when compared to other
neighboring areas of study. Second, partly as
a consequence of its youth, the discipline is in
the process of seeking its own identity (Zahra
& Sharma, 2004). Family businesses have been
labelled as distinct in different ways and should
be studied as such. Ibrahim et al. (2003) asserts
that family businesses are acknowledged as unique
based on their ownership and management char-
acteristics. A family business has about 51% and
above ownership to family members and two or
more members of its management team are usu-
ally family members. The business relationship
is based on economic rational system when the
family relates on emotional attachments.
Progressively, researchers are devoting more
attention to family business concerns across the
globe due to a number of factors such as the con-
tribution to economic growth (Craig & Salvato,
2012). There have been calls to widen the scope
of family business research as the discipline grows
(Casillas & Acedo, 2007; Sharma, 2004). In recent
times Litz et al. (2012) have also added a voice to
the several earlier calls to study family businesses
as distinct from several other businesses. The
family business literature has been argued from
several dimensions including; its uniqueness and
definition, family involvement, identification and
the advantages and disadvantages of the family
to the firm.
Company Ownership Structure
As family firms progress from one generation to
the next, the structural form of ownership and
management may change (Lansberg, 1999). Over
time, the ownership base of the firm may become
more complex if more family members acquire
an equity stake. To ensure business development,
owners of some family firms may sell ordinary
voting shares to ‘outsiders’ who are not drawn
from the dominant family group.
Management Structure
Family business management structure may differ
depending on the major driving objective which
influences recruitment of family and non-family
managers. Family business owners, whose focus
is on ‘family agendas,’ may favour the recruit-
ment of family members to manage the family
firm. Directors who are members of the dominant
family can exert pressure to ensure that ‘family
agendas’ and the cultural foundations of the busi-
ness are considered. The limited pool of family
members may constrain the extent of expertise
and experience available. Owners focusing on
wealth creation and business development may
prefer to recruit non-family professional managers
with broad expertise.
COMPETITIVE ADVANTAGES
OF FAMILY BUSINESS
The involvement of family members in the manage-
ment of the firm is the most common approach to
833

family business distinctiveness. This is described
as the family’s ability and power to control the goals
direction, strategies and the general behaviour of
the organization. Involvement is associated with
the ownership structure as well as the leadership
and management structure. It has been discovered
that in most family businesses, ownership is mostly
51% and above and managerial involvement is
also high.
The essence of the family business is another
difference which has been identified. One major
essence is the identification of family members
with the firm, hence pursuit of favorable family
image and reputation. Deephouse and Jaskiewicz
(2013) discovered that family members of fam-
ily firms identify sturdily with their family firm
which inspires them to contribute better towards
a favorable reputation of the organization. When
the organization has a promising reputation,
socio-emotional wealth of the family members is
increased. This indicates that, non-family members
might not have an emotional attachment to an
organization hence their involvement might not
be as high as family members toward the general
management of the organization. Thus, family
members have such an involvement which propels
them to be more committed to its management
and this builds a favorable image, reputation and
response from its stakeholders than non-family
members.
A dual interaction between the family and the
business systems which creates many competitive
advantages that are usually intangible and unique,
such as high level of employee’s commitment and
motivation, flexible, informal, and faster decision-
making process, and a common goal. It can also
lessen agency cost and related cost of running
the organization (Ibrahim et al., 2003). However,
interactions that offer competitive advantages
can also pose serious challenges to the organiza-
tion such as conflict, competition among family
members and succession problems.
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Global Lighting Centre Ltd.
THEORITICAL PERSPECTIVES
Agency Theory
Corporate governance theorists have employed
the agency perspective to explore control issues
in listed firms with diffused ownership (Hart
1995, Kaplan and Strömberg 2001, Keasey et al.,
2005), and specifically the links between risks and
board structures and functions. Traditionally, they
explained that agency theory is employed to ex-
amine links between ownership and management
structures, objectives and performance.
The stereotypical family firm is assumed to
be owned and managed by a concentrated group
of family members, where the firm’s objectives
are closely-linked to family objectives (Zahra et
al., 2004). However, in order to grow and survive,
some private family firms may no longer have
aligned ownership and management in the same
‘family’ hands, and this raises the potential for
agency issues between separated family owners
and non-family managers. Agency theory as-
sumes a performance-based system with a focus
on financial objectives, and individuals that are
self-serving. Agency theory has been shown to be
useful in understanding the interaction between
family owners and non-family managers (Chua
et al., 2003).
CASE BACKGROUND
AND CONTEXT
The economy of Ghana is predominantly agricul-
tural, about one quarter of GDP, although it has
a diverse resource base. The services sector also
accounts for about 5% of GDP with manufacturing
and others taking the rest. There is a growing out-
put towards industrialization and there is expected
sustainable growth in all sectors of the economy.

Global Lighting Centre Ltd.
Growth of SMEs and family business is con-
sidered to be the engine for economic growth in
developing countries such as Ghana. The SMEs
sector accounts for about 85% of the manufac-
turing sector. However, the sector is faced with
numerous challenges including access to finance
(AGI, 2011).
Decorative Lighting is a relatively young
industry in Ghana. The lighting business is pre-
dominantly driven by and dependent on external
exports without significant local contribution.
There are more fragmented retailers due to its
capital requirements. One of the few businesses
in the decorative lights industry is the Global
Lighting Centre.
NATURE OF BUSINESS
As suggested by Intithar and Pollack (2012) family
businesses may be able to distinguish themselves
and be more competitive by launching themselves
in specialized niche market segments and build-
ing strong relationships based on trust. Global
Lighting Centre has carved a niche for itself in
decorating their consumers’ homes and offices
with beautiful and elegant lighting systems.
Global Lighting Limited was founded 22 years
ago by Akan entrepreneur, Nana Yaw Frimpong,
47. Global Lighting has locations in Kumasi and
Accra, Ghana and imports major brands in the
decorative light industry from all over the world.
The company sells the following categories of
lighting to both individual and business consum-
ers:
• Wall, ceiling and spot lights
• Fluorescents and Lamps
• Chandeliers and Pendants
• Garden, gates and compound Lights and
• Street light
Some of their brands include; Massive, Phil-
lips, Lombardo, Regent, Tec-mar, etc.
BUSINESS START-UP
Global Lighting Centre was started by Nana Yaw
Frimpong a 47-year-old man in Kumasi the second
largest city of Ghana in 1992 as subsidiary of Top
High Electricals. The business started as a small
shop dealing in electrical cables and electrical
accessories. The business started after the founder
and CEO Mr. Frimpong lost his job as a shop
attendant in an electrical shop in Kumasi due to
misunderstanding between him and the owner of
the business. Out of his savings he was able to
acquire another shop within the same market. “So
I managed my work gradually and after some time
I had some money, I joined resources with a friend
I used to work with in my former employment.”
Many businesses are started with a lot of pushed
factors such as redundancy and unemployment
(Stokes and Wilson, 2010). Risk propensity is
expected to be high among individuals who are
able to initiate an entrepreneurial venture (Gist
& Mitchell, 1992).
The partnership with a friend went on for a
while after which a brother in-law offered some
capital to be invested into business as a third
partner. “My friend felt that I was dominating the
business with my investment and family.”
Also the second partner wanted the profit to be
shares after sales while Mr. Frimpong also wanted
to reinvest profit back into the business. There were
also a lot of issues and misunderstanding between
him and his brother in law who invested in the
business. Consequently, the third partner, who is
his brother law, also withdrew his investment and
the entrepreneur lost both partners. He was left
alone to go on with the business.
Afterwards, the business had to be managed
with the little initial capital he invested. Accord-
ing Mr. Frimpong, “Gradually I was able to make
some money which was enough to get me a new
shop to start all over again” That was certainly
what he could call his own business. He decided to
concentrate or focus more on managing and grow-
ing this new business alone. Most entrepreneurial
835

businesses remain small but a few others are able
to grow (Stokes & Wilson, 2010). So in 1996,
when the business was not growing as expected,
Mr. Frimpong decided to divert into the sale of
decorative lights which was then new in the market.
He could see the opportunity in this market and
decided to pursue it. It was at this time that the
name of the company changed to Global Lighting
Centre Limited. According to Bird and Jelinek
(2005) entrepreneurs distinguish themselves from
others by purposely joining and forming their own
businesses through identification of opportunities.
Due to his entrepreneurial drive he has been able
to establish his own business.
START UP MOTIVATION
There is no entrepreneurship without drivers or
motivation behind the venture. Studies in entre-
preneurship show a number of reasons driving
people to start up their own businesses. Stokes
and Wilson, (2010) identified that there could be
internal drivers or motivators such as autonomy,
financial independence, etc., as well as external
factors, push factors such as employment or loss of
job, business opportunities and other environmen-
tal triggers including role models and experiences
(Stokes & Wilson, 2010).
An important variable in understanding busi-
ness formation is the intention (Stokes & Wilson,
2010). According to Mr. Frimpong, “although as
a child I enjoyed playing with electrical bulbs and
was always attracted to it, but my major motivation
to start a business was internally driven by finan-
cial independence.” As Mr. Frimpong recalled:
…from my child I wanted to be rich and achieve
some financial independence and wherever there
is an opportunity to make worth I am eager to
venture there and I was convinced I will make it
in the future. So I decided to engage in a busi-
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Global Lighting Centre Ltd.
ness so that my vision to be a rich person could
become a reality in a way which will enhance
my capabilities to impact on other people’s lives.
A number of studies confirm one of the major
reasons for starting a business is the desire for
independence (Stokes & Wilson, 2010). He had
suffered from a poor background and I wanted
to make it big by practicing carpentry in a dif-
ferent way.
SPECIFIC INITIAL CHALLENGES
Business Location
There was no initial location to start from and there
were no financial resources to go in for a business
location to start with. This was very challenging
because the loss of job was an unexpected event,
so locating a place to start a business from was not
an intended action. Searching for the location was
one challenge associated with how to pay for the
cost of the location. As identified by Nunoo (2014),
infrastructure is one of the numerous challenges
that SMEs and entrepreneurial start-ups encounter
at the initial stages of the business. It appears that
entrepreneurs in other emerging economies also
have their fair share of such challenges (Escalante
and Turvey 2006; Mbonyane & Ladzani (2010).
Initial Capital
The business started accidentally and wasun-
planned as a result of loss of job. Consequently,
the mega personal savings out of wages became
the initial startup capital. Capital requirement can
be a key determinant and critical success factor
for a business. Unfortunately access to finance
in developing economies such as Ghana is im-
peded by a number of factors. Funding startup in
developing countries is challenging because there

Global Lighting Centre Ltd.
may be no business funding institutions and even
where there are banks the risks associated with
startups are so high so banks are not so willing
or there could be huge credit cost which a new
entrepreneur can hardly cope with.
Again, Nunoo (2014) suggests that both fi-
nancial and human capital support are challenges
for most SMEs and start-up in Ghana. Accord-
ing to Lee & Peterson () adequate infrastructure
systems such as access to funding, infrastructure
and technology have contributed significantly
entrepreneurship development.
Lack of Suppliers
To succeed in the market there has to be a regu-
lar supply of goods which supply communicates
reliability to customers. Without suppliers it is
difficult to achieve customer loyalty. Due to the
unplanned nature of the business, Mr. Frimpong
could not source for supplies before starting his
business and could only rely on a few local suppli-
ers which made his supply source very unreliable
for business success.
Low Customer Patronage
When Mr. Frimpong started his business, cus-
tomer response was poor. Due to that there was
very low customer patronage because at that time
decorative and fanciful lights had not caught up
with many Ghanaian consumers, hence it required
a lot of sales effort to break through. When the
patronage is poor, potential returns on investment
will be low making it very risky for the business.
The entrepreneur also did not have many ideas
as to which new alternative markets to enter.
More so, entering a new market would require
expensive and extensive research which he could
not afford. Eventually the business could have
died out but Mr. Frimpong has managed through
these storms. Several researchers have confirmed
these challenges as barriers to business growth for
many entrepreneurs (Escalante and Turvey 2006;
Mbonyane & Ladzani (2010); Nunoo, 2014).
Other Challenges
In attempt to seek financial support Mr. Frimpong
went into partnerships with a friend and later a
brother in-law. Unfortunately, all these created
relationship problems which affected the business.
In the end they all took their monies away leaving
him more stranded than he started on his own.
These challenges affected Mr. Frimpong so
much and resulted in lack of focus and concentra-
tion in the business. In effect, he almost gave up
on the business; but he managed to endure these
earlier challenges.
Mr. Frimpong also had his personal challenges
for not planning to start a business but had to force
start on an emergency. Aside from the lack of
funds, he did not have much managerial expertise
or competence. He did not have any contacts or a
network that could support him manage his busi-
ness successfully.
Further, the economic situation was not good
for most consumers to build or buy lights so pur-
chasing power was low. Generally the country was
unstable politically and socio culturally attitudes
towards lights were not favourable. These chal-
lenges are among the numerous challenges that
most start-up encounter in the early days of their
business (Escalante and Turvey 2006; Mbonyane
& Ladzani (2010).
These challenges could also be considered
as environmental as some cultural context foster
more entrepreneurial development than others.
A country analysis by Lee and Peterson (2000)
highlighted that countries such as the United States
have a culture which backs entrepreneurship, while
a culture like that of Japan’s might not support
837

entrepreneurial drive but China which is consid-
ered collective is highly entrepreneurial–contrary
to earlier findings.
Lee and Peterson (2000) also suggest that
Entrepreneurial Orientation (EO) in a country or
culture may be responsible for supporting entre-
preneurial business growth and economic growth
in general. Accordingly entrepreneurial develop-
ment is a function of a unique blend of cultural
values, attitudes and behaviour. The dimension of
EO include: autonomy, risk taken, innovativeness,
proactiveness, competitive aggressiveness.
CRITICAL MENTAL ATTRIBUTES
FOR BUSINESS SUCCESS
Entrepreneurship literature describes personality
factors such as, self- efficacy, achievement drive,
locus of control, and propensity towards risk (Bird
& Jelinek, 1988; Zhao, et al., 2005; Ahmad, 2011).
In this case the five most important attributes nec-
essary for any start up and for successful business
enterprise are discussed as follows:
Determination
Mr. Frimpong articulates that everything hap-
pening for business success is internally driven.
Individuals decide to make or not to make it in
business. Determination is one of such internal
attributes for business excellence. According to
Rotter (1966) internal locus of control is an inter-
nal driven state influencing entrepreneurial drive.
Internal Locus of control make people feel they are
behind the driving wheels of their own lives and
ready to take full responsibility for their actions.
Determination is a firm decision to be committed
to a course without giving up. It is affirm decision
to persist against all odds. A desired outcome
of success in business can only be achieved by
determination. Determination also requires self-
discipline. Mr. Agyapong agrees that one principle
that has made him successful is never to give up.
838

Global Lighting Centre Ltd.
Hence, he was able to pass the test of time. This
attribute is also related to the personality factor
of self-efficacy as described by Bandura, (1986)
and known to have impact on ability to persist.
Entrepreneurial self-efficacy drives the choice
of activities, goal levels, persistence, and perfor-
mance in a range of contexts (Chen et al., 1998;
Zhao et al 2005). There is an indication that this
mental attribute shows that Mr. Frimpong might
have high level of self-efficacy.
Hardworking
According Mr. Frimpong success cannot be at-
tained without pressing on with hard work. Hard
work is a trait characterized by diligence, duty
and a sense of responsibility. Hardworking is the
ability to go the extra mile in your work. This
requires discipline because there is the need to
resume to work before normal working hours
begins and work extra after the normal hours
of work. It also requires a desire to be excellent
because consumers are ready to pay high value
for excellent performance which is only attainable
through hard work. Again this is supported by
Bandura’s entrepreneurial self-efficacy concept
which stresses that performance. Persistence and
purposeful life are all as a result of high level of
self-efficacy. Other authors also share similar
views (Chen et al. 1998; Zhao et al. 2005). Mr.
Frimpong suggests that his business success can
be attributed to the continuous hard work.
Truthfulness and Honesty
These traits suggest a responsible business con-
duct and personal ethical standards or behaviour.
Mr. Frimpong believes that personal integrity is
very critical quality for business success in all
interactions and situation. For instance, to get
constant supply from your suppliers you need to
that you can be trustworthy and credit worthy.
Also customers are interested in how honestly a
business delivers superior value and the reputa-

Global Lighting Centre Ltd.
tion associated with a business and its product.
Honesty and truthfulness are personal principles
for a good corporate performance.
Passion and Love for the Work
Of all these mental attributes Mr. Frimpong sug-
gests that passion and love for your business or
work is the most important attribute an entrepre-
neur must have to start a business successfully in
Ghana. If you love what you are doing, you will
also be committed to it with your whole being to the
extent that you not allow obstacles to disturb you.
Starting a new business is good but the busi-
ness has to be managed effectively to serve its
purpose. So, to run the business effectively the
key attribute required is passion, Hardworking,
right staff, and honesty but the key attribute is
the passion.
CURRENT BUSINESS
The business currently has for branches, three
in Accra and one in Kumasi. The organization
has also won several international awards in the
lighting industry. For more information visit
Global Lighting on their website at www.global-
lightingcentre.com. They also manage several
huge lighting projects.
Corporate Philosophy
Global seeks to meet the peculiar needs of its
wide range of clients by offering the best products
in the world and offering technical support and
advisory services.
Business Location
Initial location of the business was Kumasi but
it was observed that the lighting business was
growing better in Accra, the capital city of Ghana,
hence sales and business propects appeared bet-
ter than Kumasi. Again, the foreign suppliers of
Global Lighting visited the company in Kumasi
they suggested a re- location, Accra. So currently,
the head office of Global Lighting Centre is at
Osu in Accra, where the business currently has
a showroom and one of the biggest warehouses.
Currently the company is operating in two
regions of Ghana; Greater Accra and Ashanti
regions with two branches in each region. Accord-
ing to Mr. Frimpong “I have also started another
business with a friend called power vision and we
solely into cables.
Global Lighting Centre is also constructing
a big factory at the spintex road in Accra for the
manufacturing of decorative lights locally since
there are no local suppliers and the demand is
growing. The factory will also have one of the
largest showrooms and warehouse.
Business Management
and Performance
Global Lighting has enjoyed sustainable growth
over the years. The initial Top High Electricals is
still running and has specialized into electrical in-
stallation and re-installation, electrical contracting
and others. The organization is currently managed
by a management team. The management team
is made up of Managing Director, the general
Manager and the finance manager. There are also
managers in the second level or operational level
such as warehouse managers, operations manager,
marketing manager, and an IT manager.
Mr. Frimpong suggests that, even though it is
a family business, you will need the right external
managers to help you manage effectively. Family
business literature suggests that owners focusing
on wealth creation and business development may
prefer to recruit non-family professional managers
with broad expertise. According to the Agency
Theory, even though a family business is owned
and managed by a concentrated group of family
members, (Zahra et al. 2004) in order to grow
and survive, some private family firms may no
839

longer have aligned ownership and management
in the same ‘family’ hands, however, this raises
the potential for agency issues between separated
family owners and non-family managers. In the
case of Global Lighting centre, it appears the non-
family managers have shown to be good agents.
Business performance shows progressive
growth and sustainability. This is also an indication
of good leadership and management. Cummings
(1988) suggests that family businesses which
have good leadership and are able to adapt well
to their environment are successful. The qualities
of this entrepreneur and good leadership with the
support of non-family managers have supported
the growth of the business. The sales trends and
projections are shown in Table 1.
Community Relations
The relationship between the businesses and the
community is a very cordial one even we do not
have a policy as to which areas of corporate social
responsibility we want to focus on as an organiza-
tion, but the organization supports people who
appeal for support in diverse ways. The founder
Mr. Frimpong was also motivated to impact
positively in the society. As result in every year,
the organization has a percentage of budget or
an donations into NGOs, health, education and
poverty reduction in diverse ways. Global lighting
has been able to offer scholarships to students to
enable them complete their education.
Family Relations
For the issue of family members, Mr. Frimpong
suggests that there should be minimal integra-
tion of family members into a business but now
Table 1. Sales trends for the past five years
Years 2009 2010 2011 2012 2013
Sales in cedis 2.1 2.4 2.11 4m 6m
projected
840

Global Lighting Centre Ltd.
he has agreed that no family member should
be part. Although his wife, brother in -law and
nephew were part of the business for some time,
currently they have all been pushed out. From his
experience, the absence of his family or lack of
family involvement has really improved the busi-
ness performance significantly. He suggests that
family influence in a business can stifle growth
and success. According to Mr. Frimpong:
My personal philosophy is that get the family
members somewhere else to work or establish
them in another business so they can earn a good
income or better still, take good care of them so
you can focus on your business. So, currently my
wife together with my eldest child has started an-
other company where they import and distribute
baby diapers. They are managing it on their own
and its doing well.
This decision by Mr. Frimpong could be due
to his early start up experiences with his brother
in-law. While some authors agree that family
involvement in family business increases perfor-
mance Mr. Frimpong totally disagrees. Anderson
& Reeb, (2003) found that Family related CEO
managed organization display positive relations
towards accounting profitability measures and
founder CEO managed firms also exhibit better
market performance. Generally family related
firms, whether managed by CEOs or non-CEOs,
demonstrates better performance than non-family
firms.
Concerning the succession and continuity of
the business, Mr. Frimpong is of the view that he
is very convinced that his business will survive
because he has competent non-family and family
members whom he has trained to take over:
In my absence, there are other people I have
groomed to take over and manage the business
such as the general manager, the finance manager
and the marketing manager. Also my son who will
be graduating with an MBA from UK would be

Global Lighting Centre Ltd.
coming home so I want him to work and get some
experience so he can be more business minded
then I can bring him into the business.
CONCLUSION
This case concludes that entrepreneurial success
is possible despite environmental, personal and
other challenges but with determination, hard
work and other principles everyone can make it.
Lessons Learnt From Mr. Frimpong
This case study presents valuable lessons which
are crucial for managing every entrepreneurial and
family business successfully and are discussed
below:
Passion Is Everything
Mr. Frimpong holds firmly that passion is every-
thing an individual needs for business. Passion
ignites an unquenchable zeal, fire, persistence and
love for the business which brings fulfillment. If
an individual does not have passion, there is lim-
ited tenacity to continue in business when there
are critical challenges like he encountered in the
early stages of global lighting.
Never Give Up
The ability to persist in difficult situations in busi-
ness determines the ability to success. Those who
do not give up are those who eventually become
successful. If Mr. Frimpong had given up in his
early days when he was having bottle neck in his
business he would, not have been able to make it to
this stage. Mr. Frimpong suggests that to run your
business successfully in Ghana as an entrepreneur
you need to be strong and unshakable; not moved
or disturbed by any circumstances but just keep
on until your breakthrough comes.
Hard Work Pays
Going the extra mile in business always yields
greater rewards in business success. Mr. Frim-
pong agrees that success is predictable for those
who are hard working in business. Hard working
breeds excellence, efficiency, effectiveness and
quality which are all necessary ingredients for
business success.
Integrity in Business
Who you really are inside you will come out in
the business arena. Integrity is demonstrated in
your actions throughout business dealings and
transactions. To achieve greater heights in busi-
ness success, leadership must be characterized by
virtues such as honesty, faithfulness, truthfulness
in all dealings and situations.
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KEY TERMS AND DEFINITIONS
African Entrepreneurship: Africans with
drive and initiative to identify opportunities and
set up businesses to take advantage of the identi-
fied opportunities.
Family Business: Business where two or more
generations of a family are involved in substantial
decision making.
Ghanaian Entrepreneurship: Ghanaians
with the drive and initiative to identify opportu-
nities and set up businesses to take advantage of
the identified opportunities.
Motivation: Drive and intensity to succeed.
Startup: Process of initiating a business.
Global Lighting Centre Ltd.

APPENDIX

Review Questions

1. Discuss reasons why you think entrepreneurship is particularly difficult in a developing country
such as Ghana than in the developed world?
2. Critically assess the five (5) most important attributes of entrepreneurial success which have been
highlighted by Mr. Frimpong. In your opinion, which is the most important attribute for entrepre-
neurial business success and why?
3. Visit the web site of Global Lighting Centre and assess the current organization and its products.
4. Explain why you can describe Mr. Frimpong as a “successful” entrepreneur in an emerging economy.
5. Family involvement may have negative effects on the success of a family business. Discuss this
statement in relation to Global Lighting Centre Ltd.

845
846

Chapter 45
Factors Stimulating
Entrepreneurship:
A Comparison of Developed (U.S.
and Europe) and Developing
(West African) Countries

George M. Puia
Saginaw Valley State University, USA

Joseph A. Affholter
Saginaw Valley State University, USA

Mark D. Potts
Saginaw Valley State University, USA

ABSTRACT
The World Bank, the World Economic Forum, the Heritage Foundation, and other global organiza-
tions have studied national business climates to determine optimal conditions and practices necessary
to stimulate entrepreneurship and economic growth. This chapter compares select measures from the
three organizations from six West African countries (Benin, Cote d’Ivorie, Ghana, Liberia, Senegal, and
Sierra Leone) and benchmarks their results against the United States and an unweighted average of six
European Union member states. These measures are most directly tied to the establishment, protection
and sustainable growth of technology or technology-dependent entrepreneurial businesses: business
freedom, investment freedom, investor protection, property rights protection, technological readiness,
innovation, freedom from corruption, and access to risk capital. This chapter contributes to the litera-
ture in three ways. First, it provides a broad policy comparison. Second, it benchmarks entrepreneurial
readiness climates via comparisons among emerging and developed markets. Lastly, it offers recom-
mendations for policy makers and researchers.

DOI: 10.4018/978-1-4666-8468-3.ch045

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Factors Stimulating Entrepreneurship
INTRODUCTION
Significant research has been conducted over the
past two decades to identify, characterize, and
predict the emergence of entrepreneurial move-
ments within national economies. At this macro
level of analysis, it is common to speak of national
innovation systems–frameworks that engender
entrepreneurship and invention at the national
level (Nelson, 1998). The national innovation
systems literature has an implied theory of change;
that is, if a nation can improve its entrepreneurial
sub-systems, it can increase the quantity and qual-
ity of entrepreneurial outcomes. There has been
no lack of effort to define the characteristics of
national entrepreneurship. As Acs et al. (2014)
note, three general frameworks for measuring
entrepreneurial activity have emerged: output
measures, attitude measures, and framework
measures. In a framework measures construct, an
entrepreneurial country is one where the regula-
tions and broader institutional factors support (or
do not inhibit) entrepreneurial activity. It is this
concept of entrepreneurial frameworks–with a
special emphasis on West Africa–that is the focus
of this research.
West Africa is beginning its second half-cen-
tury as a post-colonial region. In seeking to enter
the 21st century system of global business, trade
and economic development, Sub-Saharan West
Africa faces a number of challenges derived from
colonialism, enduring tribal conflicts, inconsistent
or contradictory property ownership paradigms,
a technology gap, and natural resource manage-
ment. Despite similar challenges, resources, and
economic histories, nations within the region
vary widely in economic advancement over the
past decade when measured by GDP size and
growth. While some of these differences in direc-
tion and outcomes arise from political tensions
and setbacks, a large body of literature suggests
that at least a portion of the differences result
from institutional factors as well as differences in
risk-perception and opportunism at the individual
and cultural level (Carraher et al., 2010; Acs et
al., 2014).
While a thorough discussion of differences
is well beyond the scope of this chapter, we
would suggest that the long-term performance
of a national economy depends in part on the
resilience and robustness of its entrepreneurial
infrastructure. While the infrastructure includes
individual, cultural and other institutional factors,
not all factors have equal impact. In this chapter,
we select a series of factors from multiple inter-
national indices to develop a simple and tractable
picture of entrepreneurial readiness within six
selected countries of West Africa. To the degree
that this infrastructure can be identified and as-
sessed on a periodic basis, it may help policy
makers examine whether or not the systems over
which they have influence are making it easier to
attract or stimulate development of high-growth,
entrepreneurial enterprises within their regional
and national economies.
For decades, multinational organizations like
the World Bank, the World Economic Forum,
the Heritage Foundation and others have studied
national business climates to determine optimal
conditions for entrepreneurship and economic
growth. This chapter compares select measures
from each of the three organizations from six
West African countries (Benin, Cote d’Ivorie,
Ghana, Liberia, Senegal, and Sierra Leone) and
benchmarks their results against the United States
and an unweighted average of six European Union
member states (France, Germany, Italy, the Neth-
erlands, Spain, and United Kingdom). These six
European countries were chosen because they
comprise roughly three quarters of European
Union GDP and are representative of the cultural,
economic, and political diversity of the mature
markets in the European Union.
The select factors include a series of measures
tied directly to the establishment, protection and
sustainable growth of technology or technology-
847

dependent entrepreneurial businesses. The factors
include: business freedom, investment freedom,
investor protection, property rights protection,
technological readiness, innovation, freedom from
corruption, and access to risk capital (Schwab,
2012). Anecdotal evidence from these entrepre-
neurial environmental studies suggested a broad
convergence among developing economies. The
early implications seemed clear: countries that had
certain political, regulatory, economic and cultural
characteristics were more likely to engender a
more innovative/entrepreneurial nation and reap
the economic benefits that result. The significance
of this prevailing worldview is hard to overstate.
Domestically, high-growth entrepreneurs can
transform an economy. Internationally, portfolio
and direct investors consider the lack of fully de-
veloped business support systems as a major risk
factor (Lopez-Claros et al., 2006). This has three
direct outcomes: early stage emerging economies
receive less foreign direct investment, companies
developing there have fewer opportunities to es-
tablishment value-added partnerships with major
international concerns (i.e. with access to market
channels), and the return on investment require-
ments are higher for emerging nations, raising
the hurdle rate for investments and reducing the
national investment opportunity set.
Given this pattern, emerging economies have
felt the need to implement changes to bring
themselves into better context alignment with
successful developed countries. While this seems
a reasonable approach, emerging nations have
limited resources. Given that constraint, it seems
unrealistic that emerging nations would be able to
make changes to all their entrepreneurial systems
nearly simultaneously.
This chapter compares select measures from
each of the three organizations from six countries
(Benin, Cote d’Ivorie, Ghana, Liberia, Senegal,
and Sierra Leone) and benchmarks their results
against the United States and an unweighted aver-
age of six European Union member states. There
are both clear areas of convergence and divergence
848

Factors Stimulating Entrepreneurship
between developed and emerging countries in key
entrepreneurship enabling factors. This paper at-
tempts to open a new dialog on entrepreneurial sys-
tems building in emerging economies, to explore
the interactions among factors, and to consider the
sequence of environmental improvements needed
to enhance a nation’s innovativeness.
Why Is It Important?
There has been a tendency in the practitioner litera-
ture to look at a few dashboard indicators without
understanding the complex inter-relationships
among indicators. For example a simple model
noting that a country’s tariffs are low can be
meaningless if an importer needs to pay bribes to
recover their goods. On the other extreme, there
are academic entrepreneurial evaluation systems
that are so complex as to preclude meaningful
implementation of recommendations (no country
has the resources to change all of its systems at
one time).
Multinational organizations employ vastly
different approaches and metrics to evaluating
entrepreneurship (Acs et al., 2014). Each of these
approaches has unique strengths and limitations.
When one synthesizes across these reports, a
more robust picture of entrepreneurial environ-
ment emerges.
ENTREPRENEURSHIP:
DEFINITION AND CONTEXT
Entrepreneurs fulfill important roles in the de-
velopment of a regional economy: they discover
and evaluate opportunities; they take risks in
organizing resources and creating valuable new
goods and services; and they create jobs and
wealth. Early definitions of entrepreneurship
focused more on the entrepreneur rather than the
lucrative opportunities that they may have faced.
Merging those two concepts of entrepreneurs
and their opportunities, Venkataraman (1997)

Factors Stimulating Entrepreneurship
defined the academic field of entrepreneurship as
the rigorous examination of how, by whom, and
with what effects opportunities to create future
goods and services are discovered, evaluated,
and exploited. Shane and Venkataraman (2000)
noted that entrepreneurship involves the study of
sources of opportunities; the processes of discov-
ery, evaluation, and exploitation of opportunities;
and the set of individuals who discover, evaluate,
and exploit them. This definition proved limited as
entrepreneurship is not context free; the cultural,
political, legal-regulatory, and economic environ-
ments shape both the sources of opportunities and
the size and composition of the entrepreneurial
community (Autio et al., 2014).
Regional economies benefit from the presence
of both domestic and international entrepreneurs.
international entrepreneurs create businesses
with the intent to function across borders (Puia,
2014). To succeed internationally, regional entre-
preneurs must be able to identify opportunities
in international contexts, and take the additional
risks associated with cross-border transactions.
International entrepreneurs often test the political
policies of their host nations as they attempt to
attract talent and financial resources from abroad,
import raw materials, and export finished goods
(McDougal-Covin, et al., 2014). We differentiate
international entrepreneurship from its domestic
counterpart as the discovery and evaluation of
opportunities and the organization of resources
to exploit opportunities across national borders
to create fundamentally new goods and services
(Puia, 2014).
The academic literature identifies multiple
types of entrepreneurs. In this chapter, we differ-
entiate between opportunity and necessity entre-
preneurship. Opportunity entrepreneurs form new
ventures for personal reasons and to exploit market
opportunities where necessity entrepreneurs create
ventures for self-employment since the environ-
ment offers no other opportunities. Given that
entrepreneurs create valuable new resources as
well as jobs, policy makers increasingly look to
entrepreneurs to be a force for the betterment of
society (Alvarez and Barney, 2014).
In the past decade, there has been an explo-
sion in entrepreneurial activity; new business
incorporations have averaged 450,000 businesses
per year in the U.S. alone (Baily, 2012). These
new ventures are the drivers of local job creation.
When comparing entrepreneurs to large firms
we discover that Fortune 500 companies have
continued to shed jobs as a result of improved
productivity while entrepreneurial firms less than
five years old created 40 million new jobs (Case,
2013). We refer to the fastest growing of these
startups as high-expectation entrepreneurs, or
gazelles. Only 9.8% of the world’s new ventures
are “high expectation” businesses, but they provide
a remarkable 75% of job creation by new ventures
(Autio, 2005). Additionally, entrepreneurs are the
primary source of technology innovation; small
firms create 67% of all new inventions.
Our focus is on high growth startup and second
stage entrepreneurial firms in which the expecta-
tion for revenue growth and employment growth
are substantially higher than those of established
businesses. In essence, we are purposefully
excluding self-employment and life-style entre-
preneurship from our analysis. This is not to say
that self-employment does not offer benefits to
a country. At a minimum it shifts the burden of
government from providing a safety net to collect-
ing tax revenues. The literature is clear, however,
that national standards of living rise as a result
of robust high expectation entrepreneurship not
self-employment.
Why These Countries?
Our research team selected a set of countries that
face common macro-environmental conditions,
but have different legacies and policy frameworks.
Our six target countries are: Benin, Cote d’Ivoire,
Ghana, Liberia, Senegal, and Sierra Leone. All of
849

our targeted countries would be considered emerg-
ing economies and members of the Sub-Saharan
Economic Community of Western African States
(ECOWAS). The six countries share a geographic
identity that in many ways obscures their differ-
ences in current government and development
histories. To provide perspective, we compare
these six country’s metrics to the United States
and to the six most of the most mature markets
in Europe. France, Germany, Italy, the Nether-
lands, Spain, and United Kingdom also comprise
roughly three quarters of European Union GDP
and are representative of the cultural, economic,
and political diversity of the mature markets in
the European Union.
How Does This Chapter
Contribute to the Literature?
We believe this article makes a contribution to the
literature in three ways. First, it provides a broad
policy comparison that speaks specifically to the
issue of creating an entrepreneurial environment.
Second, we offer an element of benchmarking to
entrepreneurial readiness by comparing to emerg-
ing markets to developed ones. Third, based on
our analysis, we offer recommendations for policy
makers and researchers.
THE LITERATURE AND METRICS
OF ENTREPRENEURIAL CLIMATE
Differing rates of entrepreneurship account for
one-third to one-half of the difference in eco-
nomic growth rates among nations (Reynolds,
Hay, and Camp 1999; and Zacharakis et al., 2000).
As governments grow in their understanding of
the importance of entrepreneurship to economic
growth, they begin to craft policies to shape the
institutional structure that govern the entrepreneur-
ial “rules of the game” (Hall and Sobel, 2006). For
this study, we have chosen to focus on political
and economic factors that affect entrepreneurship.
850

Factors Stimulating Entrepreneurship
While we recognize that the literature identifies
other potential influences including institutions
and culture (Wennekers et al., 2002), national cul-
tural values (Hofstede 2001, House et al., 2004),
and the level of within nation diversity (Liam and
O’Neal, 1997; Puia and Ofori-Dankwa, 2013), we
have chosen to focus on those variables that are
more easily influenced by policy makers.
There are a wide range of policy options that
governments can choose, but every policy deci-
sion has implications for future governance. If,
for example, barriers to entry for entrepreneurs
were at zero, the cost for an individual to enter or
exit a market is nominal. While this may sound
optimal, it ignores potential second-order con-
sequences: totally open markets may facilitate
self-employment at the expense of job-creating
entrepreneurship; it can disrupt the business of
incumbents and their tax revenues; and it leaves
little room for government influence over indus-
trial policy decisions. These are not bad conse-
quences, but produce a series of questions that are
best considered prior to policy implementation.
On the opposite extreme, totally restricted entry
exaggerates the role of government over markets,
protects incumbent businesses at the expense of
innovation, and limits both entrepreneurship and
self-employment. Hall and Skoskice (2001) go so
far as to suggest that national policy makers live
on a continuum from open to restricted markets,
creating varieties of capitalism with resulting
differences in the regulation of entry.
There are some variables that are popularly
reported–economic freedom and democracy–that
we have chosen to not include in this study. This
omission is not due to a lack of importance of
these variables. Both of the measures are limited
in that they are coarse-grained. Given the growing
convergence of scores on economic freedom, the
measure adds little to our understanding of the
conditions that lead to entrepreneurial supportive
climates. While democracy is a critical variable,
its effects have been widely reported. Certainly,
it is a characteristic of democracy that there be

Factors Stimulating Entrepreneurship
open debate and transparent rules and policy.
Democracy also tends to influence human capital.
Democracies are more responsive to the needs
of the whole population; thus, the government
typically offers more education (producing more
human capital).
Emerging Markets
A fundamental premise of our work is that
emerging markets reflect those transactional
arenas where buyers and sellers are not easily
nor efficiently able to come together. Ideally,
every economy would provide a range of institu-
tions to facilitate the functioning of markets, but
developing countries fall short in a number of
ways. These institutional voids allow a market
to be characterized as “emerging” in that they
elevate transaction costs and operating challenges
in these markets. One of the unique characteristics
of emerging markets is the traditional asymmetry
of information between buyers and sellers, among
entrepreneurs, and across national boundaries.
As we will see later in this paper, there is some
convergence in these areas between emerging
and developed (emerged) markets in their policy
metrics. There appear to be two clear sources for
this reduction in asymmetry. First, engagement in
world trade draws countries under the influence of
global institutions (e.g., the WTO, World Bank,
etc.). Second, the internet has created an environ-
ment where the dissemination of information is
nearly universal and automatic. While there are
still asymmetries in the processing and analysis
of information, the information itself is more
readily available.
Our paper has an underlying premise, that
the national entrepreneurship climate influences
entrepreneurial business formation and growth,
especially among high growth potential technol-
ogy based firms. To that end, we explore eight
factors that significantly influence entrepreneurial
readiness. They are: business freedom, investment
freedom, investor protection, property rights
protection, technological readiness, innovation,
freedom from corruption, and access to risk capital.
Concept 1: Business Freedom
Business freedom is an overall indicator of the
efficiency of government regulation of business.
Countries vary significantly in the extent to which
they interfere with starting, operating, or closing
a business. Much of the literature focuses on the
challenges of starting a business and government
barriers to entrepreneurial entry (Puia and Min-
nis, 2007). In practice, policies for operating and
closing a business influence the number of busi-
ness starts, for example, if a business is required
to pay one year of severance for each employee at
the time of closing, then starting a business will
have significantly higher risk to the entrepreneur.
There is a pervasive premise in economic
development literature that less government
intrusion yields higher levels of innovation and
entrepreneurship. As a result, policymakers are
giving increasing attention to courses of action
that will enhance the competitive ability of a
region’s entrepreneurs (European Commission
1999; Carree et al., 2002). Wisely, there has been
a movement among economic development policy
makers from attempts at solely attracting large
manufacturing firms toward the encouragement
of internal economic growth models that favor
entrepreneurship (Kreft and Sobel, 2005). One en-
trepreneurship policy dimension that has received
heightened attention is the relationship between
business regulation and entrepreneurial activity,
particularly the set of procedures governing the
creation or entry of a new business (World Bank,
2004). Collectively these procedures are referred to
as the regulation of entry” (Djankov et al., 2002).
As noted in recent World Bank (2004) studies,
highly regulated entry conditions are inversely
851

related to national entrepreneurial activity. In
other words, entrepreneurial regions tend to be
associated with greater business freedom.
Countries regulate or restrict the new business
entry using a variety of policies and practices
(Djankov et al., 2002). There seems to be a con-
sensus that some regulation of entry is valuable
to both the country and the firm. Official regis-
tration, for example, may offset some of a new
firm’s liability of newness, making the companies’
goods and services more reputable (SRI 1999).
As a result, regulation of entry can be of value to
both the consumer and the company.
Not all scholars hold a positive view of entry
regulation, often adhering to an alternative model,
referred to as the “tollbooth model” (Desoto,
1990). In the tollbooth model, politicians and
bureaucrats benefit for the fees associated with
regulation (McChesney, 1987, Djankov et al.,
2002). Other scholars (Shleifer and Vishny, 1993)
actually infer that public officials create regula-
tions as means of incentivizing a form of official
bribery; firms will pay the official fees needed
in order to receive a permit. Clearly, regulatory
policies influence an entrepreneur’s decisions on
investments and market entry choices (Reger et
al., 1992). Significantly, the World Bank (2004)
report notes that nations with lower regulation of
entry have a more robust entrepreneurial economy.
Concept 2: Investment Freedom
In a country with high levels of investment free-
dom, there would be limited constraints on the
flow of investment capital. Individuals and firms
would be allowed to move their resources into
and out of specific activities, both internally and
across the country’s borders, without restriction.
There is a large body of literature on foreign direct
investment as it plays such an important role in
economic development (Zitta & Powers, 2003).
While the literature on foreign direct investment
is vast (Bartlett & Ghosal, 1995, Dunning, 2001;
852

Factors Stimulating Entrepreneurship
Hymer, 1960; Porter, 1990), there is considerably
less research on the firm’s motivation to enter a
particular activity (Buckley, et al., 2007; Rugman
& Verbeke, 2009; Puia and Pretzer-Lin, 2013).
Most foreign direct investment literature
explores the work of larger multinational firms,
and less so entrepreneurs (Dunning, 2001). In his
seminal work, Dunning (1973) originally sug-
gested three independent motivations for FDI:
finding foreign markets, efficiency seeking, and
resource seeking. This was later modified to add
a motivation: strategic asset seeking (e.g., Dun-
ning, 2001). The latter, the seeking of strategic
resources such as talent, have significant impli-
cations for investment policy. While the focus
on multinational firms is significant, it does not
diminish the importance of investment policy for
entrepreneurs. In the first case, if local large firms
are denied foreign investment, then most gain a
larger share of local capital markets to meet their
investment needs. Since MNCs are hundreds of
times larger than startup firms, MNC capital
requirements crowd-out local startup investors
unless there are open investment borders. In the
second case, there is a growing global venture
capital sector that seeks out investment oppor-
tunities in the markets where they are created.
Rugman and Verbeke (2009) make the argument
further for global venture capital in local markets
by noting that firm level knowledge creation is
embedded in localized innovation systems. It is
advantageous, therefore, for firms to locate at
the nexus of its key innovation systems, and that
means locating in a specific physical location.
Investment follows ideas.
As noted, in an economically free country, there
would be no constraints on the flow of invest-
ment capital. In practice, most countries restrict
and regulate investment to varying degrees. In
some countries, certain industries are closed to
foreign investment while others create restrictions
on payments, transfers, and capital transactions,
especially capital repatriation. In many countries

Factors Stimulating Entrepreneurship
there are different rules for foreign and domes-
tic investment. In addition to regulatory issues,
there are other factors that restrict the freedoms
of investors including some corruption, red tape,
weak infrastructure, and political and security
conditions.
Concept 3: Investor Protection
New technology requires investment. The more
advanced the technology, typically the greater the
investment that is required. Entrepreneurs have two
sources of investors, domestic and global. There
are two distinct challenges that countries must
meet to secure investors. First, the local investor
needs to get a risk adjusted return locally that is
as high as they can get globally. This is no small
challenge; developed markets offer greater choices
and greater investment liquidity (often with the
availability of hedging tools). At the same time,
investors face the liability of foreignness when
diversifying their domestic portfolio. Second,
the foreign investor needs to find opportunities
overseas that they cannot find domestically, and
have a risk adjusted return in an emerging market
that compensates them for the unique challenges
of that market.
Concept 4: Property Rights Protection
Technology entrepreneurs have the ability to
collect economic rents from their intellectual
property. The potential magnitude and duration of
these rents incentivize entrepreneurs to invest their
scarcest resource, their time, in the creation of new
technology. In addition, they lever their resources
and those of their investors in this technological
quest. If the entrepreneur perceives they will be
unable to collect rent due to the environment in
which they operate, they will either reduce their
innovative output, or relocate to a more secure
and rewarding location (resulting in “brain-drain”
from a region or nation).
Concept 5: Technological Readiness
Since there is a known correlation between suc-
cessful technology entrepreneurs, job creation,
and economic growth, one expects countries with
a higher level of technology readiness to be bet-
ter able to support entrepreneurship. Implicit in
this assumption is the idea of absorptive capacity
(Cohen and Levinthal, 1990). To illustrate, the
advanced math student knows that he or she can-
not ‘absorb’ the subject of differential equations
without first having a prerequisite knowledge in
calculus. Similarly, businesses that want to absorb
the latest technology in their fields need to have
developed the capacity to absorb it. Initially, it
involves the ability to understand, use, apply,
modify and extend a given technology beyond
what is offered or seen in the marketplace. Beyond
that, it is about the capacity to generate major
improvements and replacement technologies. If a
firm (economy) does not have absorptive capac-
ity in a technology, it becomes locked out of that
market (Zahra and George, 2002).
Following this logic, entrepreneurs also need
access to information in real time. Lastly, emerg-
ing technologies are often developed in a cross
national context (Yang and Puia, 2003, Yang et
al., 1999). The presence of foreign direct invest-
ment and cross border technology transfer creates
an environment where local entrepreneurs have
superior access to emerging technology.
Concept 6: Innovation
Entrepreneurship, especially technology entrepre-
neurship, requires an environment that is condu-
cive to innovative activity and supported by both
the public and the private sectors. The gains that
a nation can accrue by improving institutions and
their policies, building infrastructure, reducing
macroeconomic instability, or improving human
capital, are all subject to diminishing returns. The
variable least effected by diminishing returns is
innovation, particularly technological innovation.
853

One of the factors that helps make innovation
more robust is the ability for technology to disrupt
entry barriers and thereby open new markets to
startup firms (Puia and Yang, 2002). This allows
smaller firms to outperform large MNCs. As new
technologies supplant old ones, they create new
industries and corresponding new employment.
Each new wave of innovation carries with it the
seeds of improved productivity.
Innovation capacity is complicated to measure,
as it is not an independent construct. Technology
development requires investment, knowledge and
market insight. In particular, technology innova-
tion requires investment in research and develop-
ment (R&D), especially by the private sector; often
relies on the presence of high-quality scientific
research institutions that can generate the basic
knowledge needed to build the new technologies;
calls for the extensive collaboration in research and
technological developments between universities
or other institutions and industry; and requires
the protection of intellectual property. We also
know that innovation requires an optimal range
of competition; if there is too little competition,
there is little incentive to innovate–if there is
too much competition, then firms cannot sustain
profitability and exit (Porter, 1990).
Concept 7: Freedom from Corruption
Corruption is “typically defined as abuse of public
power or authority for private benefit” (Rodriguez
et al., 2006; Anokhin and Schulze, 2009, p. 465).
Accordingly, freedom from corruption, as we
use it, would be the absence of abuse of public
power or authority for private benefit. Freedom
from corruption is significant because there is a
“growing stream of research which suggests that
corruption and the quality of a nation’s institutions
play an important role in accounting for disparities
in rates of entrepreneurship and innovation across
nations” (Anohkin and Schulze, 2009, p. 466).
854

Factors Stimulating Entrepreneurship
However, the literature suggests that not all
are convinced that corruption plays an entirely
detrimental role. Dreher and Gassebner’s “empiri-
cal analysis, covering a maximum of 43 countries
over the 2003–2005 period, shows that corrup-
tion facilitates firm entry in highly regulated
economies” even though the overall effects of
corruption on the economy is negative (Dreher
and Gassebner, 2013, p. 413 and p. 416). This is
part of a “grease the wheels” hypothesis present
in the literature (Dreher and Gassebner, 2013).
We take the broader view that corruption inhib-
its entrepreneurship and innovation because “[w]
hen corruption is present, the entrepreneur faces
greatly increased risk that those involved in her
value chain will be opportunistic and appropri-
ate the profits or rents to which the entrepreneur
believes she is entitled” (Anokhin and Schulze,
2009, p. 467). Additionally, corruption increases
the entrepreneur’s perception of transaction costs.
If the early revenue projections are marginal, the
incremental transaction cost from corruption
might be deterring the entrepreneur from launch-
ing the business.
Concept 8: Access to Risk Capital
The last concept we explore is the availability of
risk capital in the local market. Frequent surveys
confirm that access to capital can be a formidable
stumbling block to technology entrepreneurs and
other high growth entrepreneurial enterprises. This
is especially true in the early stages of growth
following initial launch of the business. While
both debt and equity financing tools may be used
to fund business startups, there are important,
practical limitations influencing whether and
how entrepreneurs may reliably and legally access
such funds. For example, new ventures are inher-
ently risky and, as a result, banks are reluctant to
extend unsecured credit. In many cases, they are
prohibited from doing so. While entrepreneurs in

Factors Stimulating Entrepreneurship
the U.S. and other developed countries may use
bank loans secured by the entrepreneurs’ limited
assets to launch a new business, successful growth
usually requires access to other forms of capital
well beyond personal resources. It is the avail-
ability of these other forms of early stage capital
that this segment seeks to characterize at a local
(i.e., national) level.
Two factors that that work together for facilitat-
ing early stage business growth are the presence
of local venture capital investors and the presence
of a functional local/regional equity market. To-
gether, these comprise important, representative
and related sources of risk capital.
Venture capital (VC) is usually provided after
an entrepreneurial venture has been launched and
its founders or incorporators have invested their
personal and/or corporate resources. The VC
investment is often a contractual arrangement
that provides equity in exchange for present and/
or future ownership positions in the business. It
may also involve board of director assignments
and other corporate governance provisions. The
presence or absence of VC investors can have
significant, strategic implications in the present
and future operations and outcomes of the firm
(Burchardt et al., 2014). While the metrics for
venture investment are constant, there is substan-
tial research to suggest that the way in which VC
contracts operate vary substantially across nations
due to differences in institutional practices and
national culture (Li and Zahra, 2012).
METHOD
We look at data and compare six West African
countries (Benin, Cote d’Ivoirie, Ghana, Liberia,
Senegal and Sierra Leone) against the United
States and six European Union member states
with respect to the eight factors associated with
entrepreneurship. The Eight factors we look at are:
business freedom, investment freedom, investor
protection, property rights protection, technologi-
cal readiness, innovation, freedom from corruption
and access to risk capital.
Business Freedom
The metric for Business Freedom is reported by
the Heritage Foundation (O’Driscoll, et al., 2001),
which draws its data from the World Economic
Forum. The quantitative score is derived from an
array of measurements of the difficulty of starting,
operating, and closing a business. The business
freedom score for each country can be a number
between 0 and 100, with 100 equaling the freest
business environment. The score is based on 10
equally weighted factors from the World Bank’s
Doing Business study: starting a business; obtain-
ing a license, and closing a business.
Data can be difficult to acquire for newly
formed and forming ventures. As a result, Doing
Business measures the number of procedures, time
and cost for a small and medium-size limited li-
ability company to start up and formally operate:
employing a standardized business that is 100%
domestically owned, has startup capital equivalent
to 10 times income per capita; engages in general
industrial or commercial activities; and employs
between 10 and 50 people within the first month
of operations. While this procedure assures higher
quality data, it tends to obscure the important role
played by small high-tech entrepreneurs in their
initial stages.
Investment Freedom
We use the Heritage Foundation Index of Invest-
ment Freedom which evaluates a variety of restric-
tions that are typically imposed on investment.
For each of the restrictions found in a country’s
investment regime, points are deducted from the
ideal score of 100.
855

Investor Protection
A key element then for entrepreneurs to receive
investments is an assurance that the investor is
protected. Investor protection is a complex con-
struct. It involves sensitive sociopolitical issues
such as transparency, rule of law, and the reliability
of public institutions. This metric is acquired by
directly measuring the sentiment of investors on
a scale of 1 to 10, where ‘10’ is the highest level
of investor protection.
Property Rights Protection
The property rights component assesses the ability
of entrepreneurs to accumulate private property
and the rents associated with that property. Further,
they have comfort that their rights are protected
by laws and that those laws are meaningfully and
fairly enforced. Intellectual property protection, as
indexed by the Heritage Foundation, measures the
degree to which a country’s laws protect private
property rights and the degree to which its govern-
ment enforces those laws. The index also captures
the probability that private property might be
expropriated. Lastly, it explores the independence
of the judiciary, and in particular, the freedom
from corruption in intellectual property protection.
Technological Readiness
To capture these phenomena, the World Economic
Forum Index of Technological Readiness integrates
six measures: the availability of the latest tech-
nologies in the local market, firm-level technology
absorption, FDI and technology transfer, and three
measures of internet usage, speed and capacity.
Innovation
The World Economic Forum Index on Innovation
combines qualitative data like CEO assessments
of innovation capacity and the quality of scien-
tific research institutions with quantitative data
856

Factors Stimulating Entrepreneurship
like company R&D spending, the government
procurement of technology, and the availability
of scientists and engineers.
Freedom from Corruption
The component we use is Freedom from Corrup-
tion as valued by the Heritage Foundation (2014).
The Heritage Foundation derived its value primar-
ily from Transparency International’s Corruption
Perceptions Index (CPI) for 2011, which measures
the level of corruption in 183 countries (2014). The
CPI is based on a 10-point scale in which a score
of 10 indicates very little corruption and a score of
0 indicates a very corrupt government. The Index
relies on a wide range of sources for information
on informal market activities, including: Transpar-
ency International, Corruption Perceptions Index,
2011; U.S. Department of Commerce, Country
Commercial Guide, 2009–2012; Economist Intel-
ligence Unit, Country Commerce, 2009–2012;
Office of the U.S. Trade Representative, 2012
National Trade Estimate Report on Foreign Trade
Barriers; and official government publications of
each country (Heritage Foundation, 2014).
Access to Risk Capital
For purposes of this study, we employ a simplified
index to assess of the availability of investment
resources from local (in-country) equity markets
and the presence of venture capital resources
therein. For each country, the Risk Capital index
value was derived from the mean of two factors–a)
availability of funds from local equity markets and
b) venture capital availability–that are quantified
in the World Economic Forum’s comprehensive
Global Competitiveness Index (GCI) (Schwab,
2103). These index scores are derived by averag-
ing the scores of Sub-Indices 8.03 and 8.05 of the
GCI and then normalizing the resulting value to a
nominal scale of 100 points. The resulting score
provides a substantive measure of risk capital
accessibility within a local market.

Factors Stimulating Entrepreneurship
RESULTS
Using the indices developed above, we analyzed
the data for the six African nations and compared
it with benchmark data from the U.S. and six large
European economies. The results of are shown in
Figure 1: Entreprenerial Readiness Measures in
West Africa. In analyzing our results, we found
three comparisons that helped us synthesize
our findings. They are: convergences between
benchmark nations and our six African nations,
divergence between our six countries and their
benchmarks, and areas of convergence in our six
nations that diverged with the developed world.
The following section explores these findings.
Data Findings and Interpretation
While not representing identical scores, there is a
higher level of convergence among our countries
Figure 1. Entrepreneurial readiness measures in West Africa
on two attributes, business freedom and investment
freedom. This is not totally surprising given that
these are two areas that countries address early
in their development cycle. Additionally, some
investment freedoms result for engagement in
other cross-border financial areas (e.g., currency
exchange) where treaties are required. There was
convergence among the African nations on intel-
lectual property protection, but as can be seen
in Figure 1, there remains substantial distance
between them and the benchmark scores. Both
the convergence and recent efforts to close this
gap suggest a general recognition of the need to
enhance intellectual (and real) property protection
within the region in order to cultivate, attract and
retain those talents and resources necessary for
technology investment and high growth entre-
preneurship.
In terms of investor protection, Ghana and
Sierra Leone have comparable scores to the
857

benchmark countries (actually exceeding some
European scores). The other four countries are
substantially less protective of their investors.
If theory holds, Ghana and Sierra Leone should
outpace their competitors in investment attraction
in the near–to intermediate-term. Similarly, Ghana
and Cote d’Ivoire hold a modest advantage of their
regional competitors in their access to risk capital.
This factor has significant internal divergence,
again suggesting the potential for substantial dif-
ferences in outcomes during subsequent rounds
of the tournament.
The greatest divergence occurs on the three
measures related to technology: innovation, prop-
erty rights, and technological readiness. When
combined, this suggests a significant barrier to
technology entrepreneurship. While one expects
technology entrepreneurship to evolve more slowly
in an emerging economy, it remains an essential
component of long term economic growth and
transformation. The differences among nations
on these variables are dramatic. Ghana, the top
scoring African nation, has about half the capacity
of the benchmark countries yet has nearly double
the capacity of Liberia and Sierra Leone.
The availability of risk capital within the lo-
cal economy is an area in which there are rich,
meaningful differences among the representative
nations of Sub-Saharan West Africa. Ghana stands
out among its regional peers in having a substan-
tive and robust level of risk capital availability.
Its score in this category is one of only three
instances in our study in which a country within
the Sub-Saharan region exceeds the index score
of at least one of the two benchmark economies.
That is a remarkable achievement for a develop-
ing economy. While scoring a lower value than
Ghana, Cote d’Ivoire also exhibits a higher level
of risk capital availability than its regional peers.
The other four nations in the region converge
around a much lower level of risk capital avail-
ability than Ghana or Cote d’Ivoire. Clearly, this
is a category in which there is both considerable
strength and weakness within the region. As such, it
858

Factors Stimulating Entrepreneurship
is interesting to consider opportunities for strategic
collaboration within the region. For example, is
it possible for Ghana, or Cote d’Ivoire to provide
advice or capital market development assistance
to its neighbors in the region? Might these nations
perceive significant value (in terms of stability,
trade, security, and/or resource development) in
helping one another foster strong capital markets
and investment practices in neighboring countries?
Finally, there are also marked differences
among countries regarding corruption. While
Ghana has a slight edge over its neighboring
countries, there are substantial differences among
the nations of the Sub-Saharan region and the U.S.
and European benchmarks. The large differences
between regional and benchmark scores suggests
that this is a category in which a large investment
of national attention and resource may be required.
But it may also be one in which small, consistent
investments over time may have a meaningful
impact.
IMPLICATIONS AND
RECOMMENDATIONS
Interpreting these results is challenging, but we
believe the data supports the following general
conclusions.
1. The sub-Saharan six have developed their
business and investment environments to
a level where they will receive investment
via the presence of MNCs. Global invest-
ment will flow into the region to support
larger firms and particularly those owned
by outsiders.
2. There is a sufficient environment to sup-
port non-technology or limited technology
entrepreneurship. The business and invest-
ment freedoms create a general environment
for success and there is the availability of at
least some capital.

Factors Stimulating Entrepreneurship
3. There is little support for indigenous tech-
nology-based entrepreneurship. This is not
to say that it cannot occur, but it suggests
that local entrepreneurs in the sub-Saharan
six will find it significantly more difficult
to grow indigenous technology (and other
high growth entrepreneurial) ventures than
benchmark countries. Technology is global.
Without technology support, the sub-Saha-
ran six may end up with primarily domestic
entrepreneurs and as a result be limited to the
resources of the domestic economy rather
than the resources of the world.
4. The presence of corruption works against
foreign direct investment which in turn limits
technology- based entrepreneurship.
It is difficult to overestimate the progress this
region has experienced. In some cases (Ghana,
Benin, Sierra Leone), nations have developed
business and investment frameworks in a decade
that rival systems that have been in place 30 years
or more. The challenge going forward is to develop
capacity of technology-based entrepreneurs.
Recommendations for Policy Makers
Evidence from the sub-Saharan six nations sug-
gests a system that is growing in its ability to
support domestic entrepreneurship, but not global
entrepreneurial enterprises. To support global
entrepreneurship, firms need a legal system that
supports property rights, enforces laws, has an
independent judiciary, and can protect intellec-
tual property. Strengthening intellectual property
might be an important first step.
The challenge with technological capacity is
that it represents many core competencies and
can take years to develop. One means to accel-
erate innovation capacity is to develop policies
that support joint research and development alli-
ances across borders. It includes alliances within
and beyond the region. Of particular value are
cooperative efforts within the region that help to
foster an investor-ready, innovation-embracing
attitude among policy makers, educators, media
and communities within the region.
Recommendations for
Research Directions
Emerging economies have limited investment
resources. It is not possible to have major simul-
taneous improvements in all eight domains of
this study. This paper suggests that there might
be a sequence to improvements that would ac-
celerate economic development. At this point in
the research, there are now empirically validated
developmental sequences for entrepreneurship
or tech entrepreneurship development. Clearly
research is needed in this area.
In our research we explored more than one
hundred different metrics related to entrepreneur-
ship development. In a developed economy with
full resources it would be extremely difficult to
make progress simultaneously on 100 distinct
issues. It would be impossible for an emerging
economy with limited resources to take on the task.
A meaningful contribution would be to conduct
a discriminant analysis of metrics to determine
the limited few that are most likely to influence
accelerated development.
Lastly, the comparisons in this study were
to developed countries for illustrative purposes.
There may be significant value to developing
benchmark studies with differing regions, e.g.,
other African sub-regions, Asian Tigers, Eastern
and Central Europe, etc. These may allow for a
more direct comparison and in some cases may
represent direct competition for inbound invest-
ment and outbound markets.
859

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KEY TERMS AND DEFINITIONS
Emerging Markets: Market oriented econo-
mies in Europe, Africa and Latin America that
developed in the 1980s.
Entrepreneurial Readiness: Extent to which
individuals are able to identify and set up busi-
ness structures to take advantage of opportunity.

Factors Stimulating Entrepreneurship

Entrepreneurship: Process of identifying Sub-Saharan Africa: Region of Africa that is

business opportunities and setting up business South of the Sahara and that is typically contrasted
structures to take advantage. with North Africa with its Arab heritage.

This work was previously published in Comparative Case Studies on Entrepreneurship in Developed and Developing Countries
edited by Joseph Ofori-Dankwa and Kwame Boasiako Omane-Antwi, pages 1-18, copyright year 2015 by Business Science
Reference (an imprint of IGI Global).

863
864

Chapter 46
Holy Trinity Medical Centre
Seth Appiah-Kubi
Pentecost University College, Ghana

ABSTRACT
Entrepreneurs in Africa play a critical role in employment and wealth creation. Many African busi-
nesses started as family businesses or Small to Medium-Sized Enterprises (SME). Their output forms a
significant portion of the Gross Domestic Product (GDP) of those economies. The goal of this chapter
is to contribute the case study of a successful African entrepreneur from Ghana. This study also presents
the context of setting up a business in Africa, especially Ghana. The motivation, success factors, and
challenges, such as lack of access to capital, limited government support, difficult regulatory environ-
ment, etc., are identified. Entrepreneurs in challenging environments develop adversity resilience (high
adversity quotient) and rely on such phenomena such as social capital to succeed. Using behavioral
theories of entrepreneurship such as rational choice theory and Myers-Brigg Type Indicator (MBTI),
this chapter explains the contribution of personality traits and social and cultural environment including
cultural beliefs on entrepreneurial success.

INTRODUCTION rica. The fields of entrepreneurship and family

Entrepreneurship in Africa has been an important
but under-researched aspect of international en-
trepreneurship (Kshetri, 2011) and scholars have
paid even less attention to entrepreneurship in
Africa. Coster (2007) forcefully argued: “Think
of Africa as a normal place.” There are 15 times
more analysts covering Indian companies than
covering African companies, and 11 times more
analysts covering Chinese companies than African
companies.
The lack of research in entrepreneurship is
the same in the field of family business in Af-
business though have to a great extent developed
independently; they have been moving closer to
each other over the past years (Anderson, Jack,
& Drakopoulou-Dodd, 2005; Nordqvist & Melin,
2010). In Africa, there is a thin line between these
two fields as many entrepreneurs begin their busi-
nesses as family-owned.
In their paper, “Charting the Future of Family
Business Research: Perspectives from the Field,”
Litz, Pearson & Litchfield (2012) provide insights
concerning the current state of family business
research through a survey that included input from
more than 80 family business scholars. Findings

DOI: 10.4018/978-1-4666-8468-3.ch046

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Holy Trinity Medical Centre
suggest two general conclusions: first, a collective
sense that significant progress has been made;
second, a widespread conviction there’s still
much work to be done. Despite these conclusions,
especially the fact that there has been significant
progress on the field of family business research,
the same cannot be said for the family business
field in Africa.
In their review of 25 years of Family Business
Review, an influential journal of family business,
Sharma, Chrisman & Gersick (2012) revealed that
there has not been any research on family busi-
nesses in Africa in the quarter of century history
of the respected family business journal.
The first purpose of this study is to try and fill
the gap in literature in the fields of entrepreneur-
ship and family business. Some of the reasons for
the gap in research, after reviewing the literature
reveal that few family business scholars are in
Africa with less opportunity for family business
scholars and practitioners conferences. The first
conference on small business and their problems
was held at St. Gallen University in Switzerland
in 1948. This biennial conference had its 51st an-
niversary in the fall of 2000 with limited African
scholar participation. In the same way the Family
Enterprise Research Conference (FERC), a bien-
nial conference of family business scholars and
practitioners from North America, Europe, South
American and Asia went without family business
scholars from African until its 9th anniversary.
Again, it is important to remember that entre-
preneurship as an academic field of study is quite
young in African Universities. The first course in
entrepreneurship was apparently offered at the
Harvard Business School in 1947 by Myles Mace.
Peter Drucker started a course in entrepreneurship
and innovation at New York University in 1953.
However, it is just recently that most business
schools in Africa began to offer courses focusing
on entrepreneurship.
Secondly, this chapter seeks to present a case
study of an African entrepreneur: his background,
his personality traits, his motivation for setting
up a business, the environmental challenges of
setting up a business and the mental attributes
required to set up and run a business. The chapter
will also discuss some theoretical perspectives
of entrepreneurship. Qualitative method of data
collection was used; questionnaire and in-depth
interviews were employed.
Finally, the chapter ends by outlining some
lessons on how the entrepreneur managed and
overcame the challenges he faced and how he
was successful, with questions for discussion by
students.
LITERATURE REVIEW
Today, there is growing interest in entrepreneurs
and creation of new ventures. Diverse studies
justify entrepreneurs’ importance based on their
capacity to generate employment and their contri-
bution to the dynamism of the economy by means
of the addition of new firms into the network
(McPherson, 1988; Henderson, 2002).
Although much is up for grabs in the emerging
field of entrepreneurship, scholars have yet to settle
upon a single definition (Dunham & Venkatara-
man, 2002). According to Dunham & Venkatara-
man (2000), a survey of the literature confirms the
field of entrepreneurship is essentially concerned
with the creative acts of individuals who seek to
bring new economic artefacts–products, services,
markets, organisations into existence. Venkata-
raman (1997), for instance, defined the field of
entrepreneurship as “fundamentally concerned
with understanding how, in the absence of current
markets for future goods and services, these goods
and services manage to come into existence.”
Following Venkataraman, we shall take “entre-
preneurship” to mean the act of bringing future
goods and services into existence. Therefore, the
individual factors that influence entrepreneur’s
creativity are of central importance. One such
factor is innovation.
865

INNOVATION AND CREATIVITY
Bringing future goods and services into existence
requires innovation. Such innovation lies at the
heart of the “new combinations” (Schumpeter,
1934), which produce future goods and services.
“Innovation” refers to the application of new
ideas to products, services and processes and the
successful implementation and commercializa-
tion of those ideas (Dunham & Venkataraman,
2002). Innovation, in turn, is a product of human
creativity. Creativity is seen as the starting point
for entrepreneurial innovation as well as the
process by which it is realised. Creativity is the
generation of novel ideas and approaches that are
the “raw material for innovation” (Cummings and
Oldham, 1997).
Creative processes and action are distinct from
non-creative processes and action. Amabile (1996)
has characterised the former as the production of
ideas that are “both novel and appropriate, useful,
correct or valuable.” Others have focused less on
actual outcomes and more and more on the process
itself. Drazin, Glynn and Kazanjian (1999) have
defined creativity as “the process of engagement
in creative acts” (p. 288) regardless of the degree
of novelty in the ultimate outcome. Such a process
is one in which an individual “behaviourally,
cognitively, and emotionally attempts to produce
creative outcomes” (p. 291).
Creativity processes are stimulated by and
focused upon multiple objectives. Researchers
have found that an intrinsic interest in the prob-
lem at hand is the most effective motivator for
creative work and that instrumental rewards not
directly linked to the problem–e.g. the offering of
money or other reward–can undermine the level
of creativity in the actual output of the process
(Amabile, 1996).
In terms of their content, creative processes
are distinguished from other forms of problem-
solving in a number of ways. Amabile (1996), for
instance, has found that creativity is marked by an
approach that is heuristic rather than algorithmic,
866

Holy Trinity Medical Centre
meaning that creative tasks, as opposed to typical
problem-solving tasks, are far more open-ended.
They do not have clear goals at the outset or es-
tablished paths towards their solutions. It is up to
the creative actor to establish both.
According to Dunham and Venkataraman
(2002), much of what distinguishes this process
from non-creative processes is the ability to make
new or unusual connections between experi-
ences and information. Isaksen writes, “Creative
thinking involves making and communicating
meaningful new connections to: think of many
possibilities; and guide in generating and selecting
alternatives (1988 p.11).”
In short, creative thinking is far more complex
and involved than the notions of straightforward
problem-solving. It is a slow, inefficient, meander-
ing process. It is motivated by an intrinsic interest
in the problem to be solved. It requires a distinct
and elaborate set of cognitive skills: “the ability
to think metaphorically, flexibility and skill in
making decisions, independence of judgement,
coping well with novelty, logical thinking skills,
internal visualisations, the ability to escape per-
ceptual sets and entrenchment in particular ways
of thinking and finding order in chaos” (Tardif
and Sternberg 1988 p. 435).
THEORIES OF ENTREPRENEURSHIP
Rational Choice Theory
Rational choice theory has served as the basis for
models of human action across the behavioural
sciences, and in that capacity has provided numer-
ous insights into human behaviour (Dunham &
Venkataraman, 2002). Following Hollis (1979),
Hindess (1988) has identified three premises
which form the basis of rational choice theory’s
model of the human factor. Firstly, rationality is
generally equated with maximising behaviour.
Second, rational actors are assumed to be nar-
rowly self-interested. Finally, rational actors are

Holy Trinity Medical Centre
depicted as social atoms. While each of these
premises has their critics, and many scholars have
suggested the need to relax any or all of the above,
the three forms the core of what Elster has called
“the paradigm case of intentional explanation in
the social sciences outside psychology (Elster,
1983, p.75).
As an underlying construct in most behavioural
sciences, rational choice theory has no doubt
influenced the field of entrepreneurship, despite
its critics, in ways too numerous and subtle to
address here. Let us focus on the four key areas
in which we feel assumptions of rationality have
had a particularly large impact on the field. First, it
can be seen that rational choice theory has shaped
our understanding of the nature of entrepreneurial
opportunity. Second, as a result of this understand-
ing of opportunity, rational choice has driven our
conceptions of effective entrepreneurial processes
and behaviour. Third, rational choice theory has
influenced our choice of unit analysis, leading to
an almost complete focus on the individual as a
source of entrepreneurial activity. Finally, assump-
tions of rationality have colored our notions of the
motivations driving entrepreneurial behaviour.
Myers-Brigg Type Indicator (MBTI)
According to Spruijt (2012), one of the classics
in organisation theory which debates the role
of entrepreneurism is Greiner’s “evolution and
revolution as organisations grow.” The model
elaborates on the “Five Phases of Growth” in which
organisation growth is considered as a life cycle:
growth through creativity, direction, delegation,
coordination and collaboration (Greiner, 1972;
1998; Low & MacMillan, 1988; and Van de Ven
& Poole, 1995).
In 65% of the more than 1500 citations to
Greiner’s model for organisational growth, per-
sonal characteristics are the main topic of subject.
Innovation is in 19% of the citations topic of
subject. In general, it could be stated that entrepre-
neurial success is most importantly linked to the
personal characteristics of entrepreneurs (Baum &
Locke, 2004; and Crane & Mattan, 2007). Many
researchers have elaborated on characteristics of
entrepreneurs. A substantial part of them use the
Myers-Brigg Type Indicator, which has gained
recent popularity among scientists to explain en-
trepreneurial characteristics. Substantial research
has been done to find a relation between MBTI
and entrepreneurs, most significantly by Carland
and Renierse (1992 & 1996).
According to Dunham & Venkataraman,
(2002), the founding father of MBTI, Jung, tried
to introduce a way to measure the cognitive
typology of the respondents, often referred to
as temperaments, problem-solving capabilities,
cognitive styles or management styles (Jung, 1971;
Jung, Baynes & Hull, 1991; and Keirsey & Bates,
1998). Myers-Briggs further studied these typolo-
gies to find correlations and make it explicit. They
introduced a measurement tool (Myers, 1962). The
measurement was called the Myers-Briggs Type
Indicator (MBTI). The indicator gives scores on
four personality traits:
• Attitude to Outer World: Extraversion
(E) vs. Introversion (I)
• Function to Gathering Information:
Sensing (S) vs. Intuition (N)
• Function to Decision Making: Thinking
(T) vs. Feeling (F)
• Attitude to Organising Life: Judging (J)
vs. Perception (P)
Myers and Briggs advocate that everyone has
a preference for one of the two extremes and that
it is not possible to be ‘somewhere in the middle’.
Comparing known data samples of entrepre-
neurial characteristics and population averages, it
was possible to sketch percentages of personality
types that are over-represented among entrepre-
neurs in comparison with the average population.
Entrepreneurs are mostly found among the NT
867

cognitive dimension and to some extent to ST
and NF people (Carland, 1992; Tieger & Barron-
Tieger, 2000).
Institutions and
Entrepreneurship in Africa
According to Jones (2013), during the 1970s, North
identified the role of institutions in providing the
incentives structure of economies. He defined
institutions quite broadly. He believed that “they
consist of both informal constraints (sanctions,
taboos, customs, traditions and codes of conducts),
and formal roles (constitutions, laws, property
rights).” Greif, another prominent institutionalist
defined them as “a system of rules, believes, norms
and organisations that together generate a regu-
larity of (social) behaviours.” In his recent work
North himself has widened his own definition of
institution even wider and argued that responses to
institutions are heavily conditioned by culturally
conditioned mental models and religious beliefs.
An economic system is arguable a “coordinated
set of formal and informal institutions” (Dallago,
2002) influencing economic agents’ behaviour
(Matutinovic, 2005). North (1990) again defines
institutions as “macro-level rules of the game”
(P.27). Formal and informal institutions in most
African economies have been working as major
barriers for entrepreneurial development. Given
that market forces provide the “invisible hand”
to guide and encourage productive entrepreneur-
ship and sustainable development, observers
maintain that a liberal economic regime is more
likely to promote entrepreneurship than training
programmes directed towards entrepreneurial
skills (Elkan, 1988).
Private entrepreneurship’s growth is associ-
ated with and facilitated by the existence of the
free enterprise system, free enterprise economy,
capitalism which refers to an economic and social
system in which the means of production are mostly
privately owned and a market economy operates,
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Holy Trinity Medical Centre
that is, decisions are influenced by competition,
supply and demand (Schriems, 2004). Intrinsic to
this definition is also the existence of rule of law
and property rights.
Entrepreneurship and
the Gender Gap
According to Akhalway & Havenga (2012), a
major problem in Africa is the lack of empirical
studies of women entrepreneurs and the inadequate
quality of statistical data (Matiwane, 2005). It has
become evident that not much research has been
conducted on the success factors of women en-
trepreneurs (Ahl, 2006). Most research published,
have a one sided empirical focus (Gatewood,
Carter, Brush, Geene & Hart, 2003), neglecting
structural, cultural and historical factors and the
lack of feminist analysis (Mirchandani, 1991;
Ogbor, 2000; Reed, 1996).
Akhalway & Havenga (2012) showed some
evidence to suggest that men and women have
equal propensity to be entrepreneurs. Gallup sur-
vey, for instance, indicated that in Nigeria 60% of
female respondents and 68% of male respondents
liked the idea of starting a business (Rheault &
Tortora, 2008). Women’s propensity to engage
in entrepreneurial activities in Nigeria compares
more favourably with many economies in Arab
and Asia. In 2006 for instance, proportions of
the adult population (age 18-64) engaged in en-
trepreneurial activities in India were 18.9% and
13% for women (Allen, Langowitz, & Minnitti,
2006, cf Hanson, 2009), a result far lower than
the Nigerian survey result.
Availability and Cost of
Banking Finance in Africa
Researchers have shown that capital require-
ment and the availability of financing sources
affect entrepreneurial propensity (e.g. Baumol,
Litan and Schramm, 2007; Ho and Wong, 2007;

Holy Trinity Medical Centre
VanStel et al, 2007). According to Kshetri (2011),
availability of bank finance has been a barrier to
entrepreneurial activities in Africa. According to a
Gallup poll, 73% of Nigerians expressed concerns
about getting a loan from the bank (Rheauth &
Tortora, 2008). According to an advisor to the
Central Bank of Nigeria (CBN), 60% of Nigerian
are “underbanked” (Awhotu, 2010). Studies have
found that low interest rates lead to an increase in
new business startups (Audritsch and Acs, 1994;
Highfield and Smiley, 1987). According to the
Euromonitor International, in 2008, of the world’s
five countries with the highest annual lending
rates (ALR) for short and medium-term financing
needs of businesses, four were from Africa. The
ALRs in 2008 were 28.8% in Gambia, 32.4% in
Sao Tome e Principe, 45% in Madagascar and
620.2% in Zimbabwe.
Demographics
Despite the challenging environment to start and
run a business in Africa there are, however, many
successful entrepreneurs in Africa who come from
various demographic, cultural and educational
backgrounds. Studies (Elkan, 1988) have also
found the existence of many competitive small
family businesses in the region. Some successful
entrepreneurs (some running family businesses)
in the continent have found creative ways to
overcome economic and institutional barriers to
entrepreneurship. One of such entrepreneurship
is Dr. Felix Kwaku Anyah, the founder and CEO
of Holy Trinity Medical Centre in Accra, Ghana
Dr. Anyah was born on 29th November 1950,
in the Volta Region of Ghana. Even though he
had two elder siblings, he was named “Gamesu”
at birth, an Ewe name literally meaning ‘the time
has come for troubles to end.’ Therefore, he grew
up with a deep consciousness of God and a passion
to sacrifice and help people in whatever trouble or
difficulty. As Gamesu, he can go to unimaginable
lengths to bring comfort and joy to people.
What Type of Business Are
You in and Time of Starting?
The Holy Trinity Medical Centre started in July
1988, as a private sector health delivery outfit. It
was started with forty dollars, which was borrowed
from a bank. The current premises of the hospital
were an old hospital, which ran into trouble after
importing expired drugs. They filed bankruptcy
and had to close down. The owner of the premises
agreed to give the place up for a token rent.
Currently there are three divisions of the orga-
nization; a medical centre, a SPA and a recovery
centre. The medical centre and the SPA are in
full operation but the recovery centre has just
begun. The 70-bed Holy Trinity Medical Centre
has 33 full-time and part-time doctors. Dr. Anyah
is committed to working with related partners
to develop high quality health facilities to make
Ghana a health tourism destination.
Start-Up Motivation
Felix Anyah’s motivation was wrapped up in the
faith engrained in him as a little boy by his parents
through their Christian religion and a later expe-
rience of a protracted sleep disorder, continuous
stress and fatigue during his secondary school
days, a condition that lasted for many years. “My
parents were members of an apostolic faith– a
First Century Gospel Church– who believed and
practiced only Christian faith healing. Medical
science was seen as idolatry since nothing should
ever take the place of God for healing. Prayer was
what I knew whenever I was ill as a child.”
Members of this church observed a healthy diet,
with fruits and vegetables. They did not drink al-
cohol or smoke, they walked whenever they could,
slept early in the evening; they gave ‘everything
to God’ and were almost never stressed. This
church sowed into me a deep faith that healing
comes from God and that healthy diet, physical
exercises, adequate rest, management of stress,
869

detoxification, positive attitude and prayer were
essential components of health. “When I became
a doctor, my background had a lot of impact on
my view of ‘health’, bringing healing to people
with ill-health as a doctor was the most natural
vocation for a Gamesu. But the passion to end
troubles led me to strongly come to the reality
with the emotional, mental, psychological, social
and spiritual person behind the complaints in the
Consulting Room.”
According to Loucks (1981), entrepreneurship
is culture entrenched. Gaddam (2007) asserts that
every country’s cultural values play a prominent
role in shaping the foundation, and religion is an
element of culture (Weber, 1976). Thomas and
Muller (2000), hold the view that since values
shape behaviour, it can be assumed that it will
influence the decision of an individual to become
self-employed.
According to Dr. Anyah, reflecting on his sleep
disorder, stress, fatigue and anxiety, a condition
he suffered for a long time as a student in the
secondary school and faith healing. The World
Health Organization (WHO) definition of health
“as a state of physical, mental, emotional, psy-
chological and spiritual well-being and not only
the absence of disease” became a stimulus to set
up a medical system including a SPA, that would
satisfy WHO’s definition of health. He says, “A spa
is a medical facility that offers a holistic service,
a relaxed place devoted to holistic health”
Critical Mental Attributes
for Setting up Business
Felix Anyah describes himself as a maverick and
does not follow conventional rules and regula-
tions; he does not allow himself to be stuck in
traditional systems and patterns. He sees these as
the key attributes needed by an entrepreneur when
starting a business. In addition to these, creativ-
ity, resilience and a sense of humor are the other
important attributes needed in starting a business.
870

Holy Trinity Medical Centre
According to Gaddam (2007), looking at major
determinants of entrepreneurship behaviour and
actions, most of the early approaches typically
focused on personality factors of entrepreneurs,
because they are fundamental for entrepreneurial
success. Personality characteristics form the basis
for transformation of an individual into a founder
or a venture creator (Begley and Boyd, 1987,
Herron and Robinson, 1993).
Being Maverick
According to Lee and Peterson (2000), many at-
tribute entrepreneurship to internal psychological
traits of individual entrepreneurs whereby those
with a propensity toward risk-taking (Begley &
Boyd, 1987), high achievement, or an internal
locus of control (Brockhaus & Horwitz, 1986) are
thought to be leaders of innovation or catalysts who
provide the “spark” for economic growth and de-
velopment (Berger, 1991). Similarly, sociological
characteristics such as being a first child, being an
immigrant, having early role models, (and in this
case the sense of being a Gamesu), have been as-
sociated with an entrepreneurial personality (Bird,
1989). Also the individual’s own idiosyncrasies
help shape his or her entrepreneurial performance.
Avoid being Stuck to Traditional
Systems and Pattern
Even though Dr. Anyah agrees to some extent
that, we are shaped by our environment, includ-
ing its traditions, belief systems, and norms and
practices, he avoids being stuck in acceptable
traditional systems, patterns and stereotypes. He
believes it is the only way he can see beyond what
everyone sees.
Creativity
Creativity is central to our understanding of en-
trepreneurship (Dunham & Venkataraman, 2002).

Holy Trinity Medical Centre
Whether by introducing new methods of produc-
tion, new products, new forms of organisation, new
sources of supply, or new markets, the entrepreneur
drives the kind of bold and innovative changes that
reshape industries and economies and lead to new
and lasting source of prosperity. At the heart of
entrepreneurship is creativity. Though a medical
doctor with no formal training in architecture, Dr.
Anyah helped designed most of the magnificent
buildings, some sitting on the Volta river (the big-
gest river in Ghana), that form the Holy Trinity
Spa at Sagakofe in the Volta Region of Ghana.
Resilience
Stoltz (2000) demonstrated that resilience is a
major factor underlying success in entrepreneurial
setting. This was a study of personal resilience,
through what he termed adversity quotient (AQ).
Adversity quotient provides a measure of ones per-
ceived capacity to prevail in the face of adversity
(Markman, Baron & Balkin, 2002). Successful
entrepreneurs have a significantly higher adversity
quotient score than those who are less successful
(Calvo & Garcia, 2010). In his book, Adversity
Quotient: Turning Obstacles Into Opportunities,
Stoltz defined success as the degree to which one
moves forward and upward, progressing in one’s
lifelong mission, despite all obstacles or other
forms of adversity. Adversity, he indicated, does
not create insurmountable barriers. Each hardship
is a challenge, each challenge an opportunity, and
each opportunity embraced can lead to success.
Sense of Humor
There is no formal research on relationship be-
tween sense of humor and entrepreneurial success.
However, Dr. Anyah thinks looking at the funny
side of situations sometimes gives a different
perspective of the realities of those events.
Critical Mental Attributes for
Effectively Running a Business
To succeed in effectively running a business Dr.
Anyah thinks one needs to be open to new ideas
and experiences, ensure continuous innovation
and excellent and quality service delivery. He
sees his entrepreneurial alertness for new ideas
and experiences as the most important of them
all (Foss & Klein, 2009). This demonstrates the
entrepreneurial orientation (EO) of the Trinity
Group of Companies. In a study entitled Culture,
Entrepreneurial Orientation, and Global Competi-
tiveness, Lee and Peterson, (2000), indicated that
a firm’s EO refers to the entrepreneurial process,
namely how entrepreneurship is undertaken–the
methods, practices, and decision-making styles
used to act entrepreneurially. They concluded
indicating specifically that those firms that act
independently–also in thinking (autonomy), en-
courage experimentation (innovativeness), take
risks, take initiative (proactiveness), and aggres-
sively compete within their markets have a strong
EO, whereas those lacking some or all of those
have a weaker EO. According to Dr. Anyah, “be
a down-to-earth person and be more involved but
involve other people as well, encourage young
people to take leadership roles and be patient in
whatever you do.”
Open to New Ideas and Experience
Creativity enables us to think and see differently,
as it allows us to answer the question: How can
we do it better, smarter and more productively?
(Gaspersz, 2007). Creativity techniques are use-
ful as a stepping-stone towards taking new and
promising thought paths and offer, therefore, the
possibility to generate a large number of ideas. Idea
management, as the set of activities for identify-
ing, selecting, rewarding and polishing ideas for
871

implementation, ensure that the harvested ideas
transformed into a product or service will keep
the organisation ahead of the competition.
Continuous Innovation
Almost all organizations today are faced with a
dynamic environment characterized by rapid tech-
nological change, shortening product life cycles,
and globalization (Gumusluoglu and Arzu, 2009.).
It is apparent that organizations, operating in this
kind of a market environment need to be more
creative and innovative to survive, to compete, to
grow, and to lead. Innovation through creativity
is essential for the success, continuous running
and competitive advantage of an organization.
Excellent and Quality
Service Delivery
In today’s competitive markets, organizations
are continuously exploring different ways to gain
sustainable competitive advantage. Service qual-
ity has received considerable attention leading to
customer satisfaction and loyalty. Several studies
have linked service quality to customer satisfac-
tion and customer loyalty (Munhurrun, Naidoo
& Lukea-Bhiwajee, 2010).
Entrepreneurial Alertness
Israel Kirzner’s concept of entrepreneurship as
alertness to profit opportunities is one of the most
influential modern interpretations of the entre-
preneurial function (Foss & Klein, 2009). Shane
and Venkataraman’s (2000 p.218) influential
assessment defines entrepreneurship research as
“the scholarly examination of how, by whom, and
with what effects opportunities to create future
goods and services are discovered, evaluated,
and exploited.” As such, “the field involves the
study of sources of opportunities; the processes of
discovery, evaluation, and exploitation of oppor-
tunities; and the set of individuals who discover,
872

Holy Trinity Medical Centre
evaluate, and exploit them.”Being quick to spot
and exploit opportunities to create value is a trait
seen in Dr. Anyah.
Location
The business was located at the North Kaneshie
suburb of Accra. The choice of the location was
not for strategic reasons but due to the kindness
of the landlady who was willing to take a token
rent for a start. The 70-bed Holy Trinity Medical
Centre is still at its North Kaneshie location, but
expanded from its initial size and capacity. The
Holy Trinity SPA is located on the banks of the
Volta River in Sogakofe in the Volta Region of
Ghana and Holy Trinity Recovery Centre is also
located in Sagokofe.
Describe the Specific
Challenges You Faced
The business was started with 40 dollars, which
was borrowed from a bank through a friend. The
proposition of social capital theory is that network
of relationships grant access to resources (Ofori &
Sackey, 2010). Ofori and Sackey (2010) emphasis-
ing Bourrdieu’s (1986) assertion, stipulated that
Social Capital is mainly based on the proposition
that the networks of relationships within and
without a group constitute a valuable resource for
members of the group. According to Nahapient
and Ghoshal, 1998, this resource, construed as
capital is embedded within networks of mutual
acquaintance and recognition. Social capital is
thus an inherent value in human relationships
and connections (Ofori & Sackey, 2010). This
implies that social capital is a resource input that
facilitates production, but is not consumed or
used up in production (Colemen, 1994), and also
implies that Social Capital is an aspect of social
organisation and fundamentally a property of the
group, community or society.
With the challenge of demand of collateral
from the bank, a friend agreed to offer the title

Holy Trinity Medical Centre
documents of his property to the bank for the
loan. In their study of Ghanaian and Kenyan en-
trepreneurs, analysing their motivations, success
characteristics and problems, Chu, Benzing and
Mcgee (2006), indicated that entrepreneurs in both
Ghana and Kenya view “financial consideration”
as their most serious challenge. Ghana and Kenya’s
commercial banks are often unwilling to provide
loans to SMEs for a number of reasons. Firstly,
small loans are expensive to supervise and process
and are inherently riskier than loans to large firms.
When small under-collateralized loans fail, banks
have to absorb the loss because it is too costly to
try to recover the loan. In addition, banks prefer to
deal with registered businesses (i.e., businesses in
the formal sector) and most SMEs operate in the
informal sector (Isaksson, 2004). Finally, banks
require a business plan and/or accurate account-
ing records, which many SMEs cannot provide
(Tagoe et al., 2005).
The current premises of the hospital were an old
hospital, which was closed down. The major initial
challenges were non-availability of capital, how
to get customers and committed staff. A Lebanese
friend introduced him to other businesses owned
by foreigners who signed on to bring their staff
for treatment at the hospital. Again, according to
Coleman (1998), the capital in social relations
lies in their value in enhancing the outcome of
actions, whether of a firm or an individual. In a
study of small-scale manufacturing entrepreneurs
in Ghana, Barr (2000a) found evidence that
Ghanaian entrepreneurs value networks. In their
study, Ofori and Sackey (2010) suggested that the
idea of social capital can be intuitively grasped
by conceiving it as what ordinary language calls
‘connections’: people are connected to support
others based on trust in some others, and that
an individual’s connections are his or her assets.
Those assets in essence, constitute social capi-
tal (Burt, 1997). With time other organizations
joined in and “that is how it has grown to the
current level,” he said. Initially it was branded
for organizations only but now both individuals
and organizations use all their services (both the
spa and general medical care).
Business Performance
From a rented apartment with staff strength of five,
the facility has brazed through diverse obstacles
to become a private one-stop medical centre and
crowned as “Leader in Private Medical Sector in
Ghana” in 2003 by the Ghana Investment Promo-
tion Centre. The Hospital also received the Char-
tered Institute of Marketing Ghana (CIMG) award
for “Excellence in Private Sector Health Care”
A workforce of 215 personnel with 33 regular
and part-time doctors including professors in medi-
cine and surgery, obesity specialist, dietician, eye
specialist, skin specialist, physician, surgical and
Ear Nose and Throat (ENT) specialists, gynaecolo-
gist and obstetrician, psychiatrist, physiotherapist,
medical psychologists which together attend to a
daily average of 350-500 patients a day or between
9,300 to 14,000 per month including general and
specialist cases from retainer companies, private
clients and individual families.
To further expand the frontiers of its accom-
plished trademark in leadership and excellence
in private sector health service delivery in Ghana
and in line with his vision of incorporating alter-
native and complementary global best practice
healthcare into traditional orthodox medicine,
partly moulded by Dr. Anyah’s upbringing in
Christian-based faith healing, the Holy Trinity
SPA has been established on the banks of the
Volta River in Sogakofe, a village in the South
Tongu District of the Volta Region.
Products and Services
The Holy Trinity Group has three divisions; Holy
Trinity Medical Centre, Holy Trinity Spa and Holy
Trinity Recovery Centre. The first two, which are
in full operation, have the medical centre with
873

70-bed capacity and 33 full-time and part-time
doctors offering medical services ranging from
surgery, obesity management, eye treatment,
skincare treatment, Ear, Nose and Throat (ENT)
treatment, gynaecology and obstetrics services,
psychiatry, physiotherapy, medical psychology
services.
The Holy Trinity Spa (HTS) offer services in:
• Medical Spa: A Medical spa has orthodox
alternative, complementary practitioners,
plus spa treatments; this is a medical cu-
rative facility. Orthodox medical practitio-
ners include doctors, dermatologists, plas-
tic surgeons etc.
• Wellness Centre Spa: These are pure
health promotion facilities. Clients are oth-
erwise healthy and fit and desire upscale
wellness.
• Rehab and Hospital Spa: These incorpo-
rate spa treatments and medical curative
facilities.
• Day Spa: These are a follow up to the
healthy lifestyle started at the destination
spa.
The range of products/services offered by these
facilities include health lifestyle conferencing,
honeymoon, health vacation convalescing home,
physiotherapy spa, medical packages, addiction
management, sleep disorder management and
weight management.
Family Relations
Dr. Anyah manages with two key people; a lady
and a gentleman (non-family members); one is
in charge of administration and the other finance.
Although his leadership style is very democratic,
he believes in doing things differently and building
trust with teams. He believes his team of managers
is his family (they are all outsiders and not real
874

Holy Trinity Medical Centre
family members). Although one of his children is
a medical officer, he is not working in his business
but requires that he shows interest and willingness
to get involved.
He believes Holy Trinity Group will continue
to grow because he would not mind handing it over
to a good person he could trust who is capable
but not a family member.
Community Relations
As part of their mission the Holy Trinity Group
takes care of the needy. They give free treatment
to the needy at the medical centre. They identify
and take care of needy children through school
under a scholarship scheme. They also provide free
rehabilitation services for some alcohol addicts at
their recovery centre and help them acquire skills
and provide them with set-up capital.
CONCLUSION
This is a story of an entrepreneur who through
resilience withstood all the challenges in setting
up business in Africa to set up a medical centre
that attracts medical tourism. The findings of
this study have a number of important lessons
for academic discussion. These lessons can form
the basis of further research or can be used to
develop targeted interventions aimed at helping
up-and-coming entrepreneurs.
Firstly, the case study points to a situation
where adversity can be turned into inspiration. The
challenges the entrepreneur encountered in setting
up and running his business were enormous. As
discussed in the study, some people have higher
adversity quotient than others, however, build-
ing up systems to help develop resilience will be
necessary for the African entrepreneur.
Again, I ask a question “What is in a name?”
Is it coincidence that a Gamesu turned out to set

Holy Trinity Medical Centre
up a process that saves many people and end their
suffering? Even though I did not cite any research
on the influence of names on the personality of
the persons who bear them, there is the need to
encourage research in this area.
Finally, it was hugely discussed in this study the
influence of personality traits on entrepreneurial
success. Early identification of these traits will
help early nurturing of these entrepreneurial traits.
Programs at the university should be designed to
achieve these objectives.
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KEY TERMS AND DEFINITIONS
Copreneurs: Team of entrepreneurs typically
husband and wife.
Entrepreneurs: Individuals who identify op-
portunities and set up business to take advantage
of these.
Environments: The conditions immediately
surrounding a business.
Family relations: Dynamics associated with
members of a family operating a business.

This work was previously published in Comparative Case Studies on Entrepreneurship in Developed and Developing Countries
edited by Joseph Ofori-Dankwa and Kwame Boasiako Omane-Antwi, pages 183-199, copyright year 2015 by Business Science
Reference (an imprint of IGI Global).

879
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APPENDIX

Discussion Questions

1. What is the current system of training in your institution? Is this enough to bring out the entrepre-
neurial creativity in the student?
2. How can training centres such as the Universities enable early identification of potential future
entrepreneurs?
3. How can our traditional systems of belief and norms accommodate people whose way of thinking
does not conform to these beliefs and norms?
4. How can we quantify the value of traditional social resource inputs such as social capital?
5. How can African governments support research in entrepreneurship and business development?

880
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Chapter 47
Anointed Electrical Engineering
Services Limited
Seth Appiah-Kubi
Pentecost University College, Ghana

ABSTRACT
There is lack of data on entrepreneurial successes in Africa. While there have been numerous research
studies on entrepreneurship and family businesses in many regions of the world, there has been relatively
little research done in the African context. This lack of research on entrepreneurial success in Africa
is due to a variety of reasons such as the fact that most are relatively young and journals are typically
housed in universities in developed economies. This chapter describes the success story of a family
business in Africa. Specifically, this study sets out to determine the context of starting a family business
in Africa: the motivation, type of business, family involvement and the mental attributes, and the chal-
lenges in starting and running a family business. Finally, this study recounts some of the lessons from
the challenges and successes of the entrepreneur.

INTRODUCTION The first purpose of this chapter is to try to

Today, less is known or researched about en-
trepreneurs in Africa, for example a review of
literature on entrepreneurship carried out in the
1990s (Kent, Sexton & Vesper, 1986; Low &
MacMillan, 1988) and in more recent time, carried
little or no information about entrepreneurship in
Africa (Bruton, Ahistrom & Obloj, 2008). This
gap in the literature is more pertinent given the low
economic development of most African nations
and the pertinent role entrepreneurship can play
as catalyst for economic growth and development.
begin to fill this gap in the literature by describ-
ing an African entrepreneur. Again, reviewing the
literature on family business also indicates the
fact that research on family business in Africa is
substantially under-researched compared to other
regions of the world. For example review studies
carried out at the turn of the decade all confirm
this lack of research and information on family
businesses in Africa (Sharma, 2004). Indeed
Sharma, Chrisman and Gersick, (2012), 25 years
of Family Business Review, 25 years of review of
the articles of the Family Business Review, one

DOI: 10.4018/978-1-4666-8468-3.ch047

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

of the most influential journals in family business
concludes by advocating for more research from
under-represented regions.
The second purpose is to fill the smaller gap,
more especially in the family business research
area. In carrying out this dual purpose identified,
this study will use interviews of an African en-
trepreneur. This approach to qualitative research
has been identified as appropriate to undertake
research because of the depth it provides (Chenail,
2009; Dawson & Hjorth, 2012).
The chapter will detail and describe a Ghana-
ian entrepreneur, who started a family business.
Specifically the chapter seeks to: describe the
context of the start of the family business, the type
of business, the motivation behind starting, the
challenges and successes (business performance),
and its associated family relational challenges.
Also this chapter seeks to describe what this en-
trepreneur sees as the key mental attributes needed
to start and successfully run a family business
and what he does to give back to society. Finally
this chapter outlines some of the lessons from
the challenges and successes of the entrepreneur
and ends with some questions to help stimulate
discussions by students.
LITERATURE REVIEW
Entrepreneurship
Much has been written about entrepreneurship.
The literature in this field can typically be broken
down into three broad levels of analysis: indi-
vidual; organizational; and national. In all these
three levels, a brief review of the literature shows
a remarkable dearth of research about entrepre-
neurship in Africa.
At the individual level of analysis the research
points to certain psychological factors that un-
derlie entrepreneurship. One such key factor has
been termed entrepreneurial intentions (Bird &
Jelinek, 1988). Others point to self-efficacy as an
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Anointed Electrical Engineering Services Limited
important ingredient in understanding the mecha-
nism associated with the effective manifestation
about entrepreneurial intentions. In sum, most of
the individual factors centre around psychologi-
cal characteristics (Begley & Boyd, 1987) that
underpin entrepreneurship and entrepreneurial
behaviour. Studies such as that conducted by Calvo
and Garcia (2010) have shown that researchers
have traditionally focused on identifying which
of these personal and psychological characteris-
tics differentiate the entrepreneur from the rest
(Gartner, 1988) and which have a major influence
on the success on their (Jo and Lee, 1996). An
important strand of the literature that deals with
individual level of analysis focuses on gender.
These studies (Ahl, 2006; Brush, 1992) point to
a need to look at the gender differential between
male and female when it comes to entrepreneurship
and the fact of women as successful entrepreneurs.
Reviewing individual level of analysis still reveal
the lack of research on African entrepreneurs, and
this lack of research in this particular area form
part of the chapter
The predominant paradigm in understand-
ing entrepreneurship has focused on several key
individual factors. A strand of research began
to look at organisational factors that influence
entrepreneurship. Bratnicki’s (2005) article is
important in this regard. A strand of research
looking at entrepreneurship at the organisational
level has looked at what is called intrepreneurship
(entrepreneurship within existing organisations)
within the organisation. Again, as with the indi-
vidual level of analysis, very little research has
looked at firm and organisational level, looking at
entrepreneurship from the African perspective, and
this provides additional motivation for this study.
At the national level, some studies looked at
factors that influence entrepreneurship. A major
factor that has been identified is that of culture
(George & Prabhu, 2000). These studies suggest
the national culture as an enduring feature. This
then affects the entrepreneur’s orientation with
individuals within the nation (Lee & Peterson,

Anointed Electrical Engineering Services Limited
2000). This research seems to be in line with
the substantive work on national culture done by
Hofstede (Hofstede, 1980). A small group of stud-
ies at the national level have looked at the level
of financial institutions, for example George and
Prabhu, 2000, article on developmental financial
institutions as catalysts for entrepreneurship in
emerging economies. Again, as with the other
levels of analysis prescribed above, it does not
focus on entrepreneurship. It can be concluded
that there is a gap in the depiction of literature
on entrepreneurship.
Family Business
Much has been written about family business.
Perhaps one of the more intriguing aspects of the
results of these studies are: the extent to which
family businesses dominate national economics
and the extent to which family businesses out-
perform non-family business (Carney, 2005; and
Anderson & Reeb, 2003). However, despite the
fact that family business is predominant around
the world the research has not looked at family
business in Africa. This lack of research forms
the basis of this study.
The Ghanaian Entrepreneur
In his article, “A Conceptual Analysis of Fac-
tors Influencing Entrepreneurship Behavior
and Actions,” Gaddam (2007), indicated that
demographic changes are a prominent source of
long-term social change. Demographics according
to Gaddam (2007), means the study of trends in
human population with regard to population size
and the study various subgroups such as population
age, structure, geographic distribution, education,
ethnicity, racial mix, and the distribution of income
and wealth. A recent research studies show, there
are three important inputs to entrepreneurial suc-
cess: age, experience, and education (Gaddam,
2007). Therefore, it is necessary to look into
them in details.
Samuel Adjei Boateng, age 45, is the CEO and
owner of Anointed Electricals Limited; a firm
that assembles domestic and industrial generator
sets. He hails from the Kwahu area of the Eastern
Region of Ghana.
Though not backed by any recognised study, it
is well known among Ghanaians that the Kwahu
ethnic group from the Eastern Region are one
of the most entrepreneurial groupings in Ghana.
Adjei Boateng had his technical education in en-
gineering in Ghana and continued to the United
Kingdom for an apprenticeship placement with
several engineering firms.
Calvo and Garcia (2010) showed that from a
theoretical point of view, there is no doubt the
entrepreneur is the most important resources
in the creation of an organisation. They further
found that in this respect, it would be expected,
as demonstrated by Honig (2001), that knowledge
acquired through formal education enriches the
entrepreneur’s human capital and has repercus-
sions on both the maintenance and the major
growth of the organisation.
Several studies such as Pena (2004); Arenius
and Minniti (2005) and Calvo and Garcia (2010),
among others, have shown that educational level is
a variable proxy of the individual’s general amount
of knowledge. Given the success of the business
requires knowledge of a number of different
areas and sufficient learning capacity, a positive
relation should exist between higher education
and the propensity to create and maintain the
company. There is no doubt that Adjei Boateng’s
formal education and years of apprenticeship in
the United Kingdom contributed to his success
as an entrepreneur.
What Type of Business Are
You in and Time of Starting?
Anointed Electricals started in 2002. It was started
from the owner’s home and moved from there into
a container shop (a metal kiosk) at Bawe, a suburb
of Accra. He sold general electrical products and
883

later added small generators. He then moved from
the kiosk to acquire two shops by the roadside to
take advantage of the many passers-by. In addition
the owner had a pick-up truck with all repair kits
in its boot. This was used to render house-to-house
generator repair service for clients.
Anointed Electricals now occupies a mag-
nificent 4 story modern complex building that
houses their offices, showrooms, workshops and
warehouse. This achievement was well planned.
When the business moved into the two shops by the
roadside, he resolved that by the time a 5-year rent
contract was expired they should be moving into
their own building complex. This they achieved
by investing back into the business every gain
they made. Anointed currently has branches in
five of the ten Regions of Ghana; Greater-Accra,
Western, Ashanti, Eastern and Northern Region.
There is also a 95%-completed factory under
construction. The completion of the factory will
see Anointed Electricals manufacturing its own
generator sets rather than importing generator sets.
Start-Up Motivation
According to Chu, Benzing and McGee (2007), a
number of surveys of entrepreneurs provide insight
into the motivational aspects of the entrepreneurial
experience. A survey of entrepreneurs from North
America (Kuratko et al.,1997 and Robichaud et
al., 2010) on motivation and its relationship with
business success put motivation into four broad
categories: (i) extrinsic rewards; (ii) indepen-
dence/autonomy; (iii) intrinsic rewards; and (iv)
family security. The conclusion however did not
indicate which motivations were strongest among
entrepreneurs (Chu, Benzing and McGee, 2007).
A similar survey on entrepreneurial motivation
from developing countries was done in Vietnam
by Swierczek and Ha (2003). Swierczek and Ha
(2003) concluded that challenge and achievement
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Anointed Electrical Engineering Services Limited
were the significantly more important motivators
than were necessity and security (Chu, Benzing
and McGee, 2007).
Even though right from school Adjei Boateng
planned to set up his own business within 10 years,
resolving not to work in someone’s company for
more than 10 years, it took a small incident in the
office where he had worked for nine-and-a-half
years, that got him fired to start his business. His
desire to set up his own business is consistent with
the findings of Wadhwa, Aggarwal, Holly and
Salkever (2009) in their research on The Anatomy
of an Entrepreneur: Family Background and Mo-
tivation. In this research involving 549 company
founders in a variety of industries, 64.2 percent of
respondents said they have always wanted to own
their own companies. This was a stronger factor
for those from lower-upper-class background.
Critical Mental Attributes
for Setting up Business
Adjei Boateng sees hard work, humility, sacrifice
and diligence as the mental attributes that gave
him success when he set up his business.
Hard Work
Perhaps one of the most widely cited descriptions
of successful entrepreneurs or entrepreneurship
is their sense of hard work. It is one of the most
important work ethics. The sense of hard work is
what he ranks as the most important of all these
attributes
Humility
Humility involves being modest, an attribute Adjei
Boateng sees as important in leading any group of
people such as his employees. He refers to himself
as the ‘chief servant’ in the whole organisation.

Anointed Electrical Engineering Services Limited
Sacrifice
Sacrifice plays a large role in ensuring the suc-
cess of an entrepreneur. The ability to give up
something in order to gain benefit in due cause
has been a huge part of how Adjei Boateng has
led Anointed Electricals.
Resilience
The concept of resilience refers to the entrepre-
neur’s capacity, despite destabilizing events, dif-
ficult markets and living conditions, to be able
to continue projecting him/herself in the future
(Calvo & Garcia, 2010). This capacity enables
him/her to impede, diminish or overcome the
harmful effects of adversity.
Critical Mental Attributes for
Effectively Running a Business
To be able to effectively run a business, he reck-
oned the mental attributes needed are dedication
and focus, hard work, attitude of investing back
into the business and faith in God. Of these at-
tributes investing back into the business is the
most important to Adjei Boateng.
Dedication and Focus
These attributes involve being committed to a
cause irrespective of challenges. The attitude of
not giving up in the face of difficulties. Being
single minded towards a cause and not refusing
to be persuaded even if giving up is the most
logical thing to do.
Attitude of Investing Back
into the Business
Adjei Boateng believes that rewards or recompense
are a direct result of ones own behaviour. The only
way he saw growth in his company in the face of
limited opportunities for external funding and less
developed structures and institutional support was
to invest back into the business any gain achieved.
Faith in God
There has been a little exploration of the role of
religious beliefs in businesses. However, a study
on the role of religion and the costs and conse-
quences of its expression in family businesses
(Paterson, Specht & Duchon, 2013) concluded that
the inclusion of religious principles in the busi-
ness, fundamentally changes the way that family
business owners handle a variety of management
issues, the way that they define success, and the
fulfilment they experience through their business.
Adjei Boateng sees his faith in God as an anchor
that gives stability to his life and family as well
as his business.
Location
Anointed started at the home of the owner at
Bawe in Accra. The choice of this location was
due to the fact that he did not have money to rent
an office apartment and a workshop. Currently
Anointed is located in the Odorkor area of Accra.
It occupies a modern complex, which it owns, and
an almost-completed factory all in the Western
part of Accra.
Describe the Specific
Challenges You Faced
The challenge at that time was starting a business
from ‘ground zero’ (scratch) without funding. He
was paid 2 weeks wages of about $120 when he
was fired and this was what he started his business
with. He tried accessing a loan facility from the
bank without success. There was no access to an
advisory or technical services, neither was there
any governmental support for start-ups.
According to Chu, Benzing & Mcgee (2007),
one of the serious problems facing African MSEs/
SMEs is limited access to short term and long-term
885

financial capital. As suggested by Levy (1993);
Little et al. (1987); Peel & Wilson (1996); and
Spring & McDade (1998), most small firms in
developing countries do not obtain credit through
formal financial institutions because they cannot
meet the collateral requirements or face exorbitant
rates of interest.
Chu, Benzing & Mcgee (2007) referred to a
study of Nigerian firms, in that study, Ariyo (2004)
concluded that the most critical problem facing
Nigerian entrepreneurs is lack of funding. Most
new Nigerian small businesses are not attractive
candidates for bank lending because they are
perceived as risky ventures. Morewagae’s study
(1995) concerning Botswana’s small business
sector concluded that small business growth was
hampered because bank policies would not ac-
commodate small business loans.
Chu, Benzing & Mcgee (2007) further indi-
cated that, according to the World Bank and IMF
experts, the number one problem faced by Ghana-
ian entrepreneurs is insufficient access to credit
(Chamlee-Wright, 1997). An earlier study by Steel
and Webster (1991) had reached the same conclu-
sion. Other critical problems faced by Ghanaian
entrepreneurs are: poor utility connection; high
tax rates; burdensome administration; corruption;
and the unpredictability of laws and regulations.
There is no doubt that it took the entrepreneurial
resilience in Adjei Boateng to succeed in the face
of these challenges. There is a consensus among
social scientists as explained by Calvo and Garcia
(2010) that positive psychology has proposed that
resilience is a personality attribute that could be
closely related to the entrepreneur’s success. Re-
silience is ‘the human capacity to face, overcome
and emerge stronger or transformed by adverse
experiences’, according to Saleebey (1996).
Calvo and Garcia (2010) concluded that the
principal strength of resilience is that it helps the
entrepreneur overcome failures and move forward
despite adverse conditions, and that the trials and
suffering arising from undesirable and unfortu-
nate events enable the entrepreneur to recognise,
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Anointed Electrical Engineering Services Limited
develop and mobilise resources, that on occasion,
even he/she never suspected possessing. That is
to say, that for the entrepreneur, resilience is a
veritable growth strategy that permits a more
profound knowledge of his/her abilities.
Business Performance
Anointed has a current staff strength of 100 and
2012 turnover of $10 million with a projected
5-year turnover shown in Table 1.
Products
The Anointed product range includes generator
sets, control boards, auto transfer switches and
others, for both industrial and residential needs.
It also provided variety of spare parts such as
filters, lubricants, coolants and other generator
spare parts.
Anointed runs assembling workshops, spare
parts shops and a show room. With more than half
of its staff being sales engineers, the organization
operates more than 100 sales and service vans
which respond quickly and instantly to customer
demands and complaints. With a near-completed
factory Anointed will start manufacturing its own
generator sets from 2014. The turnover projections
above are based on production from the factory.
Family Relations
The owner’s wife works with him as his deputy and
in his absence she serves as the general manager,
taking a key role in decision making (Van Auken
& Werbel, 2006). According to Chrisman, Chua,
Pearson & Barnett (2012), a family involved in
Table 1. Sales and growth, 2013-2017.
Year 2013 2014 2015 2016 2017
Sales ($) 15 21.00 29.40 41.16 57.62
% Growth 50 40 40 40 40

Anointed Electrical Engineering Services Limited
a business through ownership, management, and
participation of members of different generations
of the family should have the ability to influence
the adoption of goals that meet the family needs.
The more involved the family is in the business
through ownership and management, the greater
the family’s legitimacy and power (Chrisman,
Chua, Pearson & Barnett, 2012).
Increased family involvement tends to create
psychological attachments to the firm, which
increases commitment (Zellweger & Astrachan,
2008). The wife is a family member but he would
give chance to anyone who qualifies to work for
the company. The family firm has to deal with
a number of challenges that include maintain-
ing the balance between keeping its control in
family hands and bringing in talented managers
(Coeurderoy & Lwango, 2012) from outside. His
problem is how to find loyal people who can be
relied upon. For succession there is a non-family
member who is being groomed to succeed him
when he’s not around. This is a staff member he
picked at random for his dedication and reliability.
He would not bring in a family member just to
succeed him.
However, he hopes his two children would be
involved somehow. He hopes his son who is 12
would mature to over see the engineering side of
the company whilst his daughter, 9 takes charge
of the administration of the company. Entrepre-
neurial exit–the process by which owners leave
the firm they helped to create (DeTienne, 2010)
is important because of the magnitude of its ef-
fects on the firm, the family, the industry, and the
overall economy (DeTienne & Chirico, 2013).
DeTienne et al. recently developed a theoretical
framework that identifies three specific exit strate-
gies: stewardship, financial reward and cessation
based. Among these exit strategies, stewardship
is the most relevant to this discussion.
A stewardship-based exit strategy refers to a
strategy developed out of an “ongoing sense of
obligation or duty to others” (Hernandez, 2012,
p. 174) and generally provides for firm continuity
and care for the firm, the family, and the employ-
ees (DeTienne & Chirico, 2013). Family succes-
sion–the process through which family owners
transfer the ownership of their firm to one or more
other family members, often the owners’ children
(Sharma, Chrisman, & Chua, 2003) is a common
stewardship strategy (DeTienne & Chirico, 2013).
DeTienne & Chirico, 2013, concluded that those
pursuing a stewardship-based exit strategy are will-
ing to sacrifice personal financial gains in order to
further the long-term vision of the family and to
protect the long-term welfare of other stakeholders
(Miller, Le Breton-Miller, & Scholnick, 2008).
Related to this is the importance family firms
attach to socioemotional wealth (SEW). SEW is
an umbrella concept that summarises a family’s
affective value gained from a firm (Berrone et al.,
2010; Gomez-Mijia et al., 2010). SEW includes
common family goals such as the intention to pass
on the firm to the next generation (Gomez-Mijia et
al., 2011), the provision of employment to family
members (Gomez-Mijia et al., 2011; Schulze et
al., 2003, Deephouse & Jaskiewicz, 2013. Gomez-
Mijia et al. (2007, p. 106) explained that for family
firms, the most important reference point when
framing major strategic decision choices is the loss
of SEW, that is the “non-financial aspects of the
firm that meet the family’s affective needs, such
as identity, the ability to exercise family influ-
ence, and the perpetuation of the family dynasty”
(DeTienne & Chirico, 2013).
Berrone, Cruz and Gomez-Mejia (2010), in a
recent article depicted SEW (in terms of family
control and influence, family members’ identifica-
tion with the firm, binding social ties, emotional
attachment, and transgenerational sustainability)
as the most important differentiator of the fam-
ily firm as a unique entity. As such, SEW helps
explain why family firms behave distinctively.
Gomez-Mejia et al. (2007) concluded that pre-
serving the family firm’s SEW “represent a key
goal in and of itself. In turn, achieving this goal
887

requires continued family control of the firm.”
Thus, family owners may be willing to accept
low performance or even threats of the firm’s
financial well-being in order to prevent a loss in
SEW (DeTienne & Chirico, 2013).
Community Relations
Anointed is involved in some corporate social
responsibility activities. They have given genera-
tor sets and other support to deprived schools in
the Odorkor area of Accra where their corporate
headquarters are situated. They give to support
charity work in the Kwahu area of the Eastern
Region where the owner comes from. The Kwahu
people celebrate Easter as part of their culture.
During these cultural celebrations Anointed do-
nates generator sets to various charities and also
support Christian activities such as ‘KWAHU FOR
CHRIST’ crusade, since the owner is a Christian.
At the national level, Anointed has regularly
supported the annual farmers day celebration, a
national event by the Ministry of Food and Agri-
culture to honour dedicated and successful farmers
and fishermen. On three consecutive years they
have donated industrial generator sets to reward
farmers and fishermen.
Concluding Remarks
Being hard working is important as an entrepre-
neur but must be combined with an attitude of
investing back into the business with gains made.
He advises, “whatever comes out of the initial
investment, invest back into the business, see it as
a seed. Don’t start buying cars, houses etc., those
can come later.”
“Be a ‘servant’ of your employees, servant
leadership style is the best. Being dedicated to
and focused on your vision is important to suc-
ceed as an entrepreneur and finally be bold and
do not wait too long to start implementing your
vision, I waited to be fired before implementing
my vision.”
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Anointed Electrical Engineering Services Limited
CONCLUSION
This study has found that despite the numerous
challenges in setting up business in Africa there
are good stories of successful entrepreneurs run-
ning family businesses and other small and me-
dium size companies. The findings of this study
have a number of important lessons for academic
discussion. These lessons can be used to develop
targeted interventions aimed at helping up and
coming entrepreneurs.
Firstly, even though it is unclear as to whether
knowledge acquired in the classroom is suffi-
cient in itself to build a successful entrepreneur,
it is obvious through this study that knowledge
acquired through formal education enriches the
entrepreneur’s human capital which serves as a
huge influence on the management and growth
of the business. Adjei Boateng’s formal technical
education plus apprenticeship in the United King-
dom influenced his success as an entrepreneur.
Secondly, the lack of state support or interven-
tion for start-ups and entrepreneurs starting their
own businesses somehow militate against entre-
preneurial development. With a bit of assistance
such as easy access to credit, advisory services
for new entrepreneurs, friendly and targeted tax
incentives and protection from excessive competi-
tion from foreign products, a lot more graduates
from Africa will go into business after their edu-
cational training.
Thirdly, there seem to be no business advisory
centres for family businesses in Africa. Most
family businesses in Africa do not go beyond
the first generation. Advisory support on issues
such as succession planning, family protocols,
involvement of outsiders etc. are not easily avail-
able. Family businesses struggle on their own
throughout their business journey, no wonder
most family businesses do not succeed beyond
the founding owner.
Finally, from the many literature reviewed for
this study, it is obvious that the lack of funding for
research is one of the key reasons for the gap in

Anointed Electrical Engineering Services Limited
literature on family business and entrepreneurship
in general. This state of affair can be minimised
by encouraging business faculties of universities
in Africa to set up family business centres in the
faculties to enhance research and also provide
advisory services for family business practitioners.
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KEY TERMS AND DEFINITIONS
Entrepreneur: Individual who identifies op-
portunities and gathers resources to effectively
gain from the opportunity.
Entrepreneurial Intentions: Idea of un-
dertaking a process to gain from an identified
opportunity.
Family Business: Organization where two
or more generations of a family are involved in
substantial decision-making.
Intrapreneurship: Entrepreneurial activities
that are undertaken within an organization.
Resilience: Ability to adapt and effectively
overcome adversity.
Socio-Emotional Wealth: Social capital that
a family business accrues because of family dy-
namics associated with keeping the organization
within the family.
Anointed Electrical Engineering Services Limited

APPENDIX

Review Questions

1. How can the sense of entrepreneurship be nurtured as part of educational/academic training in

universities in Africa?
2. How can entrepreneurial talents be discovered harness and developed in youth of Africa and any
other region of the world?
3. What can be done to enhance research in the area of entrepreneurship and family business?
4. What can be done to limit the gender gap of successful entrepreneurs?
5. How can African countries create enabling environment for entrepreneurs?

893
894

Chapter 48
Entrepreneurship Factor in
Institutional Development:
A Case Study of Ghana Institute
of Management and Public
Administration (GIMPA)

Eva Esther Shalin Ebenezer

Pentecost University College, Ghana

Timothy W. Y. A. Adei
Pentecost University College, Ghana

ABSTRACT
In 2000, The Ghana Institute of Management and Public Administration (GIMPA) was a government sub-
vented institution on the verge of collapse and threatened by privatization. In less than a decade, GIMPA
has achieved over a 2000% increase in turnover and become the second university in Africa to meet the
conditions for membership in the Association of African Business Schools. Now ranked among the top
business schools in Sub-Saharan Africa, it is the only public university in Ghana that is self-financed. It
has built the largest business school faculty in the country and become the first institution in Ghana to
run degree top-up programmes for HND holders. What made GIMPA so unique, especially in this area
of institutional development? This chapter tries to unearth the success story from a researcher’s point
of view and unveil the importance of entrepreneurship in institutional transformation.

INTRODUCTION market orientation and an expanding economic

Entrepreneurship is one of the most important parts
and a key driver of our economies (Shane 2012,
Shane & Venkataraman, 2000). Again, Bruton,
Ahistrom & Obloj (2008) assert that emerging
economies are characterized by an increasing
foundation and entrepreneurship plays a key role
in this economic development. Wealth and a high
majority of jobs are created by small businesses
started by entrepreneurially minded individuals,
many of whom go on to create big businesses.
People exposed to entrepreneurship frequently

DOI: 10.4018/978-1-4666-8468-3.ch048

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Entrepreneurship Factor in Institutional Development
express that they have more opportunity to exer-
cise creative freedoms, higher self-esteem, and an
overall greater sense of control over their own lives.
As a result, many experienced business people,
political leaders, economists, and educators believe
that fostering a robust entrepreneurial culture will
maximize individual and collective economic and
social success on a local, national, and global scale.
Entrepreneurial spirit is characterized by innova-
tion and risk-taking, and is an essential part of a
nation’s ability to succeed in an ever changing and
increasingly competitive global marketplace.
The authors are grateful to the Staff (present and
past) of GIMPA who granted audience during
the preparation of this paper. Special thanks to
Michael Effah Kyei for his contribution.
Educational institutions are no exception. The
tertiary educational institutions in Ghana are di-
vided into public and private institutes. The public
institutes are supported financially by the govern-
ment; as a result the students enjoy subsidized
fees. The private institutes are supported by the
parent organizations which are mostly churches,
and hence depend largely on the fee from the stu-
dents to meet their financial needs. Our case study
organization, GIMPA, is a hallmark university
with a difference. It was originally established as
a public service training college in1961, but in the
year 2000 an entrepreneurial leader transformed it
into a University. It has since gained considerable
mileage and today it stands out as the only self-
financing public university in Ghana. This paper
explains the various stages of transformation that
have taken place in GIMPA. GIMPA still remains
the only public tertiary institute with financial and
operational autonomy. The Institute effectively
hasstopped receiving government subvention
since 2002. What role did entrepreneurship play?
According to BusinessDictionary.com (2014),
entrepreneurship is the capacity and willingness to
develop, organize and manage a business venture
along with any of its risks in order to make a profit.
The Bainbridge Graduate Institute website
(2013) indicates that entrepreneurship is the
willingness to take risks and develop, organize
and manage a business venture in a competitive
global marketplace that is constantly evolving.
According to Key (2013), successful entrepreneurs
share five key qualities: an unwavering passion;
open-mindedness; desire to become expert; a
forward looking approach; and a constant flow
of ideas. Entrepreneurs are pioneers, innovators,
leaders and inventors. They are at the forefront
of technological and social movements–in their
fields, in their forward thinking, in their desire to
push the envelope. They are dreamers and most
importantly–doers.
Eisenmann (2013) defines entrepreneurship
as the pursuit of opportunity beyond resources
controlled. He indicates that:
• Pursuit: implies a singular, relentless
focus that entrepreneurs show to attract
resources.
• Opportunity: implies an offering that is
novel in one or more of four ways: 1) pio-
neering a truly innovative product; 2) de-
vising a new business model; 3) creating
a better or cheaper version of an existing
product; or 4) targeting an existing product
to new sets of customers. These opportuni-
ty types are not mutually exclusive. For ex-
ample, a new venture might employ a new
business model for an innovative product.
• Beyond Resources Controlled: implies
resource constraints. At a new venture’s
outset, its founders control only their own
human, social, and financial capital. Many
entrepreneurs keep expenditures to a bare
minimum while investing only their own
time and, as necessary, their personal
funds. In some cases, this is adequate to
bring a new venture to the point where it
becomes self-sustaining from internally
generated cash flow. With most high-po-
tential ventures, however, founders must
895

Entrepreneurship Factor in Institutional Development
mobilize more resources than they con-
trol personally: the venture eventually will
require production facilities, distribution
channels, working capital, and so forth.
According to Burton (2011), entrepreneurship
is much more than personality tendencies, though
our approaches and behaviour do play a major role
in determining the type of industry, business, or
business model one is most likely to succeed in.
He indicates there are at least nine (9) forms of
entrepreneurs and entrepreneurship.
1. Small Business Owners/Self-Employed:
The most basic unit of entrepreneurship is
the classic mom-and-pop shop. These people
wear all the hats and do multiple jobs to keep
their typically small operation afloat.
2. Small Team Developers: For those who
succeed in expanding their small mom-
and-pop operations beyond themselves as
owner-operators, the work turns to training
and developing others.
3. Innovators and Inventors: For those who
venture out into new and uncharted territory,
there’s the innovator or inventor. Think of
innovators as those who create new business
models, which typically have a far higher
likelihood of success than those who simply
come up with a new invention.
4. Brand Expanders: These business types
use joint-ventures, strategic business rela-
tionships, and in many cases, a classical
franchise model to expand their brand or
system.
5. Economies of Scalers: These types do well
in manufacturing or in creating efficiencies
on a large scale. They get inputs in bulk for
low cost while creating outputs efficiently
and profitably as the market demands.
6. Capital Switchboarders: These types are
capable of bringing together and integrating
money with opportunities.
896

7. Acquirers: These types pursue the course of
buying other businesses, typically as a means
of diversification from a core-business.
8. Conglomerates: These types buy into a
diverse portfolio of businesses. Unlike the
Acquirers, they rely more upon the manage-
ment of the business remaining intact.
9. Buy-Fix-Sell Dealers: Whether it’s a
takeover of a publicly traded company to
clean house of entrenched management,
or a bankrupt private company in need of
restructuring to survive, these types get in
for cheap, do their work, and if they are
successful, get out at a profit.
Blank (2011) however suggests four differ-
ent types of entrepreneurship which mirror the
entrepreneur types given by Burton.
1. Small Business Entrepreneurship: Small
businesses include grocery stores, hairdress-
ers, consultants and travel agents. Small
business entrepreneurs comprise anyone
who runs his/her own business.
2. Scalable Startup Entrepreneurship:
Unlike small businesses, scalable startups
start a company knowing from day one that
their vision could change the world. They
attract investment from venture capitalists,
hire the best and search for a repeatable and
scalable business model.
3. Large Company Entrepreneurship: Large
companies have finite life cycles. Most grow
through sustaining innovation; or offering
new products that are variants around their
core products. Changes in customer tastes,
new technologies, legislation, new com-
petitors, and others can create pressure for
more disruptive innovation–requiring large
companies to create entirely new products
sold to new customers in new markets.
4. Social Entrepreneurship: Social entrepre-
neurs are innovators who focus on creating
products and services that solve social needs

Entrepreneurship Factor in Institutional Development
and problems. But unlike scalable startups
their goal is to make the world a better place,
not to take market share or to create wealth
for the founders. They may be non-profit,
for-profit, or hybrid.
Covin and Slevin (1991) say that the firm-
behaviour model of entrepreneurship has more
advantages over traditional entrepreneurship
models. He indicates that the entrepreneur’s
effectiveness can be measured in terms of the
firms performance. Our case study captures an
individual-led behaviour which played a key role
in the organisation’s transformation.
The literature of institutional transformations
shows that entrepreneurship is the linchpin of
major organizational shifts. In this paper we
examine this finding in terms of the transforma-
tion of GIMPA. The next two sections provide
brief introduction of the public service reforms
in Ghana and the tertiary educational landscape
in the country. That is followed by the overview
of the formation of GIMPA and the transforma-
tion that took place since 2000 and the role its
entrepreneurial leader, Stephen Adei played.
We conclude with the lessons from the GIMPA
experience.
CIVIL SERVICE REFORMS IN GHANA
In 1994, as part of Public sector reinvention and
modernization strategy, the Government of Ghana,
improved its efforts at public-sector reform with
the creation of the National Institutional Renewal
Program (NIRP). The strategy was to enhance ef-
ficiency throughout the public sector and facilitate
the development of a proactive and motivated
public sector. In October 1997, the government
again came up with a framework for rebuilding
the government and conducting public-sector
management reforms that sought to transform state
institutions; their accountability and performance
framework and their relationship with the private
sector and civil society. As part of NIRP, thirty
eight (38) public sector organizations were to be
restructured including GIMPA.
In 1999, in a major step in building a new public
service for Ghana, Stephen Adei was named the
Director General and CEO by the Court of Gov-
ernors (Council). His appointment was rare for
GIMPA, since he was neither a local civil servant
nor a staff of GIMPA, as had been the case for
the preceding forty years with the exception of
GIMPA’s founding Director who was an expatriate.
TERTIARY EDUCATIONAL
SECTOR OF GHANA
Ghana had its first public university set up in 1948.
The University Of Ghana was founded in 1948 as
the University College of the Gold Coast on the
recommendation of the Asquith Commission on
Higher Education in the then British colonies. In
the 1960-61 academic year, the College Council
made a request to the Government of Ghana for
legislation to constitute the University College into
a University with the power to award its own de-
grees which was later approved by the Government,
and this gave birth to the University of Ghana with
the then President, Dr. Kwame Nkrumah being the
first Chancellor of the University. By1970, Ghana
had three public universities. Two other public
universities had been added before GIMPA was
transformed into a full-fledged university by an
Act of Parliament in 2004.
It was a hard battle for students to enter into
those universities since the entry requirement was
set very high due to the high volume of secondary
students as against available slots in the universi-
ties. Most often students who did not get admission
had to travel abroad and work hard to complete
their undergraduate and post graduate degrees. As
a matter of fact, this increased the brain drain in
Ghana since a significant number of people who
went abroad never came back. Private universities
were only allowed to operate in the country from
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Entrepreneurship Factor in Institutional Development
the mid 1990’s. As of December 2012 there were
over 30 private university colleges accredited by
the National Accreditation Board, mostly with
smaller intakes of less than 3000 students.
FORMATION OF GIMPA
The Institute of Public Administration, as GIMPA
used to be called, was established in 1961 as a
joint Ghana Government/United Nations. The
Institute was re-designated as Ghana Institute of
Management and Public Administration (GIMPA)
in 1969, after it was formally handed over by the
UN to the Government of Ghana.
STATE OF AFFAIRS AT
GIMPA AT THE START OF
ITS TRANSFORMATION
In the year 2000, GIMPA had good buildings by
Ghanaian standards and an excellent strategic
location with a few experienced teaching faculty.
GIMPA was partly self-financing and had a brand
name among public servants. However, Adei &
Addo (2007) state that when he took over, GIMPA
had highly demoralized staff and faculty because
of poor conditions of service and the threat of
privatization which caused job insecurity for the
workers. He further states that the faculty/senior
members to other staff ratio was disproportionate
with one senior member to ten support staff. The
so called “Galamseying” (a system whereby the
faculty used the time and facilities of the Institute
for private consultancy) was at its best. The Civil
Service which was the major customer did not find
it appealing to enroll its staff as students since
there was not much innovation at GIMPA. In fact
GIMPA’s qualification was no longer regarded as
necessary for progression in the public services in
Ghana. A Masters in Development Management
898

had been started at the University of Ghana with
a minimal number of participants. To be exact
only two students had enrolled in the 1999/2000
academic year.
THE NEW DIRECTOR GENERAL.
The new Director General Stephen Adei came to
the job with a rich academic and management back-
ground and national and international exposure.
He had a bachelor, masters and Ph.D. degrees in
Economics. He was also a chartered marketer and
company secretary. He also had strong Christian
and moral orientation attested by the fact that he
also had a Bachelor in Divinity from the University
London and Masters in Theology from University
of South Africa (UNISA) as well as Diploma in
Marriage Counselling.
His work experience included tutoring in the
University of Sydney; adjunct lecturer in Inter-
national Economics and Public Finance in the
University of Ghana; twelve years as a research
and investment analyst rising to Deputy Director
of what is today Ghana Investment Promotion
Centre; three years as a Senior Economist of the
Commonwealth Secretariat in London, UK, and
eleven years with the United Nations Develop-
ment Programme (UNDP). He started as a Senior
Economist and left the UNDP at the end of 1999
as Director and Resident Representative and Coor-
dinator of the United Nations system in Namibia.
Stephen Adei’s appointment was unusual. He
was the first person to be appointed outside the
civil service of Ghana or from among the staff of
the Institute. Coming from outside Ghana after
15 years of international public service he had no
internal links or IOUs to pay within or outside the
organization. He exhibited strong intellectual and
much valued entrepreneurial qualities vis-à-vis
senior staff who often had no choice but to defer
to him. This gave him the opportunity to initiate

Entrepreneurship Factor in Institutional Development
meaningful change and manage resistance. He
understood the local culture very well and as such
he was able to move freely among all the people
within the organization from eating with the la-
bourers to delivering capacity building training
for senior members. Most importantly he had the
support and cooperation of the Court of Gover-
nors (Council) who overwhelmingly welcomed
his appointment as a relief for years of presiding
over a declining organization.
But what distinguished the new Director
General (as the Rector was then called) was his
vision, great initiatives, desire for change, fast pace
of innovation and bold leadership which are the
hallmarks of any successful entrepreneur. He had a
clear vision and purpose to transform the Institute
into a world class centre (University) for the train-
ing of business, bureaucratic and political leaders
of Ghana and beyond in business management,
public administration and national leadership. His
three quarter page vision statement included the in-
troduction of three essential masters programmes
in the above three areas; an evening mature students
undergraduate programme; cutting edge public
services college; financial autonomy and to make
GIMPA a catalyst of national development. As a
trained teacher, economist, manager and seasoned
national and international public administrator, he
was cut out to transform GIMPA far beyond the
wildest imaginations of those who recruited him
and possibly what he even dreamt of. In his first
term of 5 years he achieved more than twice what
he set out in his vision which itself was ambitious
within the context.
The Task Ahead of the
New Director General
The task the new Director General set out to
achieve included the following:
1. Changing the legislative status of GIMPA
to become a full-fledged university.
2. Introducing new academic programmes
which are demand driven and people are
willing to pay for.
3. Building a world class academic Faculty
second to none in the country in GIMPA’s
areas of focus.
4. Achieving financial autonomy and sustain-
ability without depending on subventions
from the government.
5. Developing infrastructure and systems
to support a modern higher educational
institution.
6. Managing unprecedented change manage-
ment in a static public service culture which
essentially included separating 40% of staff
who were redundant.
Challenges Encountered
One would expect such an ambitious scheme to face
challenges. The new Director wanted to change
the organizational culture, which some influential
people in the system were not willing to accept
such a radical transformation. Educational insti-
tutions with long serving members usually want
the the process to be slow, to accommodate the
old and the new and gradually move without any
ramps felt. The people from different academic
disciplines usually feel that they are specialists
in their areas and hence they are the best to take
decisions regarding their spheres of influence.
They therefore considered the CEO to be just
a diplomat. In addition to general apathy there
were also significant financial challenges with
little resources even to pay basic. Downsizing the
staff would affect the image of GIMPA as that
was simply not done in Ghana’s public service.
There were also political implications as 2000
was an election year. Moreover, there was the
general feeling that the exercise would be a nine
day wonder generating a wait and see attitude.
The NIRP that had oversight of public services
reforms was not willing to cede control of GIMPA’s
899

Entrepreneurship Factor in Institutional Development
transformation without a fight, so after financing
the diagnostic studies, NIRP cut off all funding to
GIMPA. It was felt that the new Director General
was too abrasive, autocratic and too independent
and therefore had to be crippled by not realising
redundant payments from the World Bank that
the government had contracted.
Facilitating Factors
Whiles there were so many militating factors,
some internal and external factors facilitated deep
change. A good number of the senior members
had both experience and networks for better for
worse. The vast insight of the new Director having
worked abroad and in government organizations
in Ghana before he left for an international career
also facilitated the transformation. His job at both
the Commonwealth Secretariat and the UNDP
kept him in close touch with developments in
Ghana. The GIMPA system was collapsing and
so the Council selected a person who would be
able to reform the institute and therefore the Direc-
tors were prepared to allow him to take bold and
unorthodox steps. He quickly developed a good
relationship with a number of the staff and the
board. The five year plan he prepared assisted the
change by involving the cross section of GIMPA
at the onset. Any major step he developed, he
involved people to affirm or review it. He was
“auto-democratic” in that he would put forward
a well thought out proposition but allow others to
debate it, comment on it and because his position
was strong and well thought through the others
tended to eventually go along with it. He often
said “only a fool will not change.” Thus he was
ready to adopt a better proposition but the onus
was on the others to argue the merits. He was
able to communicate well with junior staff, fac-
ulty and stakeholders and won the support of the
majority making it easy to deal with pockets of
resistance ”surgically,” to use his word. The great
900

entrepreneur was able to sell GIMPA both abroad
and locally since he clearly understood where he
was going. Between 2004 and 2008 GIMPA was
featured in the media more positively than all
the number of times other universities in Ghana
had been. NIRP and the World Bank initially
supported the reform by funding the diagnostic
study and the latter provided UD$400,000 and a
distance learning centre. That was, however, the
only external input that was received during the
whole transformation.
Specific Actions Taken for
the Transformation
Change is inevitable but highly resisted. An
entrepreneur with a vision for excellence can-
not compromise on standards or shy away from
tough decisions. Branson (2013) indicates that
what makes the difference in entrepreneurship is
fearlessness. Professor Adei had to make several
difficult decisions and take actions to realize his
dream. First, he chose a 5-year Plan framework.
The aim of the 5-year strategic plan was “to turn
GIMPA into a world class centre of excellence for
training, consultancy and research in leadership,
management and administration.” The aims of
the 5-year plan were:
1. To build the capacity of faculty and staff to
achieve excellence through selective recruit-
ment, upgrading of skills and attachment
schemes;
2. To improve logistical and support services
to world class standard and network with
similar institutions around the world;
3. To enhance performance in all the core
activities of the institute; namely, training,
consultancy, applied research, case study
writing and hospitality with modern perfor-
mance management systems;
4. To enhance the productivity of staff;

Entrepreneurship Factor in Institutional Development
5. To improve the overall financial standing of
the institute through efficiency and produc-
tivity gains, mobilization of resources and
establishment of reserve and endowment
funds;
6. To strengthen relationships with major
clients especially the Government, public
service, private sector and NGOs/CBOs in
programme design, delivery and evaluation
(GIMPA, 2008b).
Again, he took specific actions and decisions
that were consistently driven towards achieving
the task he had set for himself. Notable among
the actions in line with his task are listed below:
Introducing New Academic
Programmes Which Are
Demand Driven and That People
Are Willing to Pay For
GIMPA re-focused and introduced market oriented
programmes to augment the old ones. Among
them were Masters and Executive Master’s Degree
Programmes in (a) Governance and Leadership, (b)
Public Administration, (c) Business Administra-
tion and (d) Development Management. He also
established a Distance Learning Centre with sup-
port from the World Bank. The sandwich options
of these Masters programmes made it more mar-
ketable to Ghanaians living outside Accra. These
programs achieved instant success and provided
much needed finances to improve conditions of
services above those prevailing in public and pri-
vate Universities. Professor Adei also introduced
an all adult mature undergraduate college which
admitted students without the conventional high
school certificate. Another major innovation was
the establishment of Greenhill College, which was
initially an all adult undergraduate college and all
its programmes were held in the evening. This
was an instant hit since workers were now able to
pursue their dream of higher education. GIMPA
met world class standards in all undergraduate
and post graduate programmes it offered and was
a first choice institute in Ghana.
Building a World Class Academic
Faculty Second to None in the
Country in GIMPA’s Areas of Focus
He recruited top-notch faculty and GIMPA soon
had more qualified faculty than all the six public
universities combined in the areas of business,
public administration, and leadership. He also
introduced a rigorous staff programme manage-
ment system, which automatically eliminated
non-performing staff after three years and allowed
for continuous renewal of staff with staff train-
ing at all levels. In their place, GIMPA attracted
experienced but relatively young permanent and
part-time staff from Ghana and abroad, as well
as a host of adjunct faculty for their sandwich
Masters programmes from top universities in the
U.S, Europe and Asia. Full time senior members
of staff grew from thirty seven (37) in 2000 to
eighty-seven (87) in 2007. The faculty in busi-
ness and public administration at GIMPA became
bigger than that of all the public Universities in
Ghana put together. He also increased the total
compensation package of the faculty such that
at one time GIMPA lecturers were taking about
50% more than other lecturers in sister Public
Universities.
Achieving Financial Autonomy and
Sustainability without Depending on
Subventions from the Government
He sought funding from the private banking sector,
taking initial loans up to 3.3 million USD, which he
received from Barclays bank, without Government
or any collateral security–a sign of the confidence
the system had in his vision and drive for change.
All loans were paid before the end of his tenure
in December 2008, with the exception of a mere
901

Entrepreneurship Factor in Institutional Development
US$170,000 for which provision had been made
to be paid over the ensuing two months. As at the
2005/06 financial year, its income increased to US$
12 million with no government subvention. This
compared favourably with ¢3.5 billion in 1999 of
which 50% came from Government subvention.
Developing Infrastructure and
Systems to Support a Modern
Higher Educational Institution
With commercial loans, he developed the infra-
structure of GIMPAand more than doubled facili-
ties in six years; including a 131 room three star
hotel equivalent hostel and conference centre with
a presidential suite to service high-end clients.
The number of classrooms in GIMPA increased
from five (5) in 2001 to thirty (30) in 2006. Other
infrastructural development included four (4) ICT
centers, air-conditioning, twenty-four (24) hour
supply of electricity; and a new auditorium with
six hundred and forty (640) seating capacity.
He challenged staff to work to very high stan-
dards with an out of box commitment to achieve
financial autonomy. Those who failed to live up to
rigorous performance standards were separated af-
ter 3 years average underperformance, something
alien in academia in the country. Forty per cent
(40%) of the non-senior members were declared
redundant and separated in 2000. Non-performing
faculty members were also separated after three
years of below average performance under the
institute’s rigorous performance management
system. In all, 103 of them were laid off against
government pressure not to.
Changing the Legislative
Status of GIMPA to Become
a Full-Fledged University
Finally a GIMPA Law, Act 676, 2004 made
GIMPA both a public service college and a spe-
cialized university. GIMPA became the first ever
to introduce an HND-Top up degree programmes
902

in the country. GIMPA which started as a public
service training institute is now organized into five
semi-autonomous schools. These are: (i) Public
Services School for the training of civil and wider
public servants with its own Director working with
the Office of the Head of Civil Service to design
training programmes that respond to present day
demands; (ii) School of Governance, Leadership
and Public Management which is a graduate
school; (iii) Business School with cutting edge
MBA and degrees. It is also home to Greenhill
College. (iv) School of Technology; and (v) the
GIMPA Law School. GIMPA Consultancy Centre
which existed in embryonic form before 2000 has
been reconstituted to meet the current needs of the
market. In addition, GIMPA now has a Gender
Centre and Centre for IT Professional Develop-
ment (CIPD).
All targets set were achieved exceeding their
expectations except the case study writing. This
showed the commitment of the great entrepre-
neur. We will only comment further on four of
the changes produced, namely, new programmes
introduced, finances, expansion of facilities and
academic faculty to underscore the success of
GIMPA’s transformation in the nine years, 2000-
2008.
THE OUTCOME
Presently, GIMPA is a fully fledged, self-support-
ing and autonomous university and the leading
management development institution in Ghana.
It runs thirteen undergraduate programmes and
nine Master’s and Executive Master’s degree
programmes in Business Administration, Gov-
ernance and Leadership, Public Administration,
Development Management and Public Sector
Management the latter with funding from African
Capacity Building Foundation. It has about 1000
strong faculty with seven (7) professors as of
2012. GIMPA’s undergraduate student population
has grown to over 2000. Work ethics at GIMPA

Entrepreneurship Factor in Institutional Development

changed to that of international standards though
there have been some relapses since Professor
Adei retired according to some staff members.
Contracts are reviewed every three years based
on performance. It has also regained its image as
partner in the capacity building of Ghana’s Public
Service. At one point it had as students about 15%
of Ghana’s parliamentarians most of them follow-
ing its post-graduate degrees in Governance and
Leadership. The transformation of GIMPA was
supported by the Government and parliament in
2004 when a new GIMPA law 676 was passed to
enact GIMPA as a public University with financial
autonomy.
What Made the Difference?
The GIMPA transformation was brought about
purely on the power of entrepreneurship. Profes-
sor Adei, a great entrepreneur by all standards
on assumption of duty saw a great opportunity
in the deteriorating GIMPA situation and decided
to pursue it. As indicated by Eisenmann (2013),
entrepreneurship is the pursuit of opportunity
beyond resources controlled. Professor Adei had a
contagious passion, cast a captivating vision, broke
the rules that needed to be broken, tough yet flex-
ible in his approach and showed great leadership.
It is generally believed that the best entrepreneurs
do share a collection of characteristics ranging
from tenacity to the ability to tolerate risk that
are crucial to a successful venture. Among these
characteristics are tenacity, passion, tolerance of
ambiguity, vision, self-belief, rule breaking, flex-
ibility, understanding of the value of a strong peer
network, have a competitive spirit, know what you
don’t know, serial innovators, willingness to fail,
strong sense of basic ethics and integrity, highly
self-motivated and strong leadership qualities
(Shane & Venkataraman, 2000, Branson,2013).
Professor Adei clearly has these characteristics.
The table below gives a clear distinction among
entrepreneurs, capital investors and managers.
Downside of GIMPA’s
Transformation.
One may ask, whether there was a downside to
the transformation that took place in 2000 to 2008
under Professor Stephen Adei. Much depends
on whom you talk to. All parties acknowledge
the tremendous and innovative transformation
that took place, without its parallel in the public
service of Ghana and that the single causal factor
was the leadership of Professor Stephen Adei.
No doubt he is a national icon and his name has

Table 1. Selected KEY GIMPA Actions (2000-2008) under Professor Adei’s leadership and showcasing
his entrepreneurial prowess

MANAGEMENT ENTREPRENEURSHIP GIMPA

Coping with complexity
Setting targets or goals
Organizing and staffing
Controlling and problem solving
Coping with change
Developing vision for the future.
Aligning people
Motivating and inspiring.
Separated 40% of ineffective
staff and allowed the rest to
cope with the change.
5 year vision plan
Performance based metrics and
solicited external expertise to
fill the gap.
Sponsored staff to pursue higher
education, allowed them to
partake in university exchange
programs.

903

Entrepreneurship Factor in Institutional Development
become synonymous with GIMPA; excellence and
effective leadership in the nation. He deservingly
was awarded the second highest national honour
of Companion of the Order of the Volta for his
work in GIMPA in 2006. Nevertheless, many of
the 40% staff declared redundant and the faculty
who were separated are unhappy and some, as ex-
pected, bitterly criticize him. But that is largely due
to the fact that mediocrity and non-performance
without sanction is a hallmark of the Ghanaian
public service.
Secondly, people question whether the wean-
ing of GIMPA from government subvention is
sustainable in the long run, especially in the face
of huge increases in the public sector pay under a
Single Spine Salary Structure in Ghana. However
private Universities with far weaker infrastructure
and faculty are making it and the failure of GIMPA
in the future will result from deterioration in lead-
ership and not because of the choice by Professor
Adei to make GIMPA financially autonomous.
If anything at all, the major downside which is
characteristic of transformational leadership with
integrity are the sacrifices the leader had to make.
Attacks on him including several official and
unofficial attempts to remove him from office in
2007-2008 through a 10 month campaign in the
tabloids especially The Ghanaian Observer chal-
lenging his right to have a second term as Rector
and his professorship up to the High Courts which
exonerated him and silenced his critics. Even on
retirement his successor engineered a forensic
audit of his administration to find irregularities but
was not published and did not find anything against
him except an alleged unauthorized payment of
unexpired leave days. He stands tall not just as a
great entrepreneur but as one with integrity in a
country where there is a general perception that
abuse of public office for personal gain is widely
prevalent. The charge of being autocratic was the
most widespread voiced against his administration
because most entrepreneurs are “authoritative,”
which others misconstrue as being autocratic.
One has to be strong-willed, hardworking and
904

self-confident to undertake such a transformation
in the Ghanaian public sector.
CONCLUSION
The GIMPA scenario is no doubt a Ghanaian
success story of institutional transformation. The
linchpin in that was the entrepreneurship of Profes-
sor Stephen Adei. The entrepreneur was an effec-
tive transformational leadership with integrity. He
had a clear vision and agenda. He was articulate
in mobilizing the best people with minimal cost.
There is a clear case of effective change manage-
ment with proper management of resistance and
fall out. This exhibited positive results early and
sustaining efforts above all. Now, as it stands,
the entrepreneurial mindset has transformed the
institutional culture. These are transferable con-
cepts that go beyond GIMPA and most needed in
Ghana and other sectors beyond GIMPA.
The Way Forward
Despite these enormous achievements and chal-
lenges, the future is bright for GIMPA. However,
this will depend on a CEO who will not fear to
make the necessary continuous changes, maintain
the quality of staff and faculty; expand facilities
to meet growing demands, confront compla-
cency among staff and faculty and accept that
no financial support from government may be
a blessing. GIMPA’s transformation is a unique
story but the lessons learnt can be transferred to
other public sectors of the country. This will re-
quire a leadership with entrepreneurial drive and
an advisory board who will be committed to the
change. However, it must be stated that the most
essential is changing the culture of the staff and
communicating the change process so clearly that
they take ownership of the change. We hope to
see more success stories like GIMPA in the near
future in Ghana and Africa.

Entrepreneurship Factor in Institutional Development
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9135-9
905
 
Entrepreneurship Factor in Institutional Development

KEY TERMS AND DEFINITIONS Institutional Development: Process of en-

hancing existing institutional structures.
Entrepreneurship: Process of setting up a Institutional Transformation: Process of
business to take advantage of an identified op- radically changing existing institutional structures.
portunity.

This work was previously published in Comparative Case Studies on Entrepreneurship in Developed and Developing Countries
edited by Joseph Ofori-Dankwa and Kwame Boasiako Omane-Antwi, pages 50-63, copyright year 2015 by Business Science
Reference (an imprint of IGI Global).

906
Entrepreneurship Factor in Institutional Development

APPENDIX

Case Study Questions

1. What type of entrepreneur would you consider Professor Stephen Adei to be?
2. Assess the key strategies employed by Professor Adei stating their merits and demerits. What
alternative strategies would you suggest?
3. Entrepreneurship always encapsulates leadership; discuss.
4. Which of these does Professor Adei portray most–entrepreneurship or leadership?
5. Laying off 40% of the GIMPA staff is considered as a shortcoming to the transformation. Suggest
other ways of handling redundant staff instead of a lay-off.
6. Suggest a 5-year development plan for GIMPA after this great transformation.

907
908

Chapter 49
Improving Lives
through Mobility:
A Case Study of Amigo
Mobility International

Kaustav Misra
Saginaw Valley State University, USA

ABSTRACT
Researchers must acknowledge that entrepreneurship studies could and should be carried out at multiple
levels of analysis–conceptual, empirical, and practical frameworks. The authors argue that practical
level analysis is critical but valuable, since the reasons for studying entrepreneurship in the practical
level lies in the characteristics of the entrepreneurial phenomenon itself. Every entrepreneur is different,
so it makes more sense to know them individually, and in this chapter, the authors attempt to discuss
a case study on a how a successful entrepreneurial family has been running their business for half a
century. While discussing mental entrepreneurial motivations, women entrepreneurs, copreneurs, and
young entrepreneurs in this case study, they also focus on the external and internal challenges these
entrepreneurs are facing on a daily basis. At the end, this case study makes recommendations for the
prospective entrepreneur.

INTRODUCTION al., 2003; IFERA, 2003; Astrachan et al., 2003).

Research suggests that entrepreneurship is the
driver of economic development and growth
(Acs, 2006; Audretsch & Acs, 1994; Schumpeter,
1934). Family firms are said to be the originating
form of any business activity (Wakefield, 1995),
dominating the economic landscape of most
major economies in the world (Shanker et al.,
1996; Klein, 2000; Heck et al., 2001; Morck et
Two thirds of all enterprises worldwide are said to
be family-owned and/or managed (Gersick et al.,
1997), but becoming a successful entrepreneur is
challenging. This case illustrates the journey of an
entrepreneur who gives mobility to thousands of
immobile persons in this world. He uses simple
things in innovative ways to build a mobile chair
that helps physically challenged individuals to
move independently. Yes, we are talking about

DOI: 10.4018/978-1-4666-8468-3.ch049

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Improving Lives through Mobility
the world famous company, Amigo Mobility In-
ternational, whose creative thought has allowed
thousands of people to live independent lives.
The founder of this company, Mr. Al Thieme,
started out as a plumbing and heating contractor.
A creative mind never stops thinking and Al also
never stopped thinking about how he could help
make a family member mobile and independent.
A continuous, persistent and honest drive helped
him to put together some sketches to build a
mobility device for that family member. His first
design was small, compact and uncomfortable,
but it was great for getting around in the store.
There are thousands and thousands immobile
people in the world, but how, Al wondered, could
he possibly make them mobile? This overarching
question arouse in his mind and as a result, he
founded the company, Amigo Mobility Interna-
tional, in 1968 which is the world’s first company
devoted to satisfying the dream of mobility for
thousands of immobile persons. Since then, the
company has gone through several changes but
they never stop thinking about immobile individu-
als and making mobile devices for them.
We are grateful to Al and Beth Thieme for
their time and cooperation. Also, this research
is supported by a grant from the Stevens Family
Business Center for which the authors are indebted.
Currently this company is growing and the
demand for their mobile devices is not only coming
from the domestic market, these devices are gain-
ing popularity in the international market as well.
This mobile device maker has about 85 employees
in their main location, which is in Bridgeport
Township, Michigan. This is a classic case study
where entrepreneurship creates entrepreneurships
in that Al prepared his wife Beth Thieme for this
business and now Mrs. Thieme is preparing her
son and daughter as successors and the company’s
future stakeholders. Hence, this case study dem-
onstrates how to become an entrepreneur and how
to prepare entrepreneurs as well.
In today’s world women entrepreneurs are not
rare, but fifty years ago it was a challenge for a
woman to enter into a business. This is also a story
of successful women entrepreneurs. Despite many
barriers and obstacles, Beth Thieme becomes the
key person of this company, but the question is,
how did she get there and how could she achieve
these significant accomplishments? At the end,
hopefully this case study will provide encourage-
ment to readers and motivate them enough to
become entrepreneurs. In the following sections
we will explore more about this company, about
the business and strategies of developing succes-
sors, and tactics to adjust market demand.
Business
The initial idea of developing a power operated
scooter was to help a family member. Creating a
“business” with this device didn’t occur to him until
Al felt the joy of giving someone liberty, making
someone independent or free. A family member
began to lose her mobility and witnessing this
loss of independence was painful. At that time Al
was running his own business as a plumbing and
heating contractor. During the day he was busy
with his regular job, but he had started thinking
about building an innovative device to help with
mobility. Thieme invented the first ever power
operated vehicle or scooter–The “Amigo,” which
means friend! The device was named the Amigo
for being such a friend to people with disabilities,
and the mobility POV/scooter industry was born.
Consequently, Amigo Mobility International, Inc.
was founded on November 12, 1968 and, as a re-
sult, an entire industry was born on the same day.
Initially his workshop was a tiny room without
any sort of fancy equipment or facilities, but he
used the experience he learned from his plumbing
and heating business. He thinks that he received the
best education through hands-on experience and
hard work. Thieme met with many organizations
to explain the Amigo’s benefits and functional-
ity and the company started to grow. Today, the
headquarters occupies nearly 52,000 square feet
of space which includes various departments from
909

Figure 1. Amigo
sales to manufacturing. The business is not only
expanding domestically but this company is also
receiving popularity in other nations simultane-
ously. Today it is a $20 million dollar company
and the last five years it grew on average 12
percent per year.
Since 1968, their mission of “Improving Lives
through Mobility” has remained the number one
goal for this company. However, the product takes
various shapes and forms according to the market
growth and demand.
A small yellow front drive model was the first
Amigo Mobility Scooter sold on the market. To
draw a bigger audience Allan was looking for
an avenue and in 1970 he sold his first Amigo
910

Improving Lives through Mobility
Shopper Motorized cart to Meijer Thrifty Acres
stores in Michigan. This mobile cart attracted a
lot of attention and within a couple of years it
was recognized at the national level. In 1977 the
Social Security law was changed to include power
operated vehicles, which allowed Amigo Mobil-
ity to increase business by serving a variety of
markets. Since then the growth of this company
has remained unstoppable and Amigo Mobility
has received various awards at the local, state and
national levels. Al Thieme received the United
States Small Business Person of the Year award
in 1981, and in 1992 received Michigan New
Product Award.

Improving Lives through Mobility
Within a few years Allan Thieme introduced
his wife, Beth Thieme, into the business. This
is a great example where an entrepreneur is
making another entrepreneur. After more than
36 years of service with Amigo Mobility, Beth
Thieme became the key figure in this company
(CEO). Beth not only has had experience in each
and every department from purchasing to sales,
but she also became the strategic adviser of this
company. As this industry grows, the number of
players also increases. Intense competition from
other manufacturers caused her to think in terms
of diversification. She saw another target market
for their company. Instead of just manufacturing
a cart for disabled people she changed the focus
to manufacturing a grocery shopping cart. She
entered in to a new field of business that is satisfy-
ing countless shoppers on a daily basis. Beth had
started to oversee commercial sales and in a few
years Beth tripled their sales numbers. In 2009,
Beth Thieme was named a Top Woman in Grocery.
It is a success story for these entrepreneurs
who developed this company from scratch (from
zero). They are a husband and wife team who like
to think outside the box. Business for them was
not only for profit, but also for giving something
to society and making a difference.
Motivation
Multiple times previous authors have endorsed the
importance of entrepreneurship in the economy
and how it is linked to a country’s economic
growth. Successful entrepreneurs like Steve Jobs,
Bill Gates, and Sergey Brin fuel economic growth
and give the nation its competitive edge. There are
other groups of entrepreneurs who are identified as
small firms and employ about 50.9 percent of the
people in our economy according to the U.S. Small
Business Administration (Wadhwa, Aggarwal,
Holly and Salkever, 2009). Interestingly, several
questions about these business founders small or
large remain unanswered. The purpose of this
case study is to shed some light on Al and Beth’s
eternal entrepreneurial characteristics and what
drives them to become successful entrepreneurs.
Al loves to “help people,” but that interest
turned into owning a business and capitalizing
on business ideas he had. It requires lot of work
to help people, which is his biggest motivation.
He likes to work and is inquisitive in nature.
Therefore, hard work and inquisitivness always
drive him to think “there must be a better way.”
Evidently we observed the evolution of Amigo
from 1967 to 2012.
Al always believes in team work and in shar-
ing ideas. The combination of Al and Beth make
a perfect team, since they complement each
other which is exactly what was needed at the
time Amigo International was struggling. Beth’s
strategic ideas helped the company to diversify
and tap into the various markets such as grocery
stores, hospitals and international markets. They
are so much alike in personality–high dominant,
task oriented and very driven–but they respect
each other. At the end of the day, both of them
still have the same mission of “improving lives
through mobility.”
Critical Mental Attributes
for Setting up Business
They indicated the five most important attributes
for running a family business are: persistence, in-
tegrity, passion, culture, and innovation. Failures
and struggles are just initial conditions of success,
therefore, they never give up. In various instances
they were not sure about process or outcomes, but
they kept trying until they achieved it. Accord-
ing to them, persistence is to the key to success
and the primary reason for their success. Both of
them believe in integrity and always try to remain
truthful to their customers, family members and
employees. They are both passionate about their
work and they never stop thinking about their
customers, which is definitely the primary reason
for their series of innovations. According to them,
every company should build their own culture.
911

Amigo Mobility’s culture is to treat everyone as
a family member. Also, they have broadened their
family by including customers in it by communi-
cating with them, understanding their problems
and trying to find possible solutions to address
these problems. Every month they publish an e-
newsletter called “Friendly Wheels” which shares
stories, product information, and human interest
ideas to all of their customers. No wonder they
believe Amigo is a business first company, not a
family first.
Effective Attributes of
Running the Business
We don’t know enough about entrepreneurs’ fail-
ures (Aldrich and Martinez, 2001) and surprisingly
this not uncommon. There are important insights
needed to be derived from studying entrepreneur
failures (McGrath, 1999), but entrepreneurship
literature is silent on this topic. In this case study
at least we get to know the strategies which make
them successful in the business and hope future
young entrepreneurs use these strategies to be suc-
cessful. The effective attributes that they employ
are to organize things, clear communication–both
verbal and written, people, controls and measure-
ments and financial management.
In entrepreneurship literature authors indi-
cate various entrepreneurial attributes which are
required to be a successful entrepreneur and or-
ganization skills is one of them. Lowden (2007) in-
dicates that organizational skills are necessary for
entrepreneurs and identifying and developing this
skill is mandatory for a successful entrepreneur.
Likewise, Al and Beth both believe in organization.
According to them a disciplined environment helps
to put both management and employees on their
best behavior. The appropriate organization skills
helped them to manage and grow. Many research-
ers believe that communication is a personality
trait and indeed we find people with various levels
of communication skills (Schmitt-Rodermund,
2004). The next entrepreneurial attribute that Al
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Improving Lives through Mobility
and Bethe emphasize is communication. Clear
communication–both verbal and written–is related
to venture growth (Robert and Edwin, 2004) and
Robert, Edwin and Shelley (1998). According to
Al and Beth a clear communication channel should
be established among all participants; customers,
suppliers, employers and administrators, in order
to develop a sound organizational infrastructure.
At the same time controls and measurements are
both important. They are quoted “you can’t manage
what you can’t control” (The Wall Street Journal)
that is; a company should have good controls and
measures over their plans and actions.
Like other entrepreneurs, Al and Beth also
indicated that financial management skills are
another important attribute. The significance of
issues concerning finance and managing financial
budgets is essential for an entrepreneur since fi-
nancial knowledge is useful from venture planning
to running stages. For example an entrepreneur
may have a good plan, and financing is one of the
most crucial steps an entrepreneur needs to go
through before starting a business. Picking the right
financial option, selecting suppliers, increasing
and decreasing firm size and adding or deleting
operations requires financial management skills
and understanding.
Ron Willingham (1987) says: “Understanding
people’s wants or needs must always precede any
attempt to sell.” According to Al and Beth, the
most important entrepreneurial attribute is people.
Beth thinks they started the company because of
the people and still they are in the business because
of the people. Understanding what people need
and developing the service toward that need is the
reason for their existence. Having the right people
at the right time in the right place is a challenging
job but it measures the success as well.
Having and using the resources is the primary
market mechanism since it is directly linked to
the well-being of the people. At the same time
uncertainty is inevitable, but any changes in the
market affect people. Interestingly, uncertainty
is something entrepreneurs embrace. They look

Improving Lives through Mobility
for opportunities and find resources which turn
an uncertain idea to a successful project or into a
reward (Cox, 2011). Every step requires people
involvement, so understanding the right people
at the right time in the right place is important as
Al and Beth mentioned.
Location
Amigo International Inc. designs and manufac-
tures a varied line of power operated vehicles/
mobility scooters and accessories to serve various
markets and needs. This company started manu-
facturing Amigo Mobility Motors in 1968 and
the factory is located in Bridgeport, Michigan.
More specifically Amigo Mobility International,
Inc. was founded on November 12, 1968 and an
entire industry was born.
Retail mobility centers are located in three
Michigan cities: Bridgeport (headquarters), Wix-
om, and Grand Rapids. This is a customer focused
company, so this company does provide mobility
experts to their customers and the best mobility
solution after conducting a thorough evaluation
of the individual’s physical and environmental
conditions. Amigo products are also distributed
through medical supply dealers nationwide.
Now this company sells three wheeled power
operated vehicles to help individuals around the
world with disabilities become more independent.
The international expansion of this company
started in Europe and has grown in other interna-
tional markets like Mexico, South America, Brazil,
Argentina, Chile, Uruguay, Saudi Arabia and
Canada. Recognizing a market for the tri-wheeled
vehicles in Mecca is something they are very proud
off. They send a container of tri-wheeled power
operated vehicles to a monastery in Mecca and
every year they sell many containers to them. They
believe that this is a growing market domestically
and internationally not only for their company, but
the whole industry. Therefore, product develop-
ment and market reorganization should not stop.
Environments: External Challenges
Entrepreneurs face many challenges from many
directions on the road to success. A significant
amount of research has been done on the “start-
up struggles” of entrepreneurship, but the scope
of research of what entrepreneurship involves
will continue to change and evolve because the
environment in which entrepreneurship operates
is constantly changing and evolving, too. Shahidi
and Smagulova (2008), Misra, Memili, Welsh and
Sarkar (2012) and others indicated the following
challenges entrepreneurs face on regular basis:
lack of adequate credit; unreliable supply of raw
materials; unfavorable market fluctuations and
complex rules, regulations and procedures and
competition. Similarly Amigo International also
faced and continues to face similar challenges.
Competition is one of the major challenges to
Al and Bethe and it magnified when international
companies started taking part in the market. They
were the largest power operated vehicle business
and continued to grow for ten years until Asian
companies got into the business and then Amigo
Mobility International was challenged. Major
domestic competitors are Adepta Medical/Cosco
Home & Office Products, Assembled Products
Corporation, Bladez Corporation/Blazed Health
Products, CTM Homecare Product, Inc, Dalton
Medical, Drive Medical Design and Manufactur-
ing, Electric Mobility Corporation, EV Rider,
LLC, Evermed, EX-International, Inc, Golden
Technologies, IMC-Heartway, LLC, Invacare
Corporation, Landlex USA, Leisure-Lift, Inc,
Lifestyle Mobility Aids, Medline Industries Inc.,
No Boundaries Mobility LLC, Palmer Industries,
Pride Mobility Products Corp., Ranger All-Season
Corporation, Shoprider Healthcare, Inc., Tuffcare,
Inc., Wheelcare Power Mobilizers and Zip’r Mo-
bility, LLC. Movingpeople.Net (Netherlands),
Buzz Mobility Products (Canada), and many more
companies from different countries are presently
in the market.
913

To compete with the domestic and foreign
companies they have started employing various
strategies. One of them is franchising which helps
this company to operate uniformly in the market
and minimize the distribution issues. They started
franchising in 1984 and it was a complex process
to develop the franchise and to keep them under
control. Today, they have about 27 franchises all
over the country, but unfortunately they were not
able to continue since it became harder and harder
to manage and monitor these franchises.
Another major area they emphasized was that
to compete with competitors you must develop and
create corporate culture. Since, Amigo Interna-
tional is a customer-focused company, building a
corporate culture became essential. They invested
significant effort into developing their corporate
culture which aligns with their company’s vision.
Like most successful entrepreneurs they have built
several components of great cultures for example:
vision, values, practices, people, narrative and
place (Coleman, 2013) but their achievement was
articulating and instilling the corporate culture in
the employees of their organization. Now, each
and every employee has a welcoming attitude and
understands the culture which brings the mobility
in their business.
In last five decades Al and Beth faced several
governance and political challenges and they have
handled them very carefully. For example, Al and
Bethe hired a financial manager to help the busi-
ness during struggling times, and the financial
manager became the president of the company
and almost bankrupted the company. But patient
and careful strategies helped them to deal with
this problem and rebuild the company.
The government imposes many rules and regu-
lations in almost every step of the entrepreneurial
process. These regulations discourage many prob-
able entrepreneurs from becoming entrepreneurs.
Government regulations will always remain a sig-
nificant major challenge for Amigo International
as well. The competition reaches another level of
difficulty for U.S. companies because they face
914

Improving Lives through Mobility
many institutional challenges in comparison to
foreign companies where they don’t need to fol-
low these regulations. For example, to introduce
a new product into the market they have to go
through OSHA and FDA approval. To get a new
product approval through the FDA it costs $25,000
in addition to other fees. Then the new product
must obtain UL approval. In California, the fire
marshal requires units to have UL approval even
though all the internal parts in Amigo’s POVs
were already approved.
Doing business is also becoming harder for
them, since they faced few frivolous law suits.
Every one of these suits needs follow up and
they have to hire an attorney from another state
if the suit is coming from other state. Although
they go through a multitude challenges, it is the
entrepreneurial spirit which keeps them going.
ENVIRONMENTS: INTERNAL
CHALLENGES
Family Relations
There are various internal challenges to running
a family business. Entrepreneurship and family
business scholars are still wondering about internal
problems. There are six major internal threats to
family businesses which are as follows: family
feuding, nepotism, governance, conflict, losing
non-family employees, and no succession plan.
Founders of the business or entrepreneurs have to
be careful to manage the internal issues as well.
If they fail or are late to recognize and address
problems quickly, it will drastically affect their
business. Amigo International Inc. is a family
business and family members are encouraged
to be involved in the business, but as a founder,
Al believes a person should establish healthy
boundaries between family and business. This is
especially important when a spouse or copreneurs
(husband-and-wife team) are working in the same
business (Musk et. al., 2009).

Improving Lives through Mobility
Copreneurs are not uncommon in this world.
Beth mentioned that running a business together
with spouse is a balancing act. Most people would
think that opposite characteristics are healthy for
the business, but Al and Beth are very alike in
nature. Both are dominating, task oriented, and
very driven. She indicated the primary reason is
being “respected” which bonds them together.
They believe in partnership, which is the key
for their success in this co-enterprise. They also
believe that in order to achieve sustainability, the
family and the business are required to cooperate in
responding to problems in a manner that facilitates
positive results. Although this is a “one owner”
business, they share joint ownership, commitments
and responsibilities.
Importance of the succession process in family
business remains under discussion for scholars,
and practitioners, but considering the succession
process in family business is often challenging
(Swagger, 2013). Amigo’s successor generation
includes sons, daughters, and their spouses and
even granddaughters and grandsons and about 11
family members are currently working for Amigo
Mobility International. There are four bases of
family business successor commitment that are
explored: affective (based on perceived desire);
normative (based on perceived sense of obliga-
tion); calculative (based on perceived opportunity
costs involved); and imperative (based on per-
ceived need) (Sharma and Irving, 2005). Everyone
applies for jobs at Amigo and it varies as to where
their skills are matched up. For example: Jennifer,
their daughter, has a degree in Marketing and she
is getting training in sales from Beth. Beth also
foresees Jennifer to be a great successor and will
successfully replace Beth in the company. At the
same Jordon, their son, is getting training under
Al. Jordon is full of intuitive gifts and will be an
asset for Amigo International Inc. in the future.
Both parents, Al and Beth, are very proud of their
successors and believe these young entrepreneurs
will handle their future responsibilities just fine.
Family firms often undercut their success by not
hiring qualified non-family members or engaging
them in the higher managing roles as they want
to ‘keep it in the family’ (Chrisman, Memili and
Misra, 2014). While Al and Beth want to ‘keep it
in the family’, they also understand the value of
hiring non-family employees. At times Al and Beth
both felt the need to bring non-family members in
to the business to achieve success. The company
was nearly bankrupted the first time when they
appointed a non-family member as a president,
but the second time they brought Tim Drumhiller
as an outside president. Tim’s primary job is to
fill the gap between Al and Beth. He has been
appointed for one year and his role is very helpful
for the other family members to have an outside
president to talk to when there is a family disagree-
ment about the business. Al and Beth stress that
they are a business owned family company and it
may not require being run by the family.
Community Relations
In today’s world community relations are de-
fined as corporate social responsibilities (CSR).
The World Business Council for Sustainable
Development (WBCSD 1998:6) defines CSR
as, ‘the continuing commitment by business to
behave ethically and contribute to economic de-
velopment while improving the quality of life of
the workforce and their families as well as that
of the local community and society at large.”
The concept of corporate social responsibility
particularly emphasizes a more active role by
management which is indirectly related to firm
performance. For example: Waddock and Graves
(1997) and Dyer and Whetten (2006) show that a
family firm’s financial performance is positively
related to corporate social responsibility. Primar-
915

ily enterprises are using it as a business strategy
since through CSR they gain the confidence of
current and future consumers, investors and com-
munity members. CSR could be a great deal for
any enterprise because it connects people from
communities.
Beth is the one who invests a significant amount
of time in developing relationships with com-
munities. She is associated with Saginaw Valley
State University and has served in various roles at
different times. She also helps to connect Amigo
International Inc. with companies like United
Way and MS Society, Lions Club, Jaycees, and
Chambers of Commerce. Beth considers commu-
nity relations to be a learning experience for her,
since she believes in making conscious choices and
engaging in dialogue with community members,
other business people and administrators, which
can play an important role in improving their
product, company and in making the community
a better place.
CONCLUSION
In this case study we have tried to develop a history
of Amigo International Inc., which was founded
by a single entrepreneur in 1968 and to show
how a small, local venture became an industry
creator and a leader. The mobile scooter market
has grown dramatically since the 1990s and the
company has received recognition from various,
local, state and national government levels. It has
now become one of the most important industries
in the global market. In its early years, Amigo
International Inc. went through much financial
and operational turbulence, but the entrepreneur-
ial spirit helps this company to overcome these
problems successfully. Amigo International Inc.
introduced new products and tapped into the new
markets at various times, making advances in
the global market place as they successfully and
timely adapt to technologies and market changes.
916

Improving Lives through Mobility
Although Al is not a college graduate, he
felt the need to develop a device for disabled
people. However, the venture capital market was
underdeveloped at that time in this country, so
he faced financial problems to keep the opera-
tions going and developing his dream scooter for
disabled people, but he “never gave up.” Amigo
International Inc. reached another limit when
Al started copreneuring with his wife, Beth. Al
“likes to work” and Beth “likes to think” which
makes a charismatic team for this company. Team
members observed that making a superior prod-
uct for the same market does not help to expand
the company, but understanding customer needs
from other markets is very important for company
growth. As a result, they started targeting retail
grocery shops, hospital and airports to diversify
their company and satisfy customer demand.
They have been in the business for 44 years
and during that time normally a business either
goes out of the business or becomes quite wealthy.
They have not gone out of business and they con-
tinue to thrive because they really care for their
customers. Customization is very expensive, but
that is their main business and they are good at
it. Amigo Mobility’s mission is to help people be
as active as possible and put them in a chair that
meets the individual’s needs, not just put people
in a chair.
Currently, a significant number of entrepre-
neurs are present in the United States. Unfortu-
nately, female entrepreneurs are something that
was not popular even in a country like the United
States. Forming “copreneurs” (Barnett and Bar-
nett, 1988) was a bold step for Amigo Interna-
tional Inc. and this strategy helps this company
to grow. Al and Beth both mentioned that this
joint entrepreneurial work provides them a unique
opportunity to achieve control and satisfaction in
both the work and family domains. From another
perspective the joint venture is being very helpful
to them as the joint venture injects more human
concerns into their business, which is the primary

Improving Lives through Mobility
agenda for Amigo International Inc. This case
study should encourage female entrepreneurs
to participate in business and to even consider
working with their spouses.
Entrepreneurs are the individuals who believe
in their vision and are not afraid to take risks to
innovate things (Shahidi and Smagulova, 2008).
Producing young entrepreneurs should be included
in the national agenda, unfortunately many coun-
tries including the U.S. are still not actively en-
gaged in this process. However, Al and Beth from
Amigo International Inc., believe in preparing their
successors through mentoring them. For a grow-
ing company a mentor is essential (Cull, 2006).
Mentors help to nurture a young entrepreneur’s
dream, to find opportunities, to encourage them
to take risks, and to show them how to read signs
of problems and find solutions. It is also essential
for a mentor to understand the interest, level of
understanding, the strengths and weaknesses of a
prospective entrepreneur before starting to mentor
them (Hall, 2003). Al and Beth are following the
proper routes with their son and daughter succes-
sors. On the one hand, Jen is a creative thinker
and knows how to market a product, so Beth is
giving her training according to her interests and
strengths. On the other hand, Jordon is imaginative
and a hard worker who thinks about the mechani-
cal and engineering sides of production. Jordon’s
skill matches with his father’s, so he is getting train
under Al’s supervision. Thus, this case study also
shows us how to teach these young entrepreneurs
to go after their dream and harness their skills and
knowledge to be successful entrepreneurs.
Institutional challenges are inevitable in the
absence of an efficient market, and indeed it al-
ways hinders entrepreneurs to pursue their objec-
tives. DiMaggio (1988), Mair and Marti (2009)
and many other scholars explain the reasons for
institutional impediments and how that could
vary across markets. In this study Al and Beth
also expressed their concerns about institutional
challenges and explained how various agencies
and over protected regulations constrain their
entrepreneurial activities. To operate in such a
business environment entrepreneurs need to be
creative, patient and flexible. Entrepreneurs need
to be creative because this will help them find other
ways to a solution when regulations interfere with
entrepreneurial activities. Patience is the ultimate
solution for many things including dealing with
market institutions and flexibility should provide
sufficient room to exploit institutional loopholes
and deficiencies to their profit.
This case study identifies a few venture strate-
gies which encourage entrepreneurs to think about
ventures. The primary objective of this case study
has been to provide an entrepreneurial framework
for new venture strategies and pursuing business
opportunities. It also provides the static and dy-
namic perspectives to help local entrepreneurs
learn how to stay competitive in the globalization
era. This case study has been done at the individual
level, which is one of the most important distinc-
tions from industry or country specific context,
since follower entrepreneurs will receive various
insights directly from entrepreneurs. This study
also shows how a small, local firm employing the
combinations of interest in work, hard work, proper
knowledge and using right technologies to pursue
business opportunities in the global market. They
leave recommendations for future entrepreneurs as
follows: “get ready for the journey, listen to your
own feelings, believe in you and your dream, do
what you love, know when to roll and know when
to fold, and gut feeling should be your main driver.”
This is an exploratory study which is definitely
lacking from theoretical and empirical frame-
works. Therefore, it is rather impossible to make
any generalized comments from it. Despite its
limitations, this case study leaves several recom-
mendations. The framework that Amigo Interna-
tional Inc. is using should help venture firms to
formulate the right combination of strategies in a
917

given situation for their growth and development.
The founders of Amigo International Inc. provide
meaningful guidelines to local entrepreneurs for
creating and developing ventures. Also, it provides
suggestions to new entrepreneurs on how to build
competitive strategies to enhance performance and
stay competitive in this globalization era. And it is
our utmost wish that future entrepreneurs receive
practical perspectives from this case study and
continue to think that “There must be a better
way,” as Al always says.
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KEY TERMS AND DEFINITIONS
Copreneurs: Team of entrepreneurs typically
husband and wife.
Entrepreneurs: Individuals who identify op-
portunities and set up business to take advantage
of these.
Environments: The conditions immediately
surrounding a business.
Family Relations: Dynamics associated with
members of a family operating a business.
 921

Chapter 50
The Relationship between
the Arab Spring Revolutions
and Entrepreneurial
Inhibitors, Enablers, and
Activity in North Africa
Henry Shin
Saginaw Valley State University, USA

ABSTRACT
The purpose of this chapter is to detail the impact of the Arab Spring Revolutions in Tunisia, Egypt,
and Libya in regards to entrepreneurship. This study tests the validity of three hypotheses, which were
whether the Arab Spring revolutions had a positive relationship with entrepreneurial inhibitors, a nega-
tive relationship with entrepreneurial enablers, and a negative relationship with entrepreneurial activity
in Tunisia, Egypt, and Libya. This quantitative study utilized data from before, during, and after the
Arab Spring Revolutions to evaluate the validity of the hypotheses. Findings determined partial validity
in regard to all three relationships; more research is necessary to determine if these hypotheses can
be fully validated. With only a short time frame since the end of these revolutions, future data of these
factors are required to determine whether it truly was the Arab Spring Revolutions that had an impact
on entrepreneurship in these countries.

INTRODUCTION revolutions, describe the revolutions and their end

The purpose of this chapter is to detail the im-
pact of the Arab Spring Revolutions in Tunisia,
Egypt, and Libya in regards to entrepreneurship.
Specifically, the chapter seeks to: describe the
political environment of the countries prior to the
results, and determine the validity of the following
hypotheses: 1) The Arab Spring had a positive
relationship with entrepreneurial inhibitors, 2)
The Arab Spring had a negative relationship with
entrepreneurial enablers, and 3) The Arab Spring
had a negative impact on entrepreneurship activity.

DOI: 10.4018/978-1-4666-8468-3.ch050

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The Arab Spring Revolutions and Entrepreneurial Activity
Finally, this chapter seeks to describe how future
research can help gather more information about
this topic.
BACKGROUND TO THE ARAB
SPRING REVOLUTIONS
Tunisia
Prior to the Jasmine Revolution, the Tunisian
revolution that sparked the Arab Spring, Tunisia
was governed by the Democratic Constitutional
Rally (RCD). According to Britannica.com,
President Zine al-Abidine Ben Ali took control
by executing a constitutional coup in 1987. When
Ben Ali first came into power, he stated that he was
committed to creating a more liberal approach to
politics, different than the one party rule that was
in place before the coup. However, Ben Ali and
the RCD kept the majority of power in Tunisia
all the way until 2011, when, as a result of the
Jasmine Revolution, he was forced from power
by the people (Tunisia, n.d.). The “corruption,
poverty, and political repression” that the Tunisian
people faced during Ben Ali’s reign served as the
precursor for the Jasmine Revolution (Jasmine,
n.d., para. 1).
Egypt
Using the Jasmine Revolution as inspiration,
Egypt followed Tunisia’s footsteps in attempting
to overthrow the ruling government. According
to Britannica.com, Egypt’s ruling government
at the time was the National Democratic Party
(NDP), and the authoritarian President was Hosni
Mubarak who ruled from 1981 (Hosni, n.d.).
Although Mubarak reformed the presidential
election in 2005 to allow multi-candidate polls
for the first time since 1952, there were many
restrictions and government involvement to insure
922

that Mubarak remained in power. Furthermore,
after his re-election, Mubarak imprisoned the
runner-up from the election, Ayman Nur, in fear of
losing his position in the future. Nur was arrested
on fabricated charges of falsifying petitions for
the legalization of his party, the al-Ghad party in
2004 (Egypt, n.d.). As in Tunisia, the Egyptians
were facing poverty and political repression. The
Egypt Uprising of 2011 represented the point
where people took control in order to change the
quality of their lives.
Libya
After the success of Tunisia and Egypt, the citizens
of Libya attempted a revolt as well. Brittanica.
com listed that the ruling party of Libya was the
Revolutionary Command Council (RCC), with
Muammar al-Qaddafi in place as the commander in
chief of the armed forces and chairman of the RCC
(Muammar, n.d.). Al-Qaddafi came into power by
seizing control of the government through a coup
in 1969, taking control and displacing the reigning
king out of power. While he claimed that Libya
would be under a form of democracy, al-Qaddafi
ruled over Libya as he saw fit, making it more of
an authoritarian state (Libya, n.d.). Four decades
later, in the midst of turmoil in Egypt and Tunisia,
the Libyan people were “angered by the arrest of
a human rights lawyer, Fethi Tarbel” and desired
to get Qaddafi out of office (Libya, n.d., para. 1).
THE ARAB SPRING REVOLUTIONS
Tunisia’s Jasmine Revolution
(December 2010–January 2011)
Starting in Tunisia, people started to rebel against
the oppressive governments that were ruling their
countries. In Tunisia, it all started with a fruit
vendor, Mohamed Bouazizi, who set himself on

The Arab Spring Revolutions and Entrepreneurial Activity
fire on December 17, 2010, to protest the treatment
he received from the authorities. Bouazizi was
making a statement against government corruption
in Tunisia after the police wanted bribes in order
for vendors to be able to work. Upon knowledge
of his action, demonstrations broke out from his
hometown as well as other areas of the country.
Once the revolts reached the capital, the govern-
ment responded with “even more brutality, arrest-
ing demonstrators, activists, and shutting down
the Internet” (Arab Spring, n.d., section Tunisia).
In addition, high levels of youth unemployment
also fueled the need for a revolution.
The reason the rest of the world became aware
of this movement was because of the number of
deaths that resulted when protesters were met by
the police. Thanks to social media, people around
the world were able to witness the horrors hap-
pening in Tunisia. Nour, as cited in Delany (2011)
stated that with social media, even when the
Tunisian people were sleeping, there were others
throughout the world who were spreading knowl-
edge about the situation. Facebook, the number
one social media website among Tunisians, served
as the platform to share the issue with the rest of
the world (Delany, 2011). In addition, when the
media would portray a situation to be favorable
to the government, the people posted videos of
the same situation, showing that what the media
was showing them was not necessarily the truth.
Social media provided the truth, not the filtered
version the government wanted everyone to see.
Although Ben Ali tried to make amends mul-
tiple times, the citizens were not happy. At the end,
Ben Ali stepped down as president and the RCD
suspended all of its activities (Jasmine, n.d.). With
Ben Ali’s removal, on October 21, 2011, elections
were held for the Constituent Assembly, which was
“a new body with a mandate to appoint an interim
cabinet and draft a new constitution” (Jasmine,
n.d., para. 30). After that, on December of 2011,
an interim constitution was adopted and Moncef
Marzouki was elected president of Tunisia.
Egypt Uprising (June
2010–May 2014)
Egypt was one of the countries influenced by
the success of Tunisia’s Jasmine Revolution. The
Egyptian people, especially the youth groups,
protested for President Hosni Mubarak to step
down and allow free elections and democracy.
Many individuals resorted to setting themselves
on fire, replicating Bouazizi’s actions in Tunisia
(Egypt Uprising, n.d.). Although the uprisings
officially started in 2011, one of the biggest
incidents leading up to the Egypt Uprising was
the murder of Khalid Said on June, 8, 2010. Said
was beaten and killed by police officers, but the
government was informing the public that Said
died from asphyxiation after swallowing a bag of
drugs when officers approached him (Bradley,
2010, para. 4). Social media played an important
role in the Egyptian Uprising from this point, when
Wael Ghonim, created a Facebook page called
“We Are All Khaled Said” (Vargas, 2012, para.
2). Within three months, the page had 250,000
members who were being informed about the
situation in Egypt; people around the world were
able to see the level of violence from the Egyptian
government. This was crucial to the changes that
happened in Egypt.
With people continuing their protests, police
used water cannons and tear gas against the
crowds. The government also attempted to limit
the demonstrations by disrupting internet and tele-
phone services, imposing a curfew and deploying
the army to control the people (Egypt Uprising,
n.d.). Still, people were finding ways to get the
information up on social networks even with the
disruptions to the rest of the world. The govern-
ment could not contain and control information
as they had in the past. After failing to succeed in
controlling the situation, in order to try to make
amends, Mubarak appointed a vice president on
January 29, 2011, the first time in nearly three
decades of his term as president. Unfortunately,
923

The Arab Spring Revolutions and Entrepreneurial Activity
this was not enough and on February 11, 2011,
Mubarak stepped down, leaving the “Supreme
Council of the Armed Forces (SCAF), a council
of high-ranking military officers headed by the
minister of defense, Mohamed Hussein Tantawi,
in control” (Egypt Uprising, n.d., para. 10).
This did not bode well for Egypt as the SCAF
attempted to keep the power. On July 12, 2011,
The SCAF went as far as to send a warning to
protesters that they will take all necessary mea-
sures to keep their authority. This attempt to hold
power led to public criticism from the United
States administration calling on the SCAF “to
end violence against prisoners and for power to
be transferred to a civilian government as soon as
possible” (Egypt Uprising, n.d., para. 51). Almost
a year later, on June of 2012, Egypt finally had
its presidential election. Although the SCAF once
again tried to maintain power by means of issu-
ing “a supplementary constitutional declaration
that placed severe restrictions on the powers of
the incoming president and granted the [SCAF]
sweeping legislative and executive powers and
greater authority over the constitution-writing
process,” these measures were quickly denounced
by the people. On June 24, 2012, Mohammed
Morsi was voted to be the new president (Egypt
Uprising, n.d., para. 71).
Unfortunately, this was not the end for Egypt’s
turmoil. Just one year later, in June of 2013, Egyp-
tians returned to the streets to revolt against the
new president Morsi. Some of the interaction with
authority ended with violence, and the amount of
people who came out for this revolt is said to have
been larger than those for the removal of Mubarak
(Egypt in 2012, n.d.). The people were angry
because they believed that Morsi failed to live
up to the requirements of a democratic president.
He used his presidential decree to “force through
an Islamist-slanted constitution,” which many
viewed as “the act of a dictator” (Kingsley, 2013,
para. 19). Furthermore, under Morsi’s rule, there
was the oppression of activists and journalists, as
well as a significant drop in the living standards
924

for the people. Egypt voted in a new president in
May 2014, with Egyptian Defense Minister Abdel
Fattah el-Sisi winning the election.
Libya Revolt (February
2011–October 2011)
Libya sought change from the four-decade rule of
Muammar al-Qaddafi and tried to utilize upris-
ings as Tunisia and Egypt had successfully done.
After Fethi Tarbel, a human rights lawyer, was
arrested, protesters called for al-Qaddafi to step
down and release the political prisoners. Simi-
lar to Tunisia and Egypt, the government used
force and many were injured. However, different
from Tunisia and Egypt, from the beginning, the
Libyan government responded strongly, with
Sayf al-Islam, one of al-Qaddafi’s sons, coming
on television and, “blaming outside agitators for
the unrest and saying that further demonstrations
could lead to civil war in the country. He vowed
that the regime would fight ‘to the last bullet’”
(Libya, n.d., para. 2). The government increased
the amount of violence against the protesters and
al-Qaddafi called on his supporters to fight them,
vowing to use violence to remain in power.
Once some of the military defected to support
the opposition, the protesters were able to also
get their hands on weapons. With them, the rebel
forces were able to liberate the eastern portions
of Libya. Internationally, countries were freezing
different assets they had in Libya, and the United
Nations imposed many restrictions on Libya and
the al-Qaddafi family. After many battles and lost
lives, the Transitional National Council (TNC)
came into power after the death of al-Qaddafi by
rebel forces during a battle (Libya, n.d.). However,
many groups did not support the TNC, and some
even believed that al-Qaddafi supporters had found
their way into the TNC. Without full support and
no system of government in place, the Libyan
government discussed returning to a monarchy at
the 25th summit of the Arab League. They believed
that ‘the restoration of the monarchy [in Libya]

The Arab Spring Revolutions and Entrepreneurial Activity
is the solution that will guarantee the return to
security and stability’” (Mahjar-Barducci, 2014,
para. 1). Libya’s future is still uncertain.
Libyans also used social media to inform the
rest of the world about the issues they were fac-
ing. Facebook pages, blogs on Twitter, and user-
uploaded videos on YouTube all served to portray
the picture of the situation to the people around the
world. Through social media, people were able to
know what was going on from thousands of miles
away, and helped spread knowledge even further.
With this, the uprising became a world-wide issue,
bigger than just a Libyan issue.
LITERATURE REVIEW
What is Entrepreneurship?
With the background about the countries com-
pleted, it is necessary to define what entrepre-
neurship means. According to Merriam-Webster,
entrepreneurship is having the skill of an entre-
preneur, which is “a person who starts a business
and is willing to risk loss in order to make money”
(Entrepreneurship, n.d.). Past research determines
entrepreneurship similar to the definition provided
by Merriam-Webster.
Mitchell et al. (2002) corroborated the fact
that entrepreneurship is a “way of thinking” (p.
10). An entrepreneur needs to have the thought
process to know that there are risks and possible
losses in starting a business, and they must be able
to rank the possible financial gains higher than
the possible financial loss. Without this essential
way of thinking, a person could not be a successful
entrepreneur. However, not all entrepreneurs have
to be single individuals. While there definitely are
individuals who go on to become entrepreneurs,
entrepreneurship can also be defined “as the act
and process by which societies, regions, organiza-
tions, or individuals identify and pursue business
opportunities to create wealth” (George & Zahra,
2002, p. 5). Any entity that has individuals with a
desire to create wealth can become entrepreneurs.
There is one important factor; they must all have
the willingness to take the risk.
Whether it is through the willingness to take
risks or internally generating resource combina-
tions that help a project succeed in the future, all of
these entrepreneurships start with an opportunity
(Lee & Peterson, 2000). Without the opportunity,
entrepreneurs would be foolish to take the risks.
To take risks without knowing anything about the
venture is not having the willingness to take risks,
that is more the willingness to be a fool. To seize
that opportunity, entrepreneurs are people who
have the following characteristics: “autonomy,
innovativeness, risk taking, proactiveness, and
competitive aggressiveness” (Lee & Peterson,
2000, p. 406). How do these five factors play a
role in entrepreneurship?
According to Lee and Peterson (2000), “en-
trepreneurship is viewed as a response to certain
environmental conditions that can help or hinder
entrepreneurship success by the nature of the
climate they establish” (p. 402). First, entrepre-
neurs have the proactiveness to make a response
to the environmental conditions. Without this
proactiveness, there would be no business. Have
you ever come across a new invention and thought
to yourself, ‘I had this exact idea sometime in
the past; I do not know why I did not pursue it.’
Proactive individuals anticipate the need and fol-
low through to handle the issue before it becomes
bigger or better known.
This proactiveness is important because of
innovation and competitive aggressiveness. In
order for a company to be successful, it requires
something different than has ever been seen before.
This requires innovation on the part of the entre-
preneur to create a new idea and follow through
to push it into the market. Once the item is in the
market, the competitive aggressiveness helps a
small company fend off the larger companies and
sustain itself for the future. In order to be able
to do this, it requires autonomy and risk-taking.
Lee and Peterson (2000), as well as to Mitchell
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The Arab Spring Revolutions and Entrepreneurial Activity
et al. (2002), determined that entrepreneurs need
to have the freedom to make their own decisions
as well as the courage to take a risk. Individual
entrepreneurs need to determine whether the risk
is worth the investment for themselves. Many
recent trends, such as “corporate downsizing, the
privatization of economies, and global competi-
tion based on agility, creativity, and innovation”
require that entrepreneurs have the proactive-
ness to expand into new markets quickly with a
product that would grab the attention of a global
society (Lee & Peterson, 2000, p. 401). Success-
ful entrepreneurial organizations “often initiate
actions to which competitors then respond, and
are frequently first-to-market with new product
offerings” (Covin & Slevin, 1991, p. 9).
What Are Entrepreneurship
Inhibitors and Enablers?
Knowing what entrepreneurship is; the next step is
to determine what has an impact on entrepreneur-
ship. By determining these factors and looking at
the changes caused by the Arab Spring Revolu-
tions, the hypothesis that the Arab Spring had
an impact on entrepreneurship can be validated.
Many past researchers have determined that
environmental factors affect entrepreneurship.
According to Covin & Slevin (1991), there are en-
vironmental, organizational, and individual-level
variables. However, the environmental variables
are what “provide a reasonable starting point for
a firm-behavior model of entrepreneurship” (p.
15). For Covin & Slevin (1991), some of the ex-
ternal environmental variables considered were:
technological sophistication, dynamism, hostility,
and industry life cycle stage (p. 12). In considering
the external environmental variables, these were
things that the firm itself could not control, such
as the “general economic, sociocultural, political-
legal, and technological forces which provide the
broader context for the organization’ operations
(Covin & Slevin, 1991, p. 11). Hannan and Free-
926

man (1977, as cited in Low & MacMillan, 1988),
also discussed that “those organizations that are
well adapted to their environment will survive,
and those that are not will die” (p. 144).
So then, to what extent are these external factors
affecting entrepreneurship? Mitchell et al. (2002)
asked the following three questions: “1) To what
extent is development within a given country
tied to the opportunity identification process? 2)
Is the nature and type of entrepreneurship that is
most effective related to the stage of economic
development at which a country finds itself? 3)
What are the most effective ways for the public
policy of a nation to facilitate adaptation on the
part of the ventures as the economic develop-
ment process unfolds?” (p. 11). Entrepreneurs
are looking for a supportive environment to start
their business. “Prospective entrepreneurs seek
to organize resources from that environment such
as capital, social networks, plant and equipment,
labor, etc. that would enable them to capitalize
on the opportunity” (Mitchell et al., 2002, p. 12).
Their results showed that there are some simi-
larities and differences among countries that are
good for entrepreneurship. If all these are factors
that enable entrepreneurial activity by having
the government help to provide some of these
environmental factors, entrepreneurship should
be able to thrive in any country.
In addition, if a country is struggling eco-
nomically, they cannot offer as much incentive
for companies to start or individuals to build
the wealth necessary to start business ventures.
This is usually the case as “emerging economies
lack the infrastructure, such as a developed legal
system or developed capital markets that serve as
effective governance enforcement mechanisms in
advanced economies” (George & Prabhu, 2000,
p. 621). If so, all three of these countries, Tuni-
sia, Egypt, and Libya, as emerging economies,
should not benefit entrepreneurship. However, by
regulating “the degree of inflation, demand for
products, the availability of labor and raw mate-

The Arab Spring Revolutions and Entrepreneurial Activity
rial inputs, the level of taxation, and the ease of
importing essential inputs,” a country can help an
entrepreneur push their company to success (Lee
& Peterson, 2000, p. 407). If the government has
effective mechanisms in place to control these
entrepreneurial inhibitors, it will be able to help
companies to thrive.
Tan (2002) gave the example of Chinese-
American entrepreneurs, compared to their
counterparts in Mainland China. In relation to
the Chinese-American entrepreneurs who live in
a democracy with individual rights and freedom
of choice, the entrepreneurs in Mainland China
“not only must endure a great deal of legal and
institutional uncertainty under a government that
does not officially give its blessing to capitalism,
but also must confront widespread jealousy rang-
ing from ordinary nonentrepreneurs to greedy of-
ficials” (Shenkar & Von Glinow, 1994, as cited in
Tan, 2002, p. 105). While this is just one example
of the government playing a role in entrepreneur-
ship, it serves to show that the government can be
either an inhibitor or an enabler, giving credibility
to the theory that the Arab Spring Revolutions
could have had an impact on entrepreneurships
in Tunisia, Egypt, and Libya.
Overall, the literature pointed to specific factors
that can inhibit and enable entrepreneurial activity.
By looking at some of the factors mentioned in
these past researches, the question of whether the
Arab Spring Revolutions had a negative impact
on entrepreneurship in Tunisia, Egypt, and Libya
can be concluded.
Table 1. Entrepreneurial inhibitors
Egypt
2010 2011 2013/14 2010
Inflation (%) 11.76 10.05 9.48 3.52
Corruption (rank) 64/139 76/142 101/148 33/139
Profit Tax (% of Profit) 43 43.6 42.60 62.80
METHODOLOGY
Hypotheses
Three hypotheses were developed in order to
determine the impact of the Arab Spring Revolu-
tions on Tunisia, Egypt, and Libya. Hypothesis
1 sought to determine that the Arab Spring had
a positive relationship with entrepreneurial in-
hibitors. Did these countries see an increase in
entrepreneurial inhibitors as a result of the Arab
Spring? Hypothesis 2 sought to determine that
the Arab Spring had a negative relationship with
entrepreneurial enablers. Did these countries see
a decrease in entrepreneurial enablers as a result
of the Arab Spring? Finally, Hypothesis 3 sought
to determine that the Arab Spring had a negative
impact on overall entrepreneurship activity. Did
the Arab Spring make it more difficult to pursue
entrepreneurship in the three countries?
In order to determine the validity of the
hypotheses, data was gathered in the following
three categories: entrepreneurial inhibitors, entre-
preneurial enablers, and entrepreneurial activity
determinants. To determine impact, data was
taken from 2010, before the Jasmine Revolution,
the first revolution of the Arab Spring, in 2011, in
the middle of the revolutions, and in 2013/2014,
as the current indicators of where the countries
now stand. Tables 1, 2, and 3 in the Appendix
describe the compiled data regarding entrepre-
neurial inhibitors, entrepreneurial enablers, and
entrepreneurial activity determinants.
Tunisia Libya
2011 2013/14 2010 2011 2013/14
3.61 6.09 2.46 15.52 6.07
45/142 69/148 126/139 No Data 102/148
62.90 62.40 No Data No Data 31.60
927
 
The Arab Spring Revolutions and Entrepreneurial Activity

Table 2. Entrepreneurial enablers

Egypt Tunisia Libya

2010 2011 2013/14 2010 2011 2013/14 2010 2011 2013/14
Technological
87/139 95/142 100/148 55/139 58/142 83/148 114/139 No Data 128/148
Sophistication (rank)
Efficiency of legal
framework in settling 40/139 60/142 106/148 17/139 27/142 54/148 70/139 No Data 124/148
disputes (rank)
Efficiency of legal
framework in challenging 69/139 86/142 94/148 19/139 30/142 67/148 68/139 No Data 115/148
regulations (rank)
Ease of Doing Business
106/183 110/183 128/189 69/183 46/183 51/189 No Data No Data 187/189
(rank)

Table 3. Entrepreneurial activity determinants

Egypt Tunisia Libya

2010 2011 2013/14 2010 2011 2013/14 2010 2011 2013/14
Trading Across Borders
29/183 64/183 83/189 40/183 32/183 31/189 No Data No Data 143/189
(rank)
Global Competitiveness
81/139 94/142 118/148 32/139 40/142 83/148 100/139 No Data 108/148
(rank)
Intensity of Local competition
91/139 114/142 131/148 34/139 42/142 80/148 130/139 No Data 139/148
(rank)
Length of time to start
7 7 8 11 11 11 No Data No Data 35
business (days)
Starting a Business (rank) 24/183 21/183 50/189 47/183 56/183 70/189 No Data No Data 171/189

Entrepreneurial Inhibitors of irregular payments and bribes as determined by

The following three factors were determined to be
entrepreneurial inhibitors: level of inflation, level
of corruption, and level of taxation. The first factor,
inflation, as defined by Investopedia (n.d.), is “the
rate at which the general level of prices for goods
and services is rising, and, subsequently, purchas-
ing power is falling” (para. 1). The higher the level
of inflation would mean that people can buy less
with more money. As a result, this would inhibit
entrepreneurial activity. The dataset for the level of
inflation for the three countries were gathered from
the World Development Indicators data available at
the World Bank website. The second factor, level
of corruption, was measured through the ranking
the Global Competitive Index for the respective
years, created by the World Economic Forum. Since
past research has determined that the government
can impact entrepreneurship, higher levels of cor-
ruption would mean that the playing field was not
even. If the playing field is not even, it is difficult
for businesses to be successful. The third factor,
level of taxation, is important for a business. The
higher the level of tax, the less profit a business will
make. This means that the higher the level of taxes,
the more it would inhibit a business from function-
ing. The data for this factor was determined by the
Doing Business Reports as created by the World
Bank. Table 1 lists the different values for each
of the entrepreneurial inhibitors described above.

928

The Arab Spring Revolutions and Entrepreneurial Activity
Entrepreneurial Enablers
The following four factors were determined to be
entrepreneurial enablers: technological sophisti-
cation, efficiency of legal framework in settling
disputes, efficiency of legal framework in chal-
lenging regulations, and ease of doing business.
The first three factors, technological sophistica-
tion, efficiency of legal framework in settling
disputes, efficiency of legal framework in chal-
lenging regulations, were determined by the Global
Competitive Index. Technological sophistication
measured how technologically ready an area is. The
higher the levels of technology, potential custom-
ers would have had more opportunity to interact
with a product. The second and third factors, the
efficiency of legal framework in settling disputes
and efficiency of legal framework in challenging
regulations, offers the entrepreneurs the satisfac-
tion that if they have an issue, the government will
help them resolve the issue and continue to work.
When the government supports entrepreneurs, it
becomes easy to pursue a business. The fourth
factor, the ease of doing business was determined
by the Doing Business Reports. Similar to the
efficiency of the legal framework, the easier it is
to do business, the more likely entrepreneurs will
start a business in the country. Table 2 lists the
different values for each of the entrepreneurial
enablers described above.
Entrepreneurial Activity
Determinants
The following four factors were determined to
define the level of entrepreneurial activity: trading
across borders, competitiveness at both the global
and local level, and global ranking in starting
a business. Competitiveness at both the global
and local level was determined by the Global
Competitive Index for the respective years. The
rankings for trading across borders and starting
a business were determined by the Doing Busi-
ness Reports. Through the use of these factors,
an overall picture of the level of entrepreneurial
activity in the countries was visible. Table 3 lists
the different values for each of the entrepreneurial
activity determinants described above.
RESULTS
With the data ranging based on country, the data
will need to be looked at separately to discuss
the possible impact of the Arab Spring on each
country in regard to entrepreneurial inhibitors,
enablers, and activity determinants.
ENTREPRENEURIAL INHIBITORS
According to hypothesis 1, the Arab Spring had a
positive relationship with entrepreneurial inhibi-
tors. This means that in each of the countries, there
should have been an increase in entrepreneurial
inhibitors at the end of the revolution.
Inflation
According to the United States Federal Reserve,
two percent inflation rate is a desired rate (Board,
n.d.). This rate was used as the basis for comparison
to the rate in the three countries.
Tunisia: The level of inflation in 2010, before
the Jasmine Revolution, was 3.52 percent. This
level of inflation continued to rise in Tunisia, with
the rate being at 3.61 percent in 2011, a slight
increase from 2010. This trend continued into
2013, after Tunisia had successfully moved on
from the revolution, when inflation rose to 6.09
percent. Tunisia was closer to the desired two
percent prior to the revolution. Tunisia’s increase
in inflation since the Jasmine Revolution seemed
to support hypothesis 1.
Egypt: The level of inflation in 2010, before
the Egyptian Uprising was 11.76 percent. Con-
trary to the pattern seen in Tunisia, Egypt’s rate
of inflation continued to decrease through the
929

The Arab Spring Revolutions and Entrepreneurial Activity
uprising. It fell to 10.05 percent in 2011 and was
at 9.48 percent by 2013. Although Egypt’s rate of
inflation is significantly higher than the desired
two percent, Egypt’s data did not seem to support
hypothesis 1.
Libya: The level of inflation in 2010, before
the Libyan Revolt, was 2.46 percent. Of the three
countries, Libya’s rate of inflation was the closest
to the desired two percent. Libya’s level of infla-
tion skyrocketed in 2011, jumping to 15.52, and
has fallen to 6.09 percent as of the latest data.
Although Libya’s rate of inflation was lower in
2013 than in 2010, the level is still much higher
than the 2.46 percent desired. Because the infla-
tion rate skyrocketed after the revolution, Libya’s
situation seemed to support hypothesis 1.
Overall, with Egypt showing data that is con-
trary to the hypothesis, the hypothesis cannot be
fully validated at this time through inflation.
Corruption
Corruption was one of the main issues discussed
as a catalyst for the Arab Spring Revolutions.
In all countries, the people were not happy with
the level of corruption and wanted to see things
change. Did things actually change for the better?
Tunisia: Tunisia’s level of corruption increased
during the Jasmine Revolution. This was surpris-
ing because Tunisia was the one country where
democracy was able to succeed and continues
to grow today. Prior to the revolution, in 2010,
Tunisia’s corruption level was ranked at 33. In
2011, during the Revolution, the corruption rank
was 45. As of the latest data, the corruption rank
for Tunisia was up to 69. As lower ranking of
corruption means there is less corruption in the
country, Tunisia’s increase in corruption seems
to support hypothesis 1.
Egypt: Egypt’s level of corruption increased
during the uprising. This may be explainable, as
Egypt had another revolution just a year later,
ousting the new president Morsi because of his
corrupt ways. Egypt finally held elections on May,
930

2014, so it can be determined that during this time
of transition, the level of corruption probably got
worse. Prior to the uprising, Egypt’s level of cor-
ruption was ranked 64. During the uprising, the
level of corruption rank was 76. As of 2013, the
corruption rank of Egypt was up to 101. Egypt’s
increase in corruption, similar to Tunisia, seems
to support hypothesis 1.
Libya: Libya seems to have been affected the
most by the Arab Spring. Much of the data for
Libya was unable to be found, especially during
the revolt. In terms of corruption, the available
data only showed the corruption ranking prior to
the revolt and after the revolt in 2013. Libya was
the only country where the level of corruption de-
creased. With the amount of turmoil still in Libya
and their decision to possibly restore a monarchy,
it is curious as to why the level of corruption went
down in Libya. The fact that it had a civil war
that required the assistance of foreign countries
may have played a role in this aspect. Libya’s
corruption ranking going down did not support
the hypothesis. However, with data missing for
the time period during the revolt, it is impossible
to determine whether corruption ranking would
have increased at that time.
Overall, with both Egypt and Tunisia continu-
ing to fall in the corruption ranking with the latest
data while Libya’s ranking rose, the hypothesis
cannot be fully validated through corruption
ranking.
Profit Tax
The higher the profit tax, the less likely someone
will want to start a business. If the hypothesis is
to be true, the Arab Spring Revolutions should
have increased the amount of profit tax in these
three countries.
Tunisia: The percentage of profit tax for Tu-
nisia prior to the revolution was at 62.8 percent.
During the revolution, the percentage of profit tax
rose slightly to 62.9 percent. As things started to
settle down and Tunisia started its democracy,

The Arab Spring Revolutions and Entrepreneurial Activity
the percentage of profit tax fell slightly to 62.4
percent. Tunisia’s increase in profit tax percent-
age in line with the revolution seems to support
hypothesis 1.
Egypt: Egypt’s percentage of profit tax fol-
lowed the same pattern as Tunisia’s. It was at 43
percent prior to the uprising, rose slightly to 43.6
percent during the uprising, and fell slightly to
42.6 percent in recent years. Similar to Tunisia,
Egypt’s increase in profit tax percentage in line
with the uprising seems to support hypothesis 1.
Libya: Information for the percentage of profit
tax in Libya was not found for the years 2010 and
2011. Not having these pieces of data, Libya’s
percentage of profit tax could not be considered
with the other two countries.
With Libya’s information unvailable, only the
available data provided for Tunisia and Egypt can
be utilized. Both of the situations in Tunisia and
Egypt follow the same pattern which serves to
validate hypothesis 1.
Summary
Using inflation, corruption, and profit tax as the
factors to determine whether or not the Arab
Spring revolutions had a positive relationship with
entrepreneurial inhibitors, the data suggests that
the hypothesis is conditionally valid. Some of the
factors described seem to support the hypothesis,
however, there was a country that went against the
hypothesis for both inflation and corruption. Even
percentage of profit tax, which both Tunisia and
Egypt followed the same pattern cannot be vali-
dated with certainty as data for Libya was missing.
ENTREPRENEURIAL ENABLERS
According to hypothesis 2, the Arab Spring
Revolutions had a negative relationship with
entrepreneurial enablers. Did factors that enable
entrepreneurial activity decrease during the Arab
Spring Revolutions?
Technological Sophistication
Covin and Slevin (1991) determined that “entre-
preneurial posture is positively related to environ-
mental technological sophistication” (p. 12). If
the Arab Spring had a negative relationship with
entrepreneurial enablers, the rank for technologi-
cal sophistication should have gone down in each
of these countries.
Tunisia: Tunisia’s rank for technological
sophistication in 2010, prior to the Jasmine
Revolution was 55. In 2011, in the midst of the
revolution, the rank fell to 58. As of the most re-
cent data, Tunisia’s technological sophistication
rank has fallen to 83. If Tunisia’s revolution was
successful, why did this ranking continue to fall?
The instability and changes that occurred after the
revolution probably had an impact on Tunisia and
hindered its growth. Tunisia’s change in rank sup-
ports the hypothesis that entrepreneurial enablers
had a negative relationship with the Arab Spring.
Egypt: Egypt’s rank for technological sophis-
tication followed the same pattern as Tunisia’s.
In 2010, Egypt’s rank was 87, in 2011, during
the Egyptian Uprising, the rank was 95, and as
of the most recent data, the rank was 100. The
instability of the Egyptian Uprising, in addition to
the continued uprising against Morsi explains the
continued decrease in the rank. Egypt’s change in
rank supports the hypothesis that entrepreneurial
enablers had a negative relationship with the Arab
Spring.
Libya: The technological sophistication rank
for 2011 was not available for Libya. This is
presumably because of the severity of the Libyan
revolt; organizations were probably unable to
gather the necessary data. However, Libya’s rank-
ing follows a similar trend between 2010 and the
most recent data indicates that Libya’s rank fell
from 114 to 128.
Overall, all three countries saw their techno-
logical sophistication ranking fall, validating the
hypothesis that the Arab Spring had a negative
relationship with entrepreneurial enablers.
931

The Arab Spring Revolutions and Entrepreneurial Activity
Efficiency of Legal Framework
For both efficiency of legal framework in settling
disputes and in challenging regulations, the more
stable a government is, the more efficient its legal
framework should be. If people know that there is
a consistent set of rules and procedures that must
be followed, it is easier to raise issues and get the
assistance required.
Tunisia: Tunisia’s rank for efficiency of legal
framework in settling disputes fell from 17 before
the revolution, to 27 during the revolution, and 54
after the revolution. The rank for efficiency of legal
framework in challenging regulations fell from 19
to 30 and finally to 67. The revolution, and the
lack of a stable central government as a result,
probably had an impact on the efficiency rankings
in Tunisia. This trend supports the hypothesis that
the Arab Spring had a negative relationship with
entrepreneurial enablers.
Egypt: Egypt’s efficiency of legal framework
in settling disputes rank fell from 40 prior to the
uprising to 60 during the uprising and 106 as of
the most recent data. Similarly, Egypt’s efficiency
of legal framework in challenging regulations
fell from 69 to 86 and finally to 94. The trend in
Egypt, just as in Tunisia, supports the hypothesis
that the Arab Spring had a negative relationship
with entrepreneurial enablers.
Libya: Just as with technological sophistica-
tion, the ranking for Libya in the midst of the revolt
was not available. However, the pattern between
the ranking prior to the revolt (68) and the most
recent ranking (115) follow the same pattern as
the other two countries.
Overall, all three countries saw their efficiency
in legal framework rankings fall, validating the
hypothesis that the Arab Spring had a negative
relationship with entrepreneurial enablers.
Ease of Doing Business
If the hypothesis is true, the ease of doing business
should decrease as a result of the Arab Spring
932

revolutions. The easier it is to do business, the
more likely people will attempt to do so.
Tunisia: Tunisia’s ease of doing business rank-
ing actually increased from 69 prior to the revo-
lution to 46 during the revolution. Surprisingly,
after the revolution and after Tunisia became a
democracy, the ranking fell back down to 51. This
was probably because Tunisia had a new set of
rules and regulations to abide by as a result of the
new democratic government. While the success
of the revolution may explain the positive change
in Tunisia’s ease of doing business ranking, it did
not support the hypothesis that there is a negative
relationship between the Arab Spring Revolutions
and entrepreneurial enablers.
Egypt: Egypt’s ease of doing business ranking
decreased from 106 prior to the uprising to 110
during the uprising, and then fell further to 128
in the latest set of data. With the government still
being an issue in Egypt until 2014, the decrease
in ease of doing business is understandable. This
supported the hypothesis that there is a negative
relationship between the Arab Spring Revolutions
and entrepreneurial enablers.
Libya: No data for ease of doing business in
Libya was available for 2010 or 2011. However,
Libya’s ease of doing business rank in the latest
available data was 187 out of 189. With Libya’s
ranking being so low, it is probable that the rank-
ing fell. Unfortunately, without reported data for
the years 2010 and 2011, it cannot be determined
whether or not Libya’s situation supported the
hypothesis.
Overall, there is no consistency in the pattern
for the ease of doing business factor to validate
the hypothesis.
Summary
Using technological sophistication, efficiency of
legal framework in settling disputes, efficiency of
legal framework in challenging regulations, and
ease of doing business as the factors to determine
whether or not the Arab Spring had a negative

The Arab Spring Revolutions and Entrepreneurial Activity
relationship with entrepreneurial enablers, the
data suggests that the hypothesis is partially valid.
While technological sophistication, efficiency of
legal framework in settling disputes, and efficiency
of legal framework in challenging regulations
supported the hypothesis, ease of doing business
did not show a consistent pattern to support the
hypothesis. In addition, with Libya’s data lacking
in many of the factors, it was difficult to fully
measure the validity of the hypothesis.
ENTREPRENEURIAL ACTIVITY
DETERMINANTS
The factors used in this category depict the image
of the country and the amount of entrepreneurial
activity during the specific years. In order to
validate hypothesis 3 that the Arab Spring had
a negative impact on entrepreneurship activity,
these factors should show a decrease in ranking.
Trading across Borders
This factor explains the amount of entrepreneurial
activity across the country’s borders during the
year. Better ranking means that there was more
trade across the borders.
Tunisia: Tunisia’s trade across borders rank
increased with the Jasmine Revolution. Prior to the
revolution, the rank was 40, during the revolution
the rank rose to 32, and after the revolution, the
rank rose slightly to 31. As a result of the success
of the Jasmine Revolution, it became easier to
conduct trade in Tunisia. However, this does not
support the hypothesis that the Arab Spring had
a negative impact on entrepreneurship activity.
Egypt: Egypt’s trade across borders rank fell
from 29 prior to the uprising to 64 during the upris-
ing and down to 83 as of the latest data. With the
uncertainty in the government after the uprising
and people continuing to revolt to oust the new
president, many entrepreneurs may have chosen
to stay away from Egypt. This pattern in Egypt
supported the hypothesis that the Arab Spring had
a negative impact on entrepreneurship activity.
Libya: No data was available for Libya prior
to the revolt and during the revolt. As of the latest
data, Libya’s trade across borders rank was 143 of
189. With no data for the first two sets of years,
whether or not the ranking for trade across borders
fell cannot be answered. As a result, it cannot be
concluded whether the Arab Spring had a negative
impact on entrepreneurship activity.
Overall, there is no consistent pattern with
this factor to validate the hypothesis that the Arab
Spring had a negative impact on entrepreneurship
activity. The level of success post-revolution may
explain the differences in the patterns between
Egypt and Tunisia. If there was information for
Libya prior to and during the revolt, it may have
been possible to determine if success of the revolu-
tion was the reason for the differences in patterns.
Competitiveness
Both the rankings for global competitiveness and
intensity of local competition should decrease dur-
ing instability and turmoil as fewer people would
want to do business with the country or have the
means to hold businesses within the country.
Tunisia: Tunisia’s ranking for global competi-
tiveness fell from 32 prior to the revolution to 40
during the revolution and to 83 as of the latest
data. In similar fashion, Tunisia’s ranking for
intensity of local competition fell from 34 prior
to the revolution to 42 during the revolution and
to 80 as of the latest data. The revolution prob-
ably made trade partners hesitant to interact with
Tunisia, leading to such results. This supported
the hypothesis that the Arab Spring had a negative
impact on entrepreneurship activity.
Egypt: Egypt’s ranking for global competitive-
ness fell from 81 prior to the uprising to 94 dur-
ing the uprising and to 118 as of the latest data.
Similarly, Egypt’s ranking for intensity of local
competition fell from 91 prior to the uprising to
114 during the uprising and to 131 as of the lat-
933

The Arab Spring Revolutions and Entrepreneurial Activity
est data. This pattern was similar to the pattern
in Tunisia and supported the hypothesis that the
Arab Spring had a negative impact on entrepre-
neurship activity.
Libya: No data was available for Libya in terms
of these two factors during the revolt. However,
global competitiveness fell from 100 prior to the
revolt to 108 as of the latest data, and intensity
of local competition fell from 130 prior to the
revolt to 139 as of the latest data. This seemed
to follow the same pattern seen in Tunisia and
Egypt. Without the ranking during the revolt, it
may only be concluded that Libya’s results may
support the hypothesis that the Arab Spring had
a negative impact on entrepreneurship activity.
Overall, all three countries show a pattern that
can support the hypothesis that the Arab Spring
had a negative impact on entrepreneurship activity.
Length of Time to Start a Business
If the hypothesis is true, the Arab Spring revolu-
tions should have increased the number of days
required to start a business in these three countries.
Tunisia: The length of time to start a business
in Tunisia stayed consistent at 11 days prior to the
revolution, during the revolution and as of the latest
data. With no changes to this factor, the hypothesis
that the Arab Spring had a negative impact on
entrepreneurship activity is not supported.
Egypt: The length of time to start a business
in Egypt stayed consistent at 7 days prior to
the uprising and during the uprising, however
increased to 8 days as of the latest data. Seeing
an increase only after the uprising, it can only be
determined that it may support the hypothesis
that the Arab Spring had a negative impact on
entrepreneurship activity.
Libya: No data was available for Libya prior
to the revolt and during the revolt. As of the latest
data, it takes 35 days to start a business in Libya.
Without the data from before and during the revolt,
no determination can be made whether this factor
934

supports the hypothesis that the Arab Spring had
a negative impact on entrepreneurship activity.
Overall, the differences in Tunisia and Egypt,
in addition to the lack of data in Libya, do not
validate the hypothesis that the Arab Spring had
a negative impact on entrepreneurship activity.
Starting a Business
If the rank for starting a business is low, it means
that it is easier to start a business. If it is easy to
start a business, there will be more individuals
attempting to become entrepreneurs. For the hy-
pothesis to be true, the rank for starting a business
should have fallen as a result of the Arab Spring
revolutions.
Tunisia: The ranking for starting a business
in Tunisia fell from 47 prior to the revolution to
56 during the revolution and to 70 as of the latest
data. The new regulations with the democratic
government may have made it more difficult to
start a business. The results of Tunisia support the
hypothesis that the Arab Spring had a negative
impact on entrepreneurship activity.
Egypt: Egypt’s ranking for starting a business
actually rose from 24 prior to the uprising to 21
during the uprising but fell significantly to 50 as
of the latest data. Although in the end the rank-
ing fell drastically, the increase in ranking during
the uprising makes Egypt’s data not validate the
hypothesis that the Arab Spring had a negative
impact on entrepreneurship activity.
Libya: No data was available for Libya prior to
or during the revolt. As of the latest data, Libya’s
rank in starting a business is 171 of 189. Without
the data from before and during the revolt, no
decision can be made whether this factor supports
the hypothesis that the Arab Spring had a negative
impact on entrepreneurship activity.
Overall, there is no consistent pattern between
the three countries to determine the validity of
the hypothesis.

The Arab Spring Revolutions and Entrepreneurial Activity
Summary
Using the ranking for trading across borders, global
competitiveness, intensity of local competition,
and starting a business, and the length of time to
start a business to determine whether or not the
Arab Spring had a negative impact on entrepre-
neurial activity, only the global competitiveness
and the intensity of the local competition showed
a consistent pattern to support the hypothesis.
DISCUSSION/IMPLICATIONS
Using the factors determined in this study to test
whether or not the Arab Spring Revolutions had a
positive relationship with entrepreneurial inhibi-
tors, a negative relationship with entrepreneurial
enablers, and negatively impacted entrepreneurial
activity, there was at least one factor in each cate-
gory that did not support the hypotheses. However,
Tunisia and Egypt had information validating the
hypotheses in many factors, demonstrating that
the hypotheses may be valid. If more data were
available for Libya, this study may have been able
to determine that more of these factors support
the hypotheses. In the factors that do support the
hypotheses, the fact that these three countries
showed similar trends even with different results
from their individual revolutions helps to validate
the claims that the Arab Spring itself impacted
the countries as described in the hypotheses. For
the future, taking a look at the available data in
a few years can help to determine whether new
found stability such as in Tunisia, or constant
instability, as in Libya will shift the rankings in a
positive or negative direction. That data will rely
heavily on if Egypt’s recent May 2014 election is
successful in turning Egypt democratic as well as
Libya’s future decisions about its government. If
Libya does choose to return to a monarchy, that
may create the opportunity to determine if differ-
ent political systems of emerging countries have
any relationships with entrepreneurial inhibitors,
enablers, and activity determinants.
CONCLUSION
Overall, it is possible that the Arab Spring Revo-
lutions had a positive relationship with entrepre-
neurial inhibitors, a negative relationship with
entrepreneurial enablers, and a negative relation-
ship with entrepreneurial activity determinants.
The factors utilized in this study conditionally
prove such relationships. Future research utilizing
longer span of time, in addition to other factors
that can fall into the three categories can help
validate the three hypotheses described in this
study even further.
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KEY TERMS AND DEFINITIONS
Arab Spring: A revolution by the populace
in several North African countries that started in
2010 and that led to the toppling of long standing
dictators such as President Mubarak.
Egypt: North African country.
Entrepreneurial Activity: Behaviors associ-
ated with business start ups.
Entrepreneurial Enablers: Factors or condi-
tions that help to activate business start ups.
Entrepreneurial Inhibitors: Factors or
conditions that prevent or limit the initiation of
business start ups.
Libya: A North African country.
Tunisia: A North African country.
937
938

Chapter 51
Enterprise as a Career Choice:
A Multi-National Study

Andre Mostert
University of East London, UK

Abdulbasit Shaikh
Institute of Business Administration, Karachi, Pakistan

ABSTRACT
Youth unemployment is growing throughout the world due to a collection of conditions including but not
exclusively: economic restrictions, anachronistic teaching and learning methodologies, and inadequate
career guidance structures and support. These factors are the usual suspects and offer all stakeholders
an easy way out in terms of the challenges associated with business start-ups and business initiations.
That the contemporary educational environment is not effectively geared to support the emerging en-
trepreneur and is severely constrained by the limits of teacher training and curriculum flexibility is well
recognised. With the growing demand for graduates to embrace an entrepreneurial ethos, the impact of
support structures on the development of students is becoming more central to the required discourse in
higher education, more especially, in developing countries without effective welfare structures. Central
to this debate is the role of student attitudes towards the entrepreneurial route as a viable and achievable
alternative to the conventional career pathways. Demands to generate a return from their education,
familial expectations, and the need to develop as an individual can act as a further encumbrance to the
embrace and exploration of business start-up opportunities. This study has generated a dataset of the
dominant student attitudes to enterprise as a career pathway and general perspectives on enterprise
and entrepreneurial activities. Through a number of partners, a cross section of students were invited
to take an online survey addressing questions pertaining to entrepreneurship.

DOI: 10.4018/978-1-4666-8468-3.ch051

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Enterprise as a Career Choice
INTRODUCTION
Some people dream of great accomplishments,
while others stay awake and do them – Anonymous
Many people do not recognize opportunity as it is
disguised as hard work – Ann Landers (American
Advice columnist 1918-2002)
The term ‘entrepreneur’ has become a much
used term in the modern globalisation lexicon;
this leads to the inevitable questions: ‘are 企业
家1 born or made?’ and are you a ‫أ‬.2‫لواقم‬, ‫ردابم‬,
‫دهعتم‬, ‫مزتلم‬.?
The term entrepreneur was first coined by
J.S. Mill, his definition of an entrepreneur was
built around the functions he saw as “direction,
supervision, control, and risk taking” (Brockhaus
and Horwitz 2002:260). Brockhaus and Horwitz
observe that: “Mill appears to feel that risk bear-
ing is the main distinguishing feature between
the manager and the entrepreneur” (ibid). Since
Mills introduction of the term it has become a
complex and extensive area of study and debate.
While this chapter is not focused on an analysis of
the state of the discipline, it is important to offer
a coherent backdrop against which to analyse the
data collected by the research team.
Any discussion on entrepreneurship would not
be completed without some reference to the con-
tribution made by Schumpeter through his work
on economic development. Key to his perspective
was the entrepreneur as the source of creative
destruction. The entrepreneur “introduces a new
good or a new method of production, opens new
markets or discovers a new source of supply, or
carries out a new organization of an industry…
upsets the conventional way of doing things”
(Braguinsky et al 2009:1). Braguinsky et al con-
tinues and highlights those factors that have been
identified as playing a role in entrepreneurship:
“the role of risk taking (Kihlstrom and Laffont
1979), managerial ability (Lucas 1978), wealth
(Evans and Jovanovic 1989), and preferences for
the control, flexibility and other job attributes
that come with being one’s own boss (Hamilton
[2000]) as the primary motivations for entrepre-
neurship” (Ibid).
Whichever characteristics are accepted, the
key element of the creative destructive concept
is to become liberated from the routine; “…[i]n
eschewing routine, Schumpeter’s entrepreneur
also avoids the need to reduce all behavioural
responses to ‘what is strictly calculable’…”
(WR1). This observation should not be treated in
a fundamental way, as much of what a successful
entrepreneur does is by definition of a routine
nature. Rather it’s the eschewing that generates
the opportunities and start-up initiatives. The
research study in this chapter aimed to present a
window into students’ views on entrepreneurship
and the opportunities to start their own initiatives.
The overall objective of this study was to inform
stakeholders of the perceived effectiveness of
enterprise and entrepreneurship offerings.
In order to develop a coherent response to
student enterprise needs and to mobilise their
interests the Petchey Centre for Entrepreneur-
ship designed a basic online survey, which can
still be accessed at http://www.kwiksurveys.
com?s=HOIDFI_b0c6c526. The survey was
distributed across the United Kingdom and a
number of partners through RDBS international
network were invited to co-operate in the research
exercise. At all partner institutions the information
regarding the location of the survey and the goal
was published in selected media. The result in
terms of the relatively low number of participants
itself offers some insight into the general state of
student attitudes to enterprise as a career choice.
The survey was compiled of 25 questions that
focused on student attitudes to enterprise as a viable
and realistic career choice given their respective
contexts. The key partners were Pakistan (Us-
man Institute of Technology), United Kingdom
(RDBS), China (Shanghai Institute of Foreign
Trade) and South Africa (Rhodes University),
there were a number of other partners who had
939

limited responses from their student bodies and
these results have been left out of the analysis.
The largest contingent of respondents was from
China with 435, followed by the United Kingdom
with 345 respondents. South Africa generated
137 respondents followed Pakistan with 103 and
Australia (11), and Togo (2). Respondents whose
country was not listed numbered a total of 46. The
total number of survey responses received was
1079. While the absolute number generated was
disappointing the results do offer some interesting
comparative insights.
This chapter will address each of the questions
firstly in absolute terms and then to investigate
what relative information for the four main re-
spondent countries was generated. From this the
authors will attempt to offer some observations
on the nature and type of support that enterprise
developers could and should consider offering to
students to enhance the perspectives of enterprise
as a viable career option. At the comparative stage,
a brief theoretical input will be offered to create a
coherent analytical framework for the analysis of
the recommendation to the data gathered.
The questions and statements were a mix of
multiple choice questions with strongly agree
to strongly disagree and dichotomous answers.
The only demographic questions were gender
and residential status, with the following listings
available: Australia, China, Pakistan, South Africa,
United Kingdom and Togo.
The 25 questions were:
1. I feel that everyone is capable of running a
business successfully.
2. I know at least one person who owns or
manages their own business.
3. If you answered yes to the last question, is
this person a family member?
4. I am keen to start and manage my own busi-
ness soon or at least in the near future.
5. I believe that business people are born and
not taught.
6. All successful businesses are a result of luck.
940

Enterprise as a Career Choice
7. All successful businesses are the result of a
good or original idea.
8. I am presently involved in an enterprise
development programme and/or do a course
that includes entrepreneurship.
9. Most businesses that fail are due to ineffec-
tive management.
10. I have entered an enterprise competition in
the past.
11. If given the opportunity to manage a business
I would welcome it.
12. I am best described as a very confident
person.
13. If I had a good idea for a business I would
know what to do next
14. Business start-up support should be easier
to find.
15. I would like to see more enterprise pro-
grammes and projects being offered
16. I think people from different cultures have
different attitudes to starting and running a
business.
17. The main hurdle stopping me from exploring
starting a business is lack of suitable support.
18. I have never considered developing and
managing a business as a career option.
19. Given the choice between employment or
managing my own business, I would select
to manage a business.
20. Starting a business can be a risky activity;
would you say that you are a risk taker?
21. Your family would support you starting a
business.
22. I am presently located in.
23. I am female/male.
24. If I experience problems with securing em-
ployment I would see starting a business as
the next best alternative.
25. I would be happy to complete similar surveys
in the future.
The list of questions was kept to a minimum
which could generate some data that would offer
insight into how students’ view enterprise as a

Enterprise as a Career Choice
career choice. Moreover, the survey was not ag-
gressively administered as the responses would
be biased if the survey formed part of a structured
educational environment.
ANALYSIS OF RESPONSES
The first phase of the research data is analysed as a
total of all responses. A more detailed comparative
analysis is being conducted between the responses
from Chinese students and those of other research
groups for later publication. Each set of answers
will be assessed in terms of the responses and
what this could indicate for those engaged in the
teaching and learning of entrepreneurship.
1. I Feel That Everyone is Capable of
Running a Business Successfully
High expectations are the key to everything. – Sam
Walton, Entrepreneur
This question alludes to one of the key elements of
debate within the area of enterprise and entrepre-
neurship, namely is an entrepreneur made or are
they born? As with any dichotomous question of
this nature there are two schools of thought. “The
first is that anyone can do it if they really want
to, provided they put in the effort. The second is
that you have to be a certain type of person and, if
you are not that type, you are wasting your time”
(WR2). These perspectives have generated much
literature and many models. These range from
a short test which might aim in simple terms to
see if you are an entrepreneur, for an example
see appendix A.
Other types of quizzes, surveys, enquiries
explore questions around factors associated with
entrepreneurial behaviour and motivation such as
‘why do you want to go into business?’, and state-
ments such as ‘I know what I am talking about,
I can get others to believe me’ (Risk Assessment
Quiz (WR3). These include detailed self assess-
ments similar to the GoForth Institute ‘Am I an
Entrepreneur? Self-Assessment Package’ (WR4).
This offers a comprehensive opportunity to reflect
on your potential as an entrepreneur. This current
research exercise does not presume to generate data
that could assist or advance the debate in either
direction in any significant manner (Table 1). This
question was included to create a solid foundation
of reflection on the part of the respondent and
to assess the consistency with the responses to
question 5 below, where the data shows a small
and relatively insignificant change.
So are entrepreneurs born or are they made?
Studies to date have delivered mixed results. In
a survey conducted by Northeastern University’s
School of Technological Entrepreneurships;
“Nearly two-thirds of entrepreneurs claim they
were inspired to start their own companies by
their innate desire and determination, rather than
by their education or work experience” (WR5).
The study generated some interesting insights,
only 1% of the 200 US based entrepreneurs who
were surveyed indicated that higher education
played a role in motivating them to embark on
their venture. Much more significant at 61% were
what they identified as “innate drive,” followed by
work experience (21%) and entrepreneurial peers
(16%). The Dean of the School, Paul Zavracky,
concluded: ‘”The survey results indicate a major
issue in academia today: institutions of higher
education are not adequately preparing students
for careers in entrepreneurship…”(ibid). The study
delivered some other interesting results: “Thirty-
Table 1. ­
Total Responses 1079 % of Total3
Strongly Agree 95 9
Agree 249 23
Neutral 216 20
Disagree 408 38
Strongly Disagree 111 10
(Strongly Agree/Agree 32%; Neutral 20% and Disagree/
Strongly Disagree 48%).
941

three percent of respondents launched their first
venture between the ages of 18 and 30; 13 percent
between 30 and 40; and only 12 percent started
their first business after the age of 40” (ibid).
This might seem to indicate that there is a strong
role played by having the entrepreneurial spirit
and offers, a priori, support for more aggressive
work at school level to nurture the evolution of
any innate entrepreneurial spirit.
2. I Know at Least One Person
who Owns or Manages
their Own Business
In any professional context the importance of role
models is well recognised, and a brief analysis of
the typical career guidance evenings in schools
and colleges demonstrates that these are invariably
built around role models. This is no less important
when the issue of entrepreneurship is considered.
“ In the media role models are increasingly being
acknowledged as an influential in explaining the
reasons for choice of occupation and career…
empirical evidence aimed at establishing the
importance of role models for (nascent) entre-
preneurs is scarce ” (Bosma et al 2011:1). This
study attempted to get a sense of the contact that
the students at partner institutions may have with
role models (Table 2).
The fear of failure is a key factor according to
a study conducted by Enterprise Insight (WR6),
which concluded: “… [y]oung people are being
deterred from starting up their own businesses
because of a fear of failure, pressure to get a
‘steady job’ and because there are too few young
entrepreneur role models for them to follow” The
Table 2.­
Total Responses 1079 % of Total
Yes
938 87
No
141 13
942

Enterprise as a Career Choice
authors of the study argued that: “the language
of enterprise is stuck in 1980s...a rules-based
educational system and hierarchical workplaces
too often crush the enterprise spirit” (ibid). As
the chief executive of Enterprise Insight observed
“Young people’s culture has changed and we need
to redefine ‘enterprise’ to be meaningful to their
aspirations and motivations – rather than viewing
it through a narrow and outdated lens,” (ibid). The
nomenclature in the term role model is usually
only associated with success, but the research has
shown that many entrepreneurs experience some
form of ‘failure’ over their journey to success (see
Appendix 2). This has given rise to the aphorism
‘to reach success you need to pass failure’. It is
unclear how the proximity to and contact with role
models could be affected by failure of that role
model, it does not require a stretch of imagination
to think how the failure of a family entrepreneur
(especially a bread winner) may have on the next
generation.
The fact that 87% of the respondents knew
someone who ran a business is encouraging in
terms of their exposure to possible role models.
However, this needs to be considered alongside
the results for the next questions, below.
3. If You Answered Yes to
the Last Question, is this
Person a Family Member?4
Consequently, of the respondents who have contact
with a business owner/manager, close to 50% of
these contacts is through family links as presented
in Table 3.
Table 3. ­
Total Responses 988 % of Total
Yes 486 49
No 502 51

Enterprise as a Career Choice

4. I Am Keen to Start and Manage an academic analysis in and of itself. However,

my Own Business Soon or at
Least in the Near Future
The Schumpeter model and other literature high-
lights some of the factors that motivate people to
start and engage in their own business ventures
and while there can be no doubt that these all play
a role, it is unlikely that every single motivating
factor can be listed. Contexts, experiences and by
extension motivations differ. Again the results of
this research exercise indicate that close to 50%
of the respondents has a desire to start a business,
as demonstrated in Table 4.
5. I Believe that Business People
are Born and Not Taught
This question was included as a basic control
question linked to question 1, as stated above.
By reminder, in the first question the respondents
were asked whether they agreed with the state-
ment ‘I feel that everyone is capable of running a
business successfully’. In that result 32% selected
strongly agreed/agree, in this question 27% agreed,
in response to both questions the neutrals were
reasonably similar, 20% and 23% respectively, and
those who disagreed remained fairly consistent
if luck is given a wider definition that includes
the element of chance in such things as access
to education, role models, fecund environments,
etc. it does take on a more coherent framework
that moves beyond the accusations of being little
more than superstition.
“Luck is a complex concept that has received
extensive exposure in philosophical literature.
However, as a variable relating to an individual’s
professional success, it has seen little exposure in
the management literature” (Hafer and Gresham
2008: 295). The concept and perception of luck
and the nature or perception of failure in business
ventures will no doubt play an important role in
the decisions to see entrepreneurship as a viable
career choice.
The results show that the respondents rec-
ognize that luck is not a key driver in success,
although 17% do feel that it has a role to play, as
presented in Table 6. More research on this matter
Table 4. ­
Total Responses 1079 % of Total
Strongly Agree 230 21
Agree 267 25

(viz. 48% and 50% as presented in Table 5). This Neutral 310 29

consistency indicates that although the survey was Disagree 209 19

not scientifically applied in the strictest sense5the Strongly Disagree 63 6
respondents were not biased by the process. (Strongly Agree/Agree 46%; Neutral29% and Disagree/
Strongly Disagree 25%)

6. All Successful Businesses

Are a Result of Luck Table 5. ­

The more I practice the luckier I get – Gary Player Total Responses 1079 % of Total
(Professional Golfer – Major Winner) Strongly Agree 58 5
Agree 235 22
Luck is often treated in a dismissive way and not Neutral 247 23
associated with any serious academic research Disagree 429 40
of this nature. This is not a surprise as luck is Strongly Disagree 110 10
also aligned with voodoo, religious superstitions (Strongly Agree/Agree 27%; Neutral 23% and Disagree/
and other factors that are not easily reduced to Strongly Disagree 50%).

943
 
Enterprise as a Career Choice

Table 6. ­
9. Most Businesses that Fail Are
Total Responses 1079 % of Total
Due to Ineffective Management
Strongly Agree 65 6
Business start-ups are initiated for various reasons,
Agree 122 11
and they fail due to as many reasons. It could be
Neutral 203 19
argued that in the end all failure is due to some
Disagree 512 48
extent as a result of ineffective management. Hall
Strongly Disagree 177 16
(WR7) identifies the top 5 reasons as:
(Strongly Agree/Agree 17%; Neutral19% and Disagree/
Strongly Disagree 64%)
• Cashflow management
• Lack of focus
with the cohort of the students would offer more • Tax bills
significant and interesting insight, especially in • Lack of insurance
terms of any cultural skewing that may exist. In • Reliance on small number of customers
the comparative study of this cohort the Chinese
students showed a slightly stronger belief that luck While each has the potential to contribute to
was less relevant (68%) compared to 61% (rest of the failure of a business; cash flow, lack of focus
world), with a higher level of neutral level of 25% and tax bills will probably find their way onto
versus 14% for the rest. In terms of those who saw most analysts’ lists.
luck as significant the figures were 7% for China An alternative list (WR8) generates:
and 17% for rest of the world.
• Inadequate funding
7. All Successful Businesses Are the • Bad location
Result of a Good or Original Idea
Table 7. ­
Unsurprisingly this question generated agreement
from the majority, although the figure for those Total Responses 1079 % of Total
who felt they were neutral is also higher than Strongly Agree 280 26
would be expected as demonstrated in Table 7. Agree 473 43
Neutral 203 19
8. I Am Presently Involved in Disagree 104 10
an Enterprise Development Strongly Disagree 19 2
Programme and/or Do a Course
(Strongly Agree/Agree 69%; Neutral19% and Disagree/
that Includes Entrepreneurship Strongly Disagree 12%)

This positive response is lower than would be

Table 8. ­
anticipated as most of the literature and promo-
tion of the survey was distributed through such Total Responses 1079 % of Total
programmes as presented in Table 8. This indicates
Yes 460 43
that the survey penetrated beyond the student
No 619 57
cohorts that the partners had originally targeted.

944

Enterprise as a Career Choice

• Lack of a well thought-out business plan • Watching pennies

• Poor execution • Equity-driven
• Bad management • Perfect alignment
• Expanding too quickly • Good Communication, Even in Bad Times
• Insufficient marketing or promotion • Strong leadership
• Inability to adapt to a changing marketplace • Mutual respect
• Failure to keep overhead costs low • Customer-obsessed
• Underestimating competitors • High energy level

Another more comprehensive list can be found Preventing early business failure is critical to
in appendix C. Again a detailed analysis of the the establishment of a successful enterprise and
reasons business fail is beyond the scope of this entrepreneurship programme. This is due to a
exercise however, 64% of the respondents agreed number of reasons, not least the inefficient ap-
with the general observation that ineffective man- plication of resources.
agement is key to most business failure (Table 9).
At this stage of the students’ careers a detailed list 10. I Have Entered an Enterprise
of questions on business failure is likely to only Competition in the Past
generate speculation and guess work.
To prevent failure and help nurture student Again this result, presented in Table 10, might
business start-ups a key factor is the consider- seem surprising given the distribution of the
ation of their internal business culture and, by survey amongst students on related programmes,
extension, the way that the budding entrepreneurs and further suggests an indication of the degree to
apply themselves. This will promote an environ- which the survey has penetrated students beyond
ment within which the business will grow and those focused on by the partners. Other factors
develop. Greg Gottesman of TechFlash offers a that could again come into play are the fear of
list of 13 characteristics that will create a fecund failure and lack of coherent ideas. This indicates
internal culture for a start-up and all successful that those engaged in enterprise competition need
businesses (WR9): to find routes to decrease the barriers to engage-
ment with enterprise competitions and/or creation
• No politics of suitable support structures. Further, enterprise
• It’s not a job, it’s a mission education methodologies should consider build-
• Intolerance for mediocrity ing in competition structures so that they become
a standard part of the pedagogic ethos for such
programmes, the development of a real business
Table 9. ­ could be built into a credit bearing structure. This
will remove some of the barriers as it becomes an
Total Responses 1079 % of Total accepted outcome of any enterprise programme.
Strongly Agree 176 16
Agree 516 48
Table 10. ­
Neutral 249 23
Disagree 125 12 Total Responses 1079 % of Total
Strongly Disagree 13 1 Yes 212 20
(Strongly Agree/Agree 64%; Neutral 23% and Disagree/ No 619 80
Strongly Disagree 13%)

945
 
Enterprise as a Career Choice

Table 11. ­
11. If Given the Opportunity
to Manage a Business I Total Responses 1079 % of Total
Would Welcome it Yes 964 89
No 115 11
This result is both encouraging and a matter of
concern when the results for question 10 are con-
sidered, as demonstrated in Table 11. At 89% the
desire in the group is very high; with only 20% idea, a laptop, and a spare room you could set up
having participated in an enterprise competition, a business for the price of a family holiday – so
and as question 8 showed 43% being part of an what is holding people back?” He further contends
enterprise programme. that the support for enterprise development in the
UK is extremely parsimonious (WR10).
12. I Am Best Described as
a Very Confident Person 13. If I Had a Good Idea
for a Business I Would
There is little doubt that confidence plays an im- Know what to Do Next
portant role in the decision to embark on a busi-
ness start-up venture, in fact this characteristics This is an extremely encouraging result, as with
may be a key hurdle that needs to be overcome. over 70% of the respondents being aware of the
“Innovation and entrepreneurship go hand in hand initial steps in terms of starting a business, one of
and our experience of working to support business the key obstacles is not present, as presented in
start ups and innovation in the UK suggests it’s Table 13. While this outcome does indicate that
more a lack of confidence than a lack of fund- the students are confident, it supports the need to
ing that is the problem” (WR10). With 55% of mine this confidence further, not least in terms of
the students feeling that they are very confident, what steps are seen as the next steps. There is still,
this is encouraging, with 34% elected to remain a priori, a wide swath of business start-ups which
neutral (the highest neutral measure for the study)
as presented in Table 12, it could be argued that Table 12. ­
removing the ‘very’ from the question the number
agreeing would increase. Total Responses 1079 % of Total
The need to develop structures that promote Strongly Agree 183 17
students confidence level is a standard pedagogic Agree 407 38
challenge in any teaching and learning environ- Neutral 373 34
ment. This study indicates that there is a cohort Disagree 98 9
who feels very confident, with another group that Strongly Disagree 18 2
is likely to feel confident as opposed to very con-
(Strongly Agree/Agree 55%; Neutral 34% and Disagree/
fident. The enterprise development methodologies Strongly Disagree 11%)
need to ensure that this confidence is effectively
channelled into developing business start-ups.
Table 13. ­
Key to this methodological transformation is to
remove the standard perceptual barriers to starting Total Responses 1079 % of Total
a business i.e. ‘have no funds’; ‘need an office’, Yes 771 71
etc. As Gordon Frazer, managing director of Mi- No 308 29
crosoft observed: “We know today, with a good

946

Enterprise as a Career Choice

see securing an office, paying for a website, in-
corporation, etc. as critical initial steps, regardless
of the focus and needs of their fledgling business.
All support structures need to embrace Frazer’s
observation (see above) and encourage business
start-ups through innovative and paradigm shifting
methodologies. Developing a coherent business
start-up process is crucial in terms of ensuring
that any innate entrepreneurial skill or desire
is nurtured and given a fertile environment to
grow and manifest. Presently, RDBS has a clear
business start-up process that starts from a Basic
Business Plan (BPP) through 7 minutes meetings
to Full Business Plan and Initiation, known as the
Enterprise 360 model.
14. Business Start-up Support
Should Be Easier to Find
These results, presented in Table 14, indicated
that while 71% of the respondents felt that they
knew what steps they needed to take in order to
start a business, only 30% felt that business start-
up support was easy to find. This leads to the
conclusion that many do not know where to find
the relevant support; this is not likely to be due
to lack of advertising of services but perhaps as a
result of a lack of understanding what is required
from such services. It is highly likely, as stated
above, that when the respondents indicated that
they are aware, they are thinking in terms of in-
corporation and other structural factors i.e. how
to get a website, get offices, etc.
15. I Would Like to See More
Enterprise Programmes and
Projects Being Offered
This result, presented in Table 15, is not surprising
given the outcomes from the previous questions;
however, this must be evaluated in terms of the
extensive programmes and projects on offer at
partner institutions. This situation is very much
a chicken and egg scenario, the support for enter-
prise and enterprise development does exist and
is widely available. A coherent understanding of
what they need is potentially lacking on the part of
the students. This failure to recognise and access
the plethora of business start-up support as a first
port of call is an area that needs to be addressed
as a matter of some urgency.
16. I Think People from Different
Cultures Have Different Attitudes to
Starting and Running a Business
This question is simple on the face of it but ad-
dresses a very complex area, one that is prone to
stereo-typing and prejudice. The overwhelming
agreement by respondents, demonstrated in Table
16, is encouraging in terms of an acceptance of
the different approaches and penchants that are
characteristic of different cultures when entre-
preneurship is considered. It also generated the
lowest result in terms of those feeling that they
are neutral.

Table 14. ­ Table 15. ­

Total Responses 1079 % of Total Total Responses 1079 % of Total

Strongly Agree 168 15 Strongly Agree 264 24

Agree 332 31 Agree 560 53

Neutral 257 24 Neutral 184 17

Disagree 295 27 Disagree 46 4

Strongly Disagree 27 3 Strongly Disagree 25 2

(Strongly Agree/Agree 32%; Neutral 20% and Disagree/ (Strongly Agree/Agree 77%; Neutral 17% and Disagree/
Strongly Disagree 48%) Strongly Disagree 6%)

947
 
Enterprise as a Career Choice

Table 16. ­
(WR11). The Coutts & Co survey also indicated
Total Responses 1079 % of Total
that: “29 per cent of entrepreneurs would like
Strongly Agree 342 31
enterprise courses taught in UK schools, believing
it would be the most effective way to encourage
Agree 578 54
growth in their sector and create more business
Neutral 91 8
owners” (ibid).
Disagree 60 6
Strongly Disagree 8 1
19. Given the Choice between
(Strongly Agree/Agree 85%; Neutral 8% and Disagree/Strongly Employment or Managing my
Disagree 6%)
Own Business, I Would Select
to Manage a Business
17. The Main Hurdle Stopping me
from Exploring Starting a Business This question generates a higher neutral response
is Lack of Suitable Support than most other questions, indicating a potentially
large cohort that could be targeted in terms of
These results, presented in Table 17, are interesting seeing the benefits of owning/managing/running
when considered against the 71% who answered a business, as demonstrated in Table 19. Encour-
that they would know where to start. Therefore, aging is the fact that the majority 53% would
again, how business start-up support is viewed is elect to run a business given that the alternative
crucial to the on-going success of any enterprise is employment. In order to better understand
development and entrepreneurship nurturing. the motivations that lead a person to elect one
(employment) or the other (business ownership)
18. I Have Never Considered it is important to recognise the key factors associ-
Developing and Managing a ated with employment which can be termed ‘the
Business as a Career Option comfort of employment’ (WR12):

This question is central to the tenet of the study Table 17. ­

viz, what are student attitudes towards enterprise
and business start-up as a viable alternative to Total Responses 1079 % of Total
seeking employment opportunities? The results Yes 643 60
are encouraging but with the growing call for No 436 40
enhancing entrepreneurship, it is incumbent on
those that are entrusted in promoting enterprise
development to focus on demonstrating its viability Table 18.­
as a career choice, giving further impetus to the
need to embed enterprise across the curriculum Total Responses 1079 % of Total

(Table 18). Strongly Agree 85 8

This observation is not isolated to the research Agree 240 22
team, “…[a]lmost a third of business owners call Neutral 254 24
for enterprise lessons in Britain to make entre- Disagree 377 35
preneurship become a valid career choice, recent Strongly Disagree 123 11
research by the bank Coutts & Co has revealed” (Strongly Agree/Agree 30%; Neutral 24% and Disagree/
Strongly Disagree 46%)

948

Enterprise as a Career Choice

Table 19. ­
Total Responses 1079 % of Total
Strongly Agree 244 23
Agree 330 30
Neutral 299 28
Disagree 177 16
Strongly Disagree 29 3
(Strongly Agree/Agree 53%; Neutral 28% and Disagree/
Strongly Disagree 19%)
• The financial comfort.
• The process comfort.
• The time management comfort.
These factors are key to the overall perspec-
tive that employment has a number of benefits,
not least of course is lifestyle. Most employment
positions carry a regular 9am-5pm, 5 days a week
structure with a regular salary. The decision to
start a business flies directly in the face of each
of these comforts.
Firstly, starting a business is by definition finan-
cially uncomfortable; secondly, the environment
within which many businesses start can be very
uncomfortable and often lonely and thirdly, time
demands are onerous in the extreme. However,
in terms of time management, it must be recog-
nised that the changing workplace environment
is adding to the time pressure that employees are
experiencing. A US based study found that: “ 70%
of employees works beyond scheduled time and
on weekends; more than half cited ‘self-imposed
pressure’ as the reason ” (WR13). Small business
owners have similar ‘self-imposed pressure’ in the
strictest sense, but this pressure has little flexibility,
which the employee will have to a degree i.e. time
given back, leave entitlements, etc. None of these
conducted by Alliance and Leicester showed
that 33% of small business owners worked more
than 50 hours a week with almost 15% clocking
over 65 hours a week (WR15). Whichever one
chooses to be to believe, it is clear that the time
demands on a small business owner or start-up
are extensive. While these factors may or may
not come into to play in the present study, it is a
matter for further study to investigate, the fact that
53% agree that they would rather run a business
than be employed and with 28% indifferent, this
reflects a strong and vibrant base for promoting
student business start-ups.
20. Starting a Business Can Be
a Risky Activity; Would You Say
that You Are a Risk Taker?
These answers, presented in Table 20, show a
reasonable consistency with the rest of the results.
In most the business literature the concept of
business start-up and risk taking are synonymous.
21. Your Family Would Support
You Starting a Business
The role of family in supporting any decision to
start a business is extremely important, encour-
agement and reassurance from those close to the
budding entrepreneur is an essential ingredient
for the success of any start-up immaterial of the
age of the person initiating the venture (Table 21).
Table 20. ­
Total Responses 1079 % of Total
Strongly Agree 168 16

‘luxuries’ are available to the small business owner. Agree 449 41

These demands often lead to small business own- Neutral 247 23

ers neglecting their health; “ nearly a quarter of Disagree 187 17
small business owners put their work commitments Strongly Disagree 28 3
before their health according to a survey carried (Strongly Agree/Agree57%; Neutral 23% and Disagree/
out by Continental Research” (WR14). Research Strongly Disagree 20%)

949
 
Enterprise as a Career Choice

Table 21. ­
24. If I Experience Problems
Total Responses 1079 % of Total
with Securing Employment I
Strongly Agree 225 21
Would See Starting a Business
as the Next Best Alternative
Agree 407 38
Neutral 273 25
These results are closely aligned to the responses
Disagree 154 14
for question 19, where 53% elected to start a
Strongly Disagree 20 2
business if given a choice between that and
(Strongly Agree/Agree 59%; Neutral 25% and Disagree/ employment. In this case when the employment
Strongly Disagree 16%)
alternative is removed the figure increases to 59%,
as demonstrated in Table 24. Interestingly, the
22. I Am Presently Located in neutral or indifferent figure is totally consistent.
It may be unscientific but not unreasonable to
Due to various factors some of the studies partners assume that some of those who disagreed in 19
were not able to generate sufficient interest in the have elected to agree; further to conclude that
survey, however, a comparative analysis between the 28% are indifferent to the concept of starting
the Chinese results and the rest of the respondents a business whatever the context and thus would
is presently being written up by the team (Table 22). rather take the employment option if the neutral
option were not present.
23. I Am Female/Male

The study generated a neat balance in terms of

gender breakdown, as presented in Table 23; this
was purely coincidental. Table 24. ­

Total Responses 1079 % of Total

Table 22. ­ Strongly Agree 174 16

Agree 468 43
Total Responses 1079 % of Total Neutral 299 28
Australia 11 1 Disagree 109 10
China 436 40 Strongly Disagree 29 3
Pakistan 103 10 (Strongly Agree/Agree 59%; Neutral 28% and Disagree/
United Kingdom 136 13 Strongly Disagree 13%)

South Africa 345 32

Togo 2 0 Table 25. ­
Other 46 4
Total Responses 1079 % of Total
Strongly Agree 261 24
Table 23. ­ Agree 403 37
Neutral 298 28
Total Responses 1079 % of Total
Disagree 61 6
Female 537 50
Strongly Disagree 56 5
Male 525 49
(Strongly Agree/Agree 61%; Neutral 28% and Disagree/
Prefer not to say 17 1
Strongly Disagree 11%)

950

Enterprise as a Career Choice
25. I Would Be Happy to Complete
Similar Surveys in the Future
The neutral figure for this question is a surprise
and could be a result of a growing sense of indif-
ference to the survey or to the topic in general
(Table 25).
Developing effective and coherent enterprise
education and entrepreneurship support structures
requires an integrated understanding of student
attitudes to business start-ups. Historically, enter-
prise and enterprise development have been seen
as an add-on or enrichment for students who are
studying towards a qualification that will lead to
formal employment. The changing labour market
absorption rates and increasing costs of higher
education is changing the dynamic and focus on
entrepreneurship. There is little doubt that in the
not too distant future the comparative advantages
that will set higher education institutions apart
is the degree to which entrepreneurship will be
embedded across the curriculum.
This study indicates that there is a fertile foun-
dation upon which to build more integrated enter-
prise support. Developing structures that create
effective start-up processes, which minimizes the
upfront risks and allows the students to mobilize
the supportive environment that the institutional
partners is essential if the enterprise start-ups are
to become ubiquitous at higher education institu-
tions. This research exercise attempts to assist
practitioners in developing an understanding of
students’ attitudes and gains some insight into
the effectiveness of the enterprise development
offering at partner institutions.
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Enterprise as a Career Choice

ENDNOTES 4
Note that where there were a number of re-
spondents who had answered no to question
1
According to Babel Fish this is the transla- 2 but still submitted an answer to question
tion for entrepreneur into basic Chinese. 3, these have been factored out.
2
Babylon.com offers this as the Arabic trans- 5
This was due to the fact that the project was
lation for entrepreneur. not funded.
3
All figures are rounded from 2 decimal
places and adjusted across all data fields to
generate 100%.

This work was previously published in Enterprise Development in SMEs and Entrepreneurial Firms edited by Nelson Oly
Ndubisi and Sonny Nwankwo, pages 343-362, copyright year 2013 by Business Science Reference (an imprint of IGI Global).

953
 Enterprise as a Career Choice

APPENDIX A

Are You an Entrepreneur Test?

http://technologyinside.com/2007/02/13/are-entrepreneurs-born-or-made/(accessed 17 March 2012)

How to See if You Have What It Takes

For each of the following five groups of statements choose the one that best describes what would be
most important to you when starting your business.

Group 1: A) Working with other like-minded individuals B) Making a big effort to get the company
structure right C) Willing to work seven days a week D) Realising that technical excellence is the
key to success
Group 2: E) Getting some qualifications before starting your business F) Only starting the business
with all the finance in place G) Keeping your existing job until your business is established H)
Seeing work as relaxation
Group 3: I) Making sure you have a social life as well J) Be willing to sell your house and car to start
your business K) Taking your time to make all the important decisions L) Plan your exit strategy
from the beginning
Group 4: M) Not selling more than the company can deliver N) Making sure the product is perfect
before getting sales O) Be willing to fire people who perform badly P) Developing business plans
to make strategic decisions
Group 5: Q) Always involving colleagues in decisions R) Only aiming for the highest quality S) Be
willing to sacrifice family life to build the business T) Realising that all that matters in business
is making money

What It Says About You?

Scoring

Score 4 points each if you chose C, H, J, O, S Score 3 points each if you chose A, E, L, P, T Score 2
points each if you chose B, F, K, M, Q Score 1 point each if you chose D, G, I, N, R
Depending on the statements you selected, if you have the appropriate personality, intellectual abil-
ity and values, then you are likely to be an Expert, Corporate, Enterpriser or Strongly Entrepreneurial
wealth creator.

Score of 5 to 9: EXPERT. Not so attracted by personal risk or by commercial challenge. Sees value in
getting processes right and focuses on achieving high-quality work. Prefers functional role using
technical knowledge and expertise.
Score of 10 to 14: CORPORATE. Interested in developing a business within a structured context. Achieves
this by energising groups in organisations. Willing to take business risks rather than personal risks.
Looks for challenges in medium to large organisations.

954
Enterprise as a Career Choice

Score of 15 to 18: ENTERPRISER. Seeks excitement from making things happen. Finds personal risk-
taking exciting but prefers to share risks and rewards with others. Focuses energy on achieving goals
but maintains reasonable work/leisure balance. Dislikes routine and constantly seeks challenges.
Score of 19 to 20: STRONGLY ENTREPRENEURIAL. Enjoys starting own businesses and devotes all
energy and time to make things happen, often at the expense of family, possessions and reputation.
Restless and often dissatisfied with what is achieved but very resilient and able to pick up and start
again. Sees work as relaxation.

APPENDIX B

1. http://www.energybyte.com/blog/entrepreneurship-failure (accessed 17 March 2012)

2. http://www.entrepreneurship.org/en/policy-forum/succeeding-through-failure.aspx (accessed 17
March 2012)
3. http://campusentrepreneurship.wordpress.com/2010/03/12/entrepreneurship-and-failure-50-bril-
liant-failures/(accessed 17 March 2012)
4. http://www.entrepreneurs-journey.com/169/there-is-no-true-failure-in-entrepreneurship/(accessed
17 March 2012)

APPENDIX C

http://www.internetbasedmoms.com/internet-marketing/why-business-fail.html (accessed 17 March)

25 Top Reasons Why Businesses Fail

Starting a business, whether it be from home, or in an office somewhere, may sound like the perfect
solution to your working blues, but unless you’re committed to making it work, you can find yourself
on the losing end real quick.
Businesses fail for many reasons. It is important to understand those reasons so that you can decide
whether or not you are up to the challenge. Those reasons include:

1. Fear–Whether it is the fear of success or the fear of failure, fear of stepping out of one’s comfort
zone to try something new, or the fear of trial and error. Fear can freeze a person dead in his or her
tracks.
2. Failure to plan.
3. Lack of funding.
4. Procrastination
5. Excuses. Especially making an excuse for any and everything that causes you to stumble.
6. Doing busy work. Keeping busy doing unimportant tasks.
7. Inability to delegate tasks. Sometimes delegation saves your business. If you have a weakness, hire
someone who could turn that weakness into strength. Use others to complete simple time consum-
ing tasks so that you can do other things.

955
 Enterprise as a Career Choice

8. Failure to Research.
9. Failure to Market.
10. An inconsistent advertising campaign. It is better to have a ton of small ads on a regular basis than
one large ad on a monthly or yearly basis.
11. Your pricing is too low, thus resulting in a negative cash flow.
12. Bad accounting practices.
13. Choosing quantity over quality. Cutting corners is bad business sense.
14. Dishonesty.
15. Not fixing mistakes.
16. Not completing tasks in a timely manner.
17. Inability to follow-up. You should always follow-up by email, snail mail, or phone.
18. Not listening to client or customer. Talking too much.
19. Spending too little. It takes money to make money.
20. Spending too much. Purchasing items when you don’t need them, upgrading when the older version
will do, letting suppliers talk you into things you cannot afford, and not budgeting.
21. Being unprepared for fluctuations in business. Boom times when demands are high as well as slow
times when you are struggling to get by. (Put money away during boom times to prepare for slow
times.)
22. Lack of diversification. If you only offer one product or service, losing it can destroy your business.
23. Reputation. While a good reputation will gain you tons of business, a bad reputation could close
your business.
24. Cockiness. There is nothing wrong with feeling great about your products, services, or accomplish-
ments. Just don’t let pride and arrogance destroy your customer relations.
25. Discouragement. Giving in to your feelings of discouragement, when things do not work out the
way you planned or succeed as fast as you thought. Also allowing others to feed on any discourage-
ment you may already feel.

956
 957

Chapter 52
Towards Convergence in
European Higher Education
through Open Innovation
Eliza Laura Coraş
University of Economic Studies, Romania

Adrian Dumitru Tanţãu

University of Economic Studies, Romania

ABSTRACT
Universities are considered the main sources of innovation; yet, in practice, their potential as collabo-
ration partners in the scope of innovation creation is underexplored, being last mentioned by firms as
collaborators. Moreover, firms’ innovation policies tend to change their focus by driving success more
often from collaboration with universities. Given the direct influence of quality of higher education on the
capacity of the business sector to innovate, in this chapter the authors address the issue of collaborating
with higher education institutions through open innovation by fostering university-industry collabora-
tion and a more entrepreneurial mindset in universities. The authors offer evidence from European
universities in order to illustrate the benefits of such partnerships and also the barriers that hamper the
open innovation objectives by applying a risk management perspective. Furthermore, they explore with
examples how Romanian universities take this path of collaboration.

INTRODUCTION exploit the potential for marketable products and

The recent shift towards open innovation has
resulted in increased flows of knowledge and
new types of co-operation between education
institutions, research organisations and business.
However, higher education institutions still prove
to be weak in integrating research results and in-
novative practice into the educational offer, and to
DOI: 10.4018/978-1-4666-8468-3.ch052
services (European Commission, 2011). More-
over, actors in the business environment show
a high reluctance to benefit from a knowledge
exchange with the education system, focusing
more heavily on quantitative financial results.
Considering the increased global competition
among universities and national higher education
systems, as well as the increased mobility of

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Towards Convergence in European Higher Education through Open Innovation
students and scholars, this chapter will focus on
how collaboration among universities and espe-
cially among universities and businesses acts as
a driver for performance and innovation for both
the universities and the industries. We will mainly
focus on the benefits of this collaboration in the
context of open innovation, for both the firms and
universities, and for students, as foremost clients
of universities. We will also draw attention on
the main risk factors that hamper the university-
industry collaboration, based on evidence from
Romanian business background.
We begin our research from the hypothesis
that investment in tertiary education positively
influences a country’s or region’s or industries
capacity to innovate. Revolving around the idea
of collaboration, we address several issues that
bridge educational performance and convergence
in higher education institutions, through open in-
novation: knowledge transfer, university entrepre-
neurship, university – industry partnerships. More
cooperation between firms and universities might
quickly bring a greater diffusion of knowledge,
better results from firm innovation and training
programs for students. Developing a more entre-
preneurial mindset in universities might enhance
the higher education institutions’ performance
and ability to share the knowledge created: even
if universities are considered the main sources for
innovation, in practice, they are mentioned last by
the firms as collaborating partners in the scope
of innovation. The changing students’ needs and
expectations is another trigger for collaboration,
by involving students in open innovation practices
with universities in order to increase convergence
(increase the students’ work-relevant competencies
and skills, make them more employable, foster
entrepreneurial attitudes and mind sets among
them) – on the background of globalization and
students increased mobility.
In the same perspective of collaboration, the
level of success for a firm’s innovation policy
extends beyond the ability to launch new prod-
958

ucts or services into the market, to collaboration
with universities, where they drive success from.
Moreover, the quicker firms transform knowledge
provided by universities into new products and
services, the more qualitative and performing is
the educational framework.
Using data from specific literature linking
open innovation to higher education institutions,
evidence from European universities and results
from a survey conducted on innovative business
firms in Romania, this chapter intends to provide
an understanding and perspective of the context
of university–industry collaboration (i.e. the
motivations, goals, main barriers and facilitators
of such collaboration). Secondly, our purpose is
to review the organizational changes undertaken
by universities to improve ‘entrepreneurial atti-
tudes’ among academic researchers, and thirdly,
to explore several practical European examples of
university-industry collaboration which yielded
in boosting the innovation capacity of both the
university as well as the business itself. A few
examples from Romania will show light on how
university-industry partnerships are being devel-
oped in the emergent European countries, even if
such cooperation is less frequent and its presence
less studied in the literature.
Given the overall sparse attention given to open
innovation form the risk management perspective
in higher education environment, we also con-
sider worth addressing this deficiency through
the challenge of defining a framework of risks
encountered by business firms in their external
partnerships with universities. Using a structured
questionnaire survey, this paper also examines the
innovation activities of 50 Romanian companies
activating in the financial sector and perspective
on risk management in relation to open innova-
tion practices.
We regard this chapter as a step towards in-
creasing awareness on how a stronger convergence
among universities at European level can be
achieved through collaboration among universi-

Towards Convergence in European Higher Education through Open Innovation
ties, university-industry partnerships and a more
prominent entrepreneurial orientation of higher
education institutions.
BACKGROUND
According to Chesbrough (2003), open in-
novation highlights the innovative potential of
external factors, since valuable ideas can come
from inside or outside the company and can go
to market from inside or outside the company as
well (Chesbrough, 2003).
The capacity of a nation to produce wealth
depends increasingly on the investment it un-
dertakes in strengthening the so-called ‘‘triangle
of knowledge’’, which is composed of research,
education and innovation (Abramo et al, 2009).
In the light of this knowledge triangle concept,
the European Union, through the Lisbon 2000
agenda, defined the objective to transform Europe
in the most competitive knowledge economy in the
world, by setting the goal that each EU member
state should assign 3% of its GDP to research by
the year 2010. This high investment in research
was thus considered a prerequisite of innovation
performance.
Knowledge-generating institutions, such as
universities and research laboratories, public and
private research laboratories (the dominant loci
of R&D and innovation in most fields) and, more
recently, government agencies, are seen as key
actors with respect to the innovative potential of
society (Van Looy et al., 2011).
Higher education institutions face several major
challenges and trends that require a revolutionary
perspective on their effectiveness as knowledge
centres: internationalisation, inequalities in access
to higher education, increasing student mobility,
the growing role of the private sector, high research
competition, new information and communication
technologies, constraints on public funding, gover-
nance reforms and greater institutional autonomy,
initiatives by institutions, governments and supra-
national organisations (Altbach, Reisberg and
Rumbley, 2009). In order to address these trends,
we study how a collaborative approach transforms
the old closed systems of education.
Collaborative research refers to projects where
universities and businesses work together on
shared problems (Martinelli, Meyer, &von Tun-
zelmann, 2008). Collaborations can be defined as
“all forms of agreements between firms, universi-
ties, and research institutes whereby two or more
organizations share the commitment to research
a common goal by pooling their resources and
co-ordinating their activities” (European Com-
mission, 2002, p15).
A lucrative collaboration among research and
education institutions and the business environ-
ment requires intensive interaction between stake-
holders, in order to disseminate and manipulate
the knowledge created, as well as efficiently
transferring it into the market. The European
Commission believes that higher education institu-
tions, as centres of knowledge creation, can drive
economic development in the territories where
they are located; they can bring talented people
into innovative environments and harness regional
strengths on a global scale; they can foster an open
exchange of knowledge, staff and expertise. They
can also act as the centre of a knowledge network
or cluster serving the local economy and society,
if local and regional authorities implement smart
specialisation strategies to concentrate resources
on key priorities and maximise impact (European
Commission, 2011).
At European level, several actions were taken in
order to prove the commitment for higher quality
education, convergence and innovation.
Convergence in the European landscape of
universities is proven hard to achieve due to the
great diversity in approaching higher education
in different member states or in managing the in-
novation outcomes. However, in order to increase
convergence, the European Higher Education Area
(EHEA) was created, a system in which national
higher education and research systems become
959

Towards Convergence in European Higher Education through Open Innovation
more compatible and comparable, thus facilitat-
ing increased interaction and mobility of students,
graduates and staff across borders. The EHEA
was established with the 1999 Bologna Declara-
tion, whose focus is on structural reforms aimed
at making European higher education systems
more coherent and effective by establishing a set
of common features: a three-cycle degree structure,
the generalisation of the European Credit Trans-
fer and Accumulation System (ECTS), National
Qualification Frameworks (NQF) to describe
clearly the different cycles and qualifications in
national education systems, recognised national
quality assurance systems, consistent with Euro-
pean Standards and Guidelines (ESG) for quality
assurance, mutual recognition of qualifications and
learning credits, in line with the Lisbon Recogni-
tion Convention (European Commission, 2011).
The Framework Programmes constitute one of the
centrepieces of these activities, being specifically
designed to pool resources and promote R&D co-
operation between the EU member states in order
to improve the communication and collaboration
among researchers, scholars, engineers and other
technical support staff (Hoekman, Frenken and
Tijssen, 2010).
The European Research Area (ERA) is tar-
geting to reach a convergence objective through
optimal transnational co-operation and competi-
tion among research institutions, under the Joint
Programming initiatives. Joint programming is a
structured and strategic process whereby Mem-
ber States agree, on a voluntary basis and in a
partnership approach, on common visions and
Strategic Research Agendas (SRA) to address
major societal challenges (European Commis-
sion, 2012). However, the studies conducted by
the European Commission reflect that efficient
implementation of the objectives of the European
Research Area are currently hampered by several
barriers: aligning different sources of funds, lack
of transparent, open and merit-based recruitment
(which makes research careers less attractive and
impedes mobility), gender equality and research
960

performance, social security obstacles and insuf-
ficient academia-business mobility with only one
in six researchers in academia having experience
in the private sector. Furthermore, it is the spe-
cific observation of the European Commission
that ERA needs to foster open innovation, links
between research, business and education (the
knowledge triangle) and, in particular, knowledge
transfer between public research institutions and
the private sector, all for boosting the economic
outcome of the research, expressed especially
through innovations.
The need of collaboration was also a central
concept of the 2012 Nicosia Conference “Complet-
ing the European Research Area in the Context of
the Innovation Union – Boarding Time,” where the
benefits of the synergies among the stakeholders
in education and business are considered criti-
cal: cross-border cooperation, removed barriers
to recruitment, developing synergies between
different national and EU funding sources, im-
proving knowledge transfer between universities
and industry in order to foster open innovation,
public-private mobility, open access to publicly
funded research (European Commission, 2012).
Still, the European Commission states that
evidence from reviews of the Bologna Process
indicate that further progress is needed in order
to fully achieve the objectives of the European
Higher Education Area. We believe that increased
international cooperation between the universi-
ties, as well as more involvement of industries
in the development of higher education systems,
would surpass the present shortcomings. Given
the changing focus of European institutions toward
knowledge-intensive activities, which generate
high added value and necessitate highly skilled
personnel, we face a new perspective on educa-
tion, requiring a higher degree of collaboration
between industries and university in order to boost
the innovative potential.
In order to support the development of closer
cooperation between higher education institutions
and companies in Europe, the Commission has

Towards Convergence in European Higher Education through Open Innovation
launched the University-Business Forum, a plat-
form on European level for a structured dialogue
between the stakeholders. The exchanges and
discussions are based on real cases and address
university-business cooperation related topics
from the business and higher education perspec-
tives. The Forum has demonstrated that there is an
appetite on both sides for working in partnership
focused on education, with the common goal to
ensuring that education delivers high-level and
highly valued skills, underpinned at all times by
high levels of adaptability, entrepreneurship and
creative and innovative capacities (European
Commission, 2011).
Currently, internationalisation has a strong
impact on the development of higher education
institutions. On one side, it is a factor the rises
the standard of quality required and, on the other
side, it facilitates collaboration and mobility, and
heightens the capacity for innovation, subordi-
nating to the European Higher Education and
Research Area objectives. Chiriacescu (2007)
highlights that although modern universities are
characterised by a high rate of autonomy at the
national and regional level, for example in Europe,
common strategies and compatible performance
criteria are necessary to facilitate the mobility of
labour force and unlimited access to new discov-
eries in science and technology.
Activities in universities related to the gen-
eration and application of knowledge outside
the academic environments are currently a topic
of growing importance in the agendas of both
R&D policymakers and university administrators
(Ramos-Vielba, 2010). Governments and research
agencies are seeking ways to facilitate the interac-
tions between industry and universities with the
hope that they can improve productive processes
and competitiveness in their national or regional
environments (OECD 1998, 2007).
Universities and industries have been col-
laborating for over a century, but the rise of a
global knowledge economy has intensified the
need for strategic partnerships that go beyond
the traditional funding of discrete research proj-
ects. World-class research universities are at the
forefront of pioneering such partnerships by
transforming the role of the research university
for the 21st century, anchoring it as a vital centre
of competence to help tackle social challenges
and drive economic growth (Edmondson et al.,
2012). We will further prove with specific cases
how immense the outcome of the collaboration
between universities and business actors is.
RESEARCH METHODOLOGY
Given the nature of our study and the lack of ex-
tensive knowledge around the approached subject,
we believe an exploratory research is more ap-
propriate. The selection of a qualitative approach
allows the researchers to get close to participants
and their thinking in order to scrutinise the entire
research problem (Maykut and Morehouse, 1994).
Data presented in this chapter was collected
from specific literature linking open innovation
to higher education institutions, evidence from
European universities involved in external knowl-
edge sharing with industry counterparts and from
an exploratory study performed on a sample of
innovative business firms in Romania. The lat-
ter study was conducted using semi-structured
interviews with 50 managers of companies from
the financial sector in Romania (small banking
institutions, insurance companies, non-banking
financial institutions). This exploratory technique
is regarded as appropriate when very little is known
about the subject in hand (Maykut and Morehouse,
1994). The interviews constituted of questions
related to general perception of university – in-
dustry collaboration, followed by awareness of
risks perceived as inherent in such partnerships
and how they influence the availability of the
business itself to open its boundaries to external
knowledge infusion or exploitation in the purpose
961

Towards Convergence in European Higher Education through Open Innovation
of innovation. To reliably identify collaboration
and innovation activities, only representing enter-
prises that systematically innovate were selected.
MAIN FOCUS OF THE CHAPTER
Framework of University –
Industry Collaboration
Collaboration between the business sector and
universities should be increased in order to meet the
market demand for innovation. While universities
are primarily driven to create new knowledge and
to educate, private firms are focused on capturing
valuable knowledge that can be leveraged for com-
petitive advantage (Dasgupta and David, 1994).
Universities support the industry in achieving
new innovations by providing them competent
personnel, the latest research results, an up-to-date
knowledge-base and scientific research publica-
tions (Fiaz, 2013).
The literature strongly supports innovation as
a major factor that triggers collaboration between
the business sector and the higher education insti-
tutions. Globalization and internationalisation has
increased the need for high innovative outcomes
and also for a more profound participation of the
government by supporting its role in the triple
helix system.
Considering the importance of university-
industry collaboration, developed countries have
sought different mechanisms to promote these
collaborations (Fiaz, 2013). The USA has 39
recognized federally funded research and devel-
opment centres. The University of California,
Stanford University, Princeton University are just
some of the well-recognized universities in the US
system that have established strategic relation-
ships with various strategic and defence institutes
(GUIRR, 2012). Stanford University or MIT have
been widely cited as “catalysts” in the growth of
high-technology “clusters” in California’s Silicon
Valley or eastern Massachusetts (Mowery, 2008).
962

Countries in the Organization for Economic
Cooperation and Development (OECD) also en-
courage business-funded R&D in higher education
and government laboratories (Perkmann, Neely
and Walsh, 2011).
Mowery (2008) shows that universities also
play a unique role in conducting applied and fun-
damental research as well as training engineers
and scientists, and their ability to expose graduates
to the frontiers of scientific research provides a
powerful mechanism for the transfer of knowl-
edge and technology. He further exemplifies the
survey of R&D managers conducted by Cohen et
al. (2002), which also explored the importance
to industrial R&D of different channels of com-
munication linking intrafirm R&D to external
performers of R&D in university laboratories.
For most industries, patents and licenses involving
inventions from university or public laboratories
were reported to be of little importance, compared
with publications, conferences, informal interac-
tion with university researchers, and consulting
(Mowery, 2008).
Forms of University-
Industry Collaboration
Fiaz (2013) addresses different forms of collabo-
ration and interaction among partners presented
in the literature: joint research collaboration,
informal interactions in meetings/conferences
for exploiting the opportunities of knowledge
exchange and coordination, impersonal forms of
exchanges as publications, face-to-face associa-
tions and arm’s-length interactions.
Scientific knowledge can be transferred to
the market in different ways: (a) education and
training; (b) contract research; (c) industrial con-
sultancy; (d) licensing; (e) spin-off companies;
(f) spin-off joint ventures; and (g) collaborative
research (Cripps, Yencken, Coghlan, Anderson,
& Spiller, 1999).
The modes of innovative cooperation between
industry and universities largely consist in informal

Towards Convergence in European Higher Education through Open Innovation
communication of skills and knowledge, technol-
ogy trade or technology transfer, formal R&D
collaboration, training of innovative personnel,
and provision of skilled workforce and graduates
with knowledge and skills (Zeng,, Xie, and Tam,
2010). Abramo et al. (2009) listed that the typical
modalities of partnerships include joint research
projects, awarding of research contracts, awarding
of know-how and patents under license, consulting,
training services and personnel mobility.
In their study, Perkmann et al. (2013) focused
on ‘academic engagement’ which they defined
as knowledge-related collaboration by academic
researchers with non-academic organisations.
According to the literature, they found that these
interactions include formal activities such as col-
laborative research, contract research, consulting,
as well as informal activities like providing ad
hoc advice and networking with practitioners.
Academic engagement is also sometimes referred
to as informal technology transfer (Link et al.,
2007), even though most of these interactions
tend to be formalised using contracts (Perkmann
et al., 2013).
Academic engagement is not a new phenom-
enon but has a long tradition, particularly at uni-
versities that emphasise practical and technical
relevance as part of their mission, such as the
US land grant universities who seek to provide
practical education whilst assisting local firms and
agricultural contexts (Mowery and Nelson, 2004).
Academic engagement is characterised by the
following aspects which refer to organisation and
objectives, respectively. First, academic engage-
ment represents inter-organisational collaboration
instances, usually involving ‘person-to-person
interactions’ (Cohen et al., 2002), that link uni-
versities and other organisations, notably firms
(Schartinger et al., 2002). The quid-pro-quo agreed
amongst the partners may be purely financial, i.e.
the academic may work for a fee, or may consist
of non-financial benefits such as access to ma-
terials or data for academic research projects or
ideational input (Perkmann and Walsh, 2009).
Second, generally the partners pursue goals that
are broader than the narrow confines of conduct-
ing research for the sake of academic publishing,
and seek to generate some kind of utility for the
non-academic partners. For instance, the academic
may offer his/her expertise to provide new ideas
on application-oriented issues, solve problems and
suggest solutions to collaborating organisations
(Perkmann et al., 2013).
Perkmann et al. (2013) research expresses
that academic engagement is a multi-level phe-
nomenon, in the sense that it is determined by
both the characteristics of individuals as well
as the organisational and institutional context in
which they work. Their main findings are: First,
academic engagement is positively correlated
with individual characteristics that define senior,
scientifically productive individuals, indicating
that it is in line with furthering their academic
research activities. Second, engagement is less
organisationally embedded than commercialisa-
tion activities, and is more autonomously driven
by individuals. Third, engagement appears to be
an effective tool for mobilising resources, and
may function as a substitute for generous resource
endowments at highly ranked institutions.
DÉste and Perkmann (2011) found there are
three main forms of collaboration. Collaborative
(or joint) research refers to formal collaborative ar-
rangements aimed at cooperation on R&D projects
(Hall et al. 2001). In many cases, the content of
this research can be considered ‘pre-competitive’,
and these projects are often subsidized by public
funding. Contract research, on the other hand,
refers to research that is directly commercially
relevant to firms and, therefore, is usually in-
eligible for public support. Contract research is
explicitly commissioned by firms and the work is
usually more applied than in collaborative research
arrangements (Van Looy et al. 2004). Finally,
consulting refers to research or advisory services
provided by individual academic researchers to
their industry clients (Perkmann and Walsh 2008).
Consulting projects are typically commissioned
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Towards Convergence in European Higher Education through Open Innovation
directly by the industry partner and the income
derived from them often accrues to individuals
although it can be channelled through university
research accounts to support research (DÉste and
Perkmann, 2011).
Benefits for University-
Industry Collaboration
Universities contribute to the R&D capability of an
economy in a variety of ways including: the pro-
duction of appropriately skilled human capital, the
transfer of technology from academia to industry,
the creation of frame-breaking basic knowledge
and the generation of spin-out companies that lo-
cate in the surrounding territories (Lazzeroni and
Piccaluga, 2003). Wilson (1995) studied how the
investments in relationships between universities
and the business sector will create social bonds
(trust, commitment, interdependence) or structural
bonds (information and resource sharing, pooled
knowledge, contractual arrangements and joint
investments). These bonds, in turn, will strengthen
the relationship further and are more complicated
to terminate (Boehm and Hogan, 2013).
Collaboration between industry and universi-
ties is useful in reducing the cost of R&D, decen-
tralizing risks, and promoting these organizations
to share resources and attain complementary
capability (Li, 2000).
More cooperation between firms and univer-
sities might quickly bring a greater diffusion of
knowledge, better results from firm innovation,
and training programs for students (Janeiro et al.,
2013) In their study on engagement in knowledge
transfer between industry and universities, Ankrah
et al. (2013) focused on the major set of relation-
ships between university and industry actors in
the Faraday partnerships. In 1997, the UK gov-
ernment established the Initiative and channelled
support and finance through the Department of
Trade & Industry (DTI) and the Engineering &
964

Physical Sciences Research Council (EPSRC).
The Initiative was named after Michael Faraday,
the renowned 19th century physicist and chemist
who is credited with maintaining strong links with
industry (Quo Tec, 2004). The findings in this
study highlight the benefits of these partnerships
between universities and business. The highest
level of beneficial outcomes was institutional,
followed by economic and then social.
The study shows that the most significant
institutional outcomes for universities are: better
understanding of business, exposed students and
faculty to practical problems/new ideas and/or to
state-of-the-art technology, with positive effects
on the curriculum, feedback to inform research
decisions, stimulated technological advancement
and/or research activities in certain key areas, train-
ing and employment opportunities for students,
enhanced research capability, joint research with
industry, publication of papers by academics/joint
publications with industry, builds credibility and
trust for the academic researcher among practi-
tioners/good working relationships with industry,
a wider networking, great links with industry.
Ankrah et al. (2013) also found that the
economic benefits for universities are: source
of funding for research work, patent/intellectual
property rights, created business opportunities,
additional income or financial benefit, while the
social benefits consisted in service to the com-
munity, enhances the CVs and helps to further
the career of people involved in partnerships with
businesses, personal satisfaction of stakeholders.
Based on the studied literature, Figure 1 depicts
the main motives which drive businesses and
universities towards open innovation, albeit their
natural reluctance to open up to collaborations.
The main motives that make partnerships be-
tween higher institutions and privare companies
to develop are related to the enriching effect on
the human capital, alleviation of cost structure
by facilitating access to finance, increasing their

Towards Convergence in European Higher Education through Open Innovation
Figure 1. Motives that foster industry – university open innovation
knowledge base, easing technology transfer and
creating social and structural links. By involving
in external partnerships, both universities and
companies find a means to share the risks of their
projects. The intense focus on cost reduction is
currently given by the rising costs of technology
development and the shortening of the products’
lives on the market. This cost pressure determines
industry actors to open their organizational bound-
aries in order to alleviate the burden. Knowledge
acquisition and intellectual capital development
allures companies to partner in scope of becoming
more competitive. By developing joint collabora-
tions or by buying R&D in the market, firms can
access greater knowledge than would be available
internally, that would increase their chances to
market new products with commercial success.
Also, access to external knowledge generated by
universities may accelerate organizational and
technological learning of a firm, by staying tuned
with the latest developments. Open innovation al-
lows both universities and industry actors to free
their internal resources for other purposes and
access a totally different range of resources not
available internally, especially financial resources
easing the funding process.
Barriers to University-
Industry Collaboration
For most universities, partnering with industry
does not come naturally. Most European academ-
ics are not engaged at all in collaborations with
industry and only few cooperate with industry
firms (Edmondson, 2012). Barriers to building
university-industry partnerships are frequent,
starting with the organizational culture and
working environment of academia and industry
institutions, which are entirely different, as Fiaz
(2013) asserts.
Based on interviews with US university sci-
entists and administrators and industry managers,
Siegel et al. (2003) offer a set of recommendations
on how to surpass the barriers of universities –
industry collaboration. One of the problems they
highlight is the difficulty of bridging the cultural
gap between university and industry. They recom-
mend that people hired by university (industry) to
manage KT should have a background in industry
(university). This is a fundamental step in reduc-
ing the cognitive distance between managers and
academics. Also, universities should be more flex-
ible in negotiating agreements, and should avoid
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Towards Convergence in European Higher Education through Open Innovation
royalty maximization if this is likely to impede
further collaborative work. Forums, workshops
and informal meetings seem to be effective ways
of facilitating interactions and exchanging infor-
mation about current research interests, and, over
the medium term, could form the basis for more
formal collaboration and foster social networks
of faculty and industrialists. As Murray (2004)
shows, the contribution made by university sci-
entists to entrepreneurial firms consists not just in
their personal scientific and technical knowledge
and problem solving skills; it also includes their
social capital, that is, the social networks that
these university scientists have built up during
their careers (Geuna and Muscio, 2009).
High technical uncertainty, bureaucracy im-
posed by the sponsor, the time required by the
firm, and the long-time frame of collaborative
projects are seen as barriers to the completion and
success of collaborative research projects (Bodas
Freitas et al.,2013).
In their study, Bruneel, D’Este and Salter
(2010) have investigated the nature of the barriers
to university-industry collaboration and the fac-
tors that might mitigate them. They identified two
types of barriers: (i) those related to differences in
the orientations of industry and universities, what
they describe as ‘orientation-related barriers’; and
(ii) barriers related to conflicts over intellectual
property, and dealing with university administra-
tion, what they describe as ‘transaction-related
barriers’ (Bruneel, D’Este and Salter, 2010).
Bruneel, D’Este and Salter (2010) focused their
study on three potential mechanisms to reduce
the obstacles to university-industry collaboration:
experience of collaboration, breadth of interaction
channels, and inter-organizational trust.
Working with universities on research projects
requires not only that firms learn to work across
organizational boundaries, but also that they have
or can build the capabilities to collaborate with
partners operating within a different incentive
system. Collaborating with a university partner
necessitates that firms develop operating rou-
966

tines and practices to manage this collaboration.
Involvement in a variety of channels of collabo-
ration may contribute to better equip the firm to
manage conflicts over the orientation of research,
by strengthening the firm’s capacity to balance
and align different incentive systems across a
diverse set of inter-organizational arrangements
(Lawrence et al., 2002; D’Este and Patel, 2007).
University-industry research collaboration
involves high levels of uncertainty because the
research process is beset with many unknowns.
Given this, it is almost impossible to specify in
advance the follow on implications for the dis-
closure and commercialization of the research.
Bruneel, D’Este and Salter (2010) further state
that trust is a critical factor that allows partners
to be confident that their collaboration works ef-
ficiently and neither of them acts opportunistically.
The authors concluded that although the ‘clas-
sic’ barrier to university-industry collaboration,
respectively the university’s long-term orientation,
remains substantial, other factors are important
in constraining collaboration, especially those
related to intellectual property and administrative
procedures (Bruneel, D’Este and Salter, 2010).
Strong university leadership, a more present
entrepreneurial mindset, a deepest involvement
in research project undertaken with the business
community, setting new priorities, enlarging the
practical experience of academics by involving
them in projects co-developed with the industry,
all are factors to be addressed by universities in
order to reap the benefits from partnering with
the industry and meeting more efficiently the
requirements of the marketplace for innovation.
University - Industry
Open Innovation
The knowledge landscape is fairly heterogeneous,
with a wide variety of players (firms of various
sizes, universities, research institutes), each focus-
ing on different pieces of the puzzle. As a result,
the means of organising innovation have moved

Towards Convergence in European Higher Education through Open Innovation
beyond the boundaries of the firm towards the
concept of ‘open innovation’, a term coined by
Chesbrough (2003) (Wang, Vanhaverbeke and
Roijakkers, 2012).
The open innovation literature points towards
a remarkable shift in the business nowadays, from
a closed innovation model to open partnerships
and increased interactions among different actors:
suppliers, clients, competitors, professional orga-
nizations, universities, research laboratories. The
variety of open innovation forms of collaboration
includes joint ventures, grants and scholarships,
innovation networks, collaborative innovation.
However, most of the studies indicate that firms
are rarely cooperating with universities, research
laboratories or training institutions in the purpose
of innovating. Wang, Vanhaverbeke and Roijak-
kers (2012) specifically underline that very few
research initiatives, done in the European busi-
ness landscape, concentrate on sourcing external
knowledge from universities or research centres.
Entrepreneurial Universities
A focus on the role of HEIs in open innova-
tion inevitably leads to the consideration of the
“enterprising academic” and the “enterprising
university” within the Triple Helix model of
industry-government-university relationships
(Etzkowitz, 2008).
As defined by Etzkowitz et al. (2000), an
entrepreneurial university is any university that
undertakes entrepreneurial activities with the ob-
jective of improving regional or national economic
performance as well as the university’s financial
advantage and that of its faculty.”
The framework of entrepreneurial University
was defined by Clark (1998). The concept is
derived from ‘enterprise’ and puts attention on
the willingness to take risks when initiating new
practices whose outcome is not certain. An en-
trepreneurial university actively seeks to innovate
in how it operates. It seeks substantial shift in
organizational character in order to better perform
in the future. The main characteristic of such
university is that it “understands the commercial
value of knowledge” (Clark, 1998). Clark identi-
fies five elements that constitute the minimum
of entrepreneurial actions for an entrepreneurial
university. The degree of implementation of each
of these actions provides a set of indicators for
successful transformation of a university towards
the framework of an entrepreneurial university.
These actions are: strengthening the steering core;
expanding the developmental periphery; diversi-
fying the funding base; stimulating the academic
heartland; integrating the entrepreneurial culture.
The notion of ‘entrepreneurial universities’
has increasingly been used in relation to the de-
velopments in academia: greater involvement in
economic and social development, more intense
commercialization of research results, patent
and licensing activities, the institutionalization
of spin-off activities, and managerial and attitu-
dinal changes among academics with respect to
collaborative projects with industry (Van Looy
et al., 2011).
The phenomenon of academic entrepreneur-
ship cannot be seen in isolation from transforma-
tions that have characterized business R&D over
the last two decades. Increased competition in
international technology markets and the need to
share increasing research risks and costs determine
a growing need for companies to access externally
generated knowledge, signalling ‘the decline of
technical self-sufficiency’ (Chesbrough, 2003).
Van Looy et al. (2011) observed that despite a
growing awareness and a vast body of empirical
evidence that universities can contribute to the
development of local economies, the evidence
on antecedents of successful engagement in en-
trepreneurial activities at the level of universities
is more fragmented.
Using data on 105 universities from 14 Euro-
pean countries, Van Looy et al. (2011) analyzed
antecedents of entrepreneurial effectiveness and
examined trade-offs on the level of transfer mecha-
nisms as well as with respect to scientific activities.
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Towards Convergence in European Higher Education through Open Innovation
Their findings reveal a strong positive relationship
between the scientific productivity of universities
and their entrepreneurial performance. Universities
with a stronger scientific productivity seem to find
themselves in an advantageous position for devel-
oping entrepreneurial activities. The findings for
contract research suggest that industrial partners do
take into account the scientific output of universities
as a criterion for selecting academic partners. The
authors’ observations seem to support a view on the
complementary role of academia and industry in
innovation systems, whereby universities’ specific
role is focusing on the more basic, long term part
of the R&D spectrum.
There are many examples of universities that
have undertaken activities contributing to eco-
nomic development and which have also brought
financial benefit for the university. The portfolio of
activities of archetypal entrepreneurial universities
such as Stanford, MIT, University of California,
Columbia, Cambridge, Chalmers and K.U. Leu-
ven show a deep commitment to developing an
entrepreneurial mindset: creation of a technology
park (supplying a formal site where businesses
can locate and interact with the university itself),
spin-off firm formation (the creation of firms based
on university research), patenting and licensing
(the securing of intellectual property rights on
discoveries and know-how developed within the
university), contract research - research (under-
taking specific research projects with industry),
industry training courses (teaching students from
industry), consulting (directly selling academic ex-
pertise to external organisations to solve practical
problems), grantsmanship (obtaining large-scale
research grants from external sources for basic
research), publishing academic results (publishing
books, chapters and articles), producing highly
qualified graduates (providing the workforce
with skilled undergraduates and postgraduates)
(Philpott et al., 2011).
Universities that pursue an entrepreneurial
strategy need to exit the classical boundaries
imposed by their definition of research and teach
968

institution. Beyond the educational purpose, they
need to shape the current business environment
by direct involvement in the innovation process
and formation of skilled workforce.
Philpott et al., (2011) revealed the existence
of key barriers within the institutional context of
universities which limit their entrepreneurial prog-
ress: lack of entrepreneurial role models within
the university, absence of a unified entrepreneurial
culture across the institution, academic progres-
sion processes adversely affecting academic’s
entrepreneurial efforts.
Examples of University –
Industry Collaboration
University of Westminster: Pioneering
New MSc Courses in Enterprise
Systems and Information Quality
The challenge raised by University of Westminster
was to expose MSc and undergraduate students to
the most effective tools and approaches available
in analytics, business intelligence and data quality.
The solution for this challenge was to gain
advice and practical help from the SAS Academic
Programme and Customer Support including
input into course content, free software trials
and making SAS available for students’ personal
use. SAS technology includes SAS® Enterprise
Miner, SAS® Data Integration Server, the SAS®
Data Quality solution and DataFlux® solutions.
The benefits of the master courses supported
by SAS were development and delivery of in-
novative courses, including a world-leading new
MSc in Information Quality, helping address skills
shortages and ensure graduates are more employ-
able: “SAS provided a range of tools to show the
practicalities of dealing with data quality. This is
only the second course of its type in the world and
using SAS will give students brilliant experience.”
SAS had alerted the University of a major
shortfall in experts. To address this, Westminster
developed its MSc in Information Quality, which

Towards Convergence in European Higher Education through Open Innovation
launched in 2007. The course is designed to en-
able database administrators, data analysts and
managers to expand their knowledge and skills
(European Commission, 2013).
Bulgaria: HP and Local
Universities Boost IT Skills of IT
and Engineering Graduates
HP has chosen Bulgaria for building one out of
six Services Centres in the world. In June 2006
its operation started. HP Bulgaria supported three
universities in offering specially designed modules
to be taught in technology labs donated by HP to
help IT and graduates gain some of these specific
skills. The universities included the University
of Sofia, the Technical University and the New
Bulgarian University.
HP created the program curriculum based on
the world leading standards for IT education - used
in Stanford University and MIT. In addition to the
initial training, the lecturers attended a refresher
session every three months to ensure they were
fully aware of all the latest applications and soft-
ware updates available through HP equipment.
At the end of the first course, which ran from
September 2006 until March 2007, the feedback
from students showed that the overwhelming
majority found the course useful. What’s more, a
majority of students indicated they felt the course
had enhanced their chances of finding employ-
ment after graduating and more than half of the
first group said that they would be interested in
working for HP after graduation.
HP Bulgaria also has access to the database
of graduates which grows with every completed
module. This database provides HP Bulgaria with a
valuable resource to build further activities related
to recruitment, training and focus group insight
(European Commission, 2013).
Siemens: University of Lincoln
The Siemens–University of Lincoln partnership
involves multiple layers across a broad spectrum
of activities. A collaborative R&D commissioning
framework has generated six times the turnover
in the original business plan, with significant
business benefits generated for the company
and research outcomes for the university, whilst
protecting intellectual property and observing
commercial sensitivities. Siemens have co‐located
with Lincoln’s engineering department; engag-
ing in the teaching of students and in providing
scholarships, internships and consultancy projects,
graduating ‘industry‐ready’ students. The Siemens
technology needs are reflected in the Lincoln’s
engineering undergraduate programmes and the
partners have co‐designed an MSc Energy Re-
newables and Power.
Proctor and Gamble: Durham University
A Master Collaboration Agreement established
Durham University as a core strategic research
partner of Proctor and Gamble (P&G). Durham
was recognised by P&G as Global Business
Development University Partner of the Year in
2011 following an innovative approach in which
the research needs and research capabilities of
both partners have been mapped and core areas of
mutual interest identified. More than 80 Durham
academics are now linked with a similar number
of P&G researchers in locations ranging from
Newcastle to Frankfurt, Brussels, Beijing and
Cincinnati in areas including surface sciences, bio-
physical sciences electronic goods, manufacturing
and consumer psychology. The partnership has
already secured more than £5.7 million in external
funding for a series of projects and studentships
with a similar volume of projects currently under
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Towards Convergence in European Higher Education through Open Innovation
development with the company. The partnership
has launched a programme disseminating new
ways of integrating industrial and academic teams
through existing collaborations of both partners
and Research Councils UK (RCUK).
BAE Systems: University of Bristol
BAE Systems and the University of Bristol have
agreed a Memorandum of Understanding that
defines areas of strategic collaboration. The
memorandum defines a wide range of activities
within areas of engineering and science where
there is common interest in design, manufacture,
operation and through‐life support and capability
of engineered systems. It includes both long‐term
fundamental research projects; medium/short‐
term projects requiring the application of generic
knowledge to specific issues; reciprocated staff
secondments; supervision of projects and theses
by BAE staff at BEng, MEng and MSc levels;
placements of the University’s MEng students
and postgraduate education through MSc, PhD
(DTC and CASE), EngD. (Wilson, 2012)
Rolls Royce and University Partners
Since 1990 Rolls‐Royce has been investing in
a university partnership model for its research:
the university technology centre network. Today
the company supports 28 university research
centres worldwide, 19 in the UK, with over 400
PhD students and academic and research staff at
all levels.118 Further, with support and funding
from government agencies, and in collaboration
with other leading businesses and universities,
Rolls‐Royce is a partner in a network of seven
advanced manufacturing research centres (five
in the UK), established to help Rolls‐Royce and
other industrial partners achieve a leading posi-
tion across the full portfolio of manufacturing
technologies. The physical infrastructure of the
seven centres provides the ongoing capacity and
970

the capability to support public and privately
funded applications engineering programmes
(Wilson, 2012).
Aalto University Forms Partnerships
with Industry to Transform
Teaching and Learning
In 1995 the then rector of the University of Art
and Design Helsinki, Yrjö Sotamaa, proposed a
graduate programme blending design, technology
and business courses across three universities to
create a new field of multidisciplinary study. The
goal was to develop students with an innovative
mindset through collaborative, cross-disciplinary
problem-solving. The programme, International
Design Business Management (IDBM), was set
up as a full-year minor study offered jointly by
the Helsinki School of Economics, the University
of Art and Design, as well as the Helsinki Uni-
versity of Technology, to complement majors in
engineering, design or business – or other subjects.
The programme is balanced equitably between
business, engineering and design learning.
The IDBM challenged the notion that a univer-
sity’s role is to pass on existing knowledge, and that
absolute answers exist. IDBM is now part of the
offering at Aalto University, which was formed by
the merger of the same three universities in 2010
to promote multidisciplinary learning – another
initiative proposed by Sotamaa. Now in its 17th
year, the IDBM has become a strong platform
for ongoing collaboration with Finnish industry
that offers competitive advantage to companies
while creating a real-world learning experience for
students. Multidisciplinary teams tackle industry
problems and produce innovative solutions over
the course of a one-year programme. In return,
each company agrees to pay the school roughly
€20,000 per project.
The IDBM projects involve teams of multi-
cultural and multidisciplinary students who drive
their own learning experience. Companies offer

Towards Convergence in European Higher Education through Open Innovation
students real-world, open-ended problems to solve
that the company cannot address itself. The teams
seek to offer new perspectives and ideas that cross-
fertilise with what the company already knows.
Work projects range widely from fathoming
new applications for mobile radar or waste-water
technologies to assessing the innovative potential
of Vietnamese companies. In one project, the
Helsinki airport asked a team to figure out how
to tailor the design of the airport’s new terminal
and services to appeal to its Asian passengers. The
team included a Japanese interior architectural
student, a Chinese business student, a Finnish
architectural student and a British business student.
The students travelled together to all the major
Asian airports to research cutting-edge design
and services that cater to Asian passengers. Out
of some 30 proposals made by the team, Helsinki
airport implemented over 20 in the new terminal.
At the time of its introduction in 1995, the
IDBM’s engagement with industry in using
cross-disciplinary teams was a groundbreaking
approach to transforming teaching and learning.
Through project-based learning that takes place
inside companies, it developed the missing skills
and experience vital for workers in a networked,
global economy while strengthening ties sub-
stantially between the universities and industry.
The results of this collaboration were significant:
• The programme has significantly enhanced
Aalto University’s ties with industry, train-
ing 703 students in 168 company projects
with 114 partner companies and establish-
ing a direct recruitment platform for IDBM
students.
• Seven to ten per cent of the IDBM projects
lead to the development of a real-world
service or product innovation, creating ma-
jor value for the industry partner.
• The university is closer to market devel-
opments because its students are engaged
with cutting-edge business models, includ-
ing service design. Many entrepreneurs
emerge from the IDBM context. Aalto is
now considering replicating the real-life
case studies in other courses.
• IDBM helped pioneer multidisciplinary
learning at all three universities where it
was initially offered, and was a convincing
example with a 12-year track record at the
time of the Aalto University merger pro-
posal in 2007.
• The IDBM programme has helped evolve
university governance through its different
incentives and structures. IDBM manage-
ment reports directly to the vice rector of
teaching.
Several lessons for building multidisciplinary
programmes that engage industry were drawn from
this collaboration:
1. Create a strategy: To attract industry in-
volvement, university programmes must be
strongly orientated to industry. That means
commitment from the top leadership to
breaking down barriers inside the university
and within the company. It requires faculty
with industry experience. If the partnership
involves other universities, they should forge
a common understanding before approaching
industry.
2. Develop win-win partnerships: Companies
have to have a real commitment to make these
kinds of projects work, so the proposal has
to be a win-win situation.
3. Don’t seek to protect IP: “Many universities
want to own any intellectual property devel-
oped by students who work for companies,”
says Koria, professor of international design
business management, Aalto University.
“This IDBM partnership is not research for
companies. Our objective is to create a situ-
ation for real-life learning. We throw away
the profit motive. It’s not in our interest. Who
would want to collaborate if the university
owned the IP?”
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Towards Convergence in European Higher Education through Open Innovation
4. Communicate the benefits of a new genera-
tion of innovative thinker: Multidisciplinary
teamwork is a vital and sought-after skill in
the labour market. Programmes like the
IDBM create a window on future recruits
that could sharply reduce internal training
costs. “Companies may save two to three
years of training when people come in with
these capabilities,” Koria says. “That’s a
tangible benefit for the company.
5. Develop a pool of academics with deep
understanding of industry and business
experience: When it comes to managing
industry collaboration, you have to rethink
the type of people running programmes in
academia, advises Koria. “Most university
teachers have no idea what the business
world is about. You have to break down
academic silos. Normal academics don’t have
much incentive to do this. They are judged
by publications and it’s difficult to publish
while managing programmes like this.
a. “The key issue is having people who
cross boundaries – you need multidis-
ciplinary individuals who are mentors.
The university has to be open to giving
people leading positions who normally
wouldn’t be chosen. You need bridge-
builders. That’s the bottom line. This
kind of collaboration doesn’t happen by
itself. People make this kind of change
happen. If all the key people running
the IDBM today would leave, it would
fall apart. You have to be constantly
on the lookout for people and create
incentives for them to grow.”
b. This kind of programme most suits col-
leges of applied arts and technical uni-
versities where publication in academic
journals is not priority number 1. But
any university can do it if it creates the
right incentives. “We dedicate 70 per
cent of our resources to teaching and 30
per cent to research. And the research
972

done must be directly useful for the
teaching programmes,” says Koria.
“We take away the academic liberty
of researching almost anything and
say the balance of resources must be
used for teaching. Normally its 50-50.
And we have a real mission to engage
with industry and society at large,
creating tangible benefits through our
interaction.”
6. Develop student communities to overcome
silo thinking: For multidisciplinary and
cross-cultural projects, it’s vital to create a
community among students so they learn to
understand and appreciate differences in how
others think. “We spend a lot of time doing
this – it’s intensive in the first year,” says
Koria. “After that they have a community of
practice together. During the first year they
learn how people think differently in other
professions. We don’t want to erase those
differences. They are key to innovation.
That’s why the programme requires people
at a graduate level with strong professional
background. If everyone is a generalist, no
one contributes to new ideas. We’re inter-
ested in benefiting from the differences.”
(Edmondson, 2012)
Evidence from Romania
In Romania, an efficient collaboration between
the industry and the universities is hampered by
several factors: political instability, poor support
from the state, lack of openness, trust, goodwill, the
low degree of R&D collaboration, low innovative
tendency, poor communication and transparency,
bureaucracy.
Romania stands on the last place in EU coun-
tries in what concerns the amount of fund allocated
for research and development, with only 0,48% in
GDP. According to Eurostat, the countries with
the highest research expenses are Finland, Sweden
and Denmark with 3,78%, 3,37% and 3,09% of

Towards Convergence in European Higher Education through Open Innovation
GDP. Even ex-communist countries have a better
fund allocation policy then Romania: Croatia,
Latvia and Slovenia spending around 0,7% of
GDP for research and development. Even Bulgaria
is spending more than Romania, with 0,57% of
GDP. Romania ranks last also with regard the
personnel working in research and development,
with only 0,3% of the total workforce involved in
this sector, while other East-European countries
(Croatia, Bulgaria, Latvia, Poland) employ around
0,5% of the total national workforce in this sector.
Using a multiannual perspective, the Romanian
2007-2013 Strategy for Research, Development
and Innovation has foreseen a gradual increase
of the R&D public budget. A substantial increase
of the R&D spending, both in absolute and rela-
tive terms, will be instrumental for Romania in
order to raise the economic competitiveness and
secure high-quality jobs. Romanian authorities
have recognised this and have set an ambitious
but achievable target for 2020: R&D intensity is
expected to account for 2.0% of the national GDP
in 2020 (European Commission, 2011).
Siemens and Transylvania
University of Brasov
Siemens Program and System Engineering came
in Romania, Brasov in 2001 with the intention to
develop a company working in the IT domain. In
the well known tradition of the company, Siemens
established its headquarters in the university
campus signing a frame collaboration contract
with Transylvania University. The initial phase
consisted in implementing four departments: mo-
bile and fix communications, energy management
and business solutions, of about 30 employees,
forming the structure of the company. The last
five years have brought the company a growth of
the number of employees to 400, mainly engineers
and mathematicians now integrated in seven de-
partments. Being the result of collaboration with
the university, this growing was well sustained.
In the same time many research proposals (more
than 10) and contracts (4) have been signed up
and deployed in collaboration with chairs and
faculties of the university.
These years represent also a period of changes
in a good way for the university – a growth from
around 200 graduates in electrical engineering
and computers to more than 250 graduates and
initiation of a new direction of study, respectively
the Telecommunication specialization.
This evolution is the result of the stimulated
synergies between the partners and some of them
we will presented below. Siemens has facilitated
the University’s material base update and devel-
opment with didactic and research laboratories,
materials, developing systems, instruments and
programs, building up laboratories endowed with
new and high tech instruments and computers.
Furthermore, this collaboration stimulates the
synergies in the research and development fields by
common collaborations using specialized teams.
These activities solve specific problems enforc-
ing the work for common proposal preparation.
Thus, the two partners become more competitive
on the market and the access to the money for the
research projects from national and European
institutions easier.
A joint collaboration between these two insti-
tutions has benefic consequences for the quality
of educational process, offering specific and
high-quality courses and grants for students and
professors, and enforcing the company’s impact
on the market, keeping it close to the new trends
in technologies and science. Siemens policy re-
garding grants comes to stimulate the students,
graduates, masters of sciences and PhD students
to finalize their diplomas or thesis.
By an appropriate policy Siemens facilitates
and encourages the mobility of professors in order
to assure their participation at conferences, con-
gresses, workshops and experience exchanges, the
add values resulted being shared with the company.
From the Siemens’ point of view, the collabora-
tion with the university has the following benefits:
it assures the amount and appropriate work force
973

Towards Convergence in European Higher Education through Open Innovation
needed for the development of company’s activi-
ties; it influences the structure and the content of
curricula used by the university for education of
students, bring it closer to company’s needs; the
common cooperation in the field of research and
development activities is easier; it assures the
training in advance on specific technologies and
procedures used by the company; it reduces the
integration time of university graduates as new
employees of the company (Borza, 2007)
INDUSTRY – UNIVERSITY
OPEN INNOVATION RISKS
The open innovation literature shows that the
critical benefit for actors entering collaboration
projects with innovative purposes is risk sharing.
At the same time, collaboration inherently brings
along risks and costs (Tantau and Coras, 2013).
In our exploratory study we have analyzed the
dimension of risks inherent to university – industry
collaboration in the purpose of innovation.
This research study was conducted using
semi-structured interviews with 50 managers of
companies from the financial sector in Romania
(small banking institutions, insurance companies,
non-banking financial institutions).
The results of our interviews show that that in
Romania businesses and universities are reluctant
to collaborate due to by risks related to insufficient
financial resources, inexperienced, unmotivated
and unwilling to cooperate people, poor adapta-
tion to technological advances in the industry,
knowledge sharing risks, weak social capital
and noteworthy market risks. In order to build
a structured risk framework, we mapped down
all the risks identified throughout our research
into six broad categories of risk drivers: human
capital, collaboration among partners, technol-
ogy advances, market barriers, clients, access to
finance, culture/social capital (Table 1).
974

People related risks are regarded as highest
threats by our respondents, since they are the major
actors and assets in collaboration projects. Roma-
nian companies that innovate are characterized
by a shortage of skilled and talented employees
who don’t possess critical knowledge in order to
manage an open partnership with an university
and the new knowledge acquired. They are often
reluctant to change and adverse to entering external
partnerships, creating a barrier for the inflow of
knowledge and limiting its management in innova-
tion performance purposes. Their safety mentality
acts as a major risk and its impact is even greater
when it is a translation of the top management’s
attitude, which shows little support for innovation
and low awareness of risks.
Lack of trust and adversity to change is often
accompanied by internal poor work ethic, which
creates an environment which is poorly prepared
to absorb and integrate external ideas and tech-
nologies created by higher education institutions,
translated into low absorptive capacity. Our
survey revealed that both businesses as well as
universities have a poor organizational culture,
insufficiently oriented towards collaboration and
innovation, marked by fear of losing control over
their own technologies or knowledge, a sign of
poor social capital.
Companies also claim inadequate distributive
skills when entering external partnerships, since
they find it highly difficult to manage a knowledge
exchange with a higher education institution with
the daily, routinely tasks, a deficiency which often
has a great impact on how they rapidly address
the needs of the customers.
Highly specific to emergent countries, unethi-
cal behaviour is common and acts a major busi-
ness risk, as highlighted by the firms interviewed,
facing several corruption issues in regards to their
partners collaboration and as well related to state
administration bodies. Open innovation is also
impeded by a high level of bureaucracy and firms

Towards Convergence in European Higher Education through Open Innovation

Table 1. Open innovation risk drivers for university – industry collaboration

Risk Driver Category Description

Human Capital Mentality People resistance to innovation and change, safety mentality.
Knowledge Insufficient technical expertise of employees, insufficient knowledge about
partners.
Culture/Social Poor Social Capital Poor work ethic, uneducated workforce generating lack of trust.
Capital
Low Absorptive Capacity Low ability to absorb external ideas and technologies.
Organizational Culture Fear of losing control over own technologies, cultural differences among partners.
Management Support Low support of top management for innovation, low awareness of risks, insufficient
managerial skills.
Market Uncertainties Corruption Unethical behaviour of the partners of related to state administration bodies.
Bureaucracy Large volume of paperwork, administrative burdens.
Market Uncertainty Lack of market information, marketing problems with new developed products.
Collaboration Opportunism Conflicting interests of partners, developing dependency on partners, relational
risk.
Lack of Trust Lack of trust and communication among partners, collaboration suddenly dissolved
due to partner leaving.
Complexity Higher complexity of managing open innovation, difficulty in balancing innovation
with daily tasks.
Knowledge Sharing Lack of protecting the property rights, core knowledge flowing out to competing
organizations.
Finance Access to Finance Lack of financial capital to support open innovation, high commercialization costs.
Technology Technology Technology transfer, risk from technological uncertainty, inability to adapt to
technology advances.

find it harder to cover the administrative costs FUTURE RESEARCH DIRECTIONS

entailed in the external partnerships.
One of the major concerns of firm involved
in collaboration with other parties such education
institutions is related to knowledge sharing: pos-
sibility of information leaks regarding valuable
internal technologies, key knowledge spilling,
insufficient protection of intellectual property.
This attitude is strictly correlated with the lack
of trust in the partner and poor communication
among collaborators about common goals and
strategies, which finally impedes the innovation
process and the performance of the alliance.
Given the unprepared, inexperienced and
under-trained workforce, firms often prove to be
unable to quickly adapt to technology advances
and lose the advantages offered by partnering for
innovation purposes (Tantau and Coras, 2013).
As deep as the discussion of university-industry
collaboration is, further development of such
partnerships need to involve government sup-
port, as part of the triple helix system. Especially
in emerging countries like Romania, there is a
profound necessity to strengthen the policies and
institutions that support the innovative activities
and to raise awareness on the potential of collabora-
tive actions of the stakeholders. Special attention
should be given to the research universities, which
should be stimulated to enhance the collaboration
with the private sector in order to better illustrate
their contribution to industrial innovation. We
believe that further studies on the issue of govern-
ment support of university-business partnerships
should be conducted, especially related to the

975

Towards Convergence in European Higher Education through Open Innovation
barriers and limitations that currently exist and
to how such institutional support schemes may
facilitate the innovation creation and diffusion
in the marketplace. Evidence from the emergent
countries would be especially useful, since they
are lagging behind both in collaboration projects
and in innovation outcomes.
Since most of the studies offer examples of
universities involving in open innovation with
large companies, such as the ones presented in
our study, we consider highly relevant to further
this research and provide specific evidence from
the SMEs sector, which is currently slightly
overlooked in the open innovation literature.
Universities could hugely benefit from partner-
ing with smaller firms, since SMEs concentrate
the majority of employees and revenues both at
European level as at country level, respectively
in Romania. Most of the studies indicate that
SMEs are seldom cooperating with universities
in the purpose of innovating but we consider
such partnerships opportunities for universities
to expand their practical knowledge base and to
reap the benefits of these smaller collaborations.
Since education and training are at the heart
of public policies to foster open innovation, high-
quality workforce is a significant prerequisite of
university-industry partnerships. Moreover, boost-
ing the entrepreneurial attitudes inside the culture
of universities require constant investment in the
intellectual capital. we consider highly useful
that further research should address the quality
of education provided by universities in order to
enhance the networking and collaboration skills
of employees both of higher education institutions
as of the business sector. it is the burden on the
government shoulders to develop policies that
support and implement high-quality education at
all levels. Usually, most examples of partnerships
between universities and private companies come
from higher education institutions ranked highest
in the academic ranking of world universities,
so there is a huge accent put on quality. Conver-
gence in higher education landscape should be
976

consequently further addressed in respect with
quality standards.
In the authors’ opinion, convergence on the
landscape of higher education institutions can be
faster achieved through these three key factors:
collaboration between all stakeholders involved in
partnerships between universities and businesses
(professors, researchers, students, field experts,
government representatives), mobility on the
open labour market and the ultimate technologi-
cal advances. Maybe further factors facilitating
convergence in education sector can be identified
and their impact studied.
CONCLUSION
The use of external relationships is increasingly
interpreted as a key factor in enhancing the in-
novation performance of modern enterprises
(Lasgani, 2012). Therefore, it can be argued that
the ability to access external knowledge resources
efficiently and overcoming the risks encountered
in the process can become a huge competitive
factor for both universities and the actors in the
industry sector.
Our study contributes to the literature on the
economics of knowledge transfer and open innova-
tion by highlighting differences in the forms and
objectives of university–industry interaction, as
well as barriers that limit such partnerships. Evi-
dence from several higher education institutions
involved in innovation collaborative projects sug-
gest the immense potential these partnerships have.
This chapter proposed a theoretical overview
of the university landscape, involved in collabora-
tion activities with industry sector for innovation
purposes. We have also shown the key factors that
define a model of university entrepreneurship,
having as example the Aalto University case.
Furthermore, it is the overall conclusion that
such collaborations adds to the performance of
the universities and increases the quality of their
educational programs.

Towards Convergence in European Higher Education through Open Innovation
It is the authors’ view that, based on evidence
from Romania, financial constraints play the
most important role in limiting the development
of university industry collaborations and that
knowledge creation and innovation are bound to
be the products of research laboratories, rather
than the effect of such partnerships. The higher
education institutions should develop long term
strategic plans and projects, co-managed with
experts from the business field and which should
not be confined by financial limitations.
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980

KEY TERMS AND DEFINITIONS
Collaboration: Active participation of several
individuals or institutions in a partnership in scope
of reaping benefits which would be higher than in
individual undertaking. Sharing goals and risks.
Entrepreneurial University: A mindset
focused on innovation and rational risk taking
with the purpose of transforming the old closed
educational system of higher education institu-
tions. It also encourages partnerships between
academic and private businesses.
Innovation Performance: The outcomes and
the benefits generate by the process of innovation.
Knowledge Transfer: The process of knowl-
edge sharing from one transmitter to a receiver of
information, communication.
Open Innovation: Term coined by Ches-
brough (2003) which describes a partnership
between institutions/companies in the purpose
of innovating. The use of external knowledge.
Triple Helix: Education, industry and govern-
ment relationships, the three actors performing
together boosting the potential of innovation and
economic development in the knowledge economy.
University-Industry Partnership: Open col-
laboration between the higher education institu-
tions and the business sector.
 981

Chapter 53
The Impact of Corruption
on Entrepreneurship
Gil Avnimelech
Ono Academic College, Israel

Yaron Zelekha
Ono Academic College, Israel

ABSTRACT
There is a consensus that corruption may result in high societal costs. A growing body of research
reveals the negative effects of corruption on a variety of economic indicators. This chapter presents a
literature review on the impact of corruption on entrepreneurship. It allows us to suggest that one of
the transition channels through which corruption has impacted growth is entrepreneurship. The main
channels in which corruption impacts entrepreneurship is through reduced incentives for entrepreneurial
activity and reduced trust within the system. The authors present evidence that the negative impact of
an incremental increase in the level of corruption on entrepreneurship is more harmful in developed
countries than in developing countries. Thus, they stress the need for more research in this area with the
aim of establishing appropriate frameworks for the fight of corruption in both developing and developed
countries and suggest significant gains from anti-corruption efforts, especially in developed countries.

INTRODUCTION which (1) has an influence on the allocation of

The global anticorruption movement has gained
ground since the mid-1990s. At the same time, cor-
ruption has received growing research attention.
The World Bank (1997, p. 8) defined corruption
as “the abuse of public office for private gain.”
Corruption has a supply side (private bribers) and
a demand side (public officials). Macrae (1982,
p. 679) defines corruption as an arrangement that
involves a private exchange between two parties,
public resources either immediately or in the
future and (2) involves the use or abuse of public
or collective assets or authority for private ends.
Philip (2006, p. 45) defines corruption as a case
in which a political officer seeks personal gain
while harming public interest to benefit a third
party that rewards him. Gambetta (2002, p. 35-36)
presents three definitions of corruption: a broad
one “corruption is the abuse of entrusted power,”
an intermediate one “corruption is the abuse of

DOI: 10.4018/978-1-4666-8468-3.ch053

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

entrusted power for private gain,” and a specific
one “corruption is the abuse of entrusted public
power for private gain.”
Corruption can occur at different levels and to
varying degrees, as grand corruption, involving
high-level officials with discretionary authority
over government policy and petty corruption,
involving lower-level officials who control ac-
cess to basic services. Grand corruption impacts
public resource allocation (Husted, 1999). Such
corruption is common both in developing coun-
tries and developed countries (Rose-Ackerman,
2002). Petty corruption (also called administrative
or bureaucratic corruption) is the everyday cor-
ruption that takes place where bureaucrats meet
the public directly. Petty corruption describes a
situation in which private citizens or Small and
Medium Enterprise (SME) owners/managers pay
small bribes when dealing with low-level govern-
ment bureaucrats regarding various transactions
and bureaucratic issues. Widespread petty cor-
ruption characterizes many developing countries
(De Sardan, 1999). In addition, corruption can be
sporadic or systemic. Sporadic corruption occurs
occasionally at different levels of the public sec-
tor without a systematic or centralized pattern it
characterized systems in which the enforcement
and transparency is low. Systematic corruption
is often much more widespread, centralized and
organized (Bardhan, 1997). Systemic corruption
is characterized by extensive corrupt activities,
ranging from petty to grand corruption. Corrup-
tion becomes the rule rather than the exception
(Stefes, 2007). Systematic corruption is far more
dangerous to democracy and severely jeopardizes
the trust in the system (Heymann, 1996). Pers-
son, Rothstein, and Teorell (2013) suggest that
in countries characterized by systemic corruption
most often anticorruption reforms will fail. They
suggest that this is due to the fact that systemic
corruption is a collective action problem. Although
petty corruption usually involves much smaller
sums than those that change hands in acts of
982

The Impact of Corruption on Entrepreneurship
“grand” or political corruption, the amounts are
not “petty” for the individuals adversely affected.
Petty corruption disproportionately hurts the
poorest members of society, who may experience
requests for bribes regularly in their encounters
with public administration and services like hos-
pitals, schools, local licensing authorities, police,
taxing authorities and so on.
There is a consensus that the tangible (e.g.,
government administrative inefficiency and poor
resource allocation) and intangible (e.g., the loss
of trust between different agents within the busi-
ness sector and the public sector) societal costs
of corruption may be tremendously high and long
lasting (Ades & Di Tella, 1999; Zelekha, 2013).
‘Rent seeking’, which is a specific type of cor-
ruption, is an attempt to obtain economic gain by
manipulating the social or political environment
in which economic activities occur rather than
by creating new wealth. The effects of rent seek-
ing are reduced economic efficiency due to poor
resource allocation, reduced market competition
and a loss of trust within the system. (Ades & Di
Tella, 1999; Zelekha, 2013). Rent seeking is very
costly for economic growth (Murphy, Shleifer,
and Vishny, 1993).
Corruption also affects the magnitude of the
rewards that can be earned from entrepreneur-
ship (Baumol, 1996) and makes it less likely
that latent entrepreneurs will actually establish
entrepreneurial firms. Moreover, corruption often
creates barriers to new entry and new competition
(Svensson, 2005) i.e. incumbent firms ‘pay’ cor-
rupt officers to manipulate the system in a way
that protect them from new entry and competi-
tion, thus hindering entrepreneurship. Therefore,
higher levels of corruption should be associated
with lower levels of national entrepreneurship.
In this chapter, we consider the impact of cor-
ruption on entrepreneurship. Thus, for the sake
of this chapter, we define entrepreneurship as the
process of identifying, starting and developing a
new business venture.

The Impact of Corruption on Entrepreneurship
LITERATURE REVIEW
Corruption and Economic
Performance
Corruption is embedded within economic insti-
tutions (Rothstein & Teorell, 2008). Institutions
contribute significantly to economic progress (De
Soto 2003; Helpman, 2009; Lewis, 2013; North,
1990; Rodrik, Subramanian, and Trebbi, 2004).
While efficient institutions reduce the uncertainty
and costs of social interaction, corrupt institutions
negatively influence economic performance.
Empirical literature highlights the negative
effects of corruption on a variety of important
economic indicators, including capital invest-
ment (Mauro & Driscoll, 1997; Tanzi & Davoodi,
1998), foreign direct investment (Al-Sadig, 2009),
productivity (Lambsdorff, 2003), the migration
of high-skilled populations (Dimant, Krieger, and
Meierrieks, 2013), income and wealth equality
(Jong-Sung & Khagram, 2005; Li et al., 2000),
human capital development (Rose-Ackerman,
1999), exports (Zelekha & Sharabi, 2012), per
capita gross domestic product (GDP) and eco-
nomic growth (Kaufmann, Kraay, and Mastruzzi,
2009; Mauro, 1995), predictability and confidence
and trust in the economy (Wei, 1997; Zelekha,
2013). Zelekha (2013) claims that the primary,
and perhaps the most salient, cost of corruption
is the public’s lack of trust in others. When the
corruption level reaches a critical mass, the public
loses its trust in the system as a whole. This lack
of trust significantly increases transaction costs for
many economic activities, including more detailed
and sophisticated contracts, more expansive con-
tract enforcing expenses, higher insurance rates,
higher interest rates and many other transaction
costs (Dyer & Chu, 2003; Zak & Knack, 2001).
In the following section of this chapter, we shall
present some ideas in relation to the research in
entrepreneurship.
Entrepreneurship
Early research on entrepreneurship looks at entre-
preneurs as a uniform class and focused on per-
sonal characteristics of entrepreneurs (Mill, 1848;
Schumpeter, 1934). Later literature gave more
attention to heterogeneity of entrepreneurs and
attempted to present typologies of entrepreneurs.
The literature suggested many different typologies
of entrepreneurs. For example, Reynolds, Camp,
Bygrave, Autio, and Hay (2002) distinguished
between two types of entrepreneurship, necessity
and opportunity entrepreneurship; Westhead, Uc-
basaran, and Wright, (2005) distinguished between
four types of entrepreneurs: novice, life-style,
serial and portfolio entrepreneurs. While these
different types of entrepreneurs varies significantly
in their characteristics, motivations and triggers, all
of them are influenced by the efficient economic
institution, cost of doing business and trust within
the economy. To allow a better understanding of
entrepreneurship, in this section we shall discuss
the factors that might influence entrepreneurship.
Factors Influencing
Entrepreneurship
The entrepreneurship literature investigates which
factors explain national entrepreneurship levels.
This question has been examined sporadically
through the lens of economic, technological,
demographic, cultural and institutional variables.
Early studies on entrepreneurship unearthed
important factors such as economic development,
human capital, population density, urbanization
level and unemployment rate which need to be
considered when explaining the regional varia-
tion in the birth rate of firms (Lee, Florida, and
Acs, 2004).
The differences in entrepreneurial activity
between countries, particularly those with similar
characteristics in various aspects of human and
983

economic development, have been relatively
stable, which might suggest that there are also
non-economic factors at play when it comes to
entrepreneurship (Freytag & Thurik, 2010).
Institutions and cultural aspects are assumed
to shape the environment in which business is
conducted (Freytag & Thurik, 2010). According
to the existing research (e.g. Hodgson, 1988;
March, 2010; North, 1990), both institutions and
culture play a role in influencing a wide range
of economic behaviors, including the decision
to become self-employed (Freytag & Thurik,
2010; Mueller & Thomas, 2001). Thus, the role
of institutions and culture in fostering or blocking
entrepreneurship has been of interest to several
scholars and the subject of many relevant studies
(such as Freytag & Thurik, 2010; Florida, 2009;
Lee et al., 2004; Mueller & Thomas, 2001).
The institutions and socio-cultural environment
influence the exploitation of entrepreneurial
opportunity by influencing the desirability and
perceived risks and returns of entrepreneurial
activities (Shane and Eckhardt, 2003). We sug-
gest that corruption, as an independent fragment
of a country’s institutions and culture, affects that
country’s level of entrepreneurship. To follow we
provide some explanation about the relationship
between corruption and entrepreneurship.
Corruption and Entrepreneurship
While corruption might impact entrepreneurship
through its influence on growth and other econom-
ic indicators, it also has a direct impact. William
Baumol is a pioneer in discussing the relationship
between corruption and entrepreneurship. Baumol
(1996) claims that entrepreneurs have a choice
between engaging in value-creating opportunities
and engaging in corrupt rent seeking. This decision
is influenced by these activities’ corresponding
rates of return and shaped by the quality of the
country’s social, political and legal institutions.
Institutions that are supportive to entrepreneurial
activity include honest norms, secure property
984

The Impact of Corruption on Entrepreneurship
rights, a fair and balanced judicial system, contract
enforcement and effective constitutional limits on
the government’s ability to transfer wealth. Such
institutions produce a net benefit for productive
opportunities (e.g., opportunities based on exploit-
ing arbitrage and innovation). Entrepreneurs might
exploit these opportunities (Sautet, 2008). In other
words, under such an incentive structure, creative
individuals are more likely to create new wealth
through (productive) entrepreneurship. However,
when institutions create a relatively high benefit
by engaging in unproductive activities (e.g., rent
seeking and other corrupt activities), some po-
tential entrepreneurs will take advantage of those
opportunities instead of productive activities
(Baumol, 1996; Murphy et al., 1993).
Rose-Ackerman (1999) argues that control-
ling corruption and developing trust within the
economy is key in creating an institutional context
in which entrepreneurship and innovation can
flourish. Similarly, Anokhin & Schulze (2009)
suggest that corruption reduces trust within the
economy, which is critical for enhancing arms-
length trade and the coordination of complex
economic activities. Therefore, they suggest that
corruption reduces innovation and entrepreneur-
ship. In addition, De Soto (2003) suggests that as
corruption increases, bureaucrats are more likely
to create more strict regulations, which increases
economic transaction costs. Moreover, corrup-
tion often creates entry and competition barriers
(Svensson, 2005), thus hindering entrepreneur-
ship. Corruption often benefits existing and better-
connected firms and creates negative incentives
for entrepreneurs (Dreher & Gassebner, 2013). To
enhance the discussion further, we provide some
ideas derived from empirical findings in this field.
Corruption and Entrepreneurship:
Empirical Findings
As presented in the section above on ‘Corruption
and Entrepreneurship’, the literature suggests
that differences in the measured rates of national

The Impact of Corruption on Entrepreneurship
entrepreneurship partially result from differ-
ences in national levels of corruption. However,
empirical studies that document the relationship
between corruption and cross-national rates of
entrepreneurship are scarce.
Using a sample of 48 U.S. States, Sobel (2008)
examined the relationship between the quality of
state political and legal institutions (i.e., corrup-
tion control) and entrepreneurship. He finds that
better institutional structures produce a higher
birth rate of new companies. Based on longitudinal
data from 64 nations, Anokhin & Schulze (2009)
find that after controlling for the effects of relative
wealth, there is a negative relationship between
corruption and levels of entrepreneurial activ-
ity. Based on longitudinal data from 74 nations,
Reynolds (2010) finds evidence that higher levels
of corruption decrease national levels of export-
oriented entrepreneurs. Based on a cross-section
and panel regression for 45 different countries
from 2001 to 2009, Firozjaii (2012) confirms that
corruption plays an important role in reducing
entrepreneurship.
Anokhin & Acar (2012) and Wu & Liang
(2012) in their empirical study based on Global
Entrepreneurship Monitor (GEM) data, find evi-
dence that corruption and entrepreneurship are
related in a U shape, whereby extremely corrupt
and extremely transparent countries tend to have
high levels of entrepreneurial activity, while coun-
tries with medium levels of corruption have low
levels of entrepreneurial activity. However, one
should note that GEM data also includes necessity
entrepreneurs and self-employment within the
entrepreneurship measures (Godin, Veldhuis, and
Clemens, 2008; Hindle, 2006). Acs, Desai, and
Klapper (2008) find that when considering only
innovative or high-growth entrepreneurship, the
relationship between corruption and entrepreneur-
ship is actually linear, e.g., high corruption levels
lead to low entrepreneurship levels, and low cor-
ruption levels lead to high entrepreneurship levels.
While some of the corrupt behaviour or corrup-
tion’s impact at the entrepreneurship levels might
be a consequence of its impact on other economic
factors, several studies point out and provide some
statistical evidence that corruption might also have
a direct impact on entrepreneurship. In this regard,
Firozjaii’s (2012) indicates that corruption has a
direct negative impact on entrepreneurship and
innovation, alongside the indirect impact resulting
from reduced FDI levels. Further, Aidis, Estrin,
and Mickiewicz (2012) posits that corruption
negatively impacts entrepreneurship, in addition
to the impact of government size, while Gohmann
(2012) argues that corruption might negatively
impact self-employment after controlling the
level of unemployment. Finally, Méon & Sekkat
(2005) provide a link between the two stating
that corruption impacts growth not only through
reduced accumulation of capital but also through
other channels such as entrepreneurship levels.
The Impact of Corruption on
Entrepreneurship in Developed
and Developing Countries
While corruption exists in all countries, it varies
in scale and has different characteristics in dif-
ferent countries. Recent literature states that most
developing countries have very high corruption
levels (e.g. Olken & Pande, 2012). Further, and
for example, most African countries suffer from
widespread petty corruption (De Sardan, 1999).
In Uganda, 8% of business sector’s costs are for
bribes (Svensson, 2003). Corruption is the main
reason why many resource-rich countries exhibit
bad economic performance (Kolstad & Søreide,
2009). For example, Nigeria, Venezuela, and
Mexico did not present significant economic
growth after significant oil windfalls were found
in these countries due to their high corruption lev-
els (Tornell & Lane, 1999). Caselli and Michaels
(2013) present the case of an increase in corruption
in Brazil, as a result of the large increase in Bra-
zil’s off-shore oil production. Though examples
from the developing countries are plenty, we need
not turn a blind eye when it comes to developed
985

countries. These countries also suffer from and
are significantly threatened by corruption. For
example, Schramm (2012) argues that corporate
corruption in the U.S. threatens democracy and
jeopardizes the advancement of entrepreneurship
in this country. Moreover, there is the dynamic
interaction between the developed countries that
are a main source of the bribe payers and funds and
the developing countries that host the majority of
the officials who take and extort bribe (Heineman
& Heimann, 2006).
Based on a sample of 176 countries, Avnim-
elech, Zelekha, and Sharabi (2014) show that
countries with high levels of corruption usually
face low levels of entrepreneurship. Moreover,
they found that even a small change in the level
of corruption in a country can significantly lower
the entrepreneurship level. They found this impact
is much more significant in developed countries
– i.e., a similar incremental increase in the level
of corruption will decrease the level of entre-
preneurship in developed countries by twice (or
more) as much as in developing countries. This
result was robust and statistically significant in
9 different specifications using various control
variables such as the percentage of expenditure
on education per GDP in the country, the level of
economic openness of the country, the legal sys-
tem score, the labor rigidity level, the percentage
of government consumption per capita, the Gini
index, the population density, the unemployment
rate, the age distribution of population, the level
of internet users and other control variables. This
finding suggests the existence of a declining mar-
ginal (negative) effect of corruption as corruption
becomes more widespread. An example, of the
destructive effect of an increase of corruption
level in a western country is the case of Greece in
the last decade. As posited by Papaconstantinou,
Tsagkanos, and Siriopoulos (2013) who discussed
Greece and its economic growth decline stating
that, in the last decade, while Greece’s levels of
corruption grow significantly, its economic growth
declined significantly.
986

The Impact of Corruption on Entrepreneurship
Following from the above, it becomes clear that
corruption and entrepreneurship are two concepts
that, if combined, might pose great danger to busi-
nesses and nations’ overall social and economic
standings. Therefore, in the following section of
this chapter we shall provide some pointers to
future research in this area, which we feel is of
great importance.
FUTURE RESEARCH
We believe future research should focus more
on corruption in developed countries and the
dynamics of corruption penetration in normative
economy. These topics are very important because
political corruption has recently become more
widespread in developed countries. As suggested
by Avnimelech et al. (2014), such phenomena
could severely jeopardize growth and development
in developed countries.
In addition, the vast majority of current lit-
erature on corruption investigates the role of the
government and the public sector in corruption.
However, some corporations have much more
power and influence than governments. Therefore,
more attention should be given to corporate cor-
ruption. Corporations should be understood not
only as agents that become corrupt as a reaction
to incentives created by national institutions, but
also as agents that design these institutions’ incen-
tives through their political power and wide public
influence. Additionally, more emphasis should be
given to corporate and personal ethics in general
rather than solely focussing on political corrup-
tion. Moreover, we believe more focus should be
given to levels and characteristics of corruption
in different sectors. Such research might help
designing better anticorruption policies.
Another interesting point for future research
is the different impacts that local corruption has
on domestic companies’ local activities versus
global activities. While, current literature usu-
ally suggests that local corruption has a negative

The Impact of Corruption on Entrepreneurship
impact on entrepreneurship in the country, the
literature often does not distinguish between local
corruption impact on local activities of domestic
entrepreneurs and international activities of do-
mestic entrepreneurs. For example, as one of the
most corrupt OECD countries, Israel (as expected)
has a very low level of entrepreneurship directed
towards the local market. On the other hand, Israel
is a global leader in high-tech global start-ups (of-
ten called ‘Startup Nation’, coined by Dan Senor
and Saul Singer in a book bearing this title). This
case of a relatively low level of entrepreneurial
activities directed toward local markets, while
a very high level of entrepreneurial activities is
directed toward foreign markets is quite surpris-
ing. More research should explore whether Israel
is an anecdotal case or represents a more general
pattern in which the level of local entrepreneurs
that focus on local markets is uncorrelated (or
even negatively correlated) to the level of local
entrepreneurs that focus on global markets.
DISCUSSION AND CONCLUSION
This chapter discusses the impact of corruption on
entrepreneurship. According to Baumol (1996),
in corrupt environments, more potential entrepre-
neurs will allocate their time and efforts to rent-
seeking activities (i.e., non-productive activities
from the macro perspective), e.g., lobbying and
bribing government officers, instead of becoming
involved in productive entrepreneurship activi-
ties, e.g., creating new wealth based on arbitrage
exploitation and innovation opportunities.
As presented above, the literature finds clear
evidence that corruption has a significant negative
impact on economic growth and development.
However, as Méon & Sekkat (2005) conclude,
corruption impacts growth through reduced
investments and other channels. The recent find-
ings of Anokhin & Schulze (2009), Avnimelech
et al. (2014), Firozjaii (2012), Reynolds (2010)
and Sobel (2008) present significant transmission
mechanisms through which corruption affects
economic development and growth –national
entrepreneurship activity levels.
Avnimelech et al. (2014) raise the question
of why an incremental increase in the level of
corruption affects the level of entrepreneurship
in developed countries more significantly than
in developing countries. The literature suggests a
few potential answers to this important question.
First, as suggested in the literature review,
because corruption presumably affects entre-
preneurship through the cost and uncertainty of
the entrepreneurial activity, under the declining
marginal (negative) effect principal, we should
expect a declining (negative) effect of corruption
as corruption becomes widespread. Developed
countries are characterized by a low level of cor-
ruption and therefore are subject to a high negative
marginal effect of corruption.
Second, the “grease the wheels” hypothesis
states that in countries with inefficient bureau-
cracy systems, bribes may act as a trouble-saving
devices, thereby raising system efficiency, hence
investment and, eventually, economic growth
and development (Huntington, 1968). In other
words, corruption can increase the pace of politi-
cal officers’ work in a poor bureaucratic system.
Accordingly, in some aspects, corruption may be
beneficial as a second-best solution by reducing
the distortions caused by ill-functioning institu-
tions. Méon & Weill (2010) present evidence that
according to the “grease the wheels” hypothesis, in
some cases, corruption might even enhance eco-
nomic performance in some aspects in developing
countries with poor bureaucratic systems. Thus,
the weak “grease the wheels” hypothesis (i.e., in
ill-functioning institutions, corruption will not
harm significantly economic performance) might
explain the results of Avnimelech et al. (2014).
However, it is important to mention that Campos
et al. (2010) use a meta-analysis to show that
the majority of the cross-country literature finds
no evidence in favor of the “grease the wheels”
hypothesis. Moreover, Aidt (2009) suggests that
987

the weak “grease the wheels” hypothesis is only
supported for the short term, i.e., corruption always
has a negative impact of economic performance
in the long term due to it systematic affects (loss
of trust in the system).
Third, Puffer, McCarthy, and Boisot (2010)
claim that informal institutions are weaker than
formal institutions in developed countries, while
the opposite applies in developing countries. In
other words, because people in developed countries
can rely on formal institutions (i.e., trust in the
system), they do not need to develop personal trust
in other agents based on deep and long relation-
ships between them. Therefore, when corruption
devastates trust in a formal institution, people do
not have an informal institution on which to rely.
As a result, they find it more difficult to address
corruption. Because entrepreneurship activity is
highly dependent on trust, an increase in corrup-
tion in developed countries might be more harmful
to entrepreneurship activity levels than a similar
increase in non-developed countries.
These results have significant policy implica-
tions, as many developed countries’ governments
give less priority to fighting corruption when
corruption levels are low in their countries. The
results stress the need to fight corruption in
developing and developed countries. Moreover,
Kaufmann (1997) presents evidence that anti-
corruption policy is more efficient in developed
countries. Similarly, Rothstein (2011) suggest
that in developing countries where corruption is
systematic, incremental anti-corruption policies
have no impact. Thus, we suggest that there are
significant gains from anti-corruption efforts
especially in developed countries.
Corruption is a complex systemic phenom-
enon, which is often characterized as a self-
sustaining social pathology (Coetzee, 2013).
Therefore, Zelekha & Bar-Efrat (2011), following
Mauro (1995), claim that only two extremes of
corruption equilibriums exist, pushing countries
towards one of two stable equilibriums over time:
988

The Impact of Corruption on Entrepreneurship
(1) a high level of income and a low level of cor-
ruption, or, (2) a low level of income and a high
level of corruption. Thus, developed countries
that are known to have high and growing levels of
corruption are placing themselves in a very risky
situation for two main reasons: First: the cost of
incremental corruption increases in developed
countries is anticipated to be of a higher impact
and more severe than the developing countries,
and, second, they might cross the watershed line
towards a low level of income and a high level of
corruption equilibrium.
As is the case with every exploratory work,
this chapter has its limitations, being mainly
conceptual in nature with light interjection of
empirical evidence, yet has provided a summary
of the literature raising questions that generated
some ideas pointing scholars interested in these
subject to pursue future research that we consider
is needed and needed urgently.
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KEY TERMS AND DEFINITIONS
Entrepreneurship: Is the process of iden-
tifying, starting and developing a new business
venture.
Formal Institutions: Are those officially
established in one way or another, often by govern-
ments, such as structures, laws, and regulations.
Global Entrepreneurship Monitor (GEM):
Project is an annual assessment of the entrepre-
neurial activity, aspirations and attitudes of indi-
viduals across a wide range of countries.
Gross Domestic Product (GDP): Is the mar-
ket value of all officially recognized final goods
and services produced within a country in a year.
This work was previously published in International Business Ethics and Growth Opportunities edited by Ruth Wolf and Theo-
dora Issa, pages 282-294, copyright year 2015 by Business Science Reference (an imprint of IGI Global).
Informal Institutions: Are not officially es-
tablished, but are practices commonly accepted
throughout society, such as culture and norms.
Institution: Any structure or mechanism of
social order governing the behaviour of a set of
individuals within a given community.
Institutions: Consist of the formal and infor-
mal “rules of the game” in a society.
Law of Diminishing Returns: States that add-
ing more of one production factor, while holding
all others constant, will at some point yield lower
per-unit returns in all productive processes.
Rent Seeking: Is an attempt to obtain eco-
nomic gain by manipulating the social or political
environment in which economic activities occur
rather than by creating new wealth. The effects
of rent seeking are reduced economic efficiency
through poor resource allocation, reduced market
competition and a loss of trust within the system.
993
994

Chapter 54
A Comparative Study of
Teachers’ and Engineering
Students’ Enterprise 3.0
Application in Entrepreneurship
Andreas Ahrens
Wismar University of Applied Sciences: Technology, Business, and Design, Germany

Olaf Bassus
Wismar University of Applied Sciences: Technology, Business, and Design, Germany

Jeļena Zaščerinska
Centre for Education and Innovation Research, Latvia

ABSTRACT
Everyone may at some stage need to become an entrepreneur or to display entrepreneurial behaviour
or to have the opportunity of creating his/her own business regardless of background or location (EU
Commission, 2004). Efficient business is shaped by such an essential factor as Enterprise 3.0 application in
entrepreneurship. The aim of this chapter is to analyse teachers’ and engineering students’ Enterprise 3.0
application in entrepreneurship, underpinning elaboration of a hypothesis on the integration of teachers’
and engineering students’ Enterprise 3.0 application into teacher training and engineering education for
efficient entrepreneurship. The meaning of key concepts of enterprise, entrepreneurship, entrepreneurship
education, Enterprise 3.0, and Enterprise 3.0 application is studied. Exploratory research of the compara-
tive study has been used. The empirical study included teachers’ and students’ case studies. Descriptive
statistics were implemented for primary data analysis. The findings allow drawing the conclusions on the
teachers’ and engineering students’ Enterprise 3.0 application in entrepreneurship. A hypothesis is proposed.

INTRODUCTION of low-skilled adults and of youth unemployment,

low birth rates, changing family structures and
Europe is facing enormous socio-economic and migration (Lifelong Learning, 2008, p. 2) in the
unprecedented demographic challenges, including context of volatility, uncertainty, complexity and
regional disparities, aging populations, high rates ambiguity. In the light of these challenges, busi-

DOI: 10.4018/978-1-4666-8468-3.ch054

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
nesses are struggling to adopt the best approach,
pursuing efficiency in the alignment between
Information Technology and enterprise’s concepts
and dimensions (Gama, Ostrowski, & Da Silva,
2012). To support business efficiency and com-
petitiveness, Enterprise 3.0 has recently emerged.
Therein, Enterprise 3.0 is an Information and
Communication Technology’s architecture used
in the business processes.
The contemporary indefinite situation in the
world encourages everyone to become an entre-
preneur, or to display entrepreneurial behaviour
or to have the opportunity of creating his/her own
business regardless of background or location (EU
Commission, 2004). Learning entrepreneurial
skills which include Enterprise 3.0 application
is becoming an essential factor in creating wel-
fare (Seikkula-Leino, Ruskovaara, Hannula &
Saarivirta, 2012). Therefore, entrepreneurship
education has increasingly gained interest in the
European Union (Seikkula-Leino, Ruskovaara,
Ikävalko, Mattila & Rytkölä, 2009). Particularly,
entrepreneurship education for contemporary
engineering students is of great significance as
engineers succeed harder to find a job: engineers’
entering the service area has changed from working
permanently at a large-scale enterprise to accepting
project-related orders of large-scale enterprises
by free engineers’ office (Bassus, Wolfgramm,
2009, p. 38). In this situation, entrepreneurship
becomes a viable solution to overcome the unem-
ployed or migrant status engineering students are
exposed to. To a deeper extent, entrepreneurship
education for teachers is of paramount importance
as teachers are a critical success factor in the
entrepreneurship development (European Com-
mission, 2011). Therefore, such various aspects
of entrepreneurship education for teachers have
already been taken into consideration as
• Teachers’ perspective on entrepreneurship
education (Backström-Widjeskog, 2010),
• National strategies to the entrepreneurship
education,
• Delivering entrepreneurship education,
• Teacher education for entrepreneurship
education (European Commission, 2011),
• Teachers’ reflections about entrepreneurial
education (Seikkula-Leino, Ruskovaara,
Ikävalko, Mattila, & Rytkölä, 2009).
The aspects’ analysis has resulted in the conclu-
sion that entrepreneurship education for teachers is
facing the challenge of significant changes in the
way teachers themselves are educated (European
Commission, 2011). One of the methods which
have been suggested is Enterprise 3.0 application
in entrepreneurship. By acquiring Enterprise 3.0,
teachers will be more effective when using these
methods with the students (The Oslo Agenda for
Entrepreneurship Education in Europe, 2006).
Thus, education and training are determined as
the key factors for maintaining and improving the
efficiency of Enterprise 3.0 application in entre-
preneurship. Some research efforts were made
to investigate teachers’ use of Web technologies
and students’ Enterprise 2.0 application (Ahrens,
Bassus, Zaščerinska, 2010; Ahrens, Zaščerinska,
2011). However, teachers’ use of Enterprise 3.0 in
entrepreneurship has not been analyzed. Such an
empirical lacuna regarding teachers’ Enterprise
3.0 application in entrepreneurship has to be filled
in as teachers have a two-fold role:
• In society, teachers are the agents of change
and,
• In education and training, teachers are the
key actors for the enrichment of learners’
use of Enterprise 3.0.
Moreover, teachers’ and students’ Enterprise
3.0 application has not been compared.
The aim of the research is to analyse teachers’
and engineering students’ Enterprise 3.0 applica-
tion in entrepreneurship underpinning elaboration
of a hypothesis on the integration of teachers’ and
engineering students’ Enterprise 3.0 application
995

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
into teacher training and engineering education
for efficient entrepreneurship.
The remaining part of this contribution is
structured as follows: The introductory back-
ground section demonstrates the authors’ position
on the topic of the research. The following part
of the chapter involves five sections. Section 1
introduces theoretical framework on Enterprise
3.0 application in entrepreneurship. The research
design is revealed in Section 2. The associated
results of the empirical study are presented and
interpreted in Section 3. Findings of the empirical
study are analyzed in Section 4 followed by issues,
controversies and their solutions. Afterwards, a
hypothesis on the integration of teachers’ and
engineering students Enterprise 3.0 application
in teacher training and engineering education for
efficient entrepreneurship is elaborated. Finally,
some concluding remarks and a short outlook on
interesting topics for further work are elaborated.
BACKGROUND
The methodological background of the present
research is based on the System-Constructivist
theory introduced as New or Social Constructivism
Pedagogical Theory. The System-Constructivist
theory implies the dialectical principle of the unity
of opposites that contributes to the understanding
of the relationship between external (social, social
interaction, teaching, etc) and internal (individual,
cognitive activity, learning, etc) perspectives as
the synthesis of external and internal perspec-
tives. The external perspective accentuates social
interaction of development (Surikova 2007, p.
384). Therein, social interaction is defined as the
unity of outside developmental circumstances
and individual psychological characteristics in
his/her experience (Surikova, 2007, p. 384). The
internal perspective focuses on cognitive activity
(Surikova 2007, p. 384). Cognitive activity refers
to the unity of processes of sense, perception,
attention, memory, thinking, speech and imagina-
996

tion, by which people perceive, remember, think,
speak, and solve problems. In comparison, the
Constructivism theory focuses on cognition and
learning and, consequently, the internal perspec-
tive, the Social Constructivist theory – on social
interaction and teaching and, consequently, exter-
nal perspective as well as on the balance between
social interaction and cognition as well as teach-
ing and learning and, consequently, the balance
between the external and internal perspectives.
The research methodology based on the meth-
odological background of the present research is
identified as the development of the system of
external and internal perspectives as shown in
Figure 1.
The methodology of the development of the
system of external and internal perspectives pro-
ceeds from the external perspective to the internal
perspective through the phase of unity of external
and internal perspectives (the system of interacting
phenomena) as demonstrated in Figure 2.
Moreover, the authors’ position on the present
research based on the methodology of the devel-
opment of the system of external and internal
perspectives is reflected in the principles of
• Mutual sustainability and
• Mutual complementarity.
The principle of mutual sustainability means
to provide a complex of possibilities to learn
for everyone (both student and educator in the
present context), and the reflected principle of
complementarity reveals that the opposite things
(principles in the present research) supplement
each other for finding the truth.
The System-Constructivist theory and, con-
sequently, the System-Constructivist approach
to learning introduced by Reich (Reich, 2005)
emphasize that human being’s point of view de-
pends on the subjective aspect:
• Everyone has his/her own system of ex-
ternal and internal perspectives as demon-

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application

Figure 1. Development of the system of external and internal perspectives

Figure 2. Phases of the development of the system of external and internal perspectives

strated in Figure 1 that is a complex open
system (Rudzinska, 2008, p. 366).
• Experience plays the central role in the
knowledge construction process (Maslo,
2007, p. 39).
MAIN FOCUS OF THE CHAPTER
1. Theoretical Framework
The theoretical framework of the present contri-
bution involves the meaning of the key concepts
of enterprise, entrepreneurship, entrepreneurship
education, Enterprise 3.0 and Enterprise 3.0 ap-
plication studied.
The conceptual framework of the present
research is based on the approach to enterprise
considered in a broader social context than
within business framework only (Oganisjana
& Koke, 2008, p. 225). In the present research
the terms enterprise, company and business are
used synonymously. Enterprise is defined as an
individual complex capability to identify, generate
and realize new socially valuable opportunities
in the personal, professional, cultural, economic
and other contexts of the social life (Oganisjana &
Koke, 2008, p. 225). Therein, the term enterprise
involves entrepreneurship as shown in Figure 3
(Zaščerinska, Ahrens, & Bassus, 2011, p. 475).
In a broad sense, entrepreneurship should be
considered as a general attitude that can be usefully
applied in all working activities and in everyday
life, such as creativity and innovation (Sarri,
Bakouros, & Petridou, 2010). Regarding entrepre-
neurship as an individual’s ability, it means to turn
ideas into action (European Commission, 2012,
p. 7). It includes creativity, innovation and risk
taking, as well as the ability to plan and manage

997

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
Figure 3. The relationship between enterprise and
entrepreneurship
projects in order to achieve objectives (European
Commission, 2012, p. 7) as shown in Figure 4.
This supports everyone in day-to-day life at
home and in society, makes employees more aware
of the context of their work and better able to seize
opportunities, and it provides a foundation for
entrepreneurs to establish a social or commercial
activity (European Commission, 2012, 7).
Entrepreneurship involves entrepreneurship
education as demonstrated in Figure 5.
In short, entrepreneurship education means de-
veloping a culture which is through, for and about
Figure 4. Components of entrepreneurship as an individual ability
998

entrepreneurship (European Commission, 2011).
In higher education, entrepreneurship education
seeks to prepare people to be responsible, enter-
prising individuals who have the knowledge, skills
and attitudes necessary to achieve the goals they
set for themselves to live a fulfilled life (European
Commission, 2012, p. 44). Therefore, entrepre-
neurship education focuses on knowledge, skills
and attitudes of students which all together make
up the entrepreneurship key competence (Euro-
pean Commission, 2012, p. 44). Entrepreneurship
education is not necessarily directly focused on
the creation of new businesses, although graduate
start-ups are one of a range of possible outcomes
(European Commission, 2012, p. 44). The study
of entrepreneurship education for teachers has not
had a long story as described in Table 1.
The challenge of entrepreneurship education
for teachers requires significant changes in the
way teachers themselves are educated (European
Commission, 2011). One of the methods that have
been suggested is Enterprise 3.0 application in
entrepreneurship. By acquiring Enterprise 3.0,
teachers will be more effective when using these
methods with the students (The Oslo Agenda for
Entrepreneurship Education in Europe, 2006).

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application

Figure 5. The relationship between entrepreneur-

ship and entrepreneurship education
The present research is based on a widely
accepted conception of Enterprise 3.0 as use of
Web technologies for enterprise (business) pur-
poses (Bassus, Ahrens, & Zaščerinska, 2011).
New business ideas such as the payment service
offered by RevolutionMoney, the mail service
offered by eSnailer, the flight service offered by
Virgin Charter, or the personalized TV service
from Current.com, Skype, the eBay seller evalu-
ation, or the Amazon recommendation service are
classical examples (Vossen, 2009, p. 38) and have
found widespread acceptance in the community.
Therefore both teachers’ and students’ Enterprise
3.0 application has to be analysed and compared.
The study of Enterprise 3.0 and Enterprise 3.0 in
pedagogy has not had a long story as described in
Table 2 (Bassus, Ahrens, & Zaščerinska, 2011).
Enterprise 3.0 is defined as an ideal organiza-
tion for the 21st century to form new business func-
tions of collaboration with the focus on information
sharing within the enterprise and the eco-system
partners (Nadhan, 2008). In comparison with En-
terprise 2.0 as a system of Information and Com-
munication Technology aimed at creating social
business, Enterprise 3.0 is characterized by such
qualities as mobility and semantics. Mobility of
Enterprise 3.0 is founded on the concepts of cloud
computing and information access anywhere,
anytime, on any device. The concept of seman-
tics means to provide a particular Information
and Communication Technology’s user with the
content that is relevant to his/her social networks.
Enterprise 3.0 includes but is not limited to online
networks. Elements of Enterprise 3.0 depend on
the particular job’s specifics.

Table 1. Entrepreneurship education for teachers in different years

Phase Year Dimension Author(s)

1. 2004 Need in specific training for teachers. European Commission
2. 2006 Support to teachers and educators. Participants of the Conference on “Entrepreneurship
Education in Europe: Fostering Entrepreneurial
Mindsets through Education and Learning” (Oslo,
26-27 October 2006).
3. 2009 Teachers’ reflections about J. Seikkula-Leino, E. Ruskovaara,
entrepreneurial education. M. Ikävalko, J. Mattila, T. Rytkölä.
4. 2010 Teachers’ perspective on “Entrepreneurship Education.” B. Backström-Widjeskog
5. 2011 The entrepreneurial teacher: European Commission
• National strategies to entrepreneurship education,
• Delivering entrepreneurship education,
• Teacher education for entrepreneurship education.
6. May 2012 Teachers’ entrepreneurial experience or the right C. Ashmore
mindset, teachers’ personal career exploration.
7. 2012 Integrating entrepreneurship education in Finnish J. Seikkula-Leino, E. Ruskovaara,
teacher training curricula. H. Hannula, T. Saarivirta

999
 
A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application

Table 2. Enterprise 2.0 in pedagogy in different historical periods

Phase Historical Period Approach Elements of Enterprise Educational Settings

1. 2000 - 2006 Enterprise 1.0 as Social software Tasks with use of Enterprise 1.0
socialization
2. 2006 - up to now Enterprise 2.0 as Social software and online Teaching techniques with use of
community networks Enterprise 2.0
3. 2007 - up to now Enterprise 3.0 as Online networks Practice of the Enterprise 3.0
organization curriculum
4. 2010 - up to now Enterprise 4.0 as society Ambient intelligence, WebOS University Degree
or Web operating system,
artificial intelligence

Teachers’ profession and students’ studies have
their own specifics, too. The specifics of teachers’
profession are shaped by teachers’ professional
purposes. Teachers’ professional purposes are ini-
tially differentiated into administrative duties and
didactic purposes (Rubene & Valdmane, 2013). As
teachers’ profession has one more specific require-
ment such as teachers’ professional development,
the present research focuses on teachers’ profes-
sion that includes teachers’ administrative duties,
teaching and teachers’ professional development
as depicted in Figure 6.
In the present research, by administrative duties
interaction with other people is meant, by didactic
purposes – teaching or teachers’ running their own
business, and by teachers’ professional develop-
ment - teachers’ learning. In its turn, students’
studies are mostly focused on
• Students’ learning and cognition,
• Research or students’ running their own
business and
• Professionalisation or interaction with oth-
er people.
Thereby Enterprise 3.0 is applied to accomplish
the following purposes as shown in Figure 7: in-
teract with other people, run one’s own business
and cognize or learn something new.

Figure 6. Elements of teachers’ profession

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A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
Figure 7. Purposes of Enterprise 3.0 application
These domains shown in Figure 7 serve as a
basis for designing the survey to be implemented
within the present empirical research.
Further on, Table 3 presents Enterprise 3.0
application based on the methodology of the de-
velopment of the system of external and internal
perspectives.
Thus, Enterprise 3.0 for teachers and students
includes such online networks for professional
applications as Twitter, Xing, LinkedIn as shown
in Figure 8 and many others.
A social network acts as a means of connecting
employees of distinct expertise across departments
and company branches and helps them build pro-
files in an easy way, and it can do so in a much
Table 3. Enterprise 3.0 application within the
methodology of the development of the system of
external and internal perspectives
External Perspective Internal
Perspective
Interact with other Run one’s own Cognize or learn
people. business. something new.
cheaper and more flexible way than traditional
knowledge management systems (Vossen, 2009, p.
38). Once a profile has been set up and published
within the network, others can search for people
with particular knowledge or expertise and con-
nect to them. If the social network is to be run
outside an enterprise, providers like Ning allow
an easy setup of a self-regulated and self-managed
community (Vossen, 2009, p. 38).
2. Research Design
The research design comprises the purpose and
question, sample and methodology of the present
empirical study to be considered.
2.1. Research Purpose and Question
The empirical study was aimed at comparing
teachers’ and students’ Enterprise 3.0 application
in entrepreneurship. The research question is as fol-
lows: What is teachers’ and engineering students’
Enterprise 3.0 application in entrepreneurship?
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A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
Figure 8. Elements of Enterprise 3.0 for teachers and students
2.2. Sample of the Research
The present empirical study involved
• 59 teachers who took part in the Leonardo
and Grundtvig Partnerships UK Contact
Seminar “Back to Learning: Back to Work”
at University of Birmingham, Birmingham,
the United Kingdom, 4-7 July 2012 and
• 21 engineering students in the Eighth Baltic
Summer School Technical Informatics and
Information Technology at the University
of Tartu, Tartu, Estonia, July 28 – August
12, 2012.
The teachers’ sample included 59 respondents.
All the teachers have got Bachelor, Master or PhD
Degree in different fields of educational sciences
such as teaching English as a Foreign Language,
Business, technical and other subjects. All the
teachers work at educational establishments of
different types: school, vocational, higher and
adult education institutions. The teachers are
from different European countries such as Bel-
gium, Czech Republic, Estonia, FYR Macedonia,
1002

Iceland, Italy, Latvia, Lithuania, Norway, Poland,
Portugal, Romania, Slovenia, Spain, the Nether-
lands, Turkey and the UK. All 29 engineering
students have got Bachelor or Master Degree in
different fields of computer sciences and working
experience in different fields. These 29 engineer-
ing students represent different countries, namely,
Nigeria, Ethiopia, Lithuania, Estonia, Belarus,
Poland, India, Russia, Ukraine, Turkey, Nepal,
Sweden, Canada, China and Pakistan. Therefore,
both samples are multicultural as the respondents
with different cultural backgrounds and diverse
educational approaches were chosen. That empha-
sizes the analysis of each teacher’s and student’s
Enterprise 3.0 application (Luka, Ludborza, &
Maslo, 2009) within the present empirical study.
However, whereas cultural similarity aids mutual
understanding between people (Robbins, 2007, p.
48), the teachers’ and students’ different cultural
and educational backgrounds contribute to suc-
cessful learning. Moreover, different cultural and
educational backgrounds become an instrument
of bringing the teachers and students together
more closely under certain conditions such as
appropriate materials, teaching/learning methods

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
and forms, motivation and friendly positioning of
the educator (Abasheva, 2010, p. 430). Thus, the
groups’ socio-cultural context (age, field of study
and work, mother tongue, etc.) is heterogeneous.
2.3. Research Methodology
The interpretative research paradigm which cor-
responds to the nature of humanistic pedagogy
(Lūka, 2008, p. 52) has been employed for the
present research. The interpretative paradigm cre-
ates an environment for the development of any
individual and helps them to develop their potential
(Lūka, 2008, p. 52). The core of this paradigm
is human experience, people’s mutual everyday
interaction that tends to understand the subjectiv-
ity of human experience (Lūka, 2007, p. 104).
The paradigm is aimed at understanding people’s
activity, how a certain activity is exposed in a cer-
tain environment, time, conditions, i.e., how it is
exposed in a certain socio-cultural context (Lūka,
2007, p. 104). Thus, the interpretative paradigm is
oriented towards one’s conscious activity, and it is
future-oriented (Lūka, 2007, p. 104). Interpreta-
tive paradigm is characterized by the researcher’s
practical interest in the research question (Cohen,
Manion et.al., 2003). The researcher is the inter-
preter. Hence, the interpretative paradigm in the
present research has been underpinned both by
the researcher’s practical interest – teachers’ and
engineering students’ Enterprise 3.0 application
in entrepreneurship as the basis for provision of
the development of the system of external and
internal perspectives – and the correspondence
of the social constructivism theory to the given
paradigm (Lūka, 2007, p. 104).
Comparative study as a qualitative research
design has been employed (Flick, 2004). The
exploratory type of the comparative study has
been applied (Phillips, 2006). The exploratory
type of the comparative study aims to generate
new hypotheses and questions (Phillips, 2006).
The exploratory methodology proceeds as follows
(Phillips, 2006):
• ‘Conceptualisation’ in Phase 1,
• Detailed description of educational phe-
nomena in the countries to be investigated,
with full attention paid to the local context
in terms of its historical, geographical,
cultural, political, religious, and linguistic
(etc.) features in Phase 2,
• The data collection in Phase 3,
• Explanation through the development of
hypotheses in Phase 4,
• Re-consideration of the initial questions
and application of the findings to other
situations in Phase 5.
The qualitatively oriented research allows the
construction of only few cases (Mayring, 2007,
p. 1). Moreover, the cases themselves are not of
interest, only the conclusions and transfers we
can draw from this material (Mayring, 2007, p.
6). Selecting the cases for the case study com-
prises use of information-oriented sampling, as
opposed to random sampling (Flyvbjerg, 2006,
p. 229). This is because an average case is often
not the richest in information. In addition, it is
often more important to clarify the deeper causes
behind a given problem and its consequences than
to describe the symptoms of the problem and how
frequently they occur (Flyvbjerg, 2006, p. 229).
Random samples emphasizing representative-
ness will seldom be able to produce this kind of
insight; it is more appropriate to select some few
cases chosen for their validity.
3. Survey Results
In order to analyse the teachers’ and engineering
students’ Enterprise 3.0 application in entrepre-
neurship, the survey was based on the following
questionnaire:
Question 1: Please, indicate the name of the
country of your origin. The evaluation scale
is nominal.
1003

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
Question 2: Do you run your own business?
The evaluation scale of two levels for the
question is given where “0” means “no”
and “1” - “yes.”
Question 3: Do you plan to start your own busi-
ness? The evaluation scale of two levels for
the question is given where “0” means “no”
and “1” - “yes.”
Question 4: Do you aim to run own business for
your own financial profit? The evaluation
scale of two levels for the question is given
where “0” means “no” and “1” - “yes.”
Question 5: Do you aim to run own business for
promotion of innovative products or service?
The evaluation scale of two levels for the
question is given where “0” means “no”
and “1” - “yes.”
Question 6: Do you aim to run own business
for well-being of people around (peoples’
employment, income, interests, etc)? The
evaluation scale of two levels for the ques-
tion is given where “0” means “no” and
“1” - “yes.”
Question 7: Please, specify other aims of running
your own business. The evaluation scale is
nominal.
Question 8: Do you need more knowledge to run
your own business? The evaluation scale of
two levels for the question is given where
“0” means “no” and “1” - “yes.”
Question 9: Do you need more skills to run your
own business? The evaluation scale of two
levels for the question is given where “0”
means “no” and “1” - “yes.”
Question 10: Do you need more practice to run
your own business? The evaluation scale of
two levels for the question is given where
“0” means “no” and “1” - “yes.”
Question 11: Do you use Enterprise 3.0 technolo-
gies to run your business? The evaluation
scale of two levels for the question is given
where “0” means “no” and “1” - “yes.”
1004

59 questionnaires were distributed among
teachers who participated in the Leonardo and
Grundtvig Partnerships UK Contact Seminar
“Back to Learning: Back to Work” at University of
Birmingham, Birmingham, the United Kingdom,
4-7 July 2012, and 21 questionnaires – among en-
gineering students who participated in the Eighth
Baltic Summer School Technical Informatics and
Information Technology at the University of Tartu,
Tartu, Estonia, July 28 – August 12, 2012.
Questionnaire responses were received from
eight teachers and 21 engineering students.
The results of Question 1 of the question-
naire used in the survey show that eight teachers
who responded to the questionnaire represented
United Kingdom, Slovenia, Macedonia, Iceland,
Latvia, Lithuania, Poland and Portugal, and 29
engineering students - Finland, Sweden, Ukraine,
Canada, Pakistan, Estonia, Nepal, Lithuania, Rus-
sia, Turkey and China.
The results of Question 2 on teachers’ running
own business reveal that only one out of eight
teachers who responded to the questionnaire had
been running his/her own business. Moreover,
the teacher stressed that the company had been
working over 30 years. The results of Question 2
on engineering students’ running their own busi-
ness reveal that only one out of 21 engineering
students who responded to the questionnaire had
been running his/her own business, too.
The results of Question 3 of the questionnaire
used in the survey show that
• There was no a teacher out of eight teach-
ers who responded to the questionnaire
who had planned to run own business and
• 11 engineering students who responded to
the questionnaire had planned to run own
business.
The results of Question 4 on teachers’ and en-
gineering students’ running business for their own
financial profit demonstrate that one teacher and
nine engineering students responded positively.

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
Three teachers and 13 engineering students re-
plied positively to Question 5 (Running a business
for promotion of innovative products or service).
Two teachers out of eight teachers and eight
engineering students out of 21 students who re-
sponded to the questionnaire gave their positive
replies to Question 6 (Running a business for
well-being of people around).
The results of Question 7 (Other aims of run-
ning your own business) demonstrate that no other
aims to run own business were pointed out by the
teachers. In turn, other aims to run own business
were pointed out by three engineering students
such as following:
• Personal growth,
• Job satisfaction and
• Development of local electronic
government.
Two teachers and 14 engineering students re-
sponded positively to Question 8 (More knowledge
to run own business).
Two teachers out of eight teachers and eight
engineering students out of 21 students who re-
sponded to Question 9 (More skills to run own
business) consider that they need more skills to
run their own business.
Four teachers and 12 engineering students
supposed that they need more practice to run
their own business while answering to Question
10 (More practice to run own business).
The results of Question 11 (teachers’ En-
terprise 3.0 application in entrepreneurship) of
the questionnaire used in the survey reveal that
only two teachers out of eight teachers and 12
respondents out of 21 engineering students who
responded to the questionnaire use Enterprise 3.0
in entrepreneurship.
4. Findings of the Research
The relatively small number of questionnaires
returned may possibly be explained by teachers’
summer vacation as the questionnaire was emailed
in July 2012: in general people and, consequently,
teachers do not often check their e-mails in sum-
mer. Another explanation could be the technical
aspect of the emailed questionnaire: the question-
naire did not reach the email inbox as the computer
programmes had redirected it to the email trash
or spam space. Further on, the relatively small
number of teachers who responded to the question-
naire may possibly reflect teachers’ perception of
their responsibility for their own cognition or, in
other words, learning as filling in a questionnaire
is considered as a technique of teachers’ lifelong
learning and attitude to Enterprise 3.0 application,
entrepreneurship and entrepreneurship education.
In turn, the engineering students demonstrated
a high level of responsibility returning the filled
in questionnaires which was distributed within the
Eighth Baltic Summer School Technical Informat-
ics and Information Technology at the University
of Tartu, Tartu, Estonia, July 28 – August 12, 2012.
The respondents’ replies from the questionnaire
were systematized according to the construct of
Enterprise 3.0 application in entrepreneurship and
its perspective as described in Table 4:
• The construct of respondents’ running own
business and Enterprise 3.0 application,
• The construct of respondents’ planning to
run own business, and
• The construct of respondents’ aim to run
own business.
The data were processed applying Excel soft-
ware. The determined construct domains were
systematized into the codes corresponding to a
domain. Only positive answers were taken into
consideration for the analysis: answers which
were marked as “1” in Question 2, 3, 4, 5, 6, 8,
9, 10 and 11. The number and percentage of the
positive answers from the questionnaire completed
by the respondents as reflected in Table 5 and 6
were analysed.
1005
 
A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application

Table 4. The inter-relationship between construct, perspective, construct domain and questionnaire

Construct Perspective Construct Domain Number

of the Question
Respondents’ Enterprise 3.0 External Respondents’ interaction with people 5, 6, 7
application
Respondents’ running a business 2, 3, 4, 11
Internal Respondents’ cognition 8, 9, 10

Table 5. Frequency of the teachers’ positive answers

Construct Construct Domain Number Number of Percentage

Teachers’ Enterprise
3.0 application in
entrepreneurship
of the Question Answers
Teachers’ interaction with people 5 3 62.5%
6 2 25%
7 0 0%
Teachers’ running a business 2 1 12.5%
3 0 0%
4 1 12.5%
11 2 25%
Teachers’ cognition 8 2 25%
9 2 25%
10 4 50%

Table 6. Frequency of the engineering students’ positive answers

Construct Construct Domain Number Number of Percentage

of the Question Answers
Engineering Engineering students’ interaction with people 5 13 62%
students’ Enterprise
6 8 38%
3.0 application in
entrepreneurship 7 3 14%
Engineering students’ running a business 2 1 5%
3 11 52%
4 9 43%
11 12 57%
Engineering students’ cognition 8 14 67%
9 8 38%
10 12 57%

1006

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application

All of the respondents’ answers were catego-
rized to the construct Respondents’ Enterprise
3.0 Application in Entrepreneurship. Frequencies
were determined to reveal the teachers’ and engi-
neering students’ positive experience in Enterprise
3.0 application in entrepreneurship. The survey
showed that the number of teachers and engineer-
ing students who run their own business is very
low, respectively 12.5% and 5%. The teachers do
not plan to start their own business (0%). In turn,
the engineering students plan to start their own
business (52%). The interpretation of the survey’s
results reveals that there are two types of respon-
dents: one type of respondents includes those who
have their own business, and the other – who have
no their own business. However, more types of
respondents were described: most respondents
have never been entrepreneurs, some respondents
are failed entrepreneurs who went to teaching or
other professions as a more secure career, the
others do not just have the right mindset to run a
business (Ashmore, 2012). The interpretation of
the respondents’ types allows revealing teachers’
typology based on their Enterprise 3.0 applica-
tion in entrepreneurship as shown in Table 7. The
typology can be easily applied to determining
engineering students’ types, too.
Regarding entrepreneurship as an individual’s
ability, it should be mentioned that abilities develop
lifelong. Further on, the change in the relationship
between functions (teaching and running a business)
for the development of an individual’s ability is sig-
nificant in entrepreneurship education for teachers
and engineering students, and not the development
of each function (Леонтьев, 1982, 38).
The results of the survey demonstrate that
teachers and engineering students need more
knowledge, respectively 25% and 67%, skills 25%
and 38%, and practice 50% and 57% in order to
run their own business. As teachers’ needs are a
subjective component of motivation, the teachers
have a low level of their intrinsic motivation to
run their own business. Therein, motivation com-
prises (Harmer, 2001, p. 52) extrinsic motivation
caused by a number of outside factors and intrinsic
motivation that comes from the individual and is
especially important for encouraging as shown
in Figure 9.
Further on, aims are a component of need and,
consequently intrinsic motivation, too. Therein,
need is defined by the reasons for which the
teacher and engineering students is learning, which
will vary from study purposes such as following
a postgraduate course in an English-speaking
country to work purposes such as participating
in business meetings or taking hotel bookings
(Dudley-Evans & John, 1998, p. 3).
The results of the survey demonstrate that
the teachers and engineering students run own
business for getting their own financial profit,
respectively 12.5% and 43%, for promotion of
innovative products or service 37.5% and 62%,
Figure 9. Components of motivation

Table 7. Typology of teachers based on their Enterprise 3.0 application in entrepreneurship

Type of the Teacher Short Description

1. Entrepreneurial teacher Teacher who has his/her own efficient business.
2. Ex-entrepreneur Teachers who is a failed entrepreneur who went to teaching as a more secure career.
3. Teacher Teacher who has never been an entrepreneur.
4. Non-entrepreneur Teacher who does not have the right mindset to run a business.

1007

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
for well-being of people around (peoples’ employ-
ment, income, interests, etc) 25% and 38%. The
teachers do not have any other aims to run their
own business (0%). In its turn, the engineering
students have other aims to run their own business
(14%) as following:
• Personal growth,
• Job satisfaction and
• Development of local electronic
government.
Consequently, the other aims to run own busi-
ness given by the engineering students in Question
7 of the questionnaire are categorized as following:
• Personal growth refers to the construct
cognition,
• Job satisfaction relates to the construct in-
teraction with people, and
• Development of local electronic gov-
ernment reveals the construct running a
business.
The survey showed that Enterprise 3.0 applica-
tion in entrepreneurship has been positively evalu-
ated by only 25% of the teachers and 57% of the
engineering students among those who responded to
the questionnaire. The interpretation of these results
allows concluding that Enterprise 3.0 in entrepre-
neurship is not widely used yet. The comparison
between the teachers’ and engineering students’
answers reveals that students use Enterprise 3.0
more often than teachers. Moreover, the survey’s
results allow drawing a conclusion that students
run their own business more often than teachers.
The interpretation of the survey’s results
reveals that the teachers’ intrinsic motivation in
entrepreneurship is of a low level while the engi-
neering students – of a critical level. That allows
explaining a low level of teachers’ and a critical
level of engineering students Enterprise 3.0 ap-
plication in entrepreneurship as teachers rarely
have entrepreneurial experience (Ashmore, 2012).
1008

The summarizing content analysis (Mayring,
2004) of the data reveals that the teachers’ and
engineering students’ feedback regarding their
Enterprise 3.0 application in entrepreneurship
is positive. However, in comparison with engi-
neering students’ Enterprise 3.0 application in
entrepreneurship, there is a need for the increase
of the teachers’ Enterprise 3.0 application in entre-
preneurship as well as teacher’s running business
by supporting the teachers’ extrinsic motivation.
ISSUES, CONTROVERSIES,
PROBLEMS
One of the Enterprise 3.0 issues is to to investigate
the historical development of Enterprise 3.0 and
Enterprise 3.0 in pedagogy.
Another point is the paradigm shift from so-
cialization within Web 2.0 to peer contribution
within Web 3.0 (Ahrens & Zaščerinska, 2011, p.
319) and growing need to quantify uncertainty
with greater precision (Nadhan, 2008) that has
already increased the significance in the Enterprise
3.0 institutionalization. However, Enterprise 3.0
is conceptualized but still not institutionalized
(Nadhan, 2008).
The present research has limitations. The inter-
connections between enterprise, entrepreneurship,
entrepreneurship education and entrepreneurship
education for teachers have been set. Another
limitation is the empirical study conducted by
involving only the teachers at one seminar and
the students of one tertiary institution. Therein,
the results of the study cannot be representative
for the whole area. Nevertheless, the results of the
research – the determined dimensions, constructs
of Enterprise 3.0 application and the exploratory
research design - may be used as a basis of analysis
of Enterprise 3.0 application in entrepreneurship in
other institutions. If the results of other institutions
had been available for analysis, different results
could have been attained. There is a possibility
to continue the study.

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
SOLUTIONS AND
RECOMMENDATIONS
Regarding the institutionalization of Enterprise 3.0,
an attempt has led to the concept of Enterprise 3.0
application that proceeds from teaching through
peer-learning to learning in education and training.
FUTURE RESEARCH DIRECTIONS
Enterprise 3.0 demonstrates the technology of
online networks to assemble and manage large
communities with a common interest in peer
contribution, where organisations and enterprises
have made use of the potential of Web 3.0 with
single solutions such as online networks. However,
Enterprise 4.0 as shown in Table 2 will be derived
from the full application of Web 4.0 concepts such
as ambient intelligence, WebOS or Web operating
system, artificial intelligence, rather than Web 3.0
point solutions (Bassus, Ahrens, & Zaščerinska,
2011, p. 381). This remains as an open point for
the future. It should be mentioned that the concept
of a Web operating system or WebOS is distinct
from Internet operating systems. Web operating
system or WebOS is independent of the traditional
individual computer operating system.
Another direction of further research might
include Enterprise 3.0 application in five phases
(Zaščerinska, 2011, p. 145):
• Teaching in Phase 1,
• Teaching with elements of peer-learning in
Phase 2,
• Peer-learning in Phase 3,
• Peer-learning with elements of leaning in
Phase 4 and
• Learning in Phase 5.
Prospects for development include modelling
of a favourable educational (teaching, peer-learn-
ing and learning) environment for the enrichment
of teachers’ and engineering students’ Enterprise
3.0 application in entrepreneurship. Teachers’ and
engineering students’ extrinsic motivation to run
a business has to be investigated. Pedagogical
support for teachers and engineering students
who are failed entrepreneurs and who do not
have the right mindset to run a business has to
be discussed. Empirical studies in other institu-
tions are proposed to be carried out. Another
direction of further investigation is considered
as evaluation of efficiency of teachers’ and engi-
neering students’ running their own business. A
comparative research of different countries could
be carried out, too.
CONCLUSION
The findings of the research allow drawing the
conclusions on
• A low level of teachers’ Enterprise 3.0 ap-
plication as the teachers’ Enterprise 3.0
application in entrepreneurship has been
positively evaluated by only 25% of the
teachers and
• A critical level of students’ Enterprise 3.0
application as the engineering students’
Enterprise 3.0 application in entrepreneur-
ship has been positively evaluated by 57%
of the students.
Validity and reliability of the research results
have been provided by involving other research-
ers into several stages of the conducted research.
External validity has been revealed by international
co-operation as following:
• The research preparation has included in-
dividual interdisciplinary consultations
given by other researchers,
• The present contribution has been worked
out in co-operation with international col-
leagues and assessed by international col-
leagues, and
1009

A Comparative Study of Teachers’ and Engineering Students’ Enterprise 3.0 Application
• The research has been partly presented at
international conferences.
Therein, the findings of the present research
are validated by other researchers.
The following hypothesis has been formulated:
teachers’ and engineering students’ Enterprise
3.0 application in entrepreneurship is integrated
into teacher training and engineering education if
• Teachers and engineering students identify
their own needs to run their own business,
• Teachers and engineering students are ex-
ternally motivated by involving them in
their personal career exploration,
• A favourable educational (teaching, peer-
learning and learning) environment for
the enrichment of teachers’ and engineer-
ing students’ Enterprise 3.0 application in
entrepreneurship is organized that results
in teachers’ and engineering students’ im-
proved knowledge, skills and practice to
run their own business,
• Teachers and engineering students partici-
pate in running their own business.
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KEY TERMS AND DEFINITIONS
Enterprise: An individual complex capability
to identify, generate and realize new socially valu-
able opportunities in the personal, professional,
This work was previously published in International Business Strategy and Entrepreneurship edited by Patricia Ordóñez de
Pablos, pages 145-164, copyright year 2014 by Business Science Reference (an imprint of IGI Global).
cultural, economic and other contexts of the social
life (Oganisjana, Koke, 2008, p. 225).
Enterprise 3.0: Use of Web technologies for
enterprise (business) purposes.
Enterprise 3.0 for Teachers and Students:
Online networks for professional applications as
Twitter, Xing, LinkedIn, etc.
Entrepreneurship: An individual’s ability
to turn ideas into action (European Commission,
2012, p. 7). It includes creativity, innovation
and risk taking, as well as the ability to plan and
manage projects in order to achieve objectives
(European Commission, 2012, p. 7).
Entrepreneurship Education: Developing a
culture which is through, for and about entrepre-
neurship (European Commission, 2011).
Need: The reasons for which the teacher and
engineering students is learning, which will vary
from study purposes such as following a post-
graduate course in an English-speaking country
to work purposes such as participating in business
meetings or taking hotel bookings (Dudley-Evans
and John, 1998, p. 3).
The Principle of Mutual Sustainability:
To provide a complex of possibilities to learn
for everyone (both student and educator in the
present context).
The Reflected Principle of Complementar-
ity: The opposite things (principles in the present
research) supplement each other for finding the
truth.
1013
1014

Chapter 55
Youth Entrepreneurship
in Indian Scenario
Neeta Baporikar
University of Pune, India

ABSTRACT
Governments and local communities across the world have recognized that key to building prosperity
and stimulate regional growth is fostering entrepreneurship among their people especially youth. Youth
entrepreneurship has become a topic of interest for research scholars and also a subject of major con-
cern for the Government. While youth entrepreneurship is an under-explored field, the main factor for its
growing attention is the increased number of unemployed young people. Furthermore entrepreneurship
is seen as a channel for the talents of many highly educated young people to explore their potential and
cash their business acumen. By 2015, World Bank estimates that there will be about 3 billion youths
less than 25 years old and a big portion of that will be in India. Many young people cannot find employ-
ment. This has become particularly acute since the education explosion in early 2000’s and onset of the
financial crisis in 2008. These outcomes are both inefficient and inequitable. Evidence shows that the
unemployed are unhappier, more likely to experience a range of health issues, and face difficulties in
integrating back into the labour market place (Bell & Blanchflower, 2009). For young people, the effects
of unemployment may be particularly scarring. Evidence suggests that a spell of youth unemployment
increases the likelihood of poorer wages and unemployment in later life (Blanchflower & Oswald, 1998).
Such outcomes also have pronounced social costs. It represents a loss of potential output and leads to
increased costs to the taxpayer apart from causing social disruptions. One potential way of integrating
young people into the global economy is to increase youth entrepreneurship1. The objective of this re-
search paper is simple - to understand youth entrepreneurship and its role with focus on Indian scenario.

INTRODUCTION youth. Youth entrepreneurship has become a topic

Governments and local communities across the
world have recognized that key to building pros-
perity and stimulate regional growth is fostering
entrepreneurship among their people especially
DOI: 10.4018/978-1-4666-8468-3.ch055
of interest for research scholars and also a subject
of major concern for the Government. While
youth entrepreneurship is an under-explored field,
the main factor for its growing attention is the
increased number of unemployed young people

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Youth Entrepreneurship in Indian Scenario
furthermore entrepreneurship is seen as a channel
for the talents of many highly educated young
people to explore their potential and cash their
business acumen. By 2015, World Bank estimates
that there will be about 3 billion youths less than
25 years old and a big portion of that will be in
India. Promoting Youth entrepreneurship will not
only help in reducing unemployment but more
importantly showing young people that they have
alternatives to create their own destiny by starting
their own companies and just not waiting to find
a job. A lot of constraints and perceived barriers
to youth entrepreneurship have been identified
like lack of capital, poor infrastructure, strict and
cumbersome Government regulations, lack of
guidance and awareness etc. This study tends to
evaluate the individual factors governing youth
entrepreneurship. A lot of work has been done
to find the determinants of entrepreneurship.
Different research works have stressed different
determinants. For example, Shapero (1975) and
Kets de Vries (1977) have stressed the importance
of personality factors, psychodynamic characteris-
tics, and the sociocultural background in fostering
entrepreneurial behavior while Miller and Friesen
(1978) and Mintzberg (1973) have stressed upon
the decision making and strategy factors important
for promoting entrepreneurship.
Bradberry (2007) envisaged that identifying
one’s career choice depends on one’s personality
traits and how one perceives a particular job. He
further states that one’s personality can give one
a clear understanding whether or not each aspect
of the profession chosen suits him or her. The
objective of this research paper is simple - to
understand what is youth entrepreneurship and its
role in Indian scenario. Many young people cannot
find employment. This has become particularly
acute since the education explosion in early 2000’s
and onset of the financial crisis in 2008. These
outcomes are both inefficient and inequitable. Evi-
dence shows that the unemployed are unhappier,
more likely to experience a range of health issues,
and face difficulties in integrating back into the
labour market place (Bell & Blanchflower, 2009).
For young people, the effects of unemployment
may be particularly scarring. Evidence suggests
that a spell of youth unemployment increases the
likelihood of poorer wages and unemployment in
later life (Blanchflower & Oswald, 1998).
Becoming an entrepreneur potentially offers
benefits to the young person through deepening
their human capital attributes (self-reliance, skill
development) and increasing their levels of hap-
piness (Blanchflower & Oswald, 1998). There is
now strong evidence from studies such as Benz
and Frey (2008) that self-employment increases
the happiness of individuals. This is not because
they earn more. Indeed, Hamilton (2000) sug-
gests that they earn less. Instead, it is because the
self-employed derive non-pecuniary benefits (e.g.
greater latitude in work tasks) relative to those in
employment.
It also offers societal benefits. Entrepreneurs
create jobs, increase innovation, raise competition
and are responsive to changing economic oppor-
tunities and trends. Entrepreneurship offers other
positive externalities. A young person setting up
a new business may provide ‘demonstration’ or
learning externalities in that they may act as a role
model for other young people. This may be par-
ticularly advantageous in deprived communities
because setting up a new business – especially if it
goes on to be successful – may signal that entrepre-
neurship is a mechanism for helping disadvantaged
people break out of social exclusion. Indeed, one
of the reasons why youth entrepreneurship is so
attractive is that it offers an indigenous solution
to economic disadvantage (De Clercq & Honig,
2011; Greene et al., 2008). For example, if 10
per cent of NEETs were integrated more fully in
the EU labour market, estimates suggest that this
could save EU taxpayers €10 billion per annum
(Eurofound, 2011).
People with strong general Intelligence
sometimes fail at business. Conversely, there are
plenty of examples of those with comparatively
lower IQs who are successful in business. Not
1015

much research has been done on finding out the
relationship between the intelligence of a student
and his entrepreneurial orientation. The research
findings by Demirel, E. T., et al. (2012) indicated
that the “multiple intelligence skills of entrepre-
neurs have a significant decisive impact on their
entrepreneurial ideas.” Gibbons and Waldman
(2004) have emphasized that Task-specific hu-
man capital has acquired skills and knowledge
through on the job learning, they further explained
that the reason why people conduct certain tasks
more efficiently lies in the way their task-specific
skills and knowledge are augmented through past
experiences, irrespective of the firm or industry,
in which they were employed. Accordingly the
impact of their past experiences in jobs and busi-
ness on their career choice intentions specifically
taking up entrepreneurship as a preferred career
choice is also covered.
BACKGROUND
In spite of the increasing recognition of entre-
preneurship as a source of job creation, regional
development, and economic dynamism in a rapidly
globalizing world, there has been no systematic
attempt to look at it from a youth angle. Youth
entrepreneurship is picking up fast not only in de-
veloped countries but also in developing countries
like India. Yet the overall poor rate of entrepreneur-
ship may be attributed to several different factors.
With the state governments having provided a
host of incentives for industrial development,
the rate of youth entrepreneurship remains to be
low. Educated, skilled and unskilled youth need
to consider entrepreneurship.
As per information available with Director-
ate General of Employment Training, Ministry
of Labour and Employment, number of youth
jobseekers in the age group of 15-29 educated
and uneducated taken together, all of whom
may not necessarily be unemployed, registered
with employment exchanges in the country dur-
1016

Youth Entrepreneurship in Indian Scenario
ing the 1991 and 2010 was 2.93 crore and 2.63
crore respectively. State-wise number of youth
jobseekers (15-29) registered with employment
exchanges in the country as on 31st December
2010 (See Table 1).
This desperation of unemployed youth is evi-
dent at a recent drive when for the recruitment
of home-guards in the state of Utterkhand, when
scores of post-graduates turned up for interviews,
though the basic requirement was only high school.
Government of India has been making continuous
efforts through normal growth process and by
implementing various employment generation
schemes in order to create additional job oppor-
tunities for both educated and uneducated youth
in the country. Some of the important ones are,
Prime Minister’s Employment Generation Pro-
gramme (PMEGP); National Rural Livelihood
Mission(NRLM), Swarna Jayanti Shahri Rozgar
Yojana (SJSRY) and Mahatma Gandhi National
Rural Employment Guarantee Act (MGNREGA)
besides entrepreneurial development programmes
run by the Ministry of Micro, Small & Medium
Enterprises. Though the government is trying its
best to foster entrepreneurship amongst the youth
through the various policies and schemes, yet
there is a general lack of accurate and systematic
data on youth, especially as it relates to youth
entrepreneurship.
Holland’s (1997) theory proposes that people
are attracted to work environments that conform to
their personality orientation. Holland emphasized
on the alignment between personality and work
environment. He proposed that individuals, whose
personalities are poorly matched to their work
environments, are more likely to change careers
than their congruent counterparts. Chell (2008)
suggests that personality traits of entrepreneurs
may be important for entrepreneurship. Shepherd
and Wiklund (2006) posits that the personality
traits of the entrepreneur may explain entrepre-
neurial failure. According to Splaver (1977) It is
important for you to have a good understanding of
yourself and your personality, if you are to make

Youth Entrepreneurship in Indian Scenario

Table 1. Youth employment numbers (in thousands)

intelligent career plans. (Ciavarella et al., 2004;
    Sl. No.     State/UT     2010
Zhao et al., 2010) points out that personality trait
    1     Andhra Pradesh     1300.3
have a direct effect on entrepreneurial performance
    2     Arunachal Pradesh     35.7
measures. Personality traits of entrepreneurs may
have a different effect on firm performance in
    3     Assam     1073.1
case the firms are innovative (Zhao et al., 2010).
    4     Bihar     618.4
Individuals are seen to be productive in an industry
    5     Chhattisgarh     1039.2
or a firm, which is different from their previous
    6     Delhi     401.6
sector of employment, provided the nature of the
    7     Goa     87.3
job remains similar. Penrose (1959) emphasized
    8     Gujarat     660.2
that carrying out similar tasks has important
    9     Haryana     630.3
implications for cognitive processes of human
    10     Himachal Pradesh     530.0
beings. Simon’s (1947) gave the idea of bounded
    11     Jammu & Kashmir     186.2 rationality which refers to human limitation to
    12     Jharkhand     593.7 process information. Under the assumption of
    13     Karnataka     361.0 bounded rationality, therefore, past experience
    14     Kerala     3032.2 influences the processing of incoming informa-
    15     Madhya Pradesh     1433.8 tion. Witt (1998, 2000) explained that events in
    16     Maharashtra     220.0 the environment are only perceived and interpreted
    17     Manipur     415.4 along some specific associative lines. In this sense,
    18     Meghalaya     26.8 a cognitive frame is a schematic representation of
    19     Mizoram     35.1 an individual’s perception of the environment built
    20     Nagaland     51.1 through prior learning and adaptation. Gardner
    21     Orissa     653.4 (1983) argues that intelligence refers to both the
    22     Punjab     248.3 personal decisions and potentials of individuals.
    23     Rajasthan     548.2 This potential comes out or develops according
    24*     Sikkim*     *
to cultural environment, values and opportunities.
    25     Tamil Nadu     3678.5
Baum et al. (2001) reported a positive relationship
    26     Tripura     375.2
between practical intelligence and entrepreneurial
processes and entrepreneurial characteristics,
    27     Uttrakhand     409.9
which proposes that practical intelligence is one
    28     Uttar Pradesh     1362.2
of the strengths underlying high performance
    29     West Bengal     4086.3
enterprises.
    30     Andaman & Nicobar     28.1
Island Youth unemployment is one of the principal
    31     Chandigarh     29.2 social and economic challenges of this decade
    32     Dadra & Nagar Havali     3.5
in Europe and around the world. Long spells of
    33     Daman & Diu     5.7
unemployment can have serious long-term ef-
fects for individuals, such as reduced earnings
    34     Lakshadweep     1.6
and social exclusion. It is estimated that one
    35     Puducherry     144.8
year of unemployment during youth can reduce
    Grand Total     26345.3
annual earnings at age 42 by up to 21% (Gregg
* No employment exchange is functioning in the state.
Source: labour.nic.in/Divisions/3275
& Tominey, 2005) and that an extra three months

1017

of unemployment prior to the age of 23 results
in an extra two months of unemployment, on
average, between the ages of 28 and 33 (Gregg,
2001). Prolonged unemployment magnifies these
problems and increases the chances that they are
passed on to their children. In addition to these
pronounced individual costs, the unemployed
represent a significant stock of unused economic
resources that lowers output and the potential for
economic growth.
Remarkably, youth unemployment (OECD,
2001) rates in Germany and Luxembourg declined
slightly between 2008 and 2010. However, they
increased in all other countries and quite dramati-
cally in some. But, what is not highlighted is a
dramatic drop in the participation rate of youth,
which far exceeded the drop in participation for
adults.
Although youth may not seem like a likely
group for entrepreneurship because of their inexpe-
rience and lack of finances, they do have an inter-
est in entrepreneurship and many of them believe
that self-employment is feasible. The European
Commission’s Eurobarometer conducted a survey
across Europe and other industrialized countries in
2009 to learn about individual’s attitudes towards
self-employment and business start-up (EC, 2009).
Overall, in the EU, 28% of people indicated that
self-employment would either be ‘very feasible’
or ‘quite feasible’ within the next five years. This
is nonetheless lower than in the United States of
America (US) and China, where 36% and 49% of
people saw self-employment as ‘very’ or ‘quite
feasible’ in the next five years.
However, intention is one thing, action is
another. It could be that while it is feasible to
start a business, young people are participating
in education and training, or that they facing
barriers that they are unaware of or do not take
into account. The proportion of youth involved in
self-employment varies across countries, which
may indicate variations in barriers and opportuni-
ties and labour market conditions: labour markets
with high levels of self-employment overall are
1018

Youth Entrepreneurship in Indian Scenario
also more likely to have high levels of youth
self-employment, while labour markets with op-
portunities for paid employment may have less
of a ‘push’ into self-employment and therefore
lower levels of youth self-employment. Societal
outlook towards youth entrepreneurship is also a
deciding factor. In some parts of India, where the
youth comes from business families background
then the motivation levels as well as support is
high as compared to youth from other background.
While young and adult entrepreneurs tend to
have similar motivations for entrepreneurial ac-
tivities, they often have different approaches and
run different types of businesses. As observed,
young entrepreneurs generally operate smaller
businesses than adults. Youth-operated businesses
are also more likely to be concentrated in certain
industries with low barriers to entry and low capital
requirements such as construction, information
and communication and other services firms and
tend to focus on narrow product lines.
Accordingly, many young entrepreneurs focus
exclusively on local markets because of familiar-
ity and because they lack the knowledge about
opportunities in other markets and how to take
advantage of them (Chigunta, 2002). However,
at the same time, they are likely to be more open
than adult entrepreneurs to international activity
(Cassia et al., 2011).
BUSINESS MODELS FOR
YOUTH ENTREPRENEURSHIP
The most common model is own-account self-
employment and approximately three million of
these businesses start in Europe every year (Eu-
rostat). This group of businesses is the key driver
of employment creation. However, other business
models, such as part-time entrepreneurship and
cooperative entrepreneurship, can achieve other
goals such as social inclusion.
Part-time self-employment can be attractive
for young entrepreneurs because it can provide a

Youth Entrepreneurship in Indian Scenario
transition into self-employment while completing
their education or working in paid employment.
Although youth are less likely to run a part-time
business when also working in paid employment,
US data indicate that 5.5% of US young people in
post-secondary education use self-employment to
support their education (ACE, 2006).This can be
an attractive way to enter self-employment because
it requires less capital and the consequences of
failure are lower. Part-time self-employment can
also provide a good opportunity to gain valuable
hands-on experience of running a business on a
small scale.
Cooperatives are another particular form of
enterprise that may be attractive to young people.
In this business model, collective resources are
pooled and entrepreneurial activities aim to serve
a mutual benefit. They are defined as ‘an autono-
mous association of persons united voluntarily to
meet their common economic, social, and cultural
needs and aspirations through a jointly-owned
and democratically-controlled enterprise’ (ILO,
2006). Although they can be difficult to manage
because of a more complex decision making
process, cooperatives can be attractive because
members can accomplish more than they could
individually by increasing their financial and
human capital and benefiting from economies of
scale: this can be ideal for young people who need
to overcome a lack of resources and knowledge.
The UN estimates that the cooperative sector has
more than 800 million members in more than 100
countries, but that very few young entrepreneurs
participate (UN, 2011).
Given that many young people run businesses
that operate in highly competitive industries with
low barriers to entry, it is perhaps unsurprising
that many businesses run by young people do not
necessarily grow, survive or provide sustainable
incomes. This reflects the wider difficulties that
most small-scale businesses have in growing and
surviving. Businesses run by young entrepreneurs
have lower survival rates than those of older en-
trepreneurs (van Praag, 2003); however, young
people’s businesses that do survive have more
growth potential than those of older entrepreneurs
on average.
BARRIERS FOR YOUTH
ENTREPRENEURSHIP
So, youth appear to be facing barriers preventing
some from turning ideas into projects. What are
these barriers? They arise in the areas of social at-
titudes, lack of skills, inadequate entrepreneurship
education, lack of work experience, under capi-
talization, lack of networks, and market barriers:
1. Young people are affected by their families,
teachers and society as a whole. Important
role models, such as parents and teachers,
are often not very aware of the requirements
and opportunities of entrepreneurship. This
lack of awareness results in a lack of en-
couragement for entrepreneurial activities,
or even negative social attitudes that act as
an obstacle to youth entrepreneurship.
2. It is generally argued that education and
training programmes do not do enough to
nurture entrepreneurial attitudes and skills,
but rather prepare students for paid employ-
ment, despite some recent improvements in
this area (Potter, 2008).
3. Prior work and entrepreneurship experience
is a major determinant of business start-up
and entrepreneurship performance. Young
people typically lack human, financial and
social capital necessary both to set up and
successfully run a new business. They may,
therefore, lack the skills needed to set up or
run their business.
4. Entrepreneurs with greater initial financial
resources are more likely to succeed. Young
people are in a disadvantaged position be-
cause they will find it more difficult than
adults to obtain external finance, including
debt finance as banks apply a set of param-
1019

eters in the assessment of loan proposals,
which include credit history, past business
performance and collateral etc.
5. Young people are likely have limited business
networks and business-related social capital.
This may have consequences for setting up
and running their businesses.
6. Market barriers also affect youth entrepre-
neurship. Financial markets may be biased
away from supporting youth businesses.
It is equally important to note that the above
barriers are inter-related, which implies the need
for a package of policy tools, rather than a single
one-shot solution.
CHALLENGES FOR YOUTH
ENTREPRENEURSHIP
The youth population is a heterogeneous one
and there are some significant differences across
groups in their potential for entrepreneurship
and the barriers they face. Some groups that face
particularly strong labour market challenges in-
clude: ethnic minorities, those living in deprived
areas, those from low income families, and those
with low education levels. The group that is often
identified as facing the greatest barriers is those
who are not in employment, education or train-
ing (NEET). The NEET population has grown
between 2008 and 2010 (OECD, 2010) and ac-
counted for 12.8% of the youth population (aged
15–24) in the EU in 2010. It is a key target group
for policymakers because of the danger of this
group withdrawing from the labour force. While
the barriers faced may be similar for NEETs as for
other young people, their scale and consequences
may be much greater.
One might think that youth in ethnic minorities
also face more barriers to entrepreneurship but the
evidence is mixed as to whether this is actually
true. Some ethnic groups (e.g., Chinese, Pakistani)
are more likely to have higher self-employment
1020

Youth Entrepreneurship in Indian Scenario
rates than the ‘native’ population, but the rates of
self-employment amongst second-generation im-
migrants are lower than those of first-generation
immigrants (Clark & Drinkwater, 2007). In
contrast, Dutch data indicates a reverse pattern
(CBS, 2005).
All this suggests that care needs to be taken in
assessing the particular barriers affecting different
groups of young people. While there are some
barriers and policy measures that are broadly the
same for all groups, there can also be a need to
vary the scales and natures of support for differ-
ent youth target groups. In particular, a distinc-
tion can be made between disadvantaged youth
– those who may be unemployed or inactive, live
in a difficult environment or have major gaps in
financial, human and network capital – and other
young people who face less substantial obstacles
but at the same time also represent an opportunity
to increase entrepreneurship participation with
appropriate policy intervention.
RECOMMENDATIONS
Entrepreneurship can play a role in supporting
employment creation and attachment to the labour
market and has done so over recent decades with
various types of programmes. However, we know
from years of experience that there are no quick
fixes to ensure that all youth are integrated into
the labour market. While some countries do a
better job than others, all countries face pressures
and challenges in helping their youth. Economic
growth and job creation at the macro economic
level are an essential part of the answer though not
sufficient in itself. However, in Indian scenario
there is a greater need to:
• Foster an entrepreneurial mindset:
Developing and fostering entrepreneur-
ial mindset among local youth, ages 16
to 30, and equipping them with the skills
needed to get jobs or create small busi-

Youth Entrepreneurship in Indian Scenario
nesses will go a long way in developing
successful youth entrepreneurs. “Children
[in the region] often grow up with a fear of
asserting themselves,” says Meenal Patole,
CCFID’s Head of New Initiatives. “They
are not encouraged to try new things. As
they mature, they become increasingly risk
averse.” Such attitudes are exactly the op-
posite of what is needed. Hence, it is re-
quired to mobilize and sensitize the com-
munity to the fact that youth can be trusted
with money and succeed as entrepreneurs.
• Develop entrepreneurship skills: There
is not a large body of evidence that dem-
onstrates that entrepreneurship education
leads to business start-ups, a number of
studies in Belgium, Denmark, Germany
and the US show that students’ interest
in entrepreneurship increased after they
were introduced to entrepreneurship in
school (ILO, 2006; Lepoutre et al., 2010)
and young students in Denmark were also
more likely to seek further training in en-
trepreneurship (Danish Foundation for
Entrepreneurship, 2010). Even the most
conservative estimates show that partici-
pants in entrepreneurship education are at
least 20% more likely than other groups
to engage in entrepreneurship. However,
there are also some contrasting results:
students who participated in the Dutch
Association Jong Ondernemen (part of
the Junior Achievement programme) were
more likely to form negative intentions
towards entrepreneurship and have lower
self-assessed enterprise skills (Oosterbeek
et al., 2010), which may simply highlight
that entrepreneurship is not for everybody
and that some students realized this during
the programme.
• Develop infrastructure for entrepreneur-
ship: Governments need to support young
entrepreneurs by providing a supportive in-
frastructure that can help overcome barri-
ers associated with lack of networks, skills,
finance for premises and access to associat-
ed start-up support. Important measures in
this category include setting up of software
parks, biotechnology parks, free zones,
industrial estates, entrepreneur networks
and business incubators. Youth business
networks and associations are important
for young entrepreneurs because they pro-
vide mutual learning opportunities, busi-
ness contacts and collective opportunities
to represent youth interests to government
and industry (Chigunta, 2002).
• Provide information, advice, coaching
and mentoring: Young people looking to
start businesses are in need of ‘soft’ sup-
port such as information, advice, coaching
and mentoring to help them overcome their
gaps in knowledge. This is particularly true
for young entrepreneurs who not only lack
self-employment experience, but also lack
experience. Supporting business during
and after start-up with ‘soft’ support is im-
portant because it complements what stu-
dents have learned about entrepreneurship
and helps fill the gaps that have been left
unaddressed. There is evidence from the
Shell ‘liveWIRE’ programme that shows
that mentoring increases the likelihood
that young people enter self-employment,
but the services did not have a major im-
pact on those already in self-employment
(Greene & Storey, 2004).
• Provide financial support: The lack of
initial capital and difficulty in obtain-
ing finance from private lenders is often
identified as the most significant barrier
to business start-up for entrepreneurs, and
one that is especially severe for youth (EC,
2009b).
• Equipping with life skills: Life skills
such as confidence, goal setting, creative
problem solving, and critical thinking, is
essential to achieving the youth entrepre-
1021

neurship program overall goals. There is a
need to bridge this skills gap through a pro-
cess of social inclusion carried out through
intensive training and also maintained in
subsequent phases. Daily trainings in life
skills and entrepreneurship need to be
made available.
• Competitions and festivals (youth me-
las): There is a need to organize compe-
titions and gatherings to stimulate young
people’s creativity and spotlight youth
groups with innovative business ideas.
• Business Counseling: Providing aspiring
and established entrepreneurs with skills
training, proposal development assistance,
and troubleshooting.
• Knowledge Management: Conducting re-
search to assess the feasibility of products,
carrying out pilot studies, and developing
ICT solutions to address business owners’
needs.
• Institutional Development: Helping
small-scale producers combine their ef-
forts to increase negotiating power, pool
resources, scale up production, and in-
crease profitability. Institutional support is
offered in creating Self Help Groups, Joint
Livelihood Groups, cooperatives, federa-
tions, and producer companies.
• Investment Services: Providing financial
linkages, a guarantee fund, and developing
products in-house.
CONCLUSION
There is evidence that young people are enthu-
siastic about starting businesses. However, it is
also clear that few young people actually start
businesses relative to those who express an in-
terest and that their failure rates exceed those in
older population groups. This reflects a number
of barriers affecting youth entrepreneurship in
areas including skills, networks and financing;
1022

Youth Entrepreneurship in Indian Scenario
barriers that are often particular to youth or more
severe for youth than for adults. Youth entrepre-
neurship is not a panacea for solving the youth
unemployment problem but it does have a role to
play in facilitating both - employment and entre-
preneurship development, hence it can be a part
of the response. While context clearly matters,
to maximize effectiveness and efficiency, policy
should target resources on young people with the
best chance of success, provide sufficient support
to allow them to start businesses outside the low
entry barrier but high competition sectors, and
provide integrated packages of complementary
support rather than one-shot instruments.
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ENDNOTES
1
In this article, entrepreneurship and self-
employment are used interchangeably.
Whilst self-employment is often seen as
a limited proxy for entrepreneurship, self-
employment is used because much of the
data on the entrepreneurial choices of young
people relates to self-employment.
 1025

Chapter 56
Internet Entrepreneurship
Education and its Role
in Online Business:
A Case From Iran

Mehdi Behboudi
Islamic Azad University, Qazvin Branch, Iran

Nazanin Jalili
Islamic Azad University, Qazvin Branch, Iran

Kobra Najafi
Islamic Azad University, Qazvin Branch, Iran

ABSTRACT
The present paper aims to analyze the online entrepreneurship education program and its role in devel-
oping online business, specifically in Iran. Seeking cost effective strategies from governors as well as
developing ICT infrastructures makes it imperative to study how Internet-based methods could help to
educate entrepreneurs in Iran. Accordingly, the authors evaluated the current situation of the existing
programs on the one hand and reviewed various well-known programs all around the world on the other
hand. The critical successful factors and the weakness of Iranian current entrepreneurial courses have
mentioned and criticized. The authors developed a theoretical framework relating to online entrepre-
neurship education program with the purpose of training entrepreneurs through the Internet. The paper
concludes by stating managerial implications and governments obligations.

INTRODUCTION and Venkataraman (2000) “… entrepreneurship

As one of the most effective economic capacity
in the human history, “entrepreneurship” has
been emerging, being extensively discussed,
since the past three decades. According to Shane
is concerned with the discovery and exploitation
of profitable opportunities” (p. 217). In this way,
information and communication are the two basic
requirements of every entrepreneurial activity.
The venture in launching new entrepreneurial

DOI: 10.4018/978-1-4666-8468-3.ch056

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Internet Entrepreneurship Education and its Role in Online Business
businesses needs to provide essential informa-
tion and determine an internal hierarchy as well
as external relationships in its chain. By having
this in mind, entrepreneurship cannot take place in
isolation. It rather requires the recognition of some
social needs which in turn involve cultural dynam-
ics, discourse, narrative and identities (Jones &
Murtola, 2012). Moreover, in recognizing the
needs of entrepreneurial activities, the venture
should have an insight into the environment and
gain needed knowledge on the solutions proposed
around the world to meet the needs. In this situa-
tion, it would be helpful, if the ventures to think
to find new channels of meeting these goals
simultaneously so that they can achieve needed
knowledge, information and right relations at
their convenience way. We believe Internet by
having below mentioned features is the medium
that has capabilities to satisfy this goal. Hence,
this study is to build a framework which draw on
the preliminary antecedents of using Internet to
educate entrepreneurship.
On the other hand, the Internet is one of the
most important devices for entrepreneurs in the
developed world. Those individuals add to their
abilities by exploiting the benefits of that network
(Cedefop, 2001). The Internet has introduced
unique possibilities such as e-commerce and e-
learning, which have caused extensive changes
in enterprises as well as educational institutions.
E-learning, in any of its various forms and through
any of the various devices available, including the
Internet, can be used to make learning possible at
work. E-learning employs Information and com-
munications technology and is not limited to digital
libraries. It can rather occur in different forms
and incorporate multiple methodologies using
software, the Internet, online learning or any other
form of online media. Some experts believe that
entrepreneurship is learnable (Moore & Kearsley,
2005). As the Internet continues to develop, similar
advances take place in entrepreneurship education.
Recent activities and advances in development of
entrepreneurship education programs and creation
1026

of new businesses are very remarkable and impres-
sive. Educational programs are considered to be
one of the strategies for developing and promot-
ing entrepreneurship. Since entrepreneurs have
little knowledge on the educational methods and
courses, they consider spending time on education
to be risky. One possible solution to this problem
is to utilize e-learning potentials, such as desirable
quality and ease of use, which encourages learners
to choose this type of education as the alternative
to the traditional education (Juwah, 2000). Online
educational materials make it possible to provide
a completely new content with a high quality and
durability. E-learning rapidly changes organiza-
tional training and education while influencing
socioeconomic changes, technological changes,
and also changes in the behaviors and expectations
of learners. There is an increasing demand for
flexible and adaptive educational environments
which are not dependent on the time and place
of the learning (Meso & Liegle, 2000). There are
several educational and non-educational organs in
Iran which have offered entrepreneurship courses
formally or informally at different levels, but
most of the entrepreneurship education scholars
are not satisfied with the effectiveness of those
courses (Al-Khaldi & Ibn Yaich, 2009). The
information technology has made it possible to
move all the managerial processes from pen and
paper toward electronic methods and automatic
provision of services (Harrison, 2002). In addi-
tion, utilizing information and communications
technology (ICT) has made possible quick access
to information through communication devices
and techniques. Therefore, the importance of
optimal use of those possibilities in the develop-
ment of entrepreneurship education programs
cannot be neglected. Regarding the issue raised
and considering that the non-local methods for
entrepreneurship education are not able to realize
the mentioned objectives efficiently, the research
poses the following question, and tries to provide
possible responses:

Internet Entrepreneurship Education and its Role in Online Business
How online entrepreneurship education will
be able to contribute in Iranian entrepreneurship
education program?
Entrepreneurship Education
Entrepreneurship education is the process of
familiarizing individuals with their abilities in
recognizing business opportunities, their insight,
their self-esteem and knowledge, and skills by
which they are able to develop those abilities
(Jones & English, 2004). In order to train entre-
preneurs, proper educational material should be
devised and provided in a way that can improve the
learners’ skills in communication, management,
producing new products, creativity, and also their
access to technological innovation (Mcmullan &
Long, 1987). Today, training of entrepreneurs
is performed by using systematic and effective
teaching methods in the entrepreneurship courses
around the world. Traditional, merely theoretical
methods are no more effective in training entre-
preneurs (Al-Khaldi & Ibn Yaich, 2009). The
topic of entrepreneurship has expanded in a way
that over 2200 courses are provided at more than
1600 educational centers in the United States
alone (Gartner & Vesper, 1994). Considering idea
generation, expansion of creative ideas and the
relevant education which can lead to the creation of
entrepreneurial businesses, public accessibility of
the education has been emphasized. For example,
a 2008 study performed by Larson and Murray
in China and Mexico showed that establishing
educational centers called Community Learning
Centers (CLC) will lead to entrepreneurial ideation
(Larson & Murray, 2008).
Internet Role in
Entrepreneurship Education
Entrepreneurship is an important economic
and social phenomenon and a well-researched
topic, which has turned into an educational and
academic field (Davidsson, 2003; Fayolle, 2007).
However, considering the increasing number of
the universities around the world that offer entre-
preneurship courses, entrepreneurship education
has seen significant improvement since the first
entrepreneurship course presented by Myles
Mace at the Harvard University (Katz, 2003).
A research on higher education institutions in
England performed by McKeown et al. in 2006
showed that 32% of the universities studied before
1992 and 52% of the respondent academics studied
after 1992 have used technology to support the
educational programs of the institution. The most
common technology used was the online learn-
ing environment, which could potentially offer
educational content and provide opportunities for
self-directed learning, multiple assessment, and
discussion-based exercises. Figures today indicate
an actual improvement in this type of education
in the United States. There are over 2200 courses
offered by more than 1600 institutions, 227 job
opportunities, 44 academic journals, and more than
100 entrepreneurship institutions were established
and raised (Kuratko, 2005). Considering those
data, it can be said that the field is well matured.
A 2002 study on entrepreneurship education in
the United States performed by Solomon et al.
showed that 21% of the respondents had obtained
their information in the form of e-learning using
the Internet (Solomon et al., 2002). In a project
performed in Northern Ireland using e-learning
for entrepreneurship education, the experiences
of students in using technology for learning busi-
ness and entrepreneurial skills were studied. The
results showed that the students had benefited
the capabilities of technology in providing step-
by-step, independent, and appealing learning. In
addition, computer simulation software and video
clips demonstrating other entrepreneurs’ experi-
ences were shown to be very beneficial. Feedback
from the trainers also showed that the students had
enjoyed e-learning and had seen it as a completely
different experience from classroom learning in
lecture form (ISBA, 2006). It can be seen that e-
learning can improve education, and in particular,
1027

Internet Entrepreneurship Education and its Role in Online Business
entrepreneurship education. Utilizing learning
technologies in business and entrepreneurship
education is a dynamic activity and requires one
to recognize relevant technologies and apply them
to learning environments (Kuratko, 2005, p. 588).
The significance of the quality of e-learning
courses has come into attention since the Internet
began to be considered as a medium for distance
learning. Since then, the quality of online courses
is considered of great importance (Song, 2004). In
online learning environments, learners are trained
using various material and resources available on
the Internet, and communicate with their teach-
ers using e-mail. The Internet enables learners to
choose the time and place of their study and yet
interact with their teachers and other learners, or
participate in the discussions. The online learn-
ing model can be used in all academic fields and
there is no limitation for a particular field of study
(Smith, 1994). As Holmes and Gardner stated in
2006 in a simple way, e-learning is the accessing
the resources which encourage learning at any
time and place. Some studies that have examined
the role of the Internet in entrepreneurial idea
expansion, have acknowledged that the process
of data transmission through the development of
information technology and the Internet usually
leads to idea expansion in social networking media
(Park, 2003). Idea expansion through the web or
the Internet enables individuals to easily observe
and pursue new ideas (Mayfield, 2008). Employ-
ing new technologies for further production and
idea expansion helps individuals to share their
ideas in an open virtual environment, benefiting
everyone globally from the advantages of those
ideas, also benefiting economically the idea bank
owner and the the ideator (Petroczi et al., 2007).
In 1991, two researchers named Robinson and
Hayes conducted a survey in which at least 100,000
students participated. They conducted the survey
in the university, and with the purpose of assessing
the development of entrepreneurship education.
The survey showed a significant progress. Today,
distance learning and online learning have seen
1028

great advancement. Distance learning refers to a
system in which the learner is remotely educated by
the responsible organizations. In this method, the
learner is mostly self-reliant and asks for help when
needed. Considering the capabilities of distance
learning and open learning, the IGNOU1 institution
was established in 1985 in India to undertake the
responsibility for the introduction, promotion, and
coordination of the distance learning system in the
country. One of the committee of the institution
is responsible for educating the courses related
to entrepreneurship and management of small
institutions (Ahmadpour et al., 1999). The qual-
ity of online education has multiple dimensions,
including the interaction between the instructor
and learners, between the instructor and other
instructors, between the learners, the relation-
ship between the instructor or learner and the
content, course design, accessibility, multimedia
elements, assessment quality, feedback, course
organization (learning materials, content, assign-
ments, and exercises) (Fountain, 2006). Online
education provides potentials which are effective
in decreasing the education-related distribution
costs. This is because this type of education can
be sent to most places at any time, and in due
time (Simmons, 2002). This feature is important
in public educational programs, particularly in
entrepreneurship education. Robinson and Hayes
believed that although entrepreneurship education
has come a long way, it has weaknesses the study
of which can greatly help the understanding of
the need of entrepreneurship education. The first
concern is regarding the quality of the educational
programs, which is discussed below. Further suc-
cess depends on to what degree the new programs
are relevant to and consistent with the standard
system of entrepreneurship education.
Entrepreneurship Courses in Iran
Availability of sufficient human resource is an
effective factor in production and creation of
economic wealth. Enjoying this factor, Iran, like

Internet Entrepreneurship Education and its Role in Online Business
many other developing countries, has adopted a
number of entrepreneurship education programs
provided around the world to exploit that resource
more effectively. The Technical and Vocational
Training Organization (TVTO) (www.irantvto.ir)
is the major organization responsible for providing
those courses for the applicants or monitoring their
implementation in Iran. Considering the current
situation of Iranian economy, a framework with the
purpose of establishing entrepreneurship courses
in Iran called “the training campaign” has been
established. The campaign has evaluated vari-
ous methodologies such as CEFE (GTZ), KAB2
(ILO3), and EMPRETEC (UNCTAD4) in training
institutions and has provided an integrated pro-
gram incorporating those methodologies Among
other entrepreneurship education programs in Iran
is the program based on the NFTE5 model. This
educational model has been designed to suit to
different levels of education, with its content ad-
justed to different age groups. The NFTE program
can be taught either as a short-term, one-semester
course, or a one-year course. The aforementioned
KAB program, consists of a number of educa-
tional topics for entrepreneurship education, and
is among the courses offered in Iran. The main
goal of KAB is to establish a business culture.
The KAB system has been designed to provide
instructors and teachers with the necessary ma-
terial during a 120-hour training course. The
educational package consists of an instructor’s
manual and eight educational topics, each of which
introducing a major part of entrepreneurship and
including several sections. Each topic has been
designed as an independent package and there is
no dependency between them (Al-Khaldi & Ibn
Yaich, 2009). Another organization which has been
responsible for the development of entrepreneur-
ship education in Iran in the recent years is the
Ministry of Science, Research and Technology,
which has played an active role in entrepreneur-
ship education by introducing entrepreneurship
courses into the list of courses in several academic
fields at associate’s or bachelor’s levels and also
defining the topics of the course particularly for
the students of technical and vocational training
centers. In order to examine the weaknesses of
the entrepreneurship courses offered in Iran, the
existing documents were studied. In general, it can
be said that entrepreneurship education in Iran is
still in its infancy stage. The weaknesses can be
summarized as follows:
Weaknesses of Entrepreneurship
Courses in Iran
• Different methods of education should be
used in entrepreneurship courses. Although
different methods such as classroom learn-
ing, seminars, lectures, workshops, and
other methods should be employed ac-
cording to the topic of education, entre-
preneurship courses in Iran suffer lack of
method diversity and are exclusively held
as lectures.
• The amount of educational resources in
Iran has not yet reached the desired level:
There are at most 40 book titles and the
academic research papers in the field are
scarce. Because of this, the information
sources available to the teachers and the
participants in the courses are limited.
• Entrepreneurship courses held in educa-
tional and industrial centers are not well or-
ganized and their levels are not considered.
• Entrepreneurship courses held among dif-
ferent industries of the country usually run
during half a day, up to one whole day,
not only causing exhaustion of the par-
ticipants, but also making it impossible for
them to have a comprehensive understand-
ing of entrepreneurship-related concepts
(Moghimi & Ahmadpour Daryani, 2008).
• The entrepreneurship courses offered in
the country are not available at all times
and are also not publicly accessible. The
1029

Internet Entrepreneurship Education and its Role in Online Business
contents of the field are offered either as
limited courses by the TVTO, or as aca-
demic courses by universities and higher
education centers.
• Limited capacity for participants in entre-
preneurship courses, prevents a part of so-
ciety’s potential from actualizing.
Online Entrepreneurship Education
Online education in Iran is an emerging industry
in the domain of educational technology and dis-
tance learning. However, it is necessary for Iranian
educational centers and institutions, particularly
for universities, to attempt to design e-learning
environments based on international standards
using a model compatible with the country’s
educational and cultural structures (Asemi, 2006).
Given that the TVTO is an important organization
in providing entrepreneurship courses in Iran, the
organization has included an office called The
Office for Training Improvement and Observation
for the purpose. The office is responsible for the
educational affairs related to the activities of the
public section of the organization in the two major
directions discussed below, and also for serving
the applicants of the skills training programs in
permanent training centers and training teams
based in garrisons and prisons, in cooperation with
the provincial TVTO offices. Most of the courses
provided by the office requires personal presence
and is taught by entrepreneurship instructors.
The Two Major Directions of
the Office’s Activities Are
1. Constant planning and improvement of the
data needed for the activities of educational
centers, branches, and teams, and also op-
timizing the training process in workshops
by studying the present situation, providing
1030

optimal solutions, testing new and scientific
methods, accrediting new methods and pro-
moting them.
2. Supervising the deployment and institution-
alization of rules and decisions for providing
the necessary feedback for the optimization
of the current educational system and also for
the establishment of meritocracy (irantvto.
ir, 2011).
As mentioned before, the Iranian Ministry of
Science, Research and Technology is another
organization involved in entrepreneurship educa-
tion in Iran. By studying and examining the exist-
ing material in the domain of entrepreneurship,
the organization has devised and developed the
content of the entrepreneurship courses as two
or three credit hours, and has introduced them
into different curricula as an essential course.
However, the matter of concern is the results of
these courses and the abilities of those trained
by the mentioned methods. Since the courses
requiring personal presence are limited by place
and instructor, non-reproducible, and mostly non-
public and non-practical, the students of those
courses inevitably study the previous theories and
findings in the field and spend the courses merely
for the purpose of obtaining scores or degrees by
passing them.
On the other hand, many talent owners within
the context of society and outside the universities
who cannot attend the courses held by the TVTO or
other institutions for reasons of time and location,
are deprived of the advantages of those courses
and thus cannot reach the manifestation stage. In
order to improve the results of the provided courses,
the two major organizations responsible for devis-
ing and providing entrepreneurship courses must
pay attention to learning principles and practices
for improving the quality of education including
reproducibility and accessibility for students, and

Internet Entrepreneurship Education and its Role in Online Business
provide those courses for the younger age groups
in an easily accessible, reproducible, and perhaps
attractive way by employing the information and
communications technology which is considered
to be an integral part of training courses today.
The organizations should devise the content of the
courses such that they could be provided through
the Internet.
DISCUSSION AND CONCLUSION
Universities and higher education centers across
the country are among the organizations involved
in entrepreneurship education. Education division
of the TVTO consists of multiple offices, including
The Office for Improvement and Observation, The
Office Of Free Training Institutions And Public
Participation, The Office For Industry Training,
The Office For Rural Education and Management,
and The Office For Management, Counseling
and Educational Guidance (ibid.). The Office
For Industry Training is responsible for planning,
directing, organizing, and implementing the edu-
cation for the employed throughout the country’s
industries and guilds as the agent of the TVTO.
The activities of the office include in-service
training, industry management training, training
in workshop-adjacent and in-workshop centers,
and training among the guilds. The TVTO can
optimize the industry-related entrepreneurship
courses by querying the requirements of entrepre-
neurship education in industry from the Ministry
of Industry, Mine and Trade (www.mim.gov.ir),
which includes a department for studying the needs
of industry. The organization can also optimize
entrepreneurship courses in other domains, such
as agriculture and services, by utilizing the stud-
ies conducted by the presidential Department of
Planning and Strategic Supervision (mim.gov.
ir, 2011). On the other hand, universities and
higher education centers, which are considered
responsible for the education and also as a gath-
ering place for the youth, can also take steps in
providing entrepreneurship courses in online form
along with technological developments, as they
have done with other courses, and thus move in
the direction of progress and development while
relying on the inner forces of economy, which are
the society’s entrepreneurs. In order to devise a
desirable entrepreneurship education program, the
TVTO can exploit the potentials of online courses
such as flexibility and not being limited by time
and location, and provide the entrepreneurship
course as a publicly available educational program.
In addition, providing appealing online courses
leads to attracting the youth, particularly job seek-
ers, from across the country. Online courses along
with the potentials of the cyberspace can contrib-
ute to idea generation and expansion of creative
ideas, and encourage ideation for developing new
businesses while attracting more individuals to
receive the required education. For this purpose,
universities, higher education institutions, and
the TVTO receive timely, accurate information
from the relevant organizations to provide the
entrepreneurship courses with proper content in
a form accessible from the Internet. At this stage,
they should employ computer science and the
experts of computer science to design an interac-
tive program compatible with learning principles,
in a way that meets the goals of the education
and extends the education of entrepreneurship in
the society. The interaction of the organizations
involved, as well as the process of achieving an
online entrepreneurship education program are
shown in Figure 1. Through interacting with higher
education institutions and scholars, the TVTO can
incorporate the modern entrepreneurship-related
academic educational practices into the content
of the new courses. Likewise, the Ministry of
Science, Research and Technology can use the
experiences and findings of the TVTO, which has
been responsible for organizing entrepreneurship
courses in recent years, as feedback, and consider
them in devising an Internet-based training course.
For this purpose, the two mentioned organizations
should interactively attempt to localize non-local
1031
 
Internet Entrepreneurship Education and its Role in Online Business

Figure 1. Proposed model for devising an online entrepreneurship education program

educational courses by studying the existing
entrepreneurship courses around the world, and
performing needs assessment and feasibility
studies on the present socioeconomic situation
of the country. Then, considering the country’s
possibilities and information technology infra-
structures, the organizations should provide an
Internet-based training course which improves
the idea generation process and makes it possible
to access a public, always available education. A
desirable, Internet-based program can be achieved
by employing the suggested directions for devising
entrepreneurship education program.
Managerial Implications
Organizations responsible for entrepreneurship
education should study the latest entrepreneur-
ship-related findings, information, and practical
methods, while maintaining their internal and

1032

Internet Entrepreneurship Education and its Role in Online Business
external interaction. They should compile timely,
integrated set of data after having evaluated the
entrepreneurship courses against global standards,
then attempt to devise course content considering
the possibilities of online education. In order to
make the devised courses available through the
Internet, necessary modifications should be made
to the educational program. In the final stage, the
organizations should put programs offered around
the world in correspondence with the current
data from the country’s economy and industry,
and provide a localized entrepreneurship educa-
tion program accessible and usable through the
Internet.
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ENDNOTES
1
Indira Gandhi National Open University
2
Know About Business
3
International Labour Organization
4
United Nations Conference on Trade and
Development
5
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preneurship
 1035

Chapter 57
Creativity with
Institutionalization:
Cooperatives as an Alternative
Way of Starting a Creative
Business – Cases from Finland

Riitta Kemppainen-Koivisto Rauno Rusko

University of Lapland, Finland University of Lapland, Finland

Katta Siltavirta Seppo Särkkä

University of Lapland, Finland University of Lapland, Finland

ABSTRACT
Typically, creativity and institutionalism are not closely related. However, when talking about coopera-
tives (or co-ops), the authors introduce, in addition to the paradoxical tension between institutionalism
and creativity, perspectives and cases in which institutionalism is a channel for creative production.
People often associate cooperatives with institutional characteristics because of their collective manifes-
tations in history, such as agricultural or financial cooperatives. Furthermore, co-ops typically consist
of several entrepreneurs working under the same “umbrella” organization. However, according to the
outcomes of the chapter, cooperatives could also be a source of, or at least a channel for, contemporary
creativity. In this chapter, the authors introduce Finnish cases in which the planners and designers of
creative industries have established cooperatives successfully. These cooperatives have already created
sustainable paths in their business activities to provide younger and youthful entrepreneurs with business
possibilities and at least modest profitability. They also consider neo-cooperatives and light coopera-
tives, which provide services to cooperatives and allow them to focus on their main area of creating and
innovating new business. Creativity cannot flow if there is no time or will to secure large investments
and financing, or if the marketing and brand-building are problematic and the decision-making slow.
Cooperatives could provide a suitable arena for innovative and creative business if there is a will to
change and renew the idea of cooperative institutions, law, and practice.

DOI: 10.4018/978-1-4666-8468-3.ch057

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

1. INTRODUCTION
The contemporary cooperative business can be
much more than a stereotypical traditional coop-
erative with the archetypal features of institution-
alism. Cooperative organizational models have
evolved from the traditional agricultural business
to those that have proportional tradable shares
and which can be managed in a similar way to a
limited company. This means the importance of
the traditional cooperative ideology is increasingly
lost in the tradable shares model, as mainstream
economic thinking becomes more important
(Nilsson, 1999, pp. 5–6). However, the changes
in the cooperative business model have led the
cooperative format to become more seductive,
thus enabling innovation.
Typically, cooperatives have been seen as
institutions (Godfrey & Wilfred, 2006), and in in-
stitutions creativity is a problematic theme (James
et al., 1999). We study in this chapter this form
of paradoxical tension (see e.g. Jarzabkowski &
Van de Ven, 2013) between institutionalism and
creativity using co-ops as an example. As insti-
tutions, cooperatives might offer a safe learning
community, a working environment where some
members encourage development of the work,
an idea of what the cooperative could be, and
a focus on doing something new and different
from the typical cooperatives (Kasanen, Lukka,
& Siitonen, 1993, p. 7).
A small cooperative is an enterprise like any
other type of business, and it requires skill and
consideration – even bureaucracy – to establish
one. The new act on cooperatives in Finland,
brought into force on January 1 2014, links them
with new corporate-like characteristics, but the
basic elements remain the same and the changes
are both supported and opposed. Among the
sources of worry is the blurred line between the
structures of cooperatives and corporations, as,
1036

Creativity with Institutionalization
ultimately, a cooperative produces services and
wages for its members, while a corporation yields
profits for its owners.
Cooperatives have a conservative and static im-
age because of their typical agricultural, financial
sector, and retail branches (Global300 Report,
2010). However, Finland, for one, has witnessed a
transformation in the phenomenon of cooperatives
because of educational changes in polytechnics,
high schools, and universities. Several higher
education institutions have established student
co-ops to support their entrepreneurial learning,
and cooperatives linked with education are the
gateway to subsequent entrepreneurship.
The greater importance placed on entrepre-
neurship and cooperatives associated with learn-
ing is based in the general development of wider
society. Young people’s unemployment levels
have increased almost everywhere. The unem-
ployment level among highly educated people in
Finland increased by 25% last year, and 38,000
are now without work. This tendency is reflected
worldwide; for example, generally in Europe and
China the transition period of highly educated
people from high school or university to work is
lengthening, and transition patterns are becoming,
according to Salas-Velasco (2007), less defined
and less certain than they once were (see also
Alajoutsijärvi, 2013; Li et al., 2013).
The cooperatives formed in higher education
institutions can provide a source of independent
entrepreneurship closely attached to the students’
studies and allow them to develop their business
ideas and networking (Eronen, 2012). After gradu-
ation, they are able to continue doing business
through their own co-op. The world is changing
and life is becoming increasingly unstable and
complex, which demands an entrepreneurial touch
and attitude (Kyrö & Ristimäki, 2008, p. 259).
There are theoretical discussions to support
these ideas. For example, Ristimäki (2004, 12)

Creativity with Institutionalization
defines entrepreneurship education as a lifelong
evaluation process. Increasing entrepreneurship
and the entrepreneurial attitude in society is a
major goal of entrepreneurship education, and
achieving it requires entrepreneurship to be a
natural part of all school levels and an explicit
course of action (Vesalainen et al., 2006, 67). If
this is the case, entrepreneurship, and especially
cooperative entrepreneurship, could be something
to reach for actively, and students’ positive at-
titudes towards the cooperative business might
persist after graduation.
In Finland, educational cooperatives are com-
monplace, especially in vocational colleges and
universities of applied sciences, while work and
hobby cooperatives have also been set up in high
schools. Related university-level education is of-
fered by Aalto University (Ruralia Institute) and
Lappeenranta University of Technology, among
others. In northern Finland, for example in the
University of Lapland, there are 60 credit studies
of entrepreneurship, which include lectures in
cooperatives and innovativeness, while the main
groups interested in entrepreneurship studies are
students of art and leadership.
At the European Union level, e.g. in the
COSME program, one of the aims is to improve
the working conditions and the legal and admin-
istrative environment of social businesses, such
as cooperatives, that produce goods or services.
Furthermore, one of the aims of COSME is to
ensure entrepreneurial learning is a basic feature
in education systems. Promoting the cooperative
mentality will require both universities and pub-
lic service organizations to find financing, such
as through the COSME program, in an effort to
create new employment possibilities in northern
Finland (European Commission, 2014).
This growth of cooperatives in higher educa-
tion institutions has transformed their status and
image, and contemporary cooperatives are now
established by young and innovative people who
familiarized themselves with the concept during
their education. Thus, this is the reason for the
paradoxical tension between “old,” traditional,
and institutional attitudes towards cooperatives
and the “new” innovative attitudes. Furthermore,
given the introduction of neo-cooperatives and
light cooperatives, which will be discussed later,
the co-op institution has already begun to change.
The research questions addressed in this chapter
focus on cooperatives, institutionalism, creativity,
and innovation:
• Is it possible for an institution like a co-
operative to be an innovative and creative
enterprise?
• The chapter considers two case study co-
operatives: What kinds of features do these
cooperatives incorporate in their business
activities?
• Is there really a tension between the struc-
ture of the cooperative and innovativeness
and creativity? Where and how does this
potential paradoxical tension appear?
Furthermore, this chapter generally considers
the state and position of cooperatives in contem-
porary society, including the field of education
and political decision-making.
This chapter is organized as follows. The
literature review focuses on the four themes
of paradoxical tension, cooperatives and their
history, virtual cooperatives, and creativity and
innovativeness in cooperatives. The third sub-
chapter introduces the method and case studies,
after which we discuss cooperatives as part of the
culture of entrepreneurship in northern Finland
and consider the question of whether the coopera-
tive could essentially be a place to learn, a school.
Within the discussion section we study the rela-
tionship between cooperatives and, for example,
marketing, branding, investments and financing,
efficiency, and decision-making, before finally
we offer some conclusions.
1037

2. LITERATURE REVIEW:
PARADOXICAL TENSION:
COOPERATIVES AS INNOVATIVE
FORMS OF BUSINESS?
2.1 Paradoxical Tension
The business environment and business activities
of an enterprise have a multifilament of charac-
teristics, which include paradoxical situations,
relationships, and tensions. These paradoxical ele-
ments often occur on micro, meso, and macro levels
(Jarzabkowski et al., 2013), and Jarzabkowski et
al. (2013, p. 246) note that paradoxical tensions
are typical within strategic alliances and networks
where managers attempt to simultaneously co-
operate and compete with other organizations.
Such simultaneous cooperation and competition
is known as “coopetition” (or co-opetition) (see,
e.g. Brandenburger and Nalebuff, 1997; Bengts-
son & Kock, 2003).
In contemporary management literature, para-
doxical perspectives and tension has emerged as
one of the most popular new themes in consider-
ing activities and relationships within networks.
For example, Jarzabkowski et al. (2013) con-
sider how organizing, belonging, and performing
paradoxes coevolve on micro, meso, and macro
levels. In doing this they partly follow the work
of Smith and Lewis (2011), who categorize or-
ganizational tensions into learning (knowledge),
belonging (identity/interpersonal relationships),
organizing (processes), and performing (goals).
Both Jarzabkowski et al. (2013) and Smith and
Lewis (2011) emphasize competing values, and
especially competing strategic demands, in the
context of paradoxical tension.
Calton and Payne (2003) study paradoxical
tension in the relationships between stakeholders
and their separate interests. According to them,
dialogic practices are a means of decreasing ten-
sion, and they focus their study on the pluralist
sense-making processes of multi-stakeholder
learning dialogues and traditional corporate deci-
1038

Creativity with Institutionalization
sion processes, such as strategic management and
organizational change. However, between these
two perspectives there also exists paradoxical
tension.
Thus, paradoxical tension occurs in and among
coopetitive organizations. Typically, cooperatives
consist of several actors in the same industry or
branch, that is, competing individuals/entrepre-
neurs. In other words, cooperatives involve a
simultaneous competition and collaboration situ-
ation, which results in the micro level tension of
coopetition. Furthermore, there might be meso or
macro level paradoxical tension associated with
cooperatives; their general structure is complicated
by having several important decision-makers in
the same organization, which can prevent coopera-
tives from implementing important innovations
and fast decision-making processes.
In addition, the cooperatives are seen as being
directed towards traditional and static industries
and branches, such as agriculture, financing, and
retail activities. These traditional fields contrast
with the “new” tendency for cooperatives involv-
ing young people to be directed at creative and
innovative branches of business. There appears
to be a macro level paradoxical tension between
cooperatives’ traditional and new tendencies.
This chapter focuses on this paradoxical tension
in particular.
2.2 History of Cooperatives
in Finland and Worldwide
The earliest known cooperative was founded in
1761 in Fenwick, Scotland by the Utopian thinker
Robert Owen (1771–1853). Despite the first co-ops
not functioning effectively, they provided the pulse
for founding cooperativism (Laurinkari, 2004).
The cooperative movement continued in
Europe, mostly in England and France, during
the 19th century, with the purpose of preventing
financial and social problems. In Europe were
born three different types of cooperatives: in
England, consumer cooperatives; in France, la-

Creativity with Institutionalization

bor cooperatives; and in Germany, credit unions
(Laurinkari, 2004). There were also two other
cooperative types; agricultural cooperatives were
first established mainly in Germany and Denmark,
while the first service cooperatives originated in
Sweden (Osuustoiminta – vastuullista suomalaista
johtajuutta, 2005).
Operating in the middle of the nineteenth cen-
tury in Rochdale, England, the Rochdale Pioneers
are generally regarded as the prototype of the
modern cooperative society. The store they opened
in Rochdale’s Toad Lane in 1844 represented the
first push of consumer cooperatives (Rauhala,
1924; Inkinen, 2005; Simola, 2005).
At the same time, Finnish society was in transi-
tion, and the first pre-cooperative experiment was
established in 1899. The birth of cooperativism
in Finland did not just provide an alternative to
the financial movement; it also provided people
with opportunities to solve social problems and
increase their contentedness. In the early 20th
century, Finnish co-ops were split between the
bourgeois and left-wing cooperative movements,
although today there is little difference between the
movements (Laurinkari, 2004; Seppelin, 2000).
Hannes Gebhard (1864–1933), the father of
Finnish cooperativism, brought cooperatives to
Finland after being influenced while gathering
and comparing information about cooperative
movements in different countries. His main goal
was to create a social movement to enhance the
economic position of the entire population, with an
aspiration to create a form of company that could
keep up with the fast-developing market economy
in the countryside. His wife Hedwig also carried
out remarkable work for Finnish cooperatives, and
was an example to women and youths in aiming
to create gender equality (Laurinkari, 2004, pp.
18−19; Seppelin, 2000, pp. 26−28).
them to establish their own cooperatives. Gener-
ally in Europe, the development of cooperatives
was based not only top-down, but also bottom-up
direction. (Seppelin, 2000).
The contemporary international situation
of cooperatives is still based on the underlying
history, as, for example, agriculture and forestry
continue to play an important role among the 300
greatest global cooperatives (see Table 1).
Today, Finland is arguably the world leader in
cooperatives, with about 3000 in existence and over
four million cooperative members out of a popula-
tion of 5.5 million (HE 185/2012). In Finland, a
cooperative can be founded for acquiring goods
and services, and a boom in small cooperatives
was seen after the recession of the latter half of
the 1990s, as attempts were made to remedy the
impact of the recession through worker coopera-
tives, among other things.
2.3 Innovativeness and Creativity
in the Context of Cooperatives
Traditional cooperatives are not generally associ-
ated with efficiency, brands, and innovativeness
(Beverland, 2007). However, some contemporary
studies have discussed the possibilities for coop-
Table 1. Sectoral revenue among the world’s larg-
est cooperatives
Sector Revenue (USDbn) %
Agriculture/ 472 28.85
forestry
Banking and other 430 26.27
credit unions
Consumer/retail 354 21.66
Insurance 282 17.23
Workers/industrial 35 2.16

The difference between Finnish and European Health 27 1.65

cooperatives was in the reaction of the peasants. Utilities 18 1.13

In Finland, the idea of a cooperative was first Other 17 1.04

brought to learned and civilized people, who then Total 1635 100
influenced the farmers in countryside and inspired (Global300 Report, 2010).

1039

eratives in the development paths of marketing,
branding, innovation processes, and quality pro-
cesses (Beverland, 2007; Kontogeorgos, 2012;
Rodrigues & Guzmán, 2013). Based on some
examples from the literature, this sub-chapter
focuses on the possible tension between innova-
tiveness and cooperatives, and considers whether
cooperatives might be innovative.
Beverland (2007) studies the effectiveness of
the marketing of New Zealand farm products,
as carried out by farmers and cooperatives,
and finds that traditional cooperatives may be
able to develop innovative marketing programs.
Despite this, there is one problem associated
with long-term marketing efforts, namely the
ownership structure of cooperatives. In the case
of new generation cooperatives, this problem is
less evident, as members understand the value
of long-term intangible assets, such as branding
(Beverland, 2007). Beverland (2007) introduces
six cooperatives as case study examples, all of
which had moved from “commodity selling to
brand marketing,” which creates a sustainable
form of competitive advantage.
Kontogeorgos (2012) studies brands in the
context of Greek agricultural cooperatives, and it is
noteworthy that the idea of competitive advantage
connects this study with that of Beverland (2007).
Indeed, Kontogeorgos claims that brand processes
enable cooperatives to achieve higher value-added
in the competitive landscape of the food industry.
Furthermore, he emphasizes the importance of
quality systems in the brand development strategy
of cooperatives seeking a more market-oriented
approach through brands. Kontogeorgos (2012,
p. 79) also notes the substantial criticism of
“cooperatives’ organizational structure and their
ability to undertake market strategies including
brand development.” For example, achieving
collective branding and a “collective product”
appears problematic. According to Kontogeor-
geous (2012), the solution to these problems is the
development of a quality system that incorporates
1040

Creativity with Institutionalization
Total Quality Management and connects the entire
production line with technical and administrative
issues (Kontogeorgeous, 2012, p. 80).
Rodriguez and Guzmán (2013) concentrate
on innovations in social economy firms, such
as cooperatives. The outcomes of their Spanish-
based study demonstrate that innovation in social
economy firms appears to be determined by the
same set of variables at work in traditional firms.
They also state that previous experiences and con-
tact networks are the key factors in the innovative
capacity of social economy firms (Rodriguez and
Guzmán, 2013, p. 995).
Meanwhile, some studies focus on the cre-
ativity of co-ops. Exploiting qualitative analysis,
Haedicke (2012) studies food cooperatives – actu-
ally described as “countercultural co-op stores”
– following institutional analysis associated with
the creativity of organizational members. In his
study, the locality and local cultures appear to be
essential elements of co-ops. Traditionally, the
business focus of German credit cooperatives, for
instance, is locally oriented, and business success
is linked to the inducement and monitoring of
local borrowers (Machauer & Schiereck, 2004).
Machauer and Schiereck (2004) also note that
Church-based credit cooperatives in Germany
are not particularly locally oriented, although
they have been extraordinarily successful over
recent decades, and in this way they help explain
the business success of credit co-ops without a
local orientation.
Although there are studies and viewpoints
that doubt the innovativeness and effectiveness
of cooperatives, these two themes have been
studied simultaneously by several researchers
(Beverland, 2007; Haedicke, 2012; Rodriguez
and Guzmán, 2013), and there does not appear
to be any insuperable juxtaposition between the
two, as this sub-chapter showed.
Generally, listed below are what appear to be
the main tensions associated with cooperatives,
as suggested by practitioners and scholars:

Creativity with Institutionalization
• They do not enable large investments and
financing (P1).
• The marketing and brand-building are
problematic (P2).
• Slow decision-making (P3).
• They are not a suitable arena for innovative
and creative business (P4).
In what follows, we consider (P4) and attempt
to determine whether the neo-co-ops in northern
Finland are actually innovative and creative.
2.4 New Co-Ops: Virtual, Digital,
Light, Creative, Neo-Co-Ops
The contemporary global business environment
is changing rapidly. According to Tienari and
Meriläinen (2010), the global economy has five
drivers: technologizing, multi-culturalism, media-
centrism, finance-driving, and ecologism. In par-
ticular, technologizing and media-centrism appear
in the forms of digitalization and more effective
communication methods. Digitalization also has
an effect on the activities of cooperatives, as they
can now operate virtually despite members being
physically far-removed from each other. Has this
virtuality led new co-ops to work more creatively
and innovatively than former traditional co-ops?
Can the co-op institution be virtual?
Virtual Teams
It is argued that information is exchanged more
easily in a face-to-face connection, and leadership
Figure 1. The virtual team process
Tuckman (1965).
is less fluent and organized through a virtual-only
connection. Meeting in person allows you to trust
people more quickly, while body language allows
you to avoid misunderstandings (see Johnson et
al., 2002).
Johnson et al. (2002) and Norman Patnode
(2003) consider group dynamics while guided by
“the father” of the field, Bruce Tuckman, who in
1965 modeled the process employed by a s uc-
cessful group.
Virtual teams must have a common understand-
ing of the main item under consideration, and if
this is not clear then a face-to-face meeting is
required. Second, there must be time enough to
determine the function of the team, work out a
common plan for carrying out the work, establish
trust, share the work with team members, and draw
up a timetable. The team needs all materials and
limiting rules when starting work together, which
helps ensure all are equal from the beginning and
able to develop together into a real team (Johnson
et al., 2002). In light of this, do the neo-co-ops
work as active, innovating teams?
Norman Patnode (2003, p. 43) explains that
while some teams are successful, others are not.
According to Patnode, the idea of rotation in
Tuckman’s figure is crucial, as if there is a crisis
and the need to brainstorm, the team could learn
something new. You must have the courage to
express your opinion and take an active role to
get involved with a situation that is not going as
planned. Therefore, do virtual co-op teams face
crises creatively? Furthermore, Patnode (2003, p.
45) states that all team members have their own
1041

individual interest to succeed in the teamwork.
Does this create competition among the members?
Virtual teams are increasing, and becoming
more relevant to cooperatives’ organization. We
have far more global possibilities today, given
that virtuality is cheap, techniques and skills have
improved, and more people have the required ac-
cess. People must know how to lead work in virtual
teams, and the leader must know how to use the
team as a learning space. The skills involved in
group dynamics are now learnt from kindergarten
onwards, meaning future generations will be much
more adept at working in groups.
Light Co-Ops: Eezy.fi and Ukko.fi
The Finnish Ministry of Employment and the
Economy has provided guidelines for monitoring
and directing the work of a cooperative. Mere
membership of a cooperative is not enough (a
so-called billing cooperative); if the only goal is
to have a billing channel, it recommends using
another form of cooperative, such as light co-ops
(e.g. Eezy or Ukko). These are cooperatives fo-
cused on employer services, such as settling bills
and taxes for temporary workers, which themselves
obtain short-term commissions from other firms.
In Finland, virtual cooperatives are a common
form of business, with some, such as Eezy, having
over 10,000 virtual members (Eezy, 2014). In ad-
dition, the case study examples of Nonas and Lilith
are networked cooperatives with strong virtual
elements in their intra-organizational activities
and relationships between the members, who are
drawn from the media, art, and design fields in
different parts of Finland (Lilith), or at least from
different parts of northern Finland (Nonas).
Ukko.fi was established in 2012, and has four
members and around 6200 users. The members
are highly educated; all have their own firms
and it was a relatively whimsical idea to choose
a cooperative as a business type after weighing
1042

Creativity with Institutionalization
up the pros and cons of cooperatives and limited
companies (Ukko, 2014). One of the main reasons
for setting up a cooperative was that:
It was radically cheaper than a limited company.
- Kumpulainen, 2014
Ukko.fi has launched a light-entrepreneurship
concept to the Finnish market, defined as follows:
Light-entrepreneurship is entrepreneurial activity
without your own firm. Those people are heroes,
who work incredibly hard to earn their living,
on their own initiative and voluntarily. - Kum-
pulainen, 2014
The concept of light-entrepreneurship is de-
scribed in more detail in the Ukko.fi guide:
Entrepreneurship is rewarding, liberating and
empowering. There are also risks starting your own
business and loads of paper work. Bureaucracy
and the degree of risks are not insurmountable
barriers. They are only little humbs to being your
own master. We at Ukko.fi want to help you to
start your journey. We smooth over humps and
give you a boost. That is light-entrepreneurship.
- Kumpulainen, 2014
The idea of Ukko.fi is simple. You test your
own business idea and invoice your work through
Ukko.fi, and after the test period, and once you
have attracted enough customers, you can then
start your own business. The cooperative members
encourage users to achieve this, and hope that their
old users then use them to hire their first employee
(Ukko, 2014), as they believe in continuity.
Ukko.fi also has a virtual development forum
based on the idea of crowdsourcing. Users can
give feedback, while everyone can put forward
ideas and others vote on how meaningful they are
(Ukko, 2014). Although there are not many users

Creativity with Institutionalization
brainstorming, the results can be significant. As
we mentioned earlier, virtuality is cheap, while
techniques and skills have improved and are avail-
able to more people, so it is wise for Ukko.fi to
take an advantage of users’ ideas in developing
a service.
On the basis of which things are considered im-
portant, then they are selected to be developed
together. - Kumpulainen, 2014
As Ukko.fi continues to attract new users and
new ideas for developing the service, they have to
ensure they exploit the ideas (Ukko, 2014); they
get more opinions and ideas from the virtual team
than the four members can possibly come up with.
There might be a challenge involved in de-
veloping a cooperative based on a virtual team
structure, as the planning and decision-making
might rely on virtual discussions and relatively
rare face-to-face meetings. Furthermore, the levels
of individual learning and development, and the
process of the virtual co-op as a team of partici-
pants of different ages and in different locations,
provide a range of challenges.
Neo-Co-Ops
Compared to traditional agrarian, banking, and
retail-related cooperatives, neo-co-ops represent
a new wave of cooperative thinking to emerge in
the past 10 years. They are young, small communi-
ties where the members are committed and have
a direct influence on decision-making (Pellervo,
2014). Thus, there seems to be a paradoxical
tension between the “traditional” cooperatives
and neo-co-ops. However, the existence of some
traditional massive cooperatives shows the growth
possibilities of neo-coops; the form of coopera-
tive is not an obstacle for realizing a large-scale
business.
Neo-co-ops, especially those with a virtual
team structure, raise several questions, such as:
Is there competition between co-op members?
Does the democratic decision-making represent
a barrier to speedy conclusions? Are these neo-
co-ops innovative, creative, and rapid?
3. METHODS AND CASES
3.1 Research Design
This chapter outlines the case study research
strategy, which involves utilizing several perspec-
tives and methods to determine the most essential
features of the case (see e.g. Yin, 2003; Eriksson &
Kovalainen, 2008). The most important sources of
information for this case study are interviews and
meetings with two Finnish cooperatives, Nonas
and Lilith, and project plan meetings regarding
the development of co-ops in northern Finland.
Furthermore, this research is based on quali-
tative methods, especially interviews, content
analysis, and story-telling. In fact, this study
contains two main stories, namely those detailing
the activities of two cooperatives in (northern)
Finland, Nonas in Rovaniemi and the nationwide
Lilith cooperative. Both of these cooperatives
focus on the creative industries. In addition to
interviews and stories, the experiences of the au-
thors as members, and even founder members, of
various cooperatives have an effect on the study.
Furthermore, the authors are participants in a
project focusing on cooperatives and cooperative
thinking in northern Finland. However, this study is
not particularly ethnographic or autoethnographic.
The interviews with the young cooperatives
– Nonas from Rovaniemi, Lapland, and the wider-
reaching Lilith – focused on their opinions about
entrepreneurship and cooperatives. Furthermore,
the Rovaniemi Regional Development Agency Ltd
and Business Oulu were interviewed on the subject
of their services designed to guide young people
who plan to start their own firm. This was how
we determined whether there was an innovative
attitude within these cooperatives, and how this
potential innovative attitude could help in starting
1043

a business, finding a way to help earn your living,
and what society should do to change attitudes
towards cooperative entrepreneurship.
In addition, the authors of this chapter are
participating in entrepreneurship studies as lec-
turers, planners, and students, and promoted the
KOVI project to research and develop the idea of
co-ops in northern Finland. The project plan is
to organize two workshops for young students on
high-level education, cooperatives, and guiding
services. The project will produce two reports
concerning the attitudes and experiences of young
students in the Oulu Southern Institute and Nonas
cooperative members in Rovaniemi. Therefore,
these are also underlying sources of information
and knowledge utilized in the study.
3.2 Materials and Sources
This study is based on a range of materials and
sources. In addition to the literature on coopera-
tives, such as their development and the relation-
ship or tension between their creativity and insti-
tutional structure, the other materials emerge from
the interviews, meetings, and seminars related to
co-ops. In addition, all of the authors are active
members of co-ops, and some are founders of
co-ops in northern Finland (see Table 2).
Table 2. Case study material
The Type of the Case Study Material
Personal Interviews:
Face-to-Face
By Phone
Group Interviews (Face-to-Face)
Official Meetings Linked with Co-Op Projects:
In the planning phase
In the implementation phase
Seminar
Authors’ Memberships (e.g. In the Role of Founder Member) of Co-
Ops
1044

Creativity with Institutionalization
There are a small number of influential co-
operatives in northern Finland, and we took two
as examples: Nonas, which operates mainly in
Lapland and especially in the city of Rovaniemi,
and Lilith, which has several members in north-
ern Finland and especially in the city of Oulu,
although its main focus is in southern Finland.
Both cooperatives are involved in the creative
industries, such as design, arts, and music. These
cooperatives are, in addition to research targets,
also members of the underlying project to which
this study is linked. In addition to talking with
active members of these cooperatives, interviews
were conducted with other firms and officers of
local entrepreneurial development organizations
(see Table 2).
3.3 The Case Studies
3.3.1 Nonas Cooperative, Rovaniemi
In 2011, seven former art, media, and design
students from the University of Lapland decided
to start a cooperative called Nonas. They had
graduated from the Faculty of Arts and Design,
were friends, and some already had their own
company. The idea to start a cooperative emerged
when they received an offer to organize a large
Number of Units
5
3
2
1 (board meeting)
9
5 (4 of them integrated meetings (face-to-face with
simultaneous virtual connection); 1 face-to-face)
3 (integrated meeting)
1 (face-to-face with about 30 participants)
About 20

Creativity with Institutionalization
project that no one of them could complete alone,
and thus they required a channel through which
to run the project (Nonas, 2013).
The Nonas members share common values;
they appreciate sustainable development and
locality, they have completed a high level of edu-
cation, and have some proof of their skills. One
member of Nonas crystallized the main idea of
their cooperation:
If you want to go quickly, go alone. If you want to
proceed slowly, please go together. - Nonas, 2013
This comment relates to the main content of the
literature review; a cooperative is, in addition to
an alternative form of company, also a networked
institution with several participants, which means
decision-making might take more time. However,
membership of a cooperative is open, in addition
to individual persons, to other forms of companies,
which in fact increases flexibility. This is the case
with Nonas, which has companies among their list
of members. However, this fact is paradoxical, in
that unlike the framework of the conservative in-
stitution, a cooperative enables a flexible structure
involving individual specialists and companies.
Nonas focuses on creative industries. It is
striving for a design company, and there are
now 15 members, all professionals from the
textile and design branches. Two members have
their own companies, and these are also Nonas
supplementary firms. One of the members lives
in Oulu, the others in Rovaniemi, and all share
a northern view with their activities profiled to
Lapland. The members of the cooperative do sell
their own products and services, and take part
collaboratively in, for example, environmental
competitions (Nonas, 2013).
Member A is testing his own company in this
(cooperative). - Member B, Nonas 2.5.2013
The goal of Nonas is to employ its own
members, not only to seek big profits. One of the
members stated that:
The activity of Nonas is a modern sense of a com-
munity, although everyone is working on her/his
own professional area. - Nonas, 2013
The guiding board of Nonas meets once
a month, and the co-op is currently deciding
whether to increase its number of members in the
same skill area or to widen its professionalism by
recruiting other experts. At the moment, Nonas
is a close-knit working community, where the
members cooperate and develop new ideas and
projects together. In spite of this, all members
are able to use the cooperative as a foundation
for their own work, meaning that the guiding
board has started to consider whether it is better
to individualize the invoicing to a supplementary
firm name (Nonas, 2013).
Although the structure of cooperatives is
based on inter-organizational cooperation, they
do not necessarily have any connections to similar
cooperatives.
Two members took part in a course organized by
Tampere Entrepreneur center through Rovaniemi
Regional Development Agency Ltd. The education
was meant for Business Advisors, but there were
none taking part from the Rovaniemi office. -
Member C, Nonas 2.5.2013
One member has taken part in a five-day course
for entrepreneurs, and when starting the coopera-
tive some members got help from the University
of Lapland’s Training Manager, Seppo Särkkä.
According to those members, the help and guid-
ance proved to be a remarkable stimulant.
Nonas succeeded in securing economic assis-
tance on starting up, with the first draft financed
1045

by the Creodemo fund. In 2013, Nonas welcomed
a trainee from the University of Applied Science
for three months, who was looking for new pos-
sibilities for business and developing their work.
One member receives a one-day-a-week salary
for taking care of everyday activities, such as
negotiating with a book-keeper and paying the
bills (Nonas, 2013).
The Nonas members acknowledge that they
would have liked some entrepreneurship tuition
while at university, as some have never had any en-
trepreneurship training. One member voluntarily
participated in ECTS studies on entrepreneurship
at the University of Lapland (Nonas, 2013).
Oh, if we just have had (some entrepreneurship
studies)! In crafts and design studies and visual
art education we didn`t have any (entrepreneur-
ship studies), neither in teachers pedagogical
studies. - Member B, Nonas 2.5.2013
To get together with other young entrepreneurs
in town, some Nonas members are taking part in
a Morning Coffee event, where the entrepreneurs
and entrepreneurship developers meet under the
banner of “Would you like to try? Would you like
to entrepreneur?” as organized by the Rovaniemi
Regional Development Agency Ltd.
The members plan, if Nonas grows in the future
to be as big as Lilith, to employ someone outside
of the cooperative, e.g. as a book-keeper.
At first we employed one of our members to a
part-time book-keeper; she is working one day a
month and gets a salary. Then we made a deci-
sion to develop the idea of our cooperative and
got foundation from Creodemo. - Member B,
Nonas 2.5.2013
Employing someone outside the cooperative might
be one good extra to the idea of Nonas. - Nonas,
2013
1046

Creativity with Institutionalization
3.3.2 Lilith: Northern Dimension
Lilith was established in 1996 by Kikke Heik-
kinen and Maritta Kuula, who wanted to form a
business involving their own music and cultural
activities. Kuula took part in a start-up center,
where she heard about the cooperative business.
Although the effects of the mid-1990s economic
slump caused initial problems (Heikkinen, 2013),
these two women first established their own record
company as a limited company, before establishing
Lilith to maintain their independence and allow
them to do business in their own way. One of the
main reasons for establishing a cooperative was
because it allows a member to remain an employee
instead of being an entrepreneur; when a member
owns less than 14.3% of a co-op, she/he remains
an employee. This form of organization is known
as an “artel” cooperative.
Lilith has two roles: doing business as an
employee and developing the business together
with its members. The cooperative obtains as-
signments and oversees the work of its members
and employees (Heikkinen, 2013). Lilith had
195 members in April 2013, and like Nonas has
a significant northern dimension, with members
living in northern Finland, Oulu, Rovaniemi, and
Iisalmi.
At this point, Lilith’s line of business is cul-
ture and art, and to become a member you must
apply and earn a recommendation from current
members, before the board decides who can join
the co-op. Member candidates must already have
some customers and adopt a professional attitude
to the work (Heikkinen, 2013).
Lilith is seeking a good level of growth in a
steady and controlled way, as the bigger and more
balanced the co-op is, the less costly it is for the
member. Heikkinen (2013) explains that despite
the collective organization, running the coopera-
tive is a brutal business because it is operating
in the same field as other companies. However,

Creativity with Institutionalization
revenue brings a balance and earnings for the
members (Heikkinen, 2013). There appears to
be a macro level paradoxical tension between
the “soft” collective organizational form of the
cooperative and the “hard” business laws to which
the cooperative must adhere. Similarly, there is a
tension between the main branch of Lilith (culture
and art) and the general business logic, and both
of these tensions are managed internally.
Lilith never received, or did not apply for, any
financial support from the society when it was
established. However, Finland has since joined
European Union, prompting major changes to the
forms of support available. The cooperative has
gained some unemployment support to recruit per-
sonnel and won grants to fund a range of projects.
Lilith was granted, for example, CreaDemo aid
in 2012 for the “Pentujäsenyys” project, which is
now at the testing stage (Heikkinen, 2013).
The cooperative has boldly faced the market de-
mands and used its own assets. - Heikkinen, 2013
According to Heikkinen (2013), the coopera-
tive has to be profitable. Members are seeking a
good living, and businesses cannot be profitable
without thinking of growth. Co-entrepreneurs
own the business with the other members, and if
it is not growing, there are no possibilities for the
business to do well and organize occupational care,
work placements, and other compensations for
the wage earners. Usually, wage earners, because
of indirect wage costs, have to produce at least
twice as much as gross wage to be profitable for
the employer. That is a similar situation also with
the members of cooperatives. The cooperative’s
core workers take a very important position; the
cooperative must have a vision and a mission
regarding what it is doing now and what it will
do in the future, meaning administration and core
workers must possess sound knowledge of both
society and economics given that strategies and
goals are created based on the vision. Profitability
will secure assets, and a cooperative can own, for
example, properties. It also needs to have some
savings in case of lean times or unexpected ex-
penses (Heikkinen, 2013).
Starting a cooperative demands that a few core
people work together towards the same vision.
The business field can be extremely wide, and
the people at the center must have the guts of an
entrepreneur coupled with some psychological
nous. The central people can be, for example, the
members of the cooperative board; Lilith has at the
moment two people hired to deal with administra-
tion and one apprentice, who are also members of
the co-op, and occasionally gets financial support
to hire staff (Heikkinen, 2013).
According to Heikkinen (2013), the book-
keeping is carried out by a third party, someone
to ensure the business is under scrutiny. This
strategy allows the cooperative to focus on their
creative human resources and efforts in their core
competence, in other words, the main business.
4. COOPERATIVES AS PART OF THE
CULTURE OF ENTREPRENEURSHIP
IN NORTHERN FINLAND
The culture of cooperative thinking might be strong
in Finland because there are 3000 cooperatives,
over 100,000 employers, and over four million
cooperative memberships. Thus, there are, on
average, about 35 workers and 1500 members in
each Finnish cooperative. However, our results
reveal northern Finland does not have an especially
strong culture of cooperatives. It seems that people
are interested in membership of cooperatives, but
not the entrepreneurial career or employment via
a cooperative. Thus, there is a paradoxical tension
between the popularity of membership and the
entrepreneurship associated with a cooperative.
For example, according to Business Advisor
Eija Jussila-Salmi (2013) from the Rovaniemi
Regional Development Agency Ltd, only five
customers have asked for help in starting a
cooperative. Indeed, instead of starting a coop-
1047

erative, some have started a limited company. In
Rovaniemi, there are 20 registered cooperatives,
but it is not known how many of those are active
(Jussila-Salmi, 2013).
Compared with Rovaniemi, according to entre-
preneurship expert Tarmo Pallari (2013), there are
56 active cooperatives in Oulu, and 23 of which
have the word “expert” in their name. There are
1200 companies set up in Oulu every year, so the
number of cooperatives is small, and only a few
customers have asked for assistance in starting
cooperatives during past two years (Pallari, 2013).
However, according to Jussila-Salmi (2013),
the cooperative might be a useful way for students
to start up a business during their studies. In order
to avoid the status of full-time entrepreneur, there
have to be at least seven members in the coopera-
tive and still possibility to have earning-related
daily benefit.
A cooperative could also be advantageous to
part-time entrepreneurs who are participating only
for part of the year. Immigrant women and those
who have finished their studies abroad might have
a chance to start a business through a cooperative
(Jussila-Salmi, 2013).
I’d love to see a cooperative set up for a special
group (immigrants). - Jussila-Salmi, 2013
Business Oulu is also organizing education and
networking gatherings to provide information on
the different types of company.
5. DISCUSSION
Earlier we introduced some propositions, or ste-
reotypes, about attitudes towards cooperatives.
These considered the problems of cooperatives
in relation to investments and financing (P1),
marketing and branding (P2), rigidity in decision-
making (P3), and the barriers to innovative and
creative business (P4). In this sub-chapter, we
1048

Creativity with Institutionalization
consider these questions again, this time based on
the empirical research materials and experiences
of cooperatives.
5.1 Investments, Financing, and
Other Economic Issues (P1)
Jani Siivola from Reddo Partners Ltd, Rovaniemi,
has been a chief executive officer for five years
now. He believes there is no meaning to coop-
eratives because the private entrepreneurs can
do business together anyway. Likewise, Siivola
(2013) does not see cooperatives as an alternative
for his own enterprise; he thinks only genuinely
entrepreneurs can take risks, not members of a
cooperative.
According to Pallari (2013), a cooperative is
not the best option if a company wants to have
asset investments. Through the eyes of a poten-
tial investor, a cooperative is a challenging form
of business because they encourage equality in
thinking (one vote/one member). In addition,
Business Oulu recommends forming a limited
company instead when turnover increases above
50–60,000 euros (Pallari, 2013).
When establishing a cooperative, an entre-
preneur can obtain the same business advice as
any other person planning to start his/her own
business. For example, there might be a possibil-
ity of securing finance from a European Union
innovation fund to develop the idea of coopera-
tives to highly educated persons. For example, in
northern Finland there are 18 EU projects aimed
at advancing employment (East & North Fin-
land, 2014). The EU’s new COSME program for
2014–2020 is designed to promote and increase
the amount of small enterprises; if financing is
easier to obtain, the company could have leverage
to grow and new forms of enterprise could begin
(European Commission, 2014). For potential
members of cooperatives, we are suggesting a
deeper examination of the COSME program in
helping to promote cooperatives to highly educated

Creativity with Institutionalization
people in northern Finland and provide a model
for future working communities.
We have noticed that a cooperative could be a
limited project. In that case, the members could
start out in a cooperative before later starting their
own business, if the idea of entrepreneurship is
worthy. In this case, the cooperative is a place to
learn and a constructive way to work.
Although there are possibilities to allocate
financing for cooperatives, the interpretation
among practitioners and scholars that handling
large investments and financing is more difficult
in cooperatives compared with other company
forms must be dispelled. These attitudes do not
account for the fact that collaboratively, members
of cooperatives have more underlying financial and
non-financial resources. This wide base enables
relatively easy joint investments for all members.
Perhaps for this reason, the cooperatives largely
focus on relatively narrowly branches of business,
given that if the needs of the members are similar,
joint investments will be easier.
5.2 Marketing and Branding (P2)
Some of those who have asked for help in starting
a cooperative have eventually gone on to form a
limited company. Therefore, the entrepreneurship
development organization Rovaniemen Kehitys
Oy is launching the Let’s do Together project to
promote cooperatives. A cooperative might be
good possibility for business if this possibility is
properly promoted, as according to Jussila-Salmi:
… a cooperative might be a reasonable possibil-
ity to those entrepreneurs who will start their
own business in a daycare with service coupons.
Another possibility might be to have a coopera-
tive of immigrants as a form of earning a living.
- Jussila-Salmi, 2013
According to Pallari (2013), Business Oulu
is guiding people who are interested in coop-
erative business to get more information from
the Tampere project, which is focused on the
development of cooperatives. Pallari (2013) also
presents the cooperative business as a purchase
and marketing channel. For example, in Finland,
the Tekniset chain, in the branch of domestic ap-
pliances, is making all of its purchases through a
cooperative. Pallari, from Business Oulu, agrees
with Jussila-Salmi’s opinion about the possibili-
ties of cooperatives.
A cooperative business has a lot of unused po-
tential and there is a New-Renaissance going
on. - Pallari, 2013
Although the attitudes of practitioners are
changeable towards the marketing and branding
possibilities of cooperatives, the case study tar-
gets have established a brand among members.
For example, Nonas has used business cards that
display the names of all cooperative members, and
both of the case study cooperatives have their own
uniform web pages to market the businesses of
their members. Although brand building might be
easier because of the joint resources being used,
the level of collaboration between members is
crucial to whether this kind of marketing invest-
ment is possible.
5.3 Rigidity in Decision-Making (P3)
It appears that (P3) relating to slow decision-mak-
ing is unavoidably true, at least on some level, as
the joint decisions of cooperatives require related
administrative actions. However, each member of
the cooperative has his/her own field where he/
she can operate relatively independently. Only
those moves that require joint investments or
which mean changes in the operation models of
the cooperative are more difficult to implement
and call for joint decision-making. Therefore,
the border between the common and individual
decision-making circumstances must be clear in
the cooperative’s rules.
1049

5.4. Creativity and
Innovativeness (P4)
Cooperatives possess both creativity and inno-
vativeness, and traditional and static features.
Creativity and innovativeness result from the new
tendency among young people, which educational
institutions have supported by establishing or help-
ing to establish, to view the cooperatives as ideal
for their activities and studies. These actions are
also encouraging young people to continue their
activities in cooperatives after graduation. Both
Nonas and Lilith focus on creative branches, and
their business idea is based on a youthful stance.
In Finland, this creative, innovative, and youthful
brand of cooperatives is strengthening.
These new tendencies of cooperatives are a
counterpoint to traditional mainstream attitudes,
which see cooperatives as static business units
focused on agrarian, financial, or retail branches.
Thus, there seems to be a paradoxical tension
between creativeness/innovativeness and coop-
eratives that have several institutional features.
Institutionalism is not associated with creativity
and innovativeness, but, in spite of this, young
innovative people are ready to found cooperatives.
Among business authorities, for instance, there
is some skepticism towards cooperatives, which is
identifiable in the research literature. They do not
see cooperatives as a suitable corporate form for
innovative fast-growth business because of institu-
tional reasons. Several (competing) entrepreneurs
participate in decision-making about investments,
enlargement, and strategy, and researchers see the
structure of cooperatives as an obstacle to dynamic
business development. However, the attitudes of
young people, especially in the branches of creative
industries, towards cooperatives form a strong
contrast; they see cooperatives as an innovative
and tempting place and form of organization, and
somewhere that they can develop their business.
Although there is a micro-level tension among
competing entrepreneurs who belong to the same
cooperative, which as stated earlier is known as
1050

Creativity with Institutionalization
“coopetition,” the strongest paradoxical tension
seems to involve general attitudes about coop-
eratives. Some see them as a source of business
growth, while others, especially business authori-
ties, are more skeptical about the growth possibili-
ties they offer. This view might become a source
of embarrassment because in 2010, nine of the
world’s cooperatives achieved revenues of over
10 billion US dollars (Global300 Report, 2010).
6. CONCLUSION
We can conclude that a cooperative serves many
purposes; it is suitable for entrepreneurship studies
in learning institutions and for business and mar-
keting in various trades. The operations of work
and marketing cooperatives are well-known, but a
cooperative can also support various youth activi-
ties and offer a suitable environment for learning
entrepreneurship skills with little financial risk.
There are still challenges and obstacles to putting
entrepreneurship education into practice. These
include the somewhat rigid structures of schools,
a pessimistic attitude towards entrepreneurship,
a desire for control and management, the culture
of doing things alone, and the fact that working
communities do not always adapt to a new mode
of operation.
The new law relating to cooperatives in Finland
is mainly strengthening the notion of incorporating
limited company features inside the cooperative
form of business, and pushing the idea of coopera-
tive institutions towards economical entrepreneur-
ship, rather than providing a chance to innovate
new cooperative models.
The cooperative institution in Finland is under-
stood as a traditional means of entrepreneurship.
However, there is a tense juxtaposition between the
“traditional” cooperatives and new “neo-co-ops,”
which are based on the educational cooperatives
of students or, for example, professional artists in
creative industries.

Creativity with Institutionalization
We need more understanding of new coop-
erative models, including virtual, neo-co-ops,
and other innovative versions of cooperatives at
all school levels, because currently, the guiding
services are not ready to inform and promote the
starting-up of a cooperative, or able to take new
innovations to different kinds of co-op institutions.
The outcomes gleaned from the case studies
focus on paradoxical tensions (see e.g. Jarzab-
kowski & Van de Ven, 2013) between creativity
or innovativeness and institutionalism. The results
show that the institutional form of entrepreneurship
is not an obstacle to creativity and entrepreneurship
in creative industries. It seems that paradoxical
tension is on the “macro-level” in the literature
and in general attitudes, and even among entre-
preneurial development organizations’ views of
cooperatives, and not at the operative micro level
among the practitioners of cooperatives.
The case organizations, Nonas and Lilith, are
focused on creative industries, such as design,
music, videos, and content production. According
to the interviews and case examples, institution-
alization in the form of the cooperative seems
to be the natural channel for entrepreneurship in
creative industries.
However, the history of cooperatives is en-
trenched in the most traditional forms of busi-
ness, such as agriculture and forestry, which is
still the most important source of revenue among
the world’s 300 largest cooperatives. However,
the contemporary cooperatives are positioned at
several branches of business, with the banking
sector, for example, being nearly as important
now as agriculture (Global300 Report, 2010).
There are several prejudices against coop-
eratives as effective agile enterprises. However,
because of the gathering of several entrepreneurs
within the same organization, the resources avail-
able for investments and marketing are higher than
those available in micro-enterprises. Nevertheless,
this requires that the member entrepreneurs in
the cooperative are acting in the same branch of
business, a situation that provides synergy effects
on joint investments and marketing. Both of the
case study cooperatives are focused on certain
branches, which provide an advantage for their
business and sustainability in the market.
The inevitable fact is, however, that the insti-
tutional structure of the cooperative might have
a detrimental effect on the speed of its decision-
making. This is perhaps the only disadvantage,
and the most challenging feature of contemporary
cooperatives.
We considered the following tensional proposi-
tions about cooperatives, as held by practitioners
and scholars:
• They do not enable large investments and
financing (P1).
• The marketing and brand-building are
problematic (P2).
• Slow decision-making (P3).
• They are not a suitable arena for innovative
and creative business (P4).
Our analysis has shown that most aspects of
these propositions are not relevant, especially P1,
P2, and P4. However, because of the institutional
structure of cooperatives, the decision-making
can be relatively slow (P3). One important macro
level paradoxical tension is between the “soft”
collective organizational form of a cooperative,
especially in neo-co-ops, and the “hard” business
laws to which it must adhere.
However, the results of our study did not
reveal any remarkable paradoxical tension in
cooperatives, e.g. due to several competitors
acting within the same organizational structure.
Thus, any potential tension based on the intra-
organizational coopetition is not relevant in the
examples considered in this study. However, moni-
toring the possible existence of tension caused by
intra-organization coopetition will require further
studies in the future.
1051

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KEY TERMS AND DEFINITIONS
Cooperative: The form of enterprise, which is
jointly owned and engaging in the production or
distribution of goods or the supplying of services,
operated by its members for their mutual benefit.
Creativity: Ability to create new business
ideas and products to the market.
Entrepreneurship: The channel for creativ-
ity. Also intrapreneurship is one possible form of
entrepreneurship.
Institutionalism: Hierarchic form of organiz-
ing, the system of institutions or organized societ-
ies devoted to public similar purposes.
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Light Co-Ops: Cooperatives focused on em-
ployer services, such as settling bills and taxes
for temporary workers, which themselves obtain
short-term commissions from other firms.
Neo-Co-Ops: Cooperatives, which are based
on virtual teams and teamwork, and on the edu-
cational cooperatives of students or, for example,
professional artists in creative industries.
Virtual Teams: Teams, which are not based
on face-to-face contacts. Challenging form of
organizing, where the members must have a
common understanding of the main item under
consideration.

This work was previously published in Nationalism, Cultural Indoctrination, and Economic Prosperity in the Digital Age
edited by Bryan Christiansen and Joyce Koeman, pages 221-240, copyright year 2015 by Information Science Reference (an
imprint of IGI Global).

1054
 1055

Chapter 58
The Social Role of University
Entrepreneurship
Carmen Păunescu
Bucharest University of Economic Studies, Romania

Ramona Cantaragiu
Bucharest University of Economic Studies, Romania

ABSTRACT
This chapter discusses the dimensions and characteristics of social entrepreneurship in universities and
its role in developing sustainable communities. It argues that by building on social responsibility prac-
tices and creating an identity of a society-oriented university, one which is driven by a social mission
and humanistic values and a sense of moral commitment to its communities, higher education institu-
tions are more likely to succeed on the global market characterized by an increasing competition and
a high degree of internationalization. Therefore, by understanding the driving forces which determine
the social entrepreneurial behavior of the academic community, universities will be more successful in
driving social transformation and achieving innovation. While the view of social entrepreneurship in
university put forward in this chapter is far from complete, the authors see it as an important first step
to enhance theoretical understanding of the phenomenon and facilitate future research.

INTRODUCTION generated by the idiosyncrasies of the academic

Social responsibility and the entrepreneurial process
have grown in popularity over the last two decades,
as many publications illustrate (e.g. Mair and Marti,
2006; Reza et al., 2010; Zomeren and Klander-
mans, 2011). In the search for social responsibility
and entrepreneurship inside the higher education
system, researchers and practitioners have to take
into consideration the new aspects of concepts
such as social entrepreneurship and social change
DOI: 10.4018/978-1-4666-8468-3.ch058
environment. Most of the educational systems in
Europe are public systems, ruled, conducted, and
financed according to the laws and regulations of
governmental institutions. These systems have been
for the last 100 years the grounds of the education
level that the citizens of each country live with and
acknowledge. However, the problems of the 21st
century show a widening gap of inequality among
the social classes which ultimately is given by the
difference in access to quality education, no matter

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

if it is public or private. Considering the flourish-
ing of private institutions and the proliferation of
alternative forms of education that have created a
new and more competitive environment, universi-
ties should start to implement structural changes
and create new architectures by working on chang-
ing the way they operate in order to best serve the
interests of their stakeholders.
As such, in order to build an enduring and
unique competitive advantage, universities, like
any business firm, should dedicate themselves
to true end-to-end responsibility and social in-
novation (Kanter, 2010; Tierney, 2011). These
are the universities concerned with creating a
healthy educational system and a wealthy research
process and incorporating responsibility into all
their activities, including their relationships with
stakeholders. End-to-end responsibility refers
firstly to the university duty towards internal and
external customers (academics, staff members,
students, employers, Ministry, etc.) and should
be reflected in its educational services and its
research products. This means that all the pro-
cesses within the university should be responsible
and sustainable and absolutely everything that
happens within the university should happen in
a responsible manner as well.
Additionally, the university is expected to
create innovative ideas which address the local
communities’ concerns. A university that is not
socially innovative is more likely to be less com-
petitive in the new market of higher education
and to perish in the newly created environment
which is based on extreme competition (Păunescu
and Cantaragiu, 2012). Recently, more and more
universities have embraced social goals while
building their identity on the market and have
acknowledged the need to have an impact on the
communities in which they are present.
In this context, does the system of higher
education need social entrepreneurship? In the
paper we start from the premise that it does and
we investigate the dimensions and characteristics
of a socially responsible university and its degree
1056

The Social Role of University Entrepreneurship
of interdependence with the social entrepreneurial
university, using an extensive review of the recent
literature and university document analysis. Addi-
tionally, the factors explaining social entrepreneur-
ial behavior in higher education are researched,
and the consequences of social entrepreneurial
universities are inquired. The main purpose of this
paper is to awaken academic curiosity for social
entrepreneurship and to open up new avenues of
inquiry for social entrepreneurship theory devel-
opment and practice.
The literature in this field is very complex, as so-
cial entrepreneurship is becoming a term extensively
used for all non-profit, for-profit and governmental
bodies, and even universities lately. As a result, it
has so many ramifications which makes difficult
to conceptualize social entrepreneurship in higher
education. In accordance, the chapter seeks to bring
clarity to the notion of social entrepreneurship and
its actual relationships to social responsibility in
academia. By extending the areas of research out-
side the commonly addressed business sector to
the higher education sector this paper brings with
it challenges to old beliefs and the rewards of new
beginnings in both practice and theory.
The reminder of this chapter is structured as fol-
lows. The first part introduces various definitions
of social entrepreneurship in a business context
and with a particular focus on higher education.
It explains the characteristics of a socially respon-
sible vs. social entrepreneurial university. In the
second part a specific focus is placed on explaining
the driving factors and consequences of the social
entrepreneurial behavior in university. The paper
ends with a section of conclusion.
SOCIAL ENTREPRENEURSHIP
Understanding the Phenomenon
There is considerable interest in Social Entrepre-
neurship (SE) and this interest continues to grow
and to challenge both academics and practitioners

The Social Role of University Entrepreneurship
as well. Scholars regard SE in multiple ways de-
pending on the surrounding societal context and
the roles played by the social entrepreneur. From
the extant literature we were able to delimitate
four main approaches of SE: (1) SE as a response
to social market failure or government failure, (2)
SE as a process of social innovation and value
creation, (3) SE as a process of social change
and transformation, and (4) SE as achievement
of financial sustainability.
SE as a Response to Social Market
Failure or Government Failure
SE is defined as the practice of responding to
market or government failures with creative so-
lutions and transformative innovations aimed at
solving social problems in a financially sustainable
manner (Reza et al., 2010). The central driver for
social entrepreneurship is the social issue or social
market needs being addressed and the main con-
sequence is the innovative solution implemented
that solves the social problem. According to Certo
and Miller (2008) social entrepreneurs have an
acute understanding of social market needs and
are able to fulfill these needs through creative
social organizations. The central feature of a
social venture is defining a social mission; yet
there are differences in its level of significance
to the organization (Peredo and McLean, 2006).
The social venture strategically focuses on solving
social market failures and creating opportunities,
through innovative activities, in order to system-
atically add social value to the segment of the
market addressed (Nicholls, 2010). It uses a range
of organizational legal formats, from nonprofit,
for-profit to governmental bodies to maximize
social impact and bring about transformation. The
choice of set-up could be dictated by the nature
of social needs addressed, the amount and avail-
ability of resources, the scope for raising capital,
and the ability to bring about change (Mair and
Marti, 2006).
SE as a Process of Social
Innovation and Value Creation
Austin et al. (2006) regard social entrepreneurship
as “innovative, social value creating activity that
can occur within or across the nonprofit, busi-
ness, or government sectors.” (p. 2). SE involves
a process of creating value or making profits for
the benefit of a segment of society that is disad-
vantaged or in need, in a way that involves that
society, by innovation in the face of risk (Tan et
al., 2005). The social role of entrepreneurship lies
in the sense of helping to translate social capital
into benefits or value created for a segment of
society. Benefits intended for society take the form
of services, care or aid directed to a segment of
society (direct benefits) or employment (indirect
benefits) (Tan et al., 2005).
Social entrepreneurs create novel business mod-
els, rethink organizational structures, and reshape
strategies to exploit very limited and disparate re-
sources and to create social value (Seelos and Mair,
2004). As such, SE is the process of “identifying,
evaluating and exploiting opportunities aiming
at social value creation by means of commercial,
market-based activities and of the use of a wide
range of resources” (Bacq and Janssen, 2011, p.
388). According to Lepoutre et al. (2011) social
value is created by combining existing resources
in new ways and exploiting the opportunities cre-
ated with the primary purpose of stimulating social
change or meeting social needs. Peredo and McLean
(2006) stress also the importance of innovation
employed by the social entrepreneur, either this is
outright invention or adaptation of someone else’s
novelty, which is accompanied by a certain degree
of risk in creating and distributing the social value.
SE as a Process of Social
Change and Transformation
According to Dees (1998), the social entrepreneurs
are change agents in the social sector, who “adopt
a mission to create and sustain social value, rec-
1057

ognize and relentlessly pursue new opportunities
to serve that mission, engage in a process of con-
tinuous innovation, adaptation, and learning, act
boldly without being limited by resources currently
in hand, and exhibit heightened accountability to
the constituencies served and for the outcomes
created.” (p. 4). Thus, social entrepreneurship
comprises innovative ideas for social change
executed utilizing sound business strategies and
creative skills (Mair and Marti, 2006).
SE as Achievement of
(Financial) Sustainability
Baron (2007) states that the social entrepreneur
is the person willing to create a socially respon-
sible firm, but at a financial loss. He sacrifices
financial return but gains satisfaction due to his
current involvement in ideas of corporate social
responsibility and social entrepreneurship. On the
other hand, Bacq et al. (2001) view social entre-
preneurship as a way to address the most complex
social problems in society by using market-based
innovative solutions in order to reduce the financial
dependence of socially oriented organizations on
private donations and government funding.
Social entrepreneurs distinguish themselves
through their deep commitment towards the social
vision and mission, appreciation of sustainable
practices, innovativeness, ability to build social
networks, and also to generate viable financial
returns (Nga and Shamuganathan, 2010). Nga
and Shamuganathan (2010) have a high sense of
appreciation for social responsibility, innovative-
ness and sustainability and in their paper stress the
importance of having them integrated within the
business education curriculum to support social
entrepreneurs in creating value and impact in the
communities they serve.
An integrative perspective of SE which includes
all the approaches referred to above is provided by
Swanson and Zhang (2010) who introduced the
concept of the social entrepreneurship zone. On
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The Social Role of University Entrepreneurship
the horizontal axis, the social entrepreneurship
zone begins at a position where some organiza-
tions advocate for social change they hope will
be initiated by others and ends after encompass-
ing all sustainable social ventures that explicitly
plan to transform social conditions and innovate.
On the vertical axis, the lowest part of the social
entrepreneurship zone includes organizations
with strong social innovation missions that apply
certain business practices and strategies.
To sum up, social entrepreneurship can be
defined as an innovative process which occurs
in social mission-driven organizations aimed to
generate creative new solutions for societal market
needs remained unsolved, by using a limited pool
of resources, which will lead to social transforma-
tion and value creation.
Core Dimensions and
Characteristics of Social
Entrepreneurship in
Higher Education
SE stresses the necessity to improve a certain so-
cial issue whether it has purely social, economic,
technology-related, educational or environmental
impact (at individual and organizational level).
Nga and Shamuganathan (2010) talk about five
dimensions of social entrepreneurship: (1) social
vision – a strong sense of moral obligation and
commitment towards fulfilling a specific social
need, (2) sustainability – authentic values, prin-
ciples and commitment to preserve and protect the
long-term interests and rights of the community
and environment; dedication towards continuous,
responsible innovations, (3) social networking –
an invaluable resource to social entrepreneurs for
advice, competences, expertise, innovative ideas,
capabilities, financial and emotional support, (4)
innovativeness – creativity in shaping collec-
tive social solutions; synergistic combination of
capabilities, products, processes and technology
in order to create a platform for sustainable solu-

The Social Role of University Entrepreneurship
tions, and (5) financial returns – entrepreneurs
need to seize opportunities and compete for scarce
resources to generate economic returns.
Zahra et al. (2008) discuss about four key
factors that fuel the globalization of social entre-
preneurship. They are “global wealth disparity;
movement of corporate social responsibility;
market, institutional and state failures; and tech-
nological advances and shared responsibility”
(cited in Jiao Hao, 2011, p. 131).
According to Austin and Reficco (2009), the
following elements are central to Corporate Social
Entrepreneurship (a concept which emerges from
and builds on three other conceptual frameworks:
entrepreneurship, corporate entrepreneurship, and
social entrepreneurship): creating an enabling
entrepreneurship environment, meaning adopt-
ing an entrepreneurial mindset and cultivating an
entrepreneurial culture that enables fundamental
organizational transformation; fostering corporate
social intrapreneurship environment, which will
catalyze change and enable creation of innovative
solutions, amplifying corporate social mission
and values, which contribute to fulfilling social
responsibilities and social value creation, gener-
ating double/triple value, meaning maximizing
financial returns to investors, optimizing economic
returns to stakeholders, and providing benefits
to those groups who are significantly affected
by company actions and who can in turn impact
the company, building strategic alliances through
extending collaboration with other organizations
– businesses, civil society, or governmental and
co-generating value.
Seelos and Mair (2004) also argue that a com-
mon feature of SE is its primarily social mission
while Weerawardena and Mort (2006) suggest
that social entrepreneurship can be conceptual-
ized as a multidimensional model involving the
three dimensions: innovativeness, proactiveness,
and risk management. They believe that social
entrepreneurial behavior is deeply influenced
by the concurrent requirements of the surround-
ing environment, the need to build a sustainable
organization and the need to achieve the social
mission. Opportunity recognition within social
entrepreneurial organizations must operate within
these three important constraints.
Neck et al. (2009) stress that motivation to
engage in mission-driven, social entrepreneurial
activity is influenced by three main factors: sources
of opportunities – both people (social market
needs) and planet (environmental problems) yield
opportunities, stakeholder salience – the interests
of stakeholders go after their involvement and en-
gagement in the social venture, and performance
metrics – social value created is acknowledged,
for example, through people whose needs have
been solved, trees saved, or percent of emissions
reduced.
Thus, a number of characteristics distinguish
social entrepreneurship from traditional entrepre-
neurship (Lepoutre, et al., 2010): the predominance
of a social mission and goal, the importance of
innovation, and the role and distribution of earned
income (the revenue model). According to Nga and
Shamuganathan (2010) the most cited characteris-
tics of the social entrepreneurs are innovativeness,
achievement centered, independence, sense of
commitment, sense of destiny, low risk aversion,
tolerance for ambiguity and social value creation.
To conclude, we believe that in order for a
university to be declared a social entrepreneurship
university the following characteristics should
be met: driven by a social vision and mission –
a clear statement about the university’s role in
community; appreciation of social (humanistic)
values – a real concern and care for human needs,
interests and rights; development of social capital/
networks – free communication and real con-
nection with the outside world; innovativeness
– capacity to generate creative new solutions for
unsolved social problems; financial sustainability
– consideration of alternative funding strategies
and self-funding; and envisioning social change/
transformation – capacity to lead to organizational/
society reconfiguration and restructuring.
1059

LINKS BETWEEN UNIVERSITY
SOCIAL RESPONSIBILITY AND
SOCIAL ENTREPRENEURSHIP
Certain authors regard Social Responsibility (SR)
as the framework inside which the notion of social
entrepreneurship was born (Kaufmann et al., 2012)
or believe that social entrepreneurship can be seen
as a special form of SR which requires the direct
involvement of the community and brings long-
lasting change (Tan et al., 2005). If we adopt this
view, then we should see a stronger link between
entrepreneurial behaviors and organizational
change and innovation which would make Cor-
porate Social Responsibility (CSR) a precursor or
a launching pad for social intrapreneurship. This
is especially pertinent when studying the social
orientation of universities, most of them having
been set up before the appearance of the third mis-
sion and facing major organizational challenges
in embracing their role as the active promoter of
social wellbeing. However, there are also strong
advocates of the fact that social entrepreneurship
requires a different mindset and also particular
qualities in a person such as pro-activeness, lead-
ership, innovativeness, concern for community
involvement and the sharing of profits which are
not necessary for a socially responsible behavior
in general (Sen, 2007; Huybrechts and Nicholls,
2012). In this section we analyze the features
that help distinguish social entrepreneurship
from social responsibility under the assumption
that even though university social responsibility
(USR) programs might not have the ability to
transform into social enterprises, they do create
an organizational environment in which social
entrepreneurs can be born.
Being responsible implies a sense of moral
accountability for one’s actions, being answer-
able to another social actor for what one does. As
such, a socially responsible person feels a sense
of indebtedness towards society and a need to
contribute to its sustainable development with the
help of his or her actions. Responsibility implies
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The Social Role of University Entrepreneurship
the existence of a social norm which coerces
people to act in a certain way or at least imposes
a standard which, if broken leads to moral judg-
ments, punishment and possibly exclusion from
the group. It is a social construct that exists outside
of individual preferences and it created a diffused
force field in which each social actor has to adopt
a role and the behavior scripts that come with it.
According to the literature concerned with the
determinants of entrepreneurship, social norms
also play an important part in the decision to
become an entrepreneur the same way in which
they dictate the need for a responsible behavior.
By making the career as an entrepreneur attractive
from a social standpoint, societal beliefs persuade
individuals to consider becoming entrepreneurs
even though entrepreneurial profits are lower
than the revenues gained from other professions
(Giannetti and Simonov, 2004). Although they
are both subject to social norming, the choice to
become an entrepreneur brings with it additional
responsibility in the form of opportunity discovery
and systematic pursue of benefits.
Moreover, the identification of an opportunity
to act also takes different routes in the case of
the two notions. Social responsibility, because of
the legitimacy and institutionalization that it has,
is a field in which there are many benchmarks,
examples of good behavior which help create an
articulated demand. People have learnt what to
expect from socially responsible organizations,
be it in the field of environmental protection,
philanthropy, sustainable business development,
or public relations events. Sometimes, the ex-
ternal environment is the one requesting certain
actions such as more programs for the inclusion
of minority groups, a more humane employee
policy or less pollution of the environment. As
Huybrechts and Nicholls (2012) state, “CSR is
not necessarily entrepreneurial nor innovative.
CSR may indeed consist of aligning corporate
practices with practices and norms which are
long established (including law), thereby lacking
innovativeness.” (p. 38) But things look quite

The Social Role of University Entrepreneurship
differently for the social entrepreneurs who have
to act based on perceived necessities (Gawell,
2006) and inchoate demand (York et al., 2010).
In their case, the external environment is not
able to directly request certain actions, but the
entrepreneur is the one who has identified certain
needs which have not been formulated yet and/or
have no immediate solution. Perceived necessities
refer to people’s beliefs that something is lacking
and that some issues are important and need to
be addressed (e.g. social justice, human rights,
environmental protection). The role of the social
entrepreneur is to match distinct opportunities
with the necessities they perceive in the environ-
ment and to act in such as a way as to provide a
sustainable solution (Gawell, 2012).
As SR strategies become legitimate and com-
mon, they also become inscribed in certain patterns
and models, which reduce their efficacy and ef-
fectiveness. The implications of the word ‘respon-
sibility’ belong to the area of the need to predict
and control the future with the behavior of the
present. This requires a certain type of reasoning
summarized by Sarasvathy (2001) as causal logic.
Social responsibility usually starts from the social
goals that the organization decides to pursue and
then uses this target in order to identify the means
necessary. But, social entrepreneurship is born
out of the usage of a completely different logic,
Table 1. Comparison between social responsibility and social entrepreneurship
Social Content SR
Targeted areas Articulated demand
Community involvement Optional, on the surface
Time orientation Short-term, periodic
Type of reasoning Causal logic
Emphasized resources In-house resources
Resource allocation criterion Long term social impact, short term
financial impact
Goal coherence/consistency Disparate actions, not necessarily
correlated
one that starts with what the person(s) has, whom
she knows, and what she knows and then builds
goals suitable to those resources. Effectual logic
is related to the following principles: “1) a focus
on affordable loss rather than expected returns, 2)
a focus on building strategic partnerships rather
than depending on competitive analysis, and 3)
a focus on the leveraging of contingencies rather
than an exploitation of pre-existing knowledge”
(Dewand Sarasvathy, 2002 cited in Ye et al., 2008,
p. 1). VanSandt et al. (2009) name effectual logic
as one of the three means through which social
enterprises can gain momentum and legitimacy.
Under the influence of the effectual logic, the
social entrepreneur is encouraged to seek the long-
term involvement of the community that is targeted
by the social mission and to create a sustainable
social venture. On the other hand, for social re-
sponsible behavior, the targeted community is in
most cases just a passive receiver of social value
and it is less involved in the actual process of
social value creation, which also makes it easier
for organizations to set up short-term, periodic
events rather than supporting a long-term and
continuous commitment to a cause (see Table 1).
The effectual logic embedded in social entre-
preneurship is evident from the moment of the
discovery of the entrepreneurial opportunity. As
Murphy and Coombes (2009) say the discovery of
SE
Inchoate demand
Core necessity, strong relation
Long-term, continuous
Effectual logic
Potential partnerships
Long term financial impact, long term
social impact
Actions concentrated on one goal
1061

new means to achieve something is what ignites the
process of social entrepreneurship in the first place,
not the existence of certain social needs and wants.
There are also differences at the level of strate-
gies used to legitimate social actions. The focus
in the SR discourse, both that of the institution
and that of the scholars writing about it, is placed
on why the organization is choosing to act in a
socially responsible way and the reasons can be
contradictory even between people working for the
same organization (Athanasopoulou, 2007). On
the other hand, by focusing on what the institution
is doing, the SE discourse appears less fraught
with suspicion and contradictions meant to hide
material motives and more concerned with the
efficacy and effectiveness of the actions taken.
In conclusion, both notions refer to a continu-
ous dedication to socially responsible behavior,
but there are two types of continuity involved. SR
embraces the notion of continuity seen as a never
ending search for opportunities to do good, but
with no particular focus. On the other hand, SE
implies the continuity of a single focus, the social
mission on which the entrepreneurial organization
was based. Thus, we need to look at why certain
areas of SR interest become the main focus of
entrepreneurial activities, while others remain
simple SR initiatives that where abandoned when
better ones came along.
DRIVERS AND CONSEQUENCES
OF SOCIAL ENTREPRENEURSHIP
IN UNIVERSITIES
Driving Factors of Social
Entrepreneurship in
Higher Education
The central driver for social entrepreneurship is
considered to be the social problem being addressed
(Austin et al., 2006). At the national level, social
entrepreneurship is said to be driven by wealth, by
strong partnerships between the government and
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The Social Role of University Entrepreneurship
social organizations and by a culture of individual-
ism (Hartog et al., 2011). The same characteristics
could be transported to lower tiers of the social
structure, mainly to the university as an organi-
zation whose wealth, individualistic culture and
social capital certainly have a strong bearing on
its orientation towards socially responsible actions.
If in the business sector, social entrepreneurship
has as a precursor corporate social responsibility
and corporate philanthropy as well as responsible
entrepreneurship and in the civic sector before its
appearance we already were familiar with phi-
lanthropy and non-governmental organizations,
charities and so on, in the higher education sector
social entrepreneurship exists among instances of
academic entrepreneurship, university-community
engagement and third mission inspired actions.
Most of the drivers are the same for all higher
education institutions because all of these forms
of institutional outreach are related to the pressure
to get involved in social innovation exerted on
academia by the current way of thinking. But the
same driving forces lead to very different results and
this is where the discussion about predictors comes
in handy to help us explain why two universities
situated in the same Web of forces choose two very
different roads to comply with societal demands
(Apostolakis, 2008).
In the existent literature we found debates
about the following determinants of SE in univer-
sities: knowledge creation and exchange within
community, partnerships with civil society, ex-
istent regulatory framework, alternative funding
strategies, management schemes which sustain
organizational change, sense of accountability to
the functional entities served, and the pressure to
be more engaged.
Knowledge Creation in Collaboration
with Outside Partners
A plethora of books and research studies have
shown that knowledge is best learnt when it be-
comes associated with something that happens

The Social Role of University Entrepreneurship
outside the classroom, and that learning does not
reside in memorizing information, but in adopting
certain practices (Lave and Wanger, 1991). Thus,
universities need to seek ways in which to get their
students involved in out-of-class activities and this
constant search for partnerships with outside actors
is a major driving force for social entrepreneur-
ship. One type of teaching with the community
is service learning, said to be an “activity which
requires reflection, practice and engagement in
social issues/needs” (Caspersz et al., 2012, p.
8). The fact that a social mission is combined
with the mission to educate people efficiently in
order for them to be able to enter the job market
seamlessly is a characteristic belonging mostly
to the higher education sector. It is true that most
social enterprises involve some kind of learning
starting from teaching people how to work with
new products, or how to work together, or how
to change the way they do certain things, but this
is not done so systematically, inside a curriculum
and with the view to actually review the results
at the end as in the case of social ventures started
by universities. Another thing which distinguishes
social entrepreneurship from other university civic
engagements is the fact that the social mission is
the one which is primarily pursued and that the
teaching continues until the social transformation
is visible. These outside contacts breed social
entrepreneurial initiatives when they are close
to the core capabilities of the university and they
are mutually beneficial to the stakeholders. For
example, a medical school engages its students
in community activities that bring beneficial
services to that community, but also help the
students improve their learning and employability
skills. When there is a match between what the
university teaches and researches and the needs
of the outside partners there are increased chances
that the social initiative will be institutionalized
(Mozolic-Staunton, 2012).
Partnerships with Civil Society
An institution gains social capital by becoming
involved in groups of actors, social networks, by
linking itself with other institutions, with indi-
viduals, with government agencies and so on.
Universities primarily gain social capital through
the knowledge they exchange with social actors
situated outside the institutional boundaries.
Short-term engagements with businesses, civic
organizations, governmental institutions, local
communities or other higher education institutions
bring about the possibility of forming long-term
action plans involving social entrepreneurship. The
absence of outside contacts decreases the chance
of discovering ways in which the university might
contribute to the wellbeing of the environment
in which it activates. Moreover, universities, as
depositories of knowledge and as actors expected
to act objectively in the face of different stake-
holders’ interests, are perfectly positioned to act
as a facilitator for communication and knowledge
transfer inside local communities and between
local communities and other actors.
Existent Support Structures
Governments have started to fund programs which
foster social entrepreneurship in universities like
the one created by UnLtd and HEFCE (Higher
Education Founding Council for England) in the
UK. Although in other parts of the globe this
trend is not as visible, in the years to come, state
funds will play an increasingly important role
in redirecting societal priorities towards social
entrepreneurship (Nicholls, 2010). This type of
programs raises awareness about social initiatives
and increases their attractiveness for students and
faculty members. Besides this there are a number
of local and global foundations which help social
enterprises with their capital problems.
1063

The problem is to find the right funding op-
portunity for the type of social initiative and this
implies a match between access, availability,
amount of funding, type of social mission and level
of impact, sustainability, credibility, perceived
appropriateness of the project. In a recent study
concerning the field of social entrepreneurship,
Nicholls (2010) has identified two narrative log-
ics (the hero entrepreneur and the community)
and two ideal business-types (business-like and
advocacy/social change) out of which universities
are most likely to fit into the one characterized
by an accent placed on building a community
voice through actions inspired by social justice
and communitarianism. The main issue with the
adoption of this type of legitimating discourse is
that most social entrepreneurship support struc-
tures are directed to hero entrepreneurs that set up
business-like entities, and those that are focused on
other types of social entrepreneurship don’t have
at their disposal the means to become powerful
supporters of university initiatives. However, if
a university decides to go on the entrepreneurial
path, it could have more success by directly ad-
dressing the market like any other business would
as in the case of the University of Northampton
whose professor, Nick Petford (2011), proudly
asks: “Who needs project funding? Not the socially
enterprising University.”
Besides different funding opportunities, the
state also influences the way in which universities
work towards their social goals by the regulatory
framework it fosters. By giving universities free
reign regarding the way in which they organize
their curricula, by supporting multi- and trans-
disciplinary approaches to teaching and by making
it mandatory for all students to become involved
in public service (as in Mexico) the national
government acts as a support structure for the
institutionalization of social entrepreneurship
inside universities.
If funding is not up to par with the initiatives
at the moment, universities can still profit from
the knowledge about social entrepreneurship
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The Social Role of University Entrepreneurship
produced by organizations such as SEKN (So-
cial Enterprise Knowledge Network) and EMES
(European Research Network: “The emergence of
social enterprises in Europe”) which are concerned
with fostering the growth of research and dialogue
about third sector issues. Even if the field of social
entrepreneurships is still in pre-paradigmatic form
(Nicholls, 2010) and it appears to be built on the
logic of “accumulative fragmentalism” (Harrison
and Leitch, 1996), universities can have numerous
benefits from participating to the current debates
in terms of understanding the forces that drive
the need for change in higher education, learning
ways in which things are done in different parts
of the world and obtaining feedback on their own
initiatives.
In-House Predictors
If the driving forces act in a centripetal way on the
institutional behavior, the predictors that we have
characterized as “in-house” act as a centrifugal
force, because the momentum is coming from
inside the institution and it mobilizes the uni-
versity to adopt an engaged view of its relations
with the exterior. These predictors were chosen
because research has shown that they are a strong
indicator of the fact that social entrepreneurship
is not just a fad sustained by soft money, current
attention and certain interested members of the
academia, but that it has or is about to become
institutionalized (e.g. Păunescu and Cantaragiu,
2012; Păunescu et al., 2012). We discuss two types
of predictors: one concerned with the institutional
culture and the message that the university man-
agement chooses to promote in terms of social
focus and the other regarding the type of network
the university is integrated in and the capabilities
that derive from it. The predictors related to the
university connectivity are the alumni networks
and the student organizations, both referring to
social networks formed close to the epicenter of
the higher education institution meaning that it
has the power to influence them. Of course, in

The Social Role of University Entrepreneurship
the discussion of the creation of social ventures in
academia we should also take into consideration
the links between university and industry and the
government, but these are less under the influence
of the institution and we focus the current chapter
on the areas of immediate access. The predictors
related to the social mission are the fit between
the social focus and the university capital and the
focus on humanistic values and civic engagement,
both representing the message with which the
institution enters into contact with its past, current
and prospective students.
Strong Alumni Network
Whether social entrepreneurship regards legal
changes, educating certain populations, bringing
low priced products to regions that need them or
any other type of social innovations, it is always
based on a network of people concerned with the
identification of a social problem, devising a viable
solution and putting it into practice. Leveraging
any type of capital (political, human, social or
economic are the types identified by Mairs and
Marti, 2006) requires access to persons willing and
able to act responsibly and thus a strong alumni
network is a key predictor of university social
entrepreneurship.
Alumni contribute with financial support
(Radcliffe, 2011), but also with their time and
their expertise. Alumni are also valuable in in-
creasing the visibility of university initiatives
because they can spread the word about university
initiatives and give legitimacy to the intended
actions (Strizova, 2009). In this way, they help
raise the university’s capital (Stone, 2001) and
act as important gateways for knowledge transfer
(Brennenraedts et al., 2006).
Alumni represent important bridges connecting
the university to outside communities and thus
they are considered important gateways through
which knowledge about resources, capabilities and
needs flows unencumbered as if the boundaries of
the university were porous. For example, research
has found that strong alumni connections repre-
sent the primary bridge between university and
industry researchers, a fact which was noted by
both industry and university members (Garcia and
Aiman-Smith, 2010). Most importantly, in their
role as bridges, they can reduce the reluctance of
the local community with respect to partnerships
with higher education institutions known for their
paternalistic view of such relations (Reardon,
2006) by acting as spokespersons (Barnard, 2005).
Strong Student Organizations
Student organizations provide a fertile ground for
the development of social initiatives if they are
fostered inside the university, are given access to
resources and if they are seen as partners in social
responsibility. Enabling bottom-up initiatives to
gain momentum through academic support is
one way for the university to become socially
involved in the local community. The number of
student organizations ensures the breadth of the
problems targeted, whereas the depth is given by
the number of students these organizations can
mobilize towards social goals. As the number of
student-driven projects increases, the university
will be faced with the challenge of choosing be-
tween proposed action plans those that fit its social
mission and have the best chances to create a wide
impact. However, as independent entities, student
organizations have their own individual plans and
their goals might not be in perfect harmony with
those of the university which houses them.
Fit between Social Focus
and University Capital
Some authors regard universities as non-places
(Auge, 1995) meaning places which make abstrac-
tion of their local environment and are the same
all over the globe just like airports, train stations
and supermarkets. This is supposed to be true
1065

because knowledge has a universal character and
universities as sites where knowledge is created,
exchanged and transferred should also bear this
characteristic: “education sets you free [to do
this], but erodes your commitment to a place, a
country and even an organization” (Handy, 2001,
p. 146). However, universities are aware that they
are not abstract entities and that they operate in
local, regional and international environments
with different traits and which respond to their
services in different ways. By looking at the mis-
sion statements that higher education institutions
publish in their official communications we can
see whether their engagement is focused on the
local community, on a special domain of activity,
or on a larger scale such as the whole national or
even international society.
The best results in terms of acting responsibly
are obtained when the social, economic, human
and political capital of the university is strictly
correlated with the regional scale which it targets
(Jiao Hao, 2011). For example, a university with a
small academic community is best suited to focus
on local community needs rather than trying to
have an impact at a national level, whereas a top-
university situated near the authorities who take
decisions concerning the wellbeing of the society
(and by near we refer to geographical distance, but
also to social interactions and political influence)
has the capability to influence social policies. Hu-
man capital is of particular importance because
aligning the specific knowledge the university
houses with its social initiatives breeds mutually
beneficial university-community partnerships.
The absence of such capital from a social endeavor
could lead to dissatisfaction and lack of support on
behalf of members of the academia. Most authors
discussing the institutionalization of community
engagement state that the best method to achieve
this is by regarding social commitment as a natural
part of the academic life and integrating it into the
teaching and research programs (Holland, 2009;
Janke and Clayton, 2012; Toof, 2012).
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The Social Role of University Entrepreneurship
Focus on Humanistic Values
and Civic Engagement
One way to integrate into the academic life those
social activities which are situated outside the
range of the domains of knowledge under study
is to infuse the academic community with a sense
of responsibility towards promoting humanistic
values and civic engagement. This implies that
the university has to include in its organizational
culture a concern for human dignity, rights and
liberties, a sense of moral obligation and commit-
ment towards communities social issues, public
compassion and sympathy; generosity, altruism
(Peredo and McLean, 2006) and a respect for the
national state, democracy and national laws.
Consequences of Social
Entrepreneurship in Universities
Common across all definitions of social entrepre-
neurship is the fact that the underlying consequence
of social entrepreneurship is the creation of social
value, rather than individual and shareholder
wealth (e.g., Zadek and Thake, 1997; Austin et
al., 2006; Certo and Miller, 2008, Peredo and
McLean, 2006; Weerawardena and Sullivan Mort,
2006), and that the SE process is characterized
by innovation, or the creation of new solutions to
address existing unsolved problems.
Social value creation can be expressed in terms
of “social change” (Mair and Marti, 2004) meaning
for example organizational reconfiguration and
restructuring, “social transformation” (Roberts
and Woods, 2005) translated for example into
remodeling the thinking and behavioral patterns
at individual/organizational level or social impact,
very difficult to be measured, but quantified for
example in terms of people whose needs have been
solved, the social entrepreneurship organization
adopting the form either of a non-profit, business
or government organization. For Austin et al.,
(2006), as well as for Mair and Marti, (2004),

The Social Role of University Entrepreneurship
social entrepreneurship organizations should not
be limited to any specific legal form. According to
these authors, the choice should rather be dictated
by the nature of the social needs addressed and
the amount of resources needed.
Because social change is very difficult to mea-
sure in a quantitative way, we propose a different
framework to assess the consequences of social
entrepreneurship in universities in accordance
with the definition of the socially entrepreneurial
university: (1) Assessing the impact on students
and faculty members: the number of students and
faculty members involved in community relations,
the students’ satisfaction with the practical appli-
cation of knowledge, the number of collaboration
with student organizations and alumni networks,
the number of disciplines involved in social
projects (special accent put on interdisciplinary
collaboration), the research output generated by
community involvement; (2) Assessing the impact
on the communities targeted: degree of involve-
ment on behalf of the community targeted by the
university initiatives, the sustainability prospects
of social entrepreneurship activities, the degree
of interdependence between community and
university; and (3) Assessing the impact on the
institution: the strength of the ties between the
institution and its alumni networks and student
organizations, the financial rewards obtained
from social entrepreneurship, the image of the
university as a lead promoter of social change.
According to the framework we have provided,
social entrepreneurship has consequences both
for internal and external customers and it has the
ability to change the image of the higher educa-
tion institution while still allowing it to remain the
most important source of knowledge for profes-
sionalization. Furthermore, the framework draws
attention towards the fact that, by acting socially
responsible, the university is able to promote social
change, also among its own faculty members, and
to transform the ways that govern the academia, and
to improve the methods of teaching and learning.
CONCLUSION
The chapter comes to enrich and supplement a
subject research that has gained knowledge and
popularity only recently in higher education,
meaning that of social entrepreneurship. It investi-
gates the dimensions and characteristics of social
entrepreneurship in universities and explores its
links with social responsibility in academia. It
also discusses the social role of the universities
and academics involved in entrepreneurship.
Additionally, the main driving forces explaining
temporarily and permanent involvement of the
academics in entrepreneurship activities which
impact local communities are discussed. Finally,
the consequences of the social entrepreneurial
process in academia are explained.
The problem with the introduction of social
entrepreneurship to higher education is twofold:
one would be the inclination to focus on the social
part and transform the initiative into something
resembling non-profit, voluntary practice, and the
second to focus on the entrepreneurial part and
place the accent on hard academic entrepreneur-
ship activities. We believe that the right answer for
the academic environment lies in-between these
two extremes and that the solution comes from
focusing on the academic part, meaning that social
entrepreneurship in higher education should be
first and foremost about knowledge creation and
exchange in a socially responsible manner. That
is why we also conclude that university social
responsibility programs provide a good founda-
tion for the creation of a socially entrepreneurial
culture inside the academia and why we believe
that some of these programs could be regarded
as incubators for more sustainable programs for
social innovation that would fit nicely into the
social entrepreneurship framework. Placing the
focus on knowledge processes gives us the pos-
sibility to transform social entrepreneurship from a
peripheral activity of higher education institutions
into an integrated part of the curricula, a new way
1067

of teaching and learning, which is what the drivers
and the predictors analyzed in this chapter seem
to be suggesting. The need to be more involved
as a knowledge producing institution, the need to
provide more relevant teaching, the freedom given
by the state regulations in relation to institutional
autonomy and all the support programs are target-
ing exactly this: initiatives that seek to find new
institutional forms for universities as primary
agents of professionalization and socialization.
Consequently, for a social entrepreneurship
to be realized a critic mass to adopt the social
responsibility and the entrepreneurial behavior
is necessary, as well as the acceptance of the
regulatory bodies that make it possible.
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1071
 Section 5
Issues and Challenges
This section contains 21 chapters, giving a wide variety of perspectives on Economics and its implications. The
section also discusses new ethical considerations within transparency and accountability. Within the chapters, the
reader is presented with an in-depth analysis of the most current and relevant issues within this growing field of
study. Crucial questions are addressed and alternatives offered.
 1073

Chapter 59
Social e-Entrepreneurship,
Employment, and e-Learning
Mediha Tezcan
Anadolu University, Turkey

ABSTRACT
Social entrepreneurship is the demonstration of entrepreneurial behavior aimed to meet the requirements
of the society, rather than generating profit, bearing economic risks, providing innovative opportuni-
ties, having a social goal and value and for social benefits, and members are comprised of volunteering
individuals and groups. Social entrepreneurs serve in a wide range of areas. Employment is among the
most significant of these. The labor market policies implemented to increase employment also include
education. Education is the power that allows rearing well-rounded and conscious citizens and building
interdependent and participatory societies. The rapid changes in the communications and information
technologies sectors today have also influenced the educational sciences. In this chapter, the social and
economic benefits provided by the utilization of the e-learning programs in the trainings provided by the
social entrepreneur organizations, aimed to generate employment, are discussed.

INTRODUCTION this obligation assumed by individuals and institu-

The humanity is demonstrating efforts to improve
sustainable, collective living conditions, by in-
creasingly generating different solutions to the
positive and negative developments brought about
by collective living. All individuals and admin-
istrations bear the obligation to improve the life
quality of the society they live in and to provide
support to the economic, environmental, cultural
and social development in a sustainable world,
together with their employees and their families,
the local public and the complete society. When
tions, towards the society they live in, is supported
by contributory and comprehensive, sustainable
solutions, adopted by all parties, which generate
added value and benefit, they are also assuming
significant roles in the solution of social problems.
Although social entrepreneurship bears the
entrepreneurship logic in essence, it is different
from commercial entrepreneurship in that it is
an effective and important dynamic in achieving
social objectives. Social entrepreneurs aspiring
to be involved in entrepreneurship activities on
social issues and problems, in a manner differ-

DOI: 10.4018/978-1-4666-8468-3.ch059

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Social e-Entrepreneurship, Employment, and e-Learning
ent from the activities of many non-profit social
organizations, are facilitating significant changes
both in the national and the international platforms.
The innovations in the communication and
informatics technologies have also influenced
education technologies. Distance education, first
practices of which has been started by correspon-
dence education, is continued in our day by the
latest innovations offered by the communication
and informatics technologies. These technolo-
gies increase the effectiveness and efficiency
of distance education. By the e-learning course
materials prepared with the rich contents provided
by the new technologies, the opportunity to study
at the desired time and desired manner, and the
cost advantages as compared to formal education,
e-learning is a powerful alternative in the educa-
tion activities of social entrepreneur organizations.
The benefits to be provided by utilizing e-
learning programs among the social entrepre-
neurship activities in education activities aimed
for employment, as a new dynamic in economic,
social, environmental and cultural development,
have been discussed in this chapter.
BACKGROUND
The Third Sector
The Third Sector, i.e. social economy; is the
economic activities carried on by the social en-
trepreneurship sector or organizations belonging
to the sectors defined as the non-profit sector
(Ridley-Duff & Bull, 2011, 12). The third sector
is a big, interrelated activities complex, organizing
the economic life.
We are living in a global world, where the so-
cial structure, economy and politics are changing
rapidly. These changes are further increasing the
significance of the third sector. The third sector
includes areas such as, reducing poverty, rearrang-
ing welfare distribution, increasing employment
level, education opportunities aimed to reduce
1074

unemployment, increase of human and social
capital build-up, disadvantaged individuals and
groups, creating education and job opportunities
for individuals subject to sexual discrimina-
tion and individuals or groups subject to ethnic
discrimination, providing health services to the
poor segment, protection of the natural environ-
ment, supporting agriculture, fighting against
erosion, preservation of art, museums, historical
monuments and cultural values and sustainable
development. The third sector, in general, has a
different and valuable role in the emergence of a
sustainable, wealthy and comprehensive society
(Birch & Whittam, 2008, 439; Chaves & Mazon,
2011, 16; Hulgård, 2011, 208; Kendall & Anheier,
2001, 228).
The Social Entrepreneurship
Concept
Social entrepreneurship is creating apparent social
value. Social entrepreneurship can be defined as
“the creation of a social value that is generated by
collaborations which usually suggest an economic
activity” (Hulgård (2010, 4). There are numerous
different definitions for social entrepreneurship.
We may cite examples of the different definitions
as follows:
Social enterprises or charity-based not-for-
profit organizations are created by the need to
fill a gap between the rich and poor created by
imbalanced development of the market economy
(Kao, Kao & Kao, 2005, 120).
Social entrepreneurships is a process by which
citizens build or transform institutions to advance
solutions to social problems, such as poverty, ill-
ness, illiteracy, environmental destruction, human
rights abuses and corruption, in order to make
life better for many (Bornstein & Davis, 2010, 1).
The social entrepreneurship theory depends on
four major components; social value, civil soci-
ety, innovation and economic activity (Hulgård,
2010, 4).

Social e-Entrepreneurship, Employment, and e-Learning
In the academic literature, it is observed that
many authors use the terms social entrepreneur-
ship and social enterprise interchangeably. Giulia
Galera and Carlo Borzaga have explained these
two terms as follows (Galera and Borzaga, 2009):
Following an analysis of the concepts of social
entrepreneurship and social enterprise, attention
is paid to the legal implementation of social enter-
prise. The legal recognition of social enterprises
has indeed contributed to clarify this concept in
a number of representative countries that will be
briefly analyzed. (p. 210)
When the literature is reviewed, it is seen that
many concepts are used for social entrepreneur-
ship. We may give the following examples for these
concepts; social enterprise, non-profit sector, non-
profit organizations, third sector, voluntary sector,
non-govermental organization, private voluntary
organization, charitable organization, public
benefit organization, and tax-exept organization.
Opportunities Created by the
Social Entrepreneurship Activity
Social entrepreneurship organizations are becom-
ing increasingly more widespread, and are serving
in many areas. We may group the areas where
these organizations are providing extensive op-
portunities to exemplify these. The grouping has
been made based on academic literature (Deguchi,
2001, 163; Evans & Syrett, 2007; Gonzales, 2007;
London & Morfopoulos, 2009; Rocha, 2007;
Rothschild, 2009; Sodhi & Tang, 2011; Trivedi,
2010; Wallace, 1999):
• Welfare and Revenue Distribution: The
re-distribution of the revenue and wealth
sharing between the poor and the rich is
supported,
• Hunger and Poverty: Job opportuni-
ties are created by supporting economic
development,
• Creating Employment: Job opportunities
are created for the disadvantaged individu-
als and the unemployed,
• Education: Education and vocational edu-
cation opportunities are offered to the poor,
the disadvantaged groups, the sexually and
ethnically discriminated groups, and those
who are working or unemployed,
• Nature Environmental Protection and
Quality: Sustainable development is
achieved by protecting the environment
and supporting the local development
process,
• Social Capital: The social capital accumu-
lation in the society is made widespread,
by creating the environment for elements
such as trust, mutual interactions network,
reputation and collaboration,
• Innovation: Innovation is created by pro-
viding a new product or a new approach to
social aid and social problems,
• Healthcare: Support is provided for proj-
ects aimed to fight with and protect from
diseases,
• Social Justice: Support is given to activi-
ties against prejudices and negative dis-
crimination, civil rights, fair income and
civil commitment,
• Community Safety and Security: Social
confidence and security is accomplished,
• Arts, Culture and Humanities:
Conservation and expansion of the society’s
cultural values is achieved,
• Sports: Social conciliation is reached by
the expansion of gentlemanliness.
The social entrepreneur organizations are ob-
served to continue their activities in many areas
such as welfare and revenue distribution, poverty,
education, environment, health, arts and sports.
These organizations deliver goods and services
in all areas required by man.
1075

Social e-Entrepreneurship, Employment, and e-Learning
SOCIAL ENTREPRENEUSHIP
AND EMPLOYMENT
Passive and Active Labour
Market Policies
In addition to depriving an individual of a cer-
tain level of income required to sustain his life;
unemployment problem also impairs the social
structure. Unemployment is a phenomenon that
leads to individualistic, economic and social con-
cerns. Unemployment is the source and initiator
of many problems.
Countries are implementing employment and
labour market policies aimed to decrease unem-
ployment. Labour market policies are composed of
active and passive labour market policies (Varçın,
2004, 2). Passive and active labour market poli-
cies are policies aimed to increase the amount and
quality of employment. The passive labour market
policies include methods intended to repair the
social problems caused by unemployment and
provide an economic assurance, although at a
minimum level, for the unemployed individuals.
The passive labour market policies are known as
policies aimed to reduce the social and economic
effects originating from unemployment, rather
than increasing employment (Varçın, 2004, 3).
Meanwhile, the active labour market policies are
primarily built on principles such as, eliminating
the difficulties of the unemployed in finding jobs,
opening new area of employment, and facilitat-
ing the entry to the labour market by bringing
the labour supply and demand together through
institutional structures. The active labour market
policies are policies that improve the operational
defects in the labour market, develop professional
skills and increase the efficiency of the labour
markets. The priority goal of the active labour
market policies is primarily enhancing the adapta-
tion of the labour force to the structural changes,
by improving the human capital resources and
encouraging economic growth (Defourny & Nys-
1076

sens, 2008, 8; Lange & Shackleton, 1998, 143;
Martin, & Grubb, 2001, 13).
For a significant reduction in unemployment
in an economy, it is necessary to implement
an employment strategy consisting of detailed
macro and micro economic and to ensure that the
active labour market policies are only a part of
these strategies. The success of the active labour
market policies is possible in an economy that is
structurally at the adequate level and generating
suitable employment (Kapar, 2006, 363).
Social entrepreneurship organizations is the
create employment for the individuals who are
left out of the labour market in the long term
(Biçerli, 2010, 71). We can divide those who
are excluded from the labour force into various
groups: those who are handicapped in hearing,
sight or mentally, those who become disabled as
a consequence of accidents and veteran soldiers,
those who have been rejected socially; those who
are addicted to drug and alcohol and those who
have been imprisoned due to certain crimes they
have committed in the past. The other groups of
individuals targeted by the social entrepreneur-
ship organizations are the young and the elderly
individuals, immigrants, those who are physically
living in distant areas, women who have been
sexually discriminated, and those persons who
are poor and have very low education levels. By
educating such individuals, social entrepreneur-
ship are providing opportunities to such persons
to become qualified and able to work (Langdon
& Burkett, 2004, 8).
The second objective of the social entrepre-
neurship organizations, through the active labour
market policies, is to resolve the difficulties related
to the labour market. Examples may be provided
by grouping the problems of the labour market
(Biçerli, 2010, 82). Those individuals without
any education, or have a low level of education,
and the unemployed who receive low wages; the
unemployed who assist in the family works and
are not paid in return, illegal workers who work

Social e-Entrepreneurship, Employment, and e-Learning
without insurance and are paid below the minimum
wage, women who work at home or in the fields
without any payment.
Social entrepreneurship organizations add
innovative social value to the solution of the prob-
lems in the labor market in the long run, through
active labour market policies (Defourny & Nys-
sens, 2010, 43; Defourny & Nyssens, 2008, 8). The
labour markets, in which problems are decreased
and quality is increased, boost the economy and
trigger economic growth, reduce poverty and
expand the distribution of social welfare.
Social Entrepreneurship and
Employment Policies
Social entrepreneurs influence the amount and
quality of employment by the active and passive
labour market policies methods. Policies aimed to
increase the amount of employment and decrease
unemployment in the short term provide the direct
impacts. Meanwhile, indirect influences include
the policies implemented in the long term (Biçerli,
2010, 58; Galliano, 2003, 18).
Social entrepreneurs are involved in two major
activities to decrease unemployment especially in
the long term. The first one of these is the creation
of job opportunities which the individuals may
access. And the second is supporting these indi-
viduals by training in order for them to maintain
the jobs they are working at (Burket & Langdon,
2005, 12; Langdon & Burkett, 2004, 11).
Social entrepreneurs are influential of the qual-
ity of employment. Through training programs
aimed for employment, social entrepreneurs
increase the employability of the workers. The
workers with increased employability break the
vicious circle of poverty by working at better jobs
and with higher wages (OECD, 2004, 23).
Social entrepreneurship organizations sustain
their long-term active labour market policies by
the creation of jobs for the unemployed and the
disadvantaged individuals, developing innovative
solutions to the labour market problems aimed to
create social value and increasing the quality level
of employment through training programs. Within
the scope of the training programs of the social
entrepreneurs, the workers, in addition to learn-
ing the job they will perform, are also provided
with on-the-job training, and further education on
sharing information with their colleagues, work
collaboration and harmony, etc (Evans, 1998,
187; Hahn & McCabe, 2006, 316; Langdon &
Burkett, 2004, 21).
The rapid changes in the communications and
information technologies have also influenced
the social economy sector. The daily increasing
widespread use of computers and information
technologies, has allowed companies to automate
all their activities. The social entrepreneurship
organizations are continuing their services most
efficiently and effectively in the electronic media
(Li & Johnston, 2003, 220).
DISTANCE EDUCATION
Definition of Distance Education
The U.S. Department of Education’s Office of
Educational Research and Improvement defines
distance education as “the application of telecom-
munications and electronic devices which enable
students and learners to receive instruction that
originates from some distance location” (Simoson,
Michael & Zvacek, 2009, 33). The students are able
to establish direct interaction with the instructors.
The students are able to receive technical support
from educational institutions, when they need.
For Tony Bates (2005, 5), distance educa-
tion is less a philosophy and more a method of
education. Students can study in their own time,
at their chose (home, work or learning center),
and without face-to-face contact with a teacher.
Technology is the most significant element in the
distance education systems.
1077

Social e-Entrepreneurship, Employment, and e-Learning
The internet is a revolutionary development of
dimensions equivalent to those of the Industrial
Revolution. All aspects of life are being radically
influenced by this, sectors are being re-structured,
professions are being re-defined, and modes of
handling business, economy, education, public
administration, politics, entertainment and cul-
ture are being changed. Inclusion of the internet
in the education technologies has led to radical
changes in both formal education and also in
distance education.
History of Development of the
Distance Education Systems
During the period from the past to our day, the
technologies utilized in the distance education sys-
tems have changed (Simoson, Michael & Zvacek,
2009, 33). Researchers have divided the distance
education technologies which have changed over
the historical process into various generations.
First Generation: Learning by correspondence
model: Correspondence education is the first
implementation of open education. It dates back
to the 18th Century. It has become widespread
with the development of the postal services. It
includes sending the printed course materials to
the student by mail and mutual correspondence
(Taylor, 1995, 6).
Second Generation: Multi-Media Model: This
is a model comprised of multiple media packages.
Starting with the 1970’s, the advances in the
television technology, television broadcasts with
educational content, have provided new means for
both the instructors and the students. This involves
a pre-recorded education communication environ-
ment. The second generation distance education
is based on the special design of the letter tests.
The printed course materials are accompanied
by multiple media technologies (Bates, 2008,
218; Bramle & Panda, 2008, 2). The distribution
technologies used in the multi-media model are
as follows (Bates, 2008, 218; Taylor, 1995, 6):
1078

• Print,
• Telephone systems,
• Broadcast TV/Radio,
• Audiotape,
• Videotape,
• Computer-based learning,
• Interactive (disk and tape).
Third Generation: The Tele-learning Model:
The personal computer developed in the 1980’s
has become a significant education technology tool
in the field of education and learning. This is an
interactive model where the instructors are able
to respond to the students’ question on live TV
broadcasts, audio and video conferences. Interac-
tive learning in a group environment has become
possible for the first time in the third generation
model. The distribution technologies used in the
Tele-learning model are listed below (Taylor,
2001, 3; Bramle & Panda, 2008, 2; Naseema &
Sasikumar, 2007, 40):
• Print,
• Telephone systems,
• Audio-teleconference,
• Video-conference,
• Audiographic communication,
• Broadcast tv/radio,
• Audiotele-conference.
Fourth Generation (First Generation e-Learn-
ing): The Flexible Learning Model: This is the
model where the internet has been included for the
first time in distance education. This model is the
period where the internet has been used passively.
It is the first application of e-learning (Connolly
and Stansfield 2006). The flexible learning model
is the flexible learning period where unlimited
internet resources are used in student-instructor
and student-student interaction, collaboration
among the student group, opportunity to learn at
any time and at any place. The distribution tech-
nologies used in the flexible learning model are

Social e-Entrepreneurship, Employment, and e-Learning
as follows (Bramble & Panda, 2008, 3; Connolly
& Stansfield, 2006, 464):
• Interactive multimedia,
• Internet based access to www resources,
• Computer-mediated communications,
• Low-fidelity streaming,
• Email.
Fifth Generation (Second Generation e-Learn-
ing): The Intelligent Flexible learning model: The
fifth generation is a version where the technologies
of the fourth period have become more advanced.
It comprises two-way verbal communication and
visual communication. This period covers the
Virtual Learning Environment, which includes
high-level technology allowing high bandwidth
access, rich streaming media, online assessment
(e-Assessment), and access to the course materials,
communication activities and learning services. It
is the second generation of the e-learning system.
The following distribution technologies are used in
the Intelligent Flexible learning model (Caladine,
2008, 19; Connolly & Stansfield, 2006, 464):
• Online material with interactive multime-
dia (and rich streaming media),
• Internet based access to www resources,
• Computer-mediated communications, au-
tomated response systems,
• Campus portal access to institutional pro-
cesses and resources.
Sixth Generation (Third Generation E-Learn-
ing): The Constructivist E-Learning Model: The
sixth generation model involves the 21st century
education technologies; Web 2.0 and e-learning
2.0. This is the third generation in e-learning.
The wider use of the internet and especially the
World Wide Web are the main reasons for the
expansion of the third generation distance edu-
cation. A two-way verbal and visual educational
communication environment is available. It has
a learning environment where collaboration and
interaction is advanced further as compared to
the previous generation.
The distribution technologies used in the
Constructivist E-Learning Model (Web 2.0 and
e-learning 2.0) are as follows (Caladine, 2008,
20; Connolly & Stansfield, 2006, 464):
• Social software,
• Student creation of resources,
• Sharing of experiences and resources,
• Media rich,
• M-learning,
• V-learning.
Distance education, which has first started with
correspondence education, has in time evolved into
the distribution of educational information over the
web, as a consequence of the evolutionary change
in technology. The distance education system
practices in our day involve e-learning practices.
Educations which may be collected under the
distance education coverage are: e-learning, online
learning, flexible learning, web-based learning,
computer-assisted learning, computer-enhanced
learning, networked learning, virtual university,
web-based learning, distributed learning, m-
learning, v-learning and others.
Distance education is becoming more wide-
spread among the world education, thanks to the
new technologies. Countries are implementing
distance education depending on their levels of
development. While developed countries are in-
cluding the latest applications of distance educa-
tion more extensively, the developing countries
are applying the old and new distance education
technologies in a composite manner. As a matter
of fact, educational institutions are offering all
types of education environments to their students,
while the student benefits from these technolo-
gies in proportion with his financial capabilities.
1079

Social e-Entrepreneurship, Employment, and e-Learning
E-Learning
E-learning is an education service provided
through the use of the internet (Bates, 2004,
273). It is revolutionary in comparison with the
traditional in-class education. E-learning is an
element complementing life-long learning (Zhang
& Nunamaker, 2003, 208). E-learning comprises
the distribution and receipt of education contents
and learning experiences through the electronic
technology (Gündoğan, 2011, 25). E-learning is
a system constituted by the relationships among
information, learner/teacher and management
elements. The e-learning system combines the
available programs with the means provided
by technology, and puts them into practice by
various means of presentation. The e-learning
system has to be managed in a planned manner.
E-learning requires to be designed according to
the planned education outputs aimed to close the
gap between knowledge and skills. E-learning
includes interactive multiple-media, interactive
social media, hyperlink, rich media environment
and electronically provided learning environments
and all technologies available for use (Caladine,
2008, 306).
Communications and information technolo-
gies are changing the way learning takes place.
The first critical element allowing e-learning
is the internet. Other educations influencing
e-learning and providing its sustainability are
enterprise training, global education and life-long
learning. We can list the elements composing the
e-learning system as follows: internet technology,
multimedia technology, knowledge management,
e-commerce technology, collaboration technol-
ogy, digital technology, telecommunication tech-
nology, human-computer interaction, evaluation
of learning, security, accounting, information and
knowledge repository (Zhang and Nunamaker,
2003, 212). These components demonstrate the
features of the e-learning system such as access
speed, interactivity, efficiency and quality.
1080

Advantages Provided by E-Learning
from the Educational Aspect
The benefits provided by the e-learning system,
as compared to traditional education, may be
listed as follows (Chadha & Kumail, 2002, 99;
Naseema & Sasikumar, 2007, 40; Wilson, 2005,
321; Zhang & Nunamaker, 2003, 210):
• Provides opportunity for life-long learning,
• Offers an education opportunity to those
individuals with special conditions, prison-
ers, sexually discriminated persons, ethni-
cally discriminated individuals, those who
have to work in childhood age and those
who are working,
• Provides an opportunity to the student to
study anywhere and at any time he wishes,
• The course materials are distributed
electronically,
• Receives academic support from consult-
ing instructors, when required,
• Technical support is provided when re-
quired by the student,
• The student obtains all the information
and knowledge he needs, from the primary
source rapidly over 24 hours of the day,
• Since the student is able to prepare his own
study plan himself, he may learn the lesson
by repeating numerous times,
• Through the concurrent virtual class
practices and forums, student-instructor
and student-student interaction may be
achieved,
• There is a high-level of communication
and a collaborative learning environment
available,
• The qualified and dynamic course materi-
als allow learning by active participation,
• The audio-visual course materials of rich
content motivate the student,
• The course materials in the technologi-
cal environment improves the student’s
creativity,

Social e-Entrepreneurship, Employment, and e-Learning
• The student may immediately observe the
updated course materials,
• The learning processes are rich in learning
environments, learning methods and tech-
niques, learning and teaching tools,
• Encourages the student to research and
provides e-library services to the student,
• Prompt feedback may be obtained from the
e-learning system on how much a student
has learned specific information.
• Allows for the student not to spend any
time for transportation and provides time
savings.
Any flaws and deficiencies in any one of the
educational features we have listed above will
constitute the disadvantages of the e-learning
system. The particular deficiencies of this system
in general are the deficiencies arising from educa-
tional design approaches and educational design.
Advantages Provided by E-Learning
from the Socio-Economic Aspect
The benefits provided by the e-learning system,
as compared to the traditional education shall be
interpreted within the guidelines of economic
growth and development, human capital and social
capital theories (Chadha, & Kumail 2002, 99;
Naseema & Sasikumar, 2007, 40; Wilson, 2005,
321; Zhang & Nunamaker, 2003, 210):
• From the viewpoint of the institution pro-
viding e-learning service, the operating ex-
penses (such as electricity, fuel and rent)
are less than those of formal education,
• As compared to a student in formal educa-
tion, the student does not have any expens-
es such as transportation, accommodation
(dormitory), food. The lack of these costs
will reduce the education expenses of the
student as compared to a student in formal
education,
• Education is maintained at much lower
costs, as compared to traditional education,
for both the institution and the student,
• The student pays a much lower student’s
fee as compared to a formal student under
university education,
• Since the course materials are distributed
to the student in the electronic media, it al-
lows savings in printing, packing, transpor-
tation, paper and personnel expenses,
• E-learning systems are environment
friendly institutions,
• Education may be provided to a higher
number of students as compared to tradi-
tional education,
• With the increased number of individuals
in the society receiving education, contrib-
utes to the human resources accumulation
in the country’s economy,
• Individuals with special conditions, pris-
oners, persons who have been sexually
discriminated, individuals subject to ethnic
discrimination, those who have to work at
childhood age and those who are working
find the opportunity for education and thus
a contribution is made to social peace,
• The poor, who are not able to get the op-
portunity to attend formal education, ob-
tain the chance for education,
• The education of the poor individuals pro-
vides support to the poverty elimination
policies of the country economies,
• In the e-learning system, the increase in
the student-instructor and student-student
interactivity, also increases information
sharing. The development of an intense
communication environment, allows for
the development of social networks,
• The social networks established by infor-
mation sharing, support the increase of the
country’s social capital accumulation.
1081

Social e-Entrepreneurship, Employment, and e-Learning
The e-learning systems are observed to con-
tinue their activities in many areas such as edu-
cation, social networks, welfare, poverty, human
capital, and social capital.
The education to be provided by social entre-
preneur organizations via e-learning model will
enable the students to make use of recent tech-
nologies in education and also bring economic
advantages.
Economic Effects of Social
Entrepreneurship Activities
Aimed for Employment
Maintaining education and teaching through
information technologies is indispensable for the
21st century. The ability of the communication
and information technologies to provide differ-
ent education environments to the educational
sciences and facilitate access to education, leads
to an increase in the quality of education and
an advance in teaching. The continuation of the
employment policies by the social entrepreneurs
on the internet media, offers the opportunity to
create employment and employability to a larger
number of disadvantaged, unemployed and em-
ployed individuals in the society. By the influence
of the communications and information technolo-
gies, economic growth is being accomplished in
the social economy sector (Campion, 2001, 71;
Chan, C. W. 2010, 404; Gudanscu, 2010, 5646).
Through the training programs they provide
aimed for the disadvantaged, unemployed and
employed individuals and the direct and indirect
employment policies they implement, social entre-
preneurs are creating jobs in the social economy
sector. In the meantime, access to jobs and inclu-
sion in the labor market in the social economy
sector is provided through social connections.
Direct employment, indirect employment, access
to employment, inclusion in the labor market and
social connections are triggering each other in
1082

the social economy sector and are allowing the
circulation of creating jobs (Galliano, 2003, 18).
In the circulation aimed to create jobs in the social
economy sector, growth and development is started
locally and is expanded to the economy in gen-
eral. By the reputation, environment of trust and
social networks developed during the job creation
process, the capital is formed (Borzaga & Tortia,
2010, 29; Chell, 2007, 12; Tortia, 2010, 23).
By the quality education and training provided
by the social entrepreneurs, a human capital accu-
mulation is achieved throughout the country, by the
education of the unemployed and disadvantaged
individuals and those who are having problems
maintaining their jobs. These individuals both get
employed and their conditions are improved as
individuals (well-being of working) (Chell, 2007,
14; Haugh & Kitson, 2007, 981). As a result, the
individuals who are left out of the labor market
get jobs through the social entrepreneurship or-
ganizations, they no longer are a burden to the
public economically (unemployment insurance,
healthcare expenses, etc.), plus they obtain their
own economic freedom. They are producing
by working at the workplaces, and achieve the
power to save and spend the wage revenues they
earn. They are able to eat healthily and meet their
general healthcare expenses, and work as healthy
individuals. The savings and expenditures of the
workers who are employed are boosting the eco-
nomic cycle. The country’s economy enters into
a state of well-being with increased productivity.
In the economy with increased productivity, the
gross national product increases, economic growth
and development is attained, and as a consequence
of these developments, poverty is decreased and
social welfare distribution is improved. This well-
being accomplished in the economy is the positive
social value created by the social entrepreneur-
ship organizations in the economy (Burkett, &
Langdon, 2005, 15; Langdon, & Burkett, 2004,
29; Ngan, 2011, 61).

Social e-Entrepreneurship, Employment, and e-Learning
FUTURE RESEARCH DIRECTIONS
The strong competition environment created by
rapid technological development and globalization
will continue in the economies of countries in the
future, as it does in our day. Businesses, individu-
als and countries will continue to be influenced
by tough competition. Businesses will be able to
sustain competition by making structural changes.
In the competition environment, individuals will
be able to maintain their employability, as long
as they are able to acquire new information, skills
and abilities. Meanwhile, countries will continue
to struggle with fierce competition through the
employment policies.
The influences of globalization, the tough
competition environment and technological in-
novations are changing social life also. The need
for the social values to be generated by the social
entrepreneur organizations will increase day by
day. In their plans aimed for the future, countries
will make plans to increase the prevalence of social
entrepreneur organization in the areas of employ-
ment, education, poverty, welfare, environment,
health, sports and culture.
The roles of the social entrepreneur organiza-
tions in the implementation of the employment
market policies will increase. As a consequence of
implementing their education programs through
e-learning, in their policies aimed to generate
employment and creating an opportunity for
education for a high number of individuals, so-
cial entrepreneur organizations will, to a large
extent, be able to meet the service that the society
would expect from them. The social entrepreneur
organizations, by the opportunities that will be
provided by e-learning practices as compared
to formal education, will maintain the life-long
learning requirement and employability of the
society they live in.
CONCLUSION
Social entrepreneur organizations have social
missions and purposes. The primary consideration
of social entrepreneurship is serving the society.
Their objective is to generate maximum social
value in the society. Social entrepreneur organiza-
tions maintain social entrepreneurship activities
by finding solutions to social problems, as long
as they are innovative and creative in the social
areas. Social entrepreneur organizations generate
social values in many different areas. By provid-
ing education, aimed to create employment, they
increase the knowledge accumulation, skills and
abilities of individuals.
In our day, as a consequence of the rapid
changes in the communication and information
technologies, distance education has evolved into
the distribution of information through the web.
E-learning is one of the latest practices of distance
education. Through e-learning, social entrepreneur
organizations create an opportunity for life-long
learning. These organizations support the creation
of employment, through the e-learning programs.
As a consequence of making use of e-learning
programs aimed for employment, social entre-
preneur organizations, as institutions, are able
to maintain their education programs with lower
operating and learning expenses. Meanwhile, the
students they serve are able to receive education
services at a lower cost. By their ability to provide
an education opportunity to individuals of differ-
ent income level groups in the society through the
education technologies of different levels, and
offering social services to the different groups in
the society; those that have been left out of the
workforce, the poor, the unemployed, the em-
ployed who want to increase their employability,
and thus creating an environment of confidence
in the society, they contribute to the formation of
social capital.
1083

Social e-Entrepreneurship, Employment, and e-Learning
The ability of social entrepreneur organizations
to provide the opportunity for education through
e-learning to a larger number of individuals, as
compared to formal education, will contribute
to the implementation of employment policies.
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KEY TERMS AND DEFINITIONS
Distance Education: A structured learning
experience where student and instructor are in
different place.
E-Learning: Learning conducted via elec-
tronic media, especially via the Internet.
This work was previously published in Social E-Enterprise edited by Teresa Torres-Coronas and María Arántzazu Vidal-Blasco,
pages 133-147, copyright year 2013 by Information Science Reference (an imprint of IGI Global).
Entrepreneur, Entrepreneurship: French
term (taken over into English) for “enterpriser” or
“one who undertakes.” An entrepreneur is a person
who detects a previously untapped opportunity
to make substantial profits (either by lowering
the costs of producing existing good/services or
by creating brand new ways for people to satisfy
their want though new products) and then takes
the initiative in bringing together the necessary
factors of production to exploit this opportunity,
typically by organizing a new business firm (or
perhaps a new subdivision of an existing firm)
for the purpose. The new opportunity which the
entrepreneur has detected may involve the intro-
duction of a new good or service only recently
invented or improved.
Labor: The collective or generic name given
to all the various productive services provided by
human beings, including physical effort, skills,
intellectual abilities and applied knowledge.
Online Learning: A learning context in which
most, if not all, learning takes place online. This
type of education has its origins from distance
education.
Private Enterprise: A business or other
economic organization not owned by the gov-
ernment but rather operated for profit or other
private benefit.
Unemployment (or Joblessness): A situation
which exists when members of the labor force
wish to work at the prevailing wage or salary rates
for their skills, but cannot get a job. The concept
thus refers to “involuntary” unemployment only,
rather than the voluntary decision of someone to
choose leisure (or productive activity outside the
cash economy such as housewifery) rather than
gainful employment at prevailing rates of pay.
1087
1088

Chapter 60
Discovering the Nexus
between Market Orientation
and Open Innovation:
A Grounded Theory Approach

Gul Denktas-Sakar
Dokuz Eylul University, Turkey

Cimen Karatas-Cetin
Dokuz Eylul University, Turkey

Omur Yasar Saatcioglu

Dokuz Eylul University, Turkey

ABSTRACT
The global marketplace is characterized by various changes taking place in social, economic, natural,
and technological areas. As these changes occur both at the organizational and market levels, innovations
act as the main processes that accelerate the adaptation of these changes to the services/products of the
organizations. Considering the involvement of many stakeholders and the partners within the dynamic
business environment of the organizations, an increasing need for the cooperation and the coordination
of such actors in the development of service innovations is observed. As topical research areas of both
the marketing and management disciplines, this chapter focuses on discovering the relationship between
market orientation and the open innovation by pursuing a grounded theory methodology in combination
with a specific case study of a leading container shipping company. The originality of the research lies on
the investigation of the unexplored research field of open innovation from the perspective of the grounded
theory methodology as well as the generation of an emergent theory by the use of an inductive approach.

INTRODUCTION only because innovation is considered as a key

to adaptation of a change, but also it is related to
Innovation research has gained considerable atten- the creation of something new (Gopalakrishnan
tion in many fields such as sociology, engineer- & Damanpour, 1997). A number of studies asso-
ing, economics, marketing and psychology not ciating innovation concept with supply chain and

DOI: 10.4018/978-1-4666-8468-3.ch060

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Discovering the Nexus between Market Orientation and Open Innovation
logistics practices have been conducted, mostly
emphasizing the noticeable effects of external
long-term relationships between supply chain
partners (Choi & Hartley, 1996), and collective
behaviours (Soosay, Hyland, & Ferrer, 2008) on
continuous innovation. The tendency towards
innovation research on supply chain seems to
support the notion that collaboration has links to
innovations in the supply chain (Soosay, Hyland
& Ferrer, 2008). Empirical studies investigating
the contribution of applying innovation in ship-
ping companies (Jenssen & Randoy, 2002; Jenssen
& Randoy, 2006; Doloreux & Melancon, 2008;
Yang, Marlow, & Lu, 2009) resulted in the major
finding of the significance of innovativeness on
firm performance and on creating distinctive
competitive advantage.
Innovation research efforts in the shipping
industry accept the benefits of coordination and
cooperation between the stakeholders, customer
orientation, structural characteristics of the orga-
nization and environmental drivers. Such factors
stimulating innovation in shipping companies can
also be regarded as components of ‘open innova-
tion’. As a more externally-focused perspective of
innovation, ‘open innovation’ especially for ship-
ping companies paves the way for achieving market
orientation practices. Since there has been a shift
in the competition and the innovation processes
in the organizations from the individual firm to
the organizational network, mostly the decisive
factors connecting the market orientation and
open innovation capabilities of the organizations
should be discussed.
Therefore, the goal of the study is to explore the
main mechanisms which enable the organization
to succeed in open innovation applications by con-
sidering the market orientation dynamics within
turbulent business environments as witnessed in
the shipping industry. Moreover, the study attempts
to discover the nexus between open innovation
and market orientation capabilities of organiza-
tions based on a proposed model developed from
the specific case of a leading container shipping
company and generate a substantive theory by
formulating relevant propositions.
The study is organized as follows. After a brief
overview of the background literature on open
innovation and market orientation concepts, the
interrelation between the innovativeness, new
service development and market orientation
within the context of detailed literature review
is discussed. As the research stance of the study,
the grounded theory building process and meth-
odological path followed are elucidated. Then,
an in-depth case study is thoroughly analyzed in
accordance with the principles of the grounded
theory. Following the analysis procedure, a sub-
stantive theory relating the open innovation and
market orientation was developed supported by the
model and the propositions. The study concludes
with implications for theory and practice, charting
several promising areas for future research on open
innovation and market orientation.
BACKGROUND LITERATURE
The Insights of Open Innovation
The global marketplace today is characterized by
profound social, economical, and technological
changes. Change is ubiquitous and pervasive and
innovation facilitates the process of adaptation to
many of these changes. Consequently, innovation
plays a role in nurturing the economy, in enhancing
and sustaining the high performance of firms, in
building industrial competitiveness, in improving
the standard of living, and in creating a better qual-
ity of life (Gopalakrishan & Damanpour, 1997;
Lee, Olson, & Trimi, 2012). Innovation is the
key to survival of most firms, especially service
firms (Agarwal, Erramilli & Dev, 2003). First
theoretical approaches to innovation state that in
innovation process only one actor (an individual
or a company) is considered responsible for the
1089

Discovering the Nexus between Market Orientation and Open Innovation
innovation process. However, as Huizingh (2011)
argues trends such as outsourcing, agility, and
flexibility had already forced companies to recon-
sider their strategies and processes in other areas
and to become network organizations. Hence, the
“do-it-yourself” mentality in innovation manage-
ment is no longer valid. Additionally, innovation
processes consist of complex social and disorderly
interactive interactions which these earlier models
cannot embrace and now become central in an
array of innovation theories (Chesbrough, 2003;
Sorensen, Mattson & Sundbo, 2010).
Factors such as the inability to adopt external
knowledge and technology, difficulties of see-
ing opportunities which do not fit the current
business model, distributed knowledge, and the
arising of new collaboration technologies lead to
the definition of a new model: Open innovation.
Open innovation paradigm opens up the classical
funnel to encompass flows of technology and ideas
within and outside the organization: the duration
of creation, recognition and articulation of op-
portunities can be drastically shortened if ideas
come from beyond the R&D department (Carbone,
Contrereas, Hernandez, & Gomez-Perez, 2012).
Lictenthaler (2011) defined open innovation as
systematically performing knowledge exploration,
and retention and exploitation inside and outside
an organization’s boundaries throughout the in-
novation process. Sorensen, Mattson and Sundbo
(2010) defined open innovation as an interactive
process where ideas and inputs to innovation come
from many sources: users, suppliers, competitors,
spin-offs from large firms, knowledge intensive
service firms or other services. Hence, open in-
novation became the umbrella that encompasses,
connects and integrates a range of already existing
activities.
Firms which manage to create a synergy be-
tween their own processes and externally available
ideas might benefit from the creative ideas of
outsiders to generate profitable new products and
services. Available resources become larger than
a single firm can manage; they enable innovative
1090

ways to market or the creation of standards in
emerging markets. Such synergies can be created
by relying on the external environment and by
taking an active part in external developments
(Dahlander, Frederiksen, & Rullani, 2008). Lee,
Olson and Trimi (2012) identified the necessity of
collaboration with that of other world-class firms
to develop the internal competencies of firms.
External networking is another important dimen-
sion which is consistently associated with open
innovation. It comprises both formal collaborative
projects in addition to more general and informal
networking activities. External participations en-
able the recovery of innovations that were initially
abandoned or that did not seem promising (van de
Vrande, de Jong, Vanhaverbeke, & Rochemont,
2009).
Wallin and von Krogh (2010) summarized
advantages of open innovation as reducing the cost
of product development and process improvement,
accelerating time to market for new products, im-
proving product quality, and accessing customer
and supplier expertise outside the organization.
As van de Vrande, de Jong, Vanhaverbeke and
Rochemont (2009) emphasized, motives to adopt
open innovation practices are increased control,
focus on core competences, bring expertise to the
firm, cost management, control, counterbalance
lack of capacity, optimal use of talents, knowledge,
qualities and initiatives of employees, policy and
motivation. However, bureaucracy, finance, lack
of technological knowledge, competent personnel
or legal/administrative knowledge, insufficient
market intelligence, quality of partners, adoption
problems, demand, lack of competences, lack of
competence and lack of idea management hamper
factors for open innovation. Open innovation has
gained in popularity for at least three reasons as
(Barge-Gil, 2010):
1. It reflects the changes to work patterns in
which professionals seek portfolio careers
rather than a job-or-life, and work contexts
that involve increasing divisions of labour,

Discovering the Nexus between Market Orientation and Open Innovation
2. Improved market institutions (property
rights, venture capitalists, standards) are
enabling increased trade knowledge,
3. New technologies are easing coordination
across geographical distance.
Though there is a trend toward open innovation,
most firms hesitate to open up their innovation
processes. However, it seems there is a clear trend
toward open innovation which will continue or
even intensify in the future (Lichtenthaler, 2008).
However, Enkel, Gassmann, and Chesbrough
(2009) suggested using an appropriate balance
between open and closed innovation since too
much openness may lead to faster loss of control
and core competences. Open innovation is mostly
realized by pioneering firms whereas other compa-
nies still follow a relatively closed strategy. Huiz-
ing (2011) underlined the most obvious external
context characteristics as industry. However, he
also emphasized that applying open innovation
is a matter of business strategy than a matter of
industry trends, hence in adoption process of open
innovation the internal environment in firms is
more important than external environment. A
firm’s emphasis on radical innovations rather
than on incremental innovations may affect its
degree of openness in innovation processes (Li-
chtenthaler, 2008).
The open innovation paradigm balances the
role of internal and external sources of knowl-
edge. Open innovation also requires a number
of changes within firms in order to effectively
manage the use of purposive in and outflows of
knowledge. Stahlbrost and Bergvall-Kareborn
(2011) explained three elements in open innova-
tion as culture, structure and business model. An
open innovation approach forces organizations
to embrace an entirely different culture in their
thinking processes. The change in structure means
it is important to develop mechanisms to support
the importation and exploration of knowledge
and ideas. As van de Vrande, Vanhaverbeke, and
Gassman (2010) emphasized, open innovation also
increases the role of business model since types
of internal and external knowledge which would
be used in open innovation processes should be
selected. Lee, Olson, and Trimi (2012) and Van
der Meer (2007) explained the stages to open in-
novation beginning from closed innovation.
The journey from closed to open innovation
involves four main dimensions of the firm’s
organization: inter-organizational networks, or-
ganizational structure, evaluation processes, and
knowledge management systems, along which
can be managed and stimulated. (Gassman, Enkel
& Chesbrough, 2010; Huizingh, 2011). In the
open innovation model, the management and
organization of innovation processes are more
complex compared to closed innovation model
(van de Vrande, de Jong, Vanhaverbeke & Ro-
chemont, 2009). Open innovation reflects much
less a dichotomy (open versus closed) than it
does a continuum with varying degrees of open-
ness. Open innovation also encompasses various
activities (e.g., inbound, outbound and coupled
activities). Each of these activities can be more or
less open. Open innovation measurement scales
should therefore reflect this multi-dimensional
nature. Three core processes can be differenti-
ated in open innovation such as found in Enkel,
Gassmann, and Chesbrough (2009):
1. Outside-in process enriching the company’s
own knowledge base through the integra-
tion of suppliers, customers and external
knowledge sourcing,
2. The inside-out process refers to earning
profits by bringing ideas to market, selling
IP, and multiplying technology by transfer-
ring ideas to the outside environment,
3. The coupled process refers to co-creation
with (mainly) complementary partners
through alliances, cooperation and joint
ventures during which give and take are
crucial for success.
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Discovering the Nexus between Market Orientation and Open Innovation
The Extent of Market Orientation
Market orientation is one of the components of
modern marketing concepts and gained consid-
erable attention both from the academicians and
the practitioners due to the nature of the concept
influencing many organization-related strategies.
There is a considerable research conducted in the
market orientation field including different appli-
cations, industries and variables linking market
orientation to many aspects of the business. Hence,
market orientation is significantly a fertile research
field focusing on different perspectives includ-
ing its relationship with business performance
(Day, 1994; Jaworski & Kohli, 1993; Narver &
Slater, 1990; Kumar, Subramaniam, & Yauger,
1998; Chang, Mehta, Chen, Polsa, & Mazur,
1999; Sin, Tse, Heung, & Yim, 2005; Panigyra-
kis & Theodoridis, 2007), moderating effects of
the environment on that relationship (Jaworski
& Kohli, 1993; Han, Kim, & Rajendra, 1998;
Demirbag, Tatoglu, & Zaim, 2006), marketing
planning (Pulendran, Speed, & Widing, 2003), new
product/service development and innovativeness
(Frambach, Prabhu, & Verhallen, 2003; Gotteland
& Boule, 2006; Tajeddini, Trueman, & Larsen,
2006; Naidoo, 2010) and organizational strategy
in terms of sales force management (Langerak,
2001, Siguaw, Brown & Widing, 1994), chan-
nel relationships (Siguaw, Simpson, & Baker,
1998), human resource management and internal
customer orientation (Harris & Ogbonna, 2001),
organizational culture (Homburg & Pflesser, 2000)
and learning organization (Hurley & Hult, 1998;
Farrell, 2000).
Market-oriented behaviour is an implementa-
tion and a reemphasis of the marketing concept
(Kohli & Jaworski, 1990; Narver & Slater, 1990).
Well-known definition of market orientation is
provided by Kohli and Jaworski (1990) as the
organization-wide generation of market intelli-
gence regarding customers’ needs and competitive
1092

information, the dissemination of intelligence
in the whole organization and responsiveness
throughout the organization. Another most cited
definition is given by Narver and Slater (1990,
p.21) as: “the organizational culture that most
effectively and efficiently creates the necessary
behaviours for the creation of superior value for
buyers and, thus, continuous superior performance
for the business.” These two approaches can also
be considered as the basic research foundations
of a large body of literature grouped into two as
behavioural and cultural perspectives.
While the former perspective sees market
orientation as a behavioural response to the com-
petitive dynamics facing an organization (Naidoo,
2010), the cultural perspective places the organi-
zational culture in the centre of the organizational
performance to create superior value for buyers.
Despite the distinct approaches of both groups,
consensus was reached that market orientation
aims to trigger increased customer satisfaction
and organizational commitment of employees
(Jaworski & Kohli, 1993). Following the introduc-
tion of market orientation concept by Kohli and
Jaworski (1990), this concept has been refined
and built upon together with the development of
measures regarding market orientation. Narver
and Slater (1990) identified three components of
market orientation: customer orientation, competi-
tor orientation, and inter-functional coordination.
Built upon Narver and Slater’s (1990) contribution,
Deng and Dart (1994) added profit organisation
as the fourth variable to the market orientation
concept. While customer and competitor orien-
tation are related to the activities involved in the
collection of information about the customers and
competitors, interfunctional coordination involves
the coordination of organization-wide efforts to
create superior value for customers according to
the information obtained about customers and
competitors (Narver & Slater, 1990).

Discovering the Nexus between Market Orientation and Open Innovation
The Interplay of Market Orientation
and Open Innovation
The relationship between market orientation and
innovation has largely been evaluated from the
viewpoints of product and service developments
and innovations. New service development which
refers to new services or service innovations which
achieve superior performance and competitive
advantage (Agarwal, Erramilli, & Dev, 2003) has
been widely investigated in the extant literature
(Edvardsson & Olsson, 1996; Menor, Tatikonda,
& Sampson, 2002; Mansury & Love, 2008). In-
novation concepts traditionally have been associ-
ated with tangible products bringing out a rich
literature on new tangible product development
and avoiding the research on the service innova-
tion due to the unique service characteristics of
intangibility, heterogeneity, perishability and
inseparability (Lovelock, Patterson, & Walker,
2001). This supports the view that new service
development processes may be different from the
development of tangible products (de Brentani,
1995). Ennew and Binks (1996) highlighted
the involvement of customers in services as the
major difference between product development
and service development. This primarily shows
the need for developing close relationships with
customers to increase customer perceived value
and such relationships are stimulated by the
market orientation concept (Matthing, Sanden,
& Edvardsson, 2004).
A market-oriented culture favours openness to
innovations as well as to innovative ideas. Firms
possessing high innovative capability are inclined
to be more successful to develop new capabilities
which cause response to environment, competitive
advantage and high performance (Hurley & Hult,
1998) than are other firms. Olson, Slater, and Hult
(2005) pointed out innovativeness as the main key
to achieving competitive advantage. Recent re-
search relied heavily upon the relationship between
market orientation and product and service innova-
tion. Interlinkages between organizational culture,
customer orientation and innovation (Deshpande,
Farley, & Webster, 1993), relationships between
market orientation and innovation characteristics
(e.g., degree of product innovation, product-firm
adoption, product advantage, interfunctional team-
work) (Atuahene-Gima, 1995), impacts of market
orientation and innovation on organizational per-
formance (Han, Kim, & Rajendra, 1998), effects
of market orientation and organizational learning
on innovation (Hurley and Hult, 1998), effects of
market orientation and learning orientation on
firms’ innovation performance (Baker & Sinkula,
1999; Verbees & Meulenberg, 2004), and effects
of market orientation and entrepreneur orientation
on product innovativeness (Atuahene-Gima & Ko,
2001) are the main research streams investigating
the mentioned relationships.
In accordance with the findings of these stud-
ies, the growing body of literature suggests that
market-oriented organizations are more prone to
innovative behaviour as well as to be more learn-
ing organizations (Authuene-Gima, 1995; Ottum
& Moore, 1997; Han, Kim, & Rajendra, 1998;
Hurley & Hult, 1998; Lukas & Ferrell, 2000;
Narver, Slater, & MacLachlan, 2000; Mavondo
& Farrell, 2003; Aldas-Manzano, Kuster, & Vila,
2005; Tajeddini, Trueman, & Larsen, 2006).
Considering the strong link between the market
orientation and innovation, based on a survey of
market orientation research conducted between
1995-2008, Liao, Chang, Wu and Katrichis
(2011) highlighted six research domains linked
to the market orientation concept: the relation-
ship between market orientation and business
performance, innovation, marketing, learning,
competition, and quality. Market orientation and
innovation are intrinsically linked concepts since
the main objective of innovation is to develop
new or modified products/services to improve
organizational performance which is inherently
dependent on understanding and satisfying cus-
tomer needs better than competitors (Augusto &
Coelho, 2009; Hauser, Tellis, & Griffin, 2006).
1093

Discovering the Nexus between Market Orientation and Open Innovation
By outlining this view, Narver, Slater, and
MacLachlan (2000, p.11) argued that “a market
orientation, whether reactive or proactive, is the
foundation for a firm’s innovation efforts.” In
his seminal book, Drucker (1954, p.37) fleshed
out the link between the market orientation and
innovativeness by stating: “there is only one
valid definition of business purpose: to create
a customer... It is the customer who determines
what the business is...Because it is its purpose to
create a customer... any business enterprise has
two and only-two basic functions: marketing and
innovation.”
As Narver and Slater (1990) dictated, mar-
ket–oriented organizations are inclined to be
more innovative thus resulting in better financial
performance. Market-oriented organizations
are more successful to adapt themselves to the
changes taking place in the environment, allowing
incremental innovation (Baker & Sinkula, 2002).
This is also supported by Atuahene-Gima (1995,
p.287) accentuating that “market orientation is
more strongly related to new product performance
at early stage of product life cycle than at the late
stage, and such environment seems to warrant
greater market intelligence and information shar-
ing within the firm.” As Slater and Narver (1998)
argued, being market-oriented provides companies
the ability to identify and exploit discontinuities
in their served markets and unserved markets.
Market orientation should be supported with a
spirit of entrepreneurship, suitable organizational
climate, processes and incentives for improved
performance in terms of the cultural value so as
to have maximum effectiveness (Deshpande &
Webster, 1989).
Considering the critical role of the custom-
ers on market orientation, customer-orientation
has become one of the key pillars of the market
orientation concept as well as the innovation
strategies of the organizations. Deshpande, Farley,
and Webster (1993), Kahn (2001), and Han, Kim,
and Rajendra (1998) found a positive relationship
between customer orientation and innovativeness
1094

of the companies. The central issue regarding the
market orientation is the organization-wide focus
on the creation of superior value for customers
(Slater & Narver, 1994). As Zhao and Cavusgil
(2006) mentioned, market orientation is closely
related to the buyer-seller relationships since
customers play a very key role in market-oriented
companies. Market-oriented organizations commit
themselves to understanding both the expressed
and the latent needs of the customers as well as
the capabilities and the strategies of their competi-
tors in a systematic and anticipatory way (Slater
& Narver, 1998).
Based on the information obtained from cus-
tomers, customer-oriented organizations develop
new ideas, products/services aimed at satisfying
customers’ needs independent of actions of com-
petitors (Montoya-Weiss & Calantone, 1994).
Customers are intensively involved in the process
of generating new ideas and products/services.
Customer involvement is defined as directly
involving customers in the innovation processes;
for example, by active market research to check
their needs, or by developing products based
on customers’ specifications or modifications
of similar products (de Vrande, de Jong, Van-
haverbeke, & Rochemont, 2009). From the view
point of service innovation, Matthing, Sanden
and Edvardsson (2004, p.487) defined customer
involvement as “those processes, deeds and inter-
actions where a service provider collaborates with
current (or potential) customers at the program
and/or project level of service development, to
anticipate customers’ latent needs and develop
new services accordingly.” Customer involvement
creates important benefits including reduced cycle
times, superior services and user education (Alam,
2002). Customer involvement has attracted great
attention in the extant literature through the use
of different concepts including: lead users (Von
Hippel, 1986), co-development (Neale & Corkin-
dale, 1998), user involvement (Alam, 2002), and
customer interaction (Gruner & Homburg, 2000).

Discovering the Nexus between Market Orientation and Open Innovation
Despite the increasing use and acceptance
of customer involvement in the literature, only a
limited number focused mainly on its role regard-
ing new service development rather than product
development processes (Alam, 2002; Martin &
Horne, 1995; Martin, Horne & Schultz, 1999;
Thomke, 2003). The role of users in innovation
has been a research subject since Adam Smith
(Bogers, Afuah & Bastin, 2010; Piller & Walcher,
2006; Dahlander, Frederiksen, & Rullani, 2008).
Working with lead-users is another important
feature of market-oriented companies (Tabrizi &
Walleigh, 1997) in that customers as well as po-
tential customers having advanced needs relative
to other market members and expecting to benefit
from a solution to those needs (von Hippel, 1986)
are considered as the key members to achieve high
market performance and innovative actions. Lead
users are also effective in developing breakthrough
products that tend to have higher performance and
marketplace potential than do other innovations.
The importance of involving lead users or
customers in the innovation process has long been
acknowledged as they provide complementary
skills or knowledge to modify and personalize
the product (Dahlander, Frederiksen, & Rullani,
2008) and mitigate the risks associated with the
development and adoption of the innovation by the
market (Mention, 2011). Moreover, open innova-
tion theorists recognize that customer involvement
is one important alternative to inform internal
innovation processes (van de Vrande, de Jong,
Vanhaverbeke & Rochemont, 2009). Mention
(2011) explained that the service sector customer
is different from the manufacturing customer in
that the latter is involved not only in the transaction
but also in the conception process. Thinking of
innovations in terms of services instead of prod-
ucts also influences the way companies should
think of their customers. Taking this perspective
requires companies to go from innovations based
on passive customer information towards start
thinking about offering dynamic experiences to
their customers (Stahlbrost & Bergvall-Kareborn,
2011). In light of service innovation and new
service development, customer orientation plays
a very important role in service firms compared
to tangible product firms.
Barabba (1995) stressed the need for creating
a new service development model which incor-
porates the mechanism of customer-producer
interactions during new service development
in order to develop successful new services.
Customer-producer interactions during the new
service development process are closely related
to the customer orientation concept (Kohli & Ja-
worski, 1990; Narver & Slater, 1990). Customer
orientation was considered a must for organiza-
tions since customer-oriented organizations are
more likely to deliver better service quality and
enhance customer satisfaction (Hartline, Maxham,
& Mckee, 2000) than are other organizations.
As Narver and Slater (1990) mentioned, service
companies should be in a position to innovate
in a manner that provides superior value for its
target customers by developing new services or
reformulating existing ones and by creating new
production methods or distribution channels.
Apart from customer orientation, competi-
tor orientation is another necessary concept in
the relationship between market orientation
and innovativeness. Since the basic notion of
competitor-orientation is to be different than a
firm’s competitors (Liu, 1995), innovation can
be deemed the main differentiating factor for
organizations. Monitoring a competitor’s strategy
either to follow or create differentiation can be
mentioned as another source of innovation (Han,
Kim, & Rajendra, 1998). Zahra, Nash and Brick-
ford (1995) argued that scanning competitors helps
organizations to identify emerging substitutes,
the speed with which substitute technologies
will disseminate and the timing of technological
developments. Organizations develop their own
capabilities by monitoring the competitors’ ca-
pabilities as well as by making the comparisons.
Frambach, Prabhu and Verhallen (2003) discussed
the “me-too” and “second-but-better” strategies of
1095

Discovering the Nexus between Market Orientation and Open Innovation
the organizations with regards to their activities
about the competitor-orientation. They dictated
that while the organizations adapting “me-too”
strategies continuously benchmark their product/
service vis-a-vis competitors, companies follow-
ing “second-but-better” strategy firstly evaluate
their competitors’ products/services and then
respond by developing improved products/services
in accordance with their target customer’s needs.
As another concept of market orientation,
interfunctional coordination refers to achieving
linkage between different functional units serving
as a bridge to avoid any conflicts. Interfunctional
coordination enables the individual departments
within an organization to work co-ordinately to
inform all departments about customer needs by
increasing mutual trust and dependency among
people who work on different departments (Kohli
& Jaworski, 1990; Olson, Slater, & Hult, 2005).
According to Song and Parry (1997), interfunc-
tional coordination can be achieved at the level
of interaction and communication – the level of
information sharing and coordination according to
the degree of joint involvement in the coordination
of joint tasks that are involved in the development
and launch of new services. By having a critical
role in terms of linking all departments to work
jointly, interfunctional coordination affects the
innovative capability of the organization by en-
abling all functions to behave together as well as
building up a suitable condition for innovation
(Akman & Yilmaz, 2008). Gatignon and Xuereb
(1997) found that this specific sub-component
of market orientation reinforced the impact of
strategic orientations on innovation performance.
Although interfunctional coordination is
highly needed among all relevant departments
of an organization to develop strong linkages
and relationships and to achieve seamless flow
of information as well as to increase innova-
tive capability, a further step can be required to
incorporate upstream or downstream partners
within the supply chain of an organization. As
Siguaw, Simpson and Baker (1998) concluded
1096

in their study, the adoption of market-oriented
behaviours can facilitate the management of
inter-firm relationships supporting that the more
market-oriented the organization, the more it is
adapted to inter-firm relationships as well as to
increased communication and information flows.
By extending the traditional market orientation
approach, Rajala, Westerlund and Möller, (2012)
added the partner orientation as an important
aspect of market orientation by identifying the
role of members in the network in their market
orientation. Selnes and Sallis (2003) stressed
the link between market orientation and the re-
lationships with the partners by mentioning that
the most successful collaborative relationship is
developed when both parties are market-oriented.
Lai, Pai, Yang, and Lin (2008) mentioned that
both upstream and downstream members of the
supply chain need a market-orientation culture
to create the best collaborative relationship with
their partners. In addition, many studies support
the importance of strong cooperative relation-
ships and coordination with different members
of the supply chain as the strategic factors which
motivate new service developments and innova-
tions (Ahuja, 2000; Elg & Paavola, 2008) as they
influence the organization’s commitment to and
involvement in innovative processes.
Many studies investigated the co-ordinational
relationship with partners of the organization and
commitment, trust, learning, and relationship
performance were shown as the basic variables
to be considered (Hakansson & Snehota, 1995;
Medlin, Aurifeille & Quester, 2005; Selnes &
Sallis, 2003). By focusing on the importance of
information and learning in market orientation
and innovativeness, concepts of organizational
learning and relationship learning were considered
as the critical components in market orientation
strategies of innovative organizations.
Organizational learning is considered a ne-
cessity for organizations to be market- oriented
and this could also be discussed in terms of the
innovativeness of the organizations. Through or-

Discovering the Nexus between Market Orientation and Open Innovation
ganizational learning, companies create products
or services ahead of competitors as well as create
them before the recognition of an explicit customer
need (Hamel & Prahalad, 1991). Hurley and Hult
(1998) dictated that market and learning orienta-
tion are the main concepts for the achievement
of innovation, and they also argued that learning
facilitates behavioural change leading to improved
performance. Market-orientation can be consid-
ered as a bundle of norms for behaviour that enable
organizations to learn quickly from and about dif-
ferent types of needs as well as responding in an
entrepreneurial way to deliver superior customer
value (Slater & Narver, 1998). An organization
adopting a learning-orientation also incorporates
a cultural dimension including a shared vision of
learning among the employees, open-mindedness,
and commitment to learning (Baker & Sinkula,
1999). Although maximizing the organization’s
ability to cooperate with the partners to understand
markets and generate ideas for possible innova-
tions is an important dimension, organizations
still need to develop and manage their partner’s
interactive relationship to establish a market-
orientation practice (Lai, Pai, Yang, & Lin, 2008).
This shows that the organization itself as well as
to its partners that the organization it is working
with should be market- and learning-oriented
organizations with the aim of disseminating the
learning culture and innovation capability to the
entire chain established between the organization
and the partner companies.
The market- and learning-oriented organiza-
tion is mentioned as the main component of a
service-centred model which implies that value
is defined by and co-created with the customer
(Vargo & Lusch, 2002). An active customer
defined by the service-centred model interacts
with personnel, the service script and/or support-
ing tangibles (Matthing, Sanden, & Edvardsson,
2004). This shows the need for developing close
relationships to increase customer value which
is basically fostered by market-orientation. As
Kok, Hillebrand, and Biemans (2003) asserted,
market-orientation is considered an organizational
learning capability including cognitive associa-
tions such as shared beliefs, values and norms and
behavioural outcomes reflecting these cognitions.
As evidenced by the relevant literature on
market-orientation and innovation mostly in ser-
vice firms, main innovation or service/product
development issues are discussed considering
the closed innovation systems. Although the ex-
tant literature on market-orientation investigated
companies implementing closed innovations as-
sumed that commercial actors are the originators
and owners of innovations (Rajala, Westerlund, &
Möller, 2012), there is also a need to understand
the open innovation concept from the viewpoint
of market-orientation. Since the main goal of
open innovation is to achieve collectively-created
innovations (Dahlander & Magnusson, 2005),
market-orientation components as the evaluation
of the customers’ needs and wants (customer-
orientation) as well as the strategies and the
capabilities of the competitors (competitor-
orientation) combined with the consideration of
organization-wide efforts including the internal
customers to the creation of superior customer
value (interfunctional-coordination) may create
opportunities for open innovation. As argued by
Rajala, Westerlund and Möller (2012), the open
innovation concept has not received sufficient
attention in prior literature on market-orientation.
In accordance with a critical need observed in
the relevant literature, the interaction between
the market orientation and the open innovation
is discussed in the following section within the
case of a specific company.
TOWARDS A METHODOLOGICAL
FRAMEWORK: GROUNDED THEORY
This study stems from a qualitative approach
based on an exploratory and inductive research
(“grounded theory”) approach. The qualitative
research stance is gaining importance as qualitative
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Discovering the Nexus between Market Orientation and Open Innovation
research methods contribute value to research by
bringing “understanding of the actual human in-
teractions, meanings and processes that constitute
real-life organizational settings” (Gephart, 2004,
p.455). Hence, in understanding the nature of a
research problem in its original setting as well as
in researching areas with limited knowledge and
background as ‘open innovation’ in this case,
qualitative studies such as grounded theory may
provide considerable insight in the exploration of
the research field. Grounded theory, in contrast to
theory obtained by logico-deductive methods is
theory grounded in data (Goulding, 1999a, p.6).
The grounded theory procedure entails the sys-
tematic and continuous transformation of data in
the research planning process (Glaser & Strauss,
1967; Strauss, 1987; Strauss & Corbin, 1990)
and facilitates theoretical abstraction from the
data of the study through constant comparative
analysis (Mello & Flint, 2009). In light of this,
the research approach of this study is based on
the methodological tenets provided by grounded
theory in combination with a case study.
In their seminal work Discovery of Grounded
Theory first published in 1967, Glaser and Strauss
(1967, p.1) define grounded theory as “the discov-
ery of theory from data systematically obtained
from social research.” However, over time, Glaser
and Strauss followed differing methodological
paths which led to two separate schools of thought
(Denk, Kaufmann, & Carter, 2012). Highlighting
the use of analytical techniques in the formulation
of theory, Strauss and Corbin (1990, p.24), forward
the following definition: “grounded theory is a
qualitative research method that uses a system-
atic set of procedures to develop and inductively
derive grounded theory about a phenomenon.”
However, Glaser (1992) argues that rather than
more emphasis on methods and forcing structure
onto data, the researcher should take a passive
stance free from preconceptions, trusting that
theory will emerge (Rodon & Pastor, 2007). This
bifurcation appears within six dimensions (Jones
& Noble, 2007; Denk, Kaufmann, & Carter,
1098

2012): emergence and research distance, theory
development, specific, non-optional procedures,
the core category, coding procedures, and evalu-
ation criteria.
However, Glaser stresses the interpretive,
contextual and emergent nature of theory de-
velopment, while the late Strauss appeared to
have become somewhat dogmatic regarding
highly complex and systematic coding techniques
(Goulding, 1999a). Coding is more rigorous in
the Straussian approach and is defined by tech-
nique including open, axial, and selective coding
(Jones & Alony, 2011). Despite the differences
between the Glaserian and Straussian approaches
to grounded theory, constant comparison prin-
ciple, identification of codes and categories and
systematic coding based on the organization of
data into categories are foundational procedures
in both approaches (Denk, Kaufmann, & Carter,
2012). The research described in this chapter
adopts the former methodology – that of Glaser’s.
This method has been selected in lieu of the
Straussian approach particularly as a result of the
Glaserian method maintaining a focus on its more
pure origins, dealing with categories that emerge
from the observed situations rather than forcing
data followed in the Straussian school (Goulding,
1999b), and due to its more emergent nature over
the more rigid rules of the Straussian style.
Grounded theory has been widely applied to
business fields such as hospital administration,
management, organizational behavior, leadership,
consumer behaviour, and marketing, and it has
helped many disciplines to develop new avenues of
research (Mello & Flint, 2009). Grounded theory
has also become increasingly accepted by logistics
and supply chain management researchers as a
valid research methodology (Denk, Kaufmann
& Carter, 2012; Davis-Sramek & Fugate, 2007).
Within this study, it is proposed to conduct an in-
depth case study of a global and leading shipping
company in Turkey and in the rest of the world us-
ing the principles of grounded theory. The strength
of theory building from cases is its likelihood of

Discovering the Nexus between Market Orientation and Open Innovation
generating novel theory viz a ‘grounded theory’.
According to Eisenhardt (1989), the combination
of case study with grounded theory has three
major strengths: (1) it is likely to produce “novel
theory”; (2) the emergent theory is likely to be
testable; and (3) the resultant theory is likely to
be empirically valid. In this study, the use of the
grounded theory in cases is consistent with the
following:
• Grounded theory based studies employing
case study approach are gaining recogni-
tion in innovation research papers (Carrero,
Peiro & Salanova, 2000),
• It is an appropriate way to research a previ-
ously little studied area like open innova-
tion applications in shipping companies,
• Since earlier studies revealing the relation-
ship between open innovation and market
orientation were not interpretative enough,
it is believed that grounded theory ap-
proach with its inductive structure would
represent more comprehensive and con-
vincing research outcomes,
• Case study allows the authors to investigate
the application of open innovation within
its natural setting and multiple sources of
evidence,
• As the grounded theory provides a set
of established guidelines for conducting
data collection and analysis (Goulding,
2002), this allows authors to more easily
interpret the complexity of the processes
systematically.
Grounded Theory in Action
The methodological principles of grounded theory
include primarily the sampling aimed toward
theory construction, simultaneous data collec-
tion, and analysis where data analysis incorporate
open coding, memoing and axial and selective
coding processes by using constant comparisons,
diagramming the findings and, finally, theoretical
matching and generation (Charmaz, 2006). The
theory evolves during the research process itself
and it is continuously the outcome of an interac-
tion between the data collection and the analysis
(Goulding, 1998). The aforementioned processes
in building grounded theory are followed in this
study within the context of a case of a shipping
company.
Case Study: Maersk Line
Maersk Line is the core liner shipping business of
the A.P. Moller – Maersk Group, and the leading
container shipping company in the world. The
Maersk Line fleet comprises more than 600 ves-
sels and a number of containers corresponding to
more than 4,100,000 TEU, 325 offices, around
25,000 employees (including 7,600 seafarers) in
125 countries. The Maersk Line is dedicated to
delivering the highest level of customer-focused
and reliable ocean transportation services (Maersk,
2013a). In recent years, the major innovations of
Maersk Line can be discussed in terms of service
and product innovations. In 2011, product and
technological innovations, in line with the group’s
drive to increase competitiveness and environmen-
tal leadership, the Maersk Line signed a contract
for 10 new, innovative container vessels to be
called “Triple-E” (economy of scale, efficiency,
environment) (Maersk, 2013b).
With regards to service innovation, Daily
Maersk, the Maersk Line’s new service on the
Asia-North Europe trade lane where the first
cut-off was on 24 October 2011, changed the way
shipping is conducted. It offers a daily cut-off at the
same time every day, seven days a week, and always
with the exact same transportation time. As shown
in Figure 1, the engine behind the Daily Maersk
is 70 vessels operating a daily service between
four ports in Asia (Ningbo, Shanghai, Yantian,
and Tanjung Pelepas) and three ports in Europe
(Felixstowe, Rotterdam, and Bremerhaven) in the
world’s busiest trade lane. Regardless of which
of the four Asian ports the cargo is loaded, the
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Discovering the Nexus between Market Orientation and Open Innovation
Figure 1. Daily Maersk Service Network. Source: Daily Maersk, 2013.
transportation time – from cut-off to cargo avail-
ability – is fixed. Daily cut-offs mean cargo can
be shipped immediately after production without
the need for storage (Daily Maersk, 2013).
Maersk Line promises that cargo at the receiv-
ing end will be available for pick-up on the agreed
date. The promise is backed up with monetary
compensation in case of any unexpected delay.
Table 1. Benefits of Daily-Maersk Service
Without Daily Maersk
Cut-off once every week
Transit time, counting from vessels’ departure to arrival at
destination
Approximately every second container arriving on time
No compensation if shipment arrives late
Source: Daily Maersk, 2013
1100

This promise is a first in the shipping industry.
Also in 2012, Maersk Line was announced as
proud winner of the Innovation – New Product
award, for Daily Maersk. Table 1 shows the dra-
matical changes experienced after the launch of
Daily Maersk.
The rationale behind choosing ‘Maersk Line’
is as follows:
With Daily Maersk
Cut-off every day
Transportation time, counting from cut-off to cargo availability
Every container arriving on time
If cargo availability is delayed by 1-3 days, Maersk Line will pay
100 USD per container. If delayed by four days or more, Maersk
Line will pay back 300 USD per container.

Discovering the Nexus between Market Orientation and Open Innovation
• A global shipping company involved in
various sub-sectors in the logistics and
transport industry and a pioneer ranking
first among the global shipping lines,
• As a customer oriented shipping company
involving customers at the center of the
open innovation process,
• The vision of Maersk is constant care and
innovation which guided business opera-
tions since the first Maersk Line vessel
sailed in 1904,
• Winning an award for innovation and hon-
ourable mention for environment in the
Global Freight Awards which took place
in London in 2012, demonstrating Maersk
Line’s innovation capability,
• Internalizing innovation concept by the use
of acrostics as Mobilize, Analyze, Envision,
Realize, Stabilize, Kaizen (MAERSK).
Grounded Theory Process
and Application
The major steps taken in applying the grounded
theory approach include (Egan, 2002; Rodon, &
Pastor, 2007):
1. The identification of an area of interest and
research problem and initiating research;
2. Data selection and theoretical sampling;
3. Initiating and ongoing data collection;
4. Data analysis; and
5. Concluding the research.
In addition, the tools of grounded theory are
mainly theoretical sampling, coding which in-
cludes open, axial and selective coding, theoretical
saturation, and constant comparison (Bryman,
2008).
Area of Interest, the Research
Problem and Initiating Research
Considering grounded theory’s emphasis on new
research fields, and in line with the rationale of
adopting a grounded theory approach which is
basically used to generate theory in areas where
little is already known or to provide a new point
of view on existing knowledge about a particu-
lar social phenomenon (Goulding, 1999a), the
authors focused on ‘open innovation’ as a more
externally-focused perspective of innovation
which is in the centre of a growing academic
interest. Since grounded theory stems from the
need to develop creative perspectives and gener-
ate powerful insights into human interaction and
business practices as well as explaining new and
even well-researched complex social phenomena
(Mello & Flint, 2009), open innovation is an emerg-
ing topic in innovation research considered as a
proper area for the application of the grounded
theory approach.
Considering the notion that “a single organisa-
tion cannot innovate in isolation without engaging
with different types of stakeholders to acquire
ideas and resources from the external environ-
ment” (Dahlander & Gann, 2010, p.699), the
application of ‘open innovation’, especially for
shipping companies, seems to bridge the gap in
the literature. In these first stages of the research
process, as indicated by Egan (2002), research-
ers were open to the possibility of the ongoing
variations about the sites or participants involved
in the study.
Data Selection and
Theoretical Sampling
Case studies can involve either single or multiple
cases and numerous levels of analysis (Yin, 1984).
Open innovation research requires close study of
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Discovering the Nexus between Market Orientation and Open Innovation
the innovation activities of the organization from
multiple levels of analysis – including individual,
group, organization, etc. (Chesbrough, 2006).
Therefore, in this study a shipping company and a
leader in the container shipping industry, namely
Maersk, is investigated internally with regards to
organization-wide, departmental-, and individual
levels. Since the methodology used in the study
is the grounded theory approach, in accordance
with the principles of this approach “theoretical
sampling” which is the sampling method aimed
toward theory construction, not for population rep-
resentativeness (Charmaz, 2006) has been used. In
grounded theory research, the sample is redefined
by the emerging theory and so it is not possible in
the early stages of the research to predict the actual
size of the sample (Rodon & Pastor, 2007). The
data are gathered through “theoretical sampling,”
defined by Glaser and Strauss (2006, p.45) as “the
process of data collection for generating theory
whereby the analyst jointly collects, codes, and
analyzes his data and decides what data to collect
next and where to find them in order to develop
his theory as it emerges.”
Theoretical sampling procedure directed the
authors to search for further individuals, mainly
three of the managers in the shipping company
and the theory emerged in line with the interpreta-
tions of the participants’ comments and coding of
the interview transcripts in combination with the
company documents. The participants in the theo-
retical sample were principally determined as the
categories evolved. Interview questions developed,
directing the authors to include informants who
have the experience and capability to answer and
comment on the related questions. Other reasons
for choosing the informants include:
• Possessing a managerial background and
position in the company
• Having marketing and communication ex-
pertise in the shipping industry
• Including participant involvement in the
innovation processes of the company.
1102

Initiating and Ongoing Data Collection
With respect to data sources, grounded theory often
applies triangulation, namely combining different
types of data collected by interviews, participative
observation and analysis of documents (Cassell
& Symon, 2004). This study also employs a simi-
lar approach by using the triangulated analysis
of various research methodologies. While the
application of the open innovation concept is
compared through different departments in the
scope of the organization within the study, the
codes and concepts are captured within individual
interview transcripts and across transcripts as well
as within various field memos, documents and
relevant literature. Principally, four interviews
were conducted with three of the managers both
face-to-face and by electronic mailing. Face-to-
face interviews were recorded to correctly code
and categorize the responses and comments of
the informants. All of the authors participated in
interview process and visited the office located
in Izmir, Turkey for observation. During the
interview process, researchers avoided being too
structured or totally unstructured in their methods
of collecting information (Goulding, 1999b). To
achieve this, the authors tried to find a balance
which allowed the informant to feel comfortable
enough to express his or her comments without
directly intervening in the statements.
It is important to note the authors were familiar
with the operations and the employees of the ship-
ping company before the research was conducted.
During the first face-to-face interview with the
manager of the customer service department in
the Izmir office, it was realized that at least one
manager dealing directly with the innovation
applications in the shipping company should
be included in the theoretical sample. Since the
research question aims to discover the relation of
open innovation and market innovation, a senior
manager responsible for the communication and
customer services was included in the sample
as well in the following stage. After the first in-

Discovering the Nexus between Market Orientation and Open Innovation
terview, the initial open and in vivo codes were
extracted by the use of transcripts, tape record in
combination with company documents and web
sites. Then focused coding was applied and more
filtered codes were revealed.
Based on these codes, new interview questions
were prepared and directed to the process excel-
lence and communication managers of Istanbul
office by e-mail and to the first informant one
more time face-to-face. In this stage, necessary
information to answer some of the questions was
gathered from the headquarters in Denmark. After
this second stage of the data collection process,
all three interview transcripts available were
scrutinized again together with the information
gathered from company documents and observa-
tion. Descriptive and later on theoretical codes
were generated. It was believed that a saturation
point has been reached and no more extra infor-
mation and interviews were needed to generate a
substantive theory. Hence, three month ongoing
data collection period has been finalized.
Analysis Procedure and Results
An inductive analysis of the data was conducted
following the basic principles of grounded theory
methodology. The purpose is to generate a descrip-
tive theory of the open innovation practices in a
shipping company and to formulate preliminary
propositions on the relationship between ‘open
innovation’ and ‘market orientation’.
The process of data analysis involved coding
strategies: the process of breaking down the data
gathered from interviews, field notes, company
documents, and observation into distinct units
of meaning which were than labelled to gener-
ate concepts and categories. There was a ‘line
by line’ discussion of the interview transcripts
and the field notes following the guidelines of
Glaser and Strauss (2006). Initial line-by-line
coding process encompassing the open and in vivo
coding was followed by a more focused coding
defined by Charmaz (2006, p.57) as “using the
most significant and/or frequent earlier codes to
sift through larger amounts of data.” In this study,
in line with the suggestions of Carrero, Peiro and
Salanova (2000) and Charmaz (2006), the cod-
ing process encompasses the initial line-by-line
coding, focused coding, descriptive or categorical
coding and, finally, theoretical coding.
Qualitative coding is the first analytical step in
the analysis procedure and means “categorising
segments of data with a short name simultaneously
summarizes and accounts for each piece of data”
(Charmaz, 2006, p.43). Coding process is associ-
ated with early concept development consisting
of “identifying a chunk or unit of data (a passage
of text of any length) as belonging to, represent-
ing, or being an example of some more general
phenomenon” (Spiggle, 1994, p.493). Initially, the
authors used codes based on the terms used by
participants which are called in ‘vivo codes’ and
‘open codes’ that are directly derived from the data
by the authors (Goulding, 1999a). It was difficult
to follow a methodological path because of the
ambiguity of the certain points such as “concepts”
and “categories” where different researchers use
this two terms interchangeably (e.g., Strauss &
Corbin, 1998; Charmaz, 2000). A concept is
defined an “abstract representation of an event,
object, or action/interaction that a researcher iden-
tifies as being significant in the data” (Strauss &
Corbin, 1998, p.103). However, the authors prefer
to use ‘categories’ (descriptive and theoretical)
rather than ‘concepts’. After conducting about four
interviews, the authors had already obtained 75
focused codes which were grouped and organized
into initially descriptive and, finally, theoretical
categories as shown in Table 2.
By the use of selective coding described by
Jones and Alony, 2001 as filtering and coding
data which are deemed to be more relevant to the
emerging concepts, more descriptive and abstract
categories have been emerged including ‘organiza-
tional structure’, ‘organizational culture’, ‘organi-
zational resources and infrastructure’, ‘technology
management’, ‘customer involvement’, ‘employee
1103
 
Discovering the Nexus between Market Orientation and Open Innovation

Table 2. Categorization process

Codes (Focused) Descriptive categories Theoretical categories

Lean office Structural and process-related
Process excellence departments Organizational structure characteristics
Internal communication
Project based structure
Organic structure
Simplification
Process based work teams
Empowerment
Interdepartmental coordination
Innovation climate Cultural characteristics
Performance culture Organizational culture
Quality culture
Learning organization
Continuous improvement
Intrinsic reward system
Non-monetary forms of recognition
Expression of appreciation by managers
Size and capacity Organizational resources and
Service network configuration Organizational resources and capabilities
Resource utilization infrastructure
Technical infrastructure
New technology usage Technology management
Research and development
IT simplification
Standardization
Lead user involvement Customer orientation
Customer satisfaction Customer involvement
Collaboration
Customer relationship management
Customer segmentation
Adaptability to customer’s needs
Customer commitment
Market research
Online customer platforms
Coupled idea exchange
Employee commitment Employee orientation
Employee motivation Employee involvement
Project-based training
Esprit de corps
Idea generation
Expected competitor Stakeholder orientation and
reaction Competitor orientation relations
Solution-based competitor orientation
Benchmarking
Bargaining power Supplier orientation
Conflict with suppliers
Supplier agreements
Supplier collaboration
Value creation and delivery Stakeholder relations
Stakeholder analysis
Stakeholder involvement
Multi-directional communication
Multi-channel communication

continued on following page

1104

Discovering the Nexus between Market Orientation and Open Innovation
Table 2. Continued
Codes (Focused)
Lean management
Top management support
Innovation-related objective setting
Market leadership
Market adaptation
Openness to change
Market intelligence/sensing
Innovation vision
Differentiation and focus strategies
Key performance indicators
Innovation diffusion
Innovation effectiveness
Innovation measurement
Innovation goal attainment
Market share
Competitive advantage
Market turbulence
Technological turbulence
Competitive intensity
Degree of innovation: Radical/Incremental/
Transformative
Forms of innovation: Product/Service/Process
Types of Innovation: Process/Organization/Marketing
involvement’, ‘competitor orientation’, ‘supplier
orientation’, ‘stakeholder relations’, ‘managerial
context’, ‘strategic issues’, ‘innovation outcome’,
‘innovativeness’ and ‘market/environmental
forces’. These 14 descriptive categories result-
ing from concrete conceptualization are pooled
into higher-order categories named as theoretical
codes. Categorical or descriptive codes are “re-
evaluated for their interrelationships and through
a series of analytical steps are gradually subsumed
into higher order categories, or one underlying
core category which indicates an emerging theory”
(Goulding, 1999a, p.17).
Theoretical coding occurs when core categories
have become saturated (Jones & Alony, 2011).
Principally, theoretical saturation is a process that
relates two phases in grounded theory: the cod-
ing of data implying one reaches a point where
there is no further point in reviewing data and the
collection of data until reaching a point where
new data is no longer illuminating the concept
(Bryman, 2008).
Descriptive categories Theoretical categories
Strategic and managerial
Managerial context characteristics
Strategic issues
Organizational Performance
Innovation outcome
Environmental moderators
Market/environmental forces
Innovation orientation
Innovativeness
Another important principle of grounded
theory approach in the coding process is constant
comparison which is the central activity from the
beginning of data collection and analysis. The
description of the relationships between core
categories and other categories generated leads
to the elaboration of the grounded theory (Egan,
2002). After applying the constant comparative
method and reaching a saturation point in the
emerging categories, in the final stage of the cod-
ing process by combining some of the descriptive
categories, a total of 10 theoretical codes have
been revealed as ‘structural and process-related
characteristics’, ‘cultural characteristics’, ‘orga-
nizational resources and capabilities’, ‘customer
orientation’, ‘employee orientation’, ‘stakeholder
orientation and relations’, ‘strategic and manage-
rial characteristics’, ‘organizational performance’,
‘environmental moderators’ and ‘innovation
orientation’.
Following the analysis, there is a thorough
evaluation of the existing literature on open
1105

Discovering the Nexus between Market Orientation and Open Innovation
innovation and market orientation, which is re-
garded as an additional tool for the development
and contrast of the theoretical categories derived
from the study. A theoretical model was presented
and propositions as the theoretical propositions
were generated.
THEORIZATION
Conceptualizing the New Service
Development Process
In understanding the main stages in the new service
development process of Daily Maersk, a model
from den Hertog, van der Aa and de Jong (2010)
was adapted with slight modifications. The main
stages of the six dimensional model of service
innovation and the (dynamic) capabilities for
Figure 2. New service development process of Daily Maersk. Source: Adapted from den Hertog, van
der Aa and de Jong (2010)
1106

realising new service experiences and solutions
were evaluated according to the specific case of
Daily Maersk as shown in Figure 2.
The first stage in the development of new ser-
vice, namely Daily Maersk, is related to market
sensing which is the generation and dissemina-
tion of market intelligence and organization-wide
responsiveness to it (Kohli & Jaworski, 1990).
Market sensing is also related to the collection
and distribution of information about the needs,
expectations, and requirements of customers
through open-minded inquiry so that customer
involvement at this stage facilitates the process of
market sensing (Matthing, Sanden, & Edvards-
son, 2004). It was mentioned widely in the related
sources of Daily Maersk that this service has
been developed in close co-operation with more
than 60 customers from the concept creation to
training of staff.

Discovering the Nexus between Market Orientation and Open Innovation
Following market sensing, conceptualizing and
the designing of service networks takes place in
order to transform the basic thoughts and ideas of
the customers and the company’s own contribu-
tion into the new service model. The abilities of
Maersk Line to combine new and existing service
elements into an integrated service configuration-
called Daily Maersk are basically reflected at
this stage. As den Hertog, van der Aa and de
Jong, (2010) argued, this stage is critical since it
involves deciding on how the new service fits into
the company strategy, target market, intensity and
forms of customer interaction, the management of
the service delivery system, necessary partners for
the delivery of the system and pricing and revenue
model. Once the new service (Daily Maersk) was
conceptualized and designed, the resources and
the infrastructure needed to launch the new service
offering had to be arranged in order to fit the new
service into the existing system of Maersk Line
called organizing and reconfiguration of resources
and infrastructure.
This was basically achieved by allocating 70
ships to Daily Maersk service which equals 30%
of the existing fleet capacity of the Maersk Line.
Moreover, new work flows were designed in order
to arrange the customers and their adaptation to the
system as well as the human resources. Employees
passed through extensive training programmes
supported by the IT department to manage the
network effectively. In addition to the infrastruc-
tural elements of ships and IT systems, ports were
viewed as the basic components to market Daily
Maersk as a new and efficient service. Daily
Maersk manages the cargo for every vessel through
all four load ports (Ningbo, Shanghai, Yantian, and
Tanjung Pelepas) on the rotation simultaneously,
ensuring the vessels leave the port when their time
slot is over without risking that they are not fully
loaded when heading for Europe (Daily Maersk,
2013). The Maersk Line incorporated three main
ports (Shanghai, Rotterdam and Tanjung Pelepas)
from its own terminal management company,
APM Terminals. Originating as Maersk Line’s
terminal operating body, APM Terminals was
established as an independent division within the
A.P. Moller-Maersk Group and three of seven ports
were mainly selected from the service network of
APM terminals (Daily Maersk, 2013).
Co-producing and orchestrating is the next step
after the organization and reconfiguration of the
infrastructure and the resources. Customers can
be viewed as the basic members in this process
involved in co-producing and co-designing service
innovations. Based on customer feedback; on
time delivery, ease of business which increases
the transparency by removing the concept of
transit time and replacing it with transportation
time and environmental performance, producing
approximately 10% lower CO2 emissions per
container moved than the industry average were
considered as the three pillars of Daily Maersk
innovation. This stage was more associated with
the architectural characteristics of the service in-
novation which implies that Maersk Line needs to
co-design and co-produce Daily Maersk service
with other suppliers and partners which is an
inherent feature of the open innovation concept.
Den Hertog, van der Aa and de Jong (2010) also
dictated this kind of service innovation supported
by partners, alliances, customers and suppliers
is directly linked to the capability to organize
and act in open service innovation systems. The
Maersk Line is actively involved in the maintaining
close relationships with its customers through the
implementation of “Maersk Line Customer Pan-
els” where the customers can easily enter, leave
comments, or make some suggestions regarding
any service recovery issues or any problems.
Since these types of panels do not always include
unidirectional flows of comments and feedback
coming from the customers, the Maersk Line can
also interact with the customers through such pan-
els and ask various questions to their customers
regarding any new service offerings, service modi-
fications or possible performance-related issues.
This process is also valid for Daily Maersk that
customers are centered at the heart of the service
1107

Discovering the Nexus between Market Orientation and Open Innovation
innovation-Daily Maersk and considered as the
actual co-producers of the system. Apart from the
task of co-producing, another important activity
to integrate all related partners into the service
innovation system is to subsequently orchestrate
them in a way that the focal organization and the
parties involved in service innovation share the
same goals and interests in achieving the successful
introduction and the management of the system.
The dynamic service innovation capability
to ­­and stretch service innovations is considered
as a key issue (Winter & Szulanki, 2001). The
scaling process is related to the diffusion of the
new service development in that the new service
concept should be described and the essential
components of this concept should be transplanted
to the other parts of the organization (den Hertog,
van der Aa, & de Jong, 2010; Winter & Szulanki,
2001). In Daily Maersk, all the departments and
branches within the body of the Maersk Line
have been informed regarding the main service
offerings, benefits, the ports and the ships to be
allocated and arranged accordingly. In addition to
the scaling, stretching is another critical step that
Maersk Line used Daily Maersk service as a key
for entering new and mostly related markets by
launching innovative services of Daily Maersk,
namely by stretching the core service offering
since Daily Maersk has become an important
brand for the Maersk Line.
Once the main benefits obtained through the
use of Daily Maersk were observed from the
leading customers of the Maersk Line where
the supply chain costs play an enormous role in
their competitiveness, the Maersk Line decided
to stretch Daily Maersk services to other regions
including Thailand and Indonesia. The Maersk
Line began to extend Daily Maersk to six more
routes from Jakarta (Indonesia) or Laem Chabang
(Thailand) to Bremerhaven (Germany), Rot-
terdam (The Netherlands) or Felixstowe (UK)
as of 21 November 2012. An opposite point of
view can also be considered in terms of scaling
and stretching options that the Maersk Line took
1108

into consideration during the off season periods
where the shipment volumes decreased depend-
ing on the supply and demand dynamics. This
resulted in the one day reduction of daily services
originating from Ningbo (China) leading to six
days a week departures rather than seven days a
week departures.
Last, in the process of internalization and
adapting, the organization mainly thrives to
integrate the new service into the all depart-
ments and especially the employees in the sales
and marketing departments. Employee training
is important for the Maersk Line to transfer the
main contributions and the benefits of the service
to the customers through the dedicated personnel
in the organizations. The customers have been
involved in two full days for the discussion of
how the service should be presented to the other
customers. Although role-playing is widely used
in sales training within the Maersk Line, this
time the actual customers were involved in the
real role-playing by offering relevant feedback.
A Grounded Theory of Market
Orientation and Open Innovation
Theoretical coding yielded analytical criteria
for the development of conceptual relationships
between categories. The integration of theoreti-
cal categories emerging from the analysis of the
data provided the main variables of the model
illustrated in Figure 3.
Environmental Moderators
The environment in which the organization con-
ducts its businesses and follows its strategies is
also important in terms of understanding the main
opportunities and threats influencing the organiza-
tion’s innovativeness. Through the evaluation of
how environmental forces interacts with market
orientation to influence different types of innovation
(Lukas & Ferrell, 2000), organizations are expected
to be one step ahead in the intense competition. Li,

Discovering the Nexus between Market Orientation and Open Innovation
Figure 3. Theoretical model of market orientation and open innovation
Lin and Chu (2008) argued that market-oriented
companies struggle to predict future market infor-
mation and act accordingly, engaging in radical
innovations to meet customers’ latent exigencies
in dynamic environmental contexts where technol-
ogy, product/service preferences and competitor’s
actions are rapidly changing. Service industries are
expected to face considerable challenges triggered
by the intense competition, rapid technological
developments and more mature expectations of the
customers (Jaw, Lo, & Lin, 2010) and as Jaworski
and Kohli (1993) and Slater and Narver (1994)
mentioned, organizations act differently in differ-
ent environments.
This also corresponds with the literature that
organizations operating in more turbulent markets
are more likely to have an increasing need to be
market-oriented than those in stable markets (Ja-
worski & Kohli, 1993; Dobni & Luffman, 2000a).
In the case of Maersk and specifically Daily
Maersk, market turbulence defined as “changes
in the composition of consumers and their prefer-
ences’’ (Kohli & Jaworski, 1990, p.14) is quite
apparent with the rapid changes taking place in
the container shipping industry including the
changes in ship sizes, ports and handling equip-
ments. In light of these changes, customers play a
key role according to the changes taking place in
their supply chains. It was reported that Maersk
experienced a whole new generation of customers
expecting a different kind of service level from
all their suppliers. Customers’ attitudes towards
price have also changed as schedule reliability,
money-back guarantees, quick notification of
delays, intuitive self-service, and ease of busi-
ness have become more and more important by
the customers.
Moreover, adding value to the customers’
supply chains by achieving a considerable reduc-
tion in the overall supply chain costs (up to 50%
1109

Discovering the Nexus between Market Orientation and Open Innovation
inventory reduction and up to US$500 saved per
container) is aimed through the rethinking of the
business practices. “Absolute reliability” concept
provided by Daily Maersk service focused on
the value of daily cut-offs as well as the value of
reliability by considering the total transportation
time rather than the transit time.
Competitive intensity shows the degree of
competition facing an organization. The degree
of competition experienced in global container
shipping can be mainly focused on the container
shipping services provided between Asia and
Europe where considerable volumes of cargo are
transported by leading container shipping opera-
tors. Maersk Line services, within the context of
Daily Maersk, attempted to beat its competitors
by launching a radical service with daily cut-offs
and allocating another vessel arriving to cater for
the overbooking problem. Although until now the
“absolute reliability” concept has been deemed
impossible by both the shipping industry and
logistics experts, Maersk managed to become the
pioneer in the industry by realizing the absolute
truth of “reliability is the new rate war.”
As the last environmental moderator, techno-
logical turbulence determines the technological
dimension of the service together with the main
technological tools employed in the introduction
and the delivery of the service. Technological
turbulence is mainly evaluated according to the
changing pace of the technology in the industry,
intensity of technological changes in the industry
and the amount of technological breakthroughs
(Jaworski & Kohli, 1993). Daily Maersk service
was intensively enriched by the technological de-
velopments regarding the application of both hard-
ware and software systems in the technologically
turbulent environment. Maersk invested heavily
in new Triple-E ships referring to the three main
purposes of economy of scale, energy efficiency,
and improved environment.
In addition to the new ships, recent develop-
ments in the information technology especially
with regards to the communications with the
1110

customers as well as ships’ communications
with shore gained momentum. In the light of
these, it can be inferred that as the main scene
where the organizations perform their activities
and services, environment and its related mod-
erators extremely influence the capabilities of
market-oriented organizations in achieving open
innovation capabilities. When open innovation
is the case, environmental factors affecting the
all related parties involved in the organization’s
open innovation practices, mainly the stakehold-
ers, should also be considered leading to a more
complex environment for both the organization
and the stakeholders. Based on these outcomes,
the first proposition can be inferred regarding the
relationship between the environmental modera-
tors affecting the market-oriented organizations
and the open innovation capabilities.
Proposition 1: Environmental moderators (mar-
ket turbulence, technological turbulence,
competitive intensity) directly affect the in-
novative organizations’ market orientation
and open innovation capabilities.
Stakeholder Orientation
In understanding the main relationship between
market-orientation and open innovation, variables
derived from the grounded theory relied heavily
on the importance of the stakeholder orientation
applied in the market-oriented organizations.
These were mainly grouped under competitor
and supplier orientation. Competitor-orientation
which includes obtaining information on exist-
ing and potential competitors regarding their
short-term strengths and weaknesses and long
term capabilities (Slater & Narver, 1999) is one
of the core concepts of market-orientation. By
highlighting this concept, Zahra (1993) argued
that organizations should be involved in both
product/service innovations as well as in process
innovations via exploring new markets, finding
new ways to compete, and examining the manner

Discovering the Nexus between Market Orientation and Open Innovation
in which they can differentiate themselves from
competitors. Possessing competitor knowledge
helps the organizations to identify the best courses
of action for protecting and enhancing current
positions in the market (Day & Wensley, 1988),
and to adapt their innovation strategies according
to the information obtained regarding the actions
of the competitors.
Benchmarking can be a helpful tool to identify
the highest standards of excellence for services,
as well as to conduct the improvements necessary
to reach those standards, namely “Best Practices”
(Bhutta & Huq, 1999). Benchmarking is viewed
as a market-based learning tool within market-
oriented organizations in order to develop and
deploy resources and capabilities suitable for
their market environment (Slater & Narver, 1995).
Together with the information gained from the
benchmarking studies, market-oriented organi-
zations strive to beat the competition by making
in-depth analysis of competitors which may also
lead to improved open innovation practices.
However, it should be noted that competitor-
orientation should be strongly linked to innova-
tiveness in order to eliminate the risk of reduced
creativity due to the energy required for observing
the moves of competitors, distracting managers’
attention from customer need satisfaction, or fail-
ure to seize opportunities (Olson, Slater, & Hult,
2005). Based on its competitor-orientation prac-
tices, the Maersk Line stressed that competitors
are key to their ability to improve. Considering the
specific case of Daily Maersk, it was mentioned
that any other container shipping line will not be
able to build the same network set-up as organized
by the Maersk Line which directs competitors to
be forced to focus their attention on other trade
routes or differentiate their services on price
alone. This is basically related to the expected
competitor reaction within the innovative case
of Daily Maersk.
In addition to competitor-orientation, supplier-
orientation portrays the manner and the intensity
of collaboration with suppliers and mainly covers
the intelligence generation and dissemination of
activities necessary to understand how the know-
how and skills of suppliers which can be used to
create superior customer value (Langerak, 2001).
As supported by Martin and Grbac (2003), supplier
relations are important for organizations in lever-
aging their market-orientation through improved
customer responsiveness. Achieving supplier
orientation resulting from an extensive network of
suppliers – mainly the ports and the universities – is
closely relevant to the market-oriented behaviour
of the Maersk Line in fostering open innovation
capabilities. Since Shanghai, Tanjung Pelepas and
Rotterdam container terminals within the body of
APM terminals as Maersk Line’s terminal oper-
ating arm are included in the service network of
Daily Maersk, the supplier bargaining power of
the Maersk Line is expected to increase due to the
increased competitive strength and the capacity
utilization benefits. In addition, close supplier
collaboration with these terminals is achieved in
terms of the service delivery options as well as
the arrangement of the sailing schedules of the
vessels. Universities as the other critical supplier
of the Maersk Line, concerning the development
of Daily Maersk service basically provide train-
ing projects to the employees and consultancy
services as well. Building upon the contribution
of stakeholder orientation to the open innovation
capabilities of market-oriented organizations, the
second proposition can be suggested as:
Proposition 2: Stakeholder orientation (sup-
plier and competitor orientation) is a basic
requirement for market-oriented and in-
novative organizations to establish open
innovation capabilities.
Customer-Orientation
Customer-orientation is a central construct of
market orientation and recent literature relied heav-
ily on customer involvement in the development
process of services by stressing the importance
1111

Discovering the Nexus between Market Orientation and Open Innovation
of the observations of the customers in real action
(Deszca, Munro, & Noori, 1999; Martin & Horne,
1995; Prahalad & Ramaswamy, 2000). Customer
involvement in service innovation is defined as
“those processes, deeds and interactions where
a service provider collaborates with current (or
potential) customers at the program and/or proj-
ect level of service development, to anticipate
customers’ latent needs and develop new services
accordingly” (Matthing, Sanden, & Edvardsson,
2004, p.487). Slater (1995) highlighted the cultural
dimension of customer-orientation which empha-
sizes the creation of customer value as the over-
riding organisational goal, and providing norms
for organisational development and consensus.
Creation of superior customer value is dictated
as an important facet of customer orientation of in-
novative organizations by Slater and Narver (1998)
since customer-oriented businesses are continu-
ously involved in creating such value through the
discovery of both expressed and latent customer
needs. In terms of the value created for customers,
main determinants such as transportation time,
unmatched reliability, unrivalled frequency, high-
level of consistency, ease of business and reduced
CO2 footprint were listed in the process of Daily
Maersk innovation. As supported by the interviews
with the participants, the Maersk Line actively
became involved in market research activities,
lead user programmes, online customer platforms
and voice of the customer arrangements in terms
of understanding the needs of the customers as
well as adapting the services of the organization
according to such needs.
Since being customer-oriented is not only lim-
ited to simply listening to the customers (Han, Kim
& Rajendra, 1998; Kohli & Jaworski, 1990; Narver
& Slater, 1990), improved customer relationship
management practices, customer commitment
strategies, lead user workshops, online customer
forums and platforms directing the organizations
in understanding the future needs of the customers
are internalized in the open innovation practices
1112

of the Maersk Line. These all support the inevi-
table role of customer-orientation in the success
of open innovation practices of market-oriented
organizations as stated in Proposition 3.
Proposition 3: Customer orientation is the main
determinant of the nexus between market
orientation and open innovation capabilities
of innovative organizations.
Employee Orientation
Employees were viewed as one of the conse-
quences of the market-oriented organizations’
processes (Jaworski & Kohli, 1993), as well as
important contributors to the innovation process
of the organization. By pointing out such impor-
tance, Atuahene-Gima and Ko (2001) considered
the employees as the human resources which
foster support for innovative and risky behaviour
and maintain changing technologies. Employee
commitment, employee motivation, project-based
training, esprit-de-corps, and idea generation
were considered the main determinants for the
employee orientation of market-oriented orga-
nizations involved in open innovation practices
within the Maersk Line.
As also highlighted within the A.P.Moller-
Maersk Group, core values included regard for
employees, the demonstration of constant care,
uprightness and humbleness, and protection of
their good name. Additionally, constant care was
implied meaning a strong dedication to promote
the health and safety of employees and others
in the industry and in the world around them.
Considering the innovation concept, involvement
of employees in the development of a service in-
novation is needed especially in terms of having
a sense of pride in belonging to an organization
in which all individuals and departments work
toward the same organizational goals (Jaworski &
Kohli, 1993) and launch such innovative services
in the industry. Since the attitude towards change

Discovering the Nexus between Market Orientation and Open Innovation
is systematically related to the introduction of
innovations within an organization (Damanpour,
1991), employees motivated for the specific goal of
“becoming innovative” or “developing something
new” play an important role in the idea generation
stage of the open innovation process.
Employees involved both in Daily Maersk
processes as well as other departments within
the Maersk Line are required to pass through
some sequences of project-based training which
introduces the main philosophy of the organiza-
tion regarding the innovation processes to the
employees. This aims to enhance the contribution
of all employees to the innovation practices as well
as service improvement applications. Following
these justifications related to the relationship be-
tween the employee orientation of market oriented
organizations and open innovation capabilities,
Proposition 4 can be suggested.
Proposition 4: Employee-oriented innovative
organizations commit themselves compre-
hensively to maintain market orientation
and open innovations practices.
Organizational DNA
Structural and Process-
Related Characteristics
Regarding the effect of organizational factors
on organizational innovativeness, there is a
widespread belief that decentralized, informal
and organic organization structures such as that
found in the Maersk Line facilitate innovative-
ness by encouraging new ideas (Subramanian &
Nilakanta, 1996). In the seminal work of Jaworski
and Kohli (1993), organizational systems and its
related variables (formalization, centralization,
departmentalization and reward systems) were
introduced as the antecedents of market- orienta-
tion highlighting the importance of the structural
characteristics of the organizations in achieving
market-orientation. Structural characteristics of
the organization were also dictated many times by
the informants of the study and many codes includ-
ing lean office, process excellence departments,
internal communication, project-based structure,
organic structure, simplification, process based
work teams, empowerment and interdepartmental
coordination were extracted.
In their former study on the relation between
organizational structure and innovativeness, Pierce
and Delbecq (1977) proclaimed the greater num-
ber of sources of information, free and informal
information and communication flows contribute
to the innovativeness of the firm. Although inter-
functional coordination is commonly mentioned
as a critical component of market orientation in
the seminal works of Narver and Slater (1990) and
Jaworski and Kohli (1993), it was grouped under
the structural characteristics category rather than
under a separate code or category in this study. This
could be due to the fact that inter-organizational
communication and coordination between the
organization and its main partners within the
open innovation system such as the customers,
suppliers, other stakeholders and competitors is
more critical in order to interact in an open system
rather than focusing merely on the interfunctional
coordination within the organization itself.
Cultural Characteristics
Importance of cultural characteristics of a market-
oriented organization in achieving open innovation
is comprehensively discussed in existing literature.
Main codes obtained from the grounded theory
findings such as innovation climate, performance
culture, quality culture, learning organization,
and continuous improvement coincide with the
relevant literature. Innovativeness was mainly
associated with the firm’s culture in terms of
values and beliefs as a cultural precursor which
provides the social capital for achieving innovative
behaviour for the learning organization (Hurley
1113

Discovering the Nexus between Market Orientation and Open Innovation
& Hult, 1998; Hult, Snow, & Kandemir, 2003;
Hult, Hurley, & Knight, 2004). Organizational
culture capturing the spirit of innovativeness (Auh
& Menguc, 2005) is also an important feature of
market-orientation representing certain values and
beliefs engendering certain behaviours defining
how the organization operationalises its culture
(Deshpande & Webster, 1989). Innovation climate
was obviously apparent in Daily Maersk service
offering with the motto of “change is in our DNA”
(Maersk, 2013c).
As one of the most important determinants of
organizational culture, organizational learning is
also evident in Maersk as well as Daily Maersk
innovation. Organizational learning is required
not only in creating products/services ahead of
competitors, but also in creating them before the
recognition of an explicit customer need (Hamel
& Prahalad, 1991). Iphone of Apple were given
as an example by Maersk as the similar way they
followed in their innovation path of Daily Maersk
by stating that “In the space of a few years, Apple
twice gave customers what they had always wanted
before they themselves knew that they had always
wanted it, and in the process they completely stole
both the music player and mobile phone markets
overnight” (Maersk, 2013c).
A similar approach was also adapted in Daily
Maersk journey of Maersk and overall organization
including the organizational cultural determinants
was transformed according to the requirements of
Daily Maersk. Considering the awarding proce-
dures of employees in the organizational culture
of the Maersk Line in case of both the radical and
incremental innovation processes, intrinsic reward
systems, non-monetary forms of recognition and
regular expression of appreciation by managers
were mainly considered for the employees rather
than the monetary forms of recognition within the
Maersk Line. For instance, successful employees
involved in the innovative projects within the
organization are announced through the commu-
nication channels of the organization by acting as
a main motivator.
1114

Strategic and Managerial
Characteristics
Considering the strong link between market- and
strategic-orientation, Dobni and Luffman (2000b)
suggested that organizations with high market-ori-
entations will be involved in operational strategies
which are externally focused on customers through
customization and quality, compared to the orga-
nizations with low market-orientations emphasiz-
ing cost leadership and standardization. Earlier
research investigating the market-orientation and
type of organizational strategy employing Miles
and Snow (1978) and Porter (1980, 1985) typolo-
gies concluded that organizations with high market
orientation are more inclined to be strategically
proactive and integrated to their customers (Dobni
& Luffman, 2000a) than are other organizations.
Market-oriented companies possess the basis for
rapid adaptation to customers’ manifest and latent
needs (Baker & Sinkula, 2005).
With regards to the competitive strategies
and market-orientation relationship, Augusto
and Coelho (2009) proposed that because of the
nature of their resources and capabilities, highly
competitive firms such as Maersk are more likely
to take advantage of the market intelligence they
gather than are other firms, and this would spur
their innovation activity. Swink (2000) declared
that top management support and commitment are
key determinants and regarded as best practices in
innovativeness of a company. Creativity, project
development and different types of innovations
like product, service and process innovations are
supported by the top management and openness
to change philosophy disseminated throughout
the Maersk Line.
Chen and Taylor (2009) explored the effects
of lean management on an organization’s inno-
vation capability and its employees’ creativity.
They proposed that the continuous improvement
initiative in lean management is likely to have a
positive impact on incremental process innova-
tions. Innovation is considered as one of the top

Discovering the Nexus between Market Orientation and Open Innovation
priorities and fundamental mindset throughout the
Maersk Line. The company regards innovation as
a basis for the market leadership. Chesbrough and
Appleyard (2007) suggested that open innovation
forces companies to reconsider their market lead-
ership positions which reflect the performance
outcomes of their business strategies. The findings
of Knight and Cavusgil (2004) supported that
the most important business strategies employed
by born-global firms like the Maersk Line are
global technological competence, unique products
development and quality focus.
Considering the relationship between open in-
novation and business strategies, in the release of
Daily Maersk as a service innovation of the Maersk
Line the company pursued a service differentiation
strategy in combination with a focus strategy on
a specific shipping route. The empirical results
of the study conducted by Leiponen and Helfat
(2010) suggest that greater breadth of innovation
objectives and also knowledge sources is associ-
ated with greater innovation success at the firm
level. As another determinant in the innovation
processes of a company, the KPIs are driven by a
combination of the company’s innovation capabil-
ity and its strategy and vice versa KPIs tell it how
plentiful, daring or wide-ranging its innovation
efforts must be (Kandybin, 2009).
Organizational Resources
and Capabilities
The resource-based perspective proposes that
the firm’s resources are critical in their survival
(Denktas-Sakar & Karatas-Cetin, 2012) and im-
portant for developing strategies and maintaining
competitive advantage. Principally, knowledge
emerges as a critical resource for innovative or-
ganizations. The superior ability of certain firms
to sustain innovation and, as a result, create new
knowledge leads to the development of organi-
zational capabilities. As a source of innovation,
internal Research & Development (R&D) draws
on the firm’s accumulated knowledge and sup-
ports the reinvention of the firm’s operations to
serve its markets (Knight & Cavusgil, 2004), and
also enables market-orientation. Dickson (1992)
stated that firms with more resources, with a larger
market share, or that move more quickly, can have
a high impact on market dynamics leading to the
introduction of innovativeness in the market.
With regards to the Maersk Line, organiza-
tional resources encompass mainly the technical
infrastructure and technology usage, assets of the
company and knowledge and expertise of human
resources. Daily Maersk service focuses on the
simplification of the processes such as IT simplifi-
cation in placing customer orders, allowing process
standardization within the company. Summing
up the main contributions of the structural and
process-related, cultural, strategic and manage-
rial characteristics and resources and capabilities
incorporating the organizational DNA to the open
innovation capability of market-oriented organiza-
tions permits the development of Proposition 5:
Proposition 5: Organizational DNA incorporat-
ing structural and process-related, cultural,
strategic and managerial characteristics and
organizational resources and capabilities
directly affects the innovative organizations’
market orientation and open innovation
capabilities.
Organizational Performance
The relationship between market-orientation and
business performance – especially in terms of
profitability, increased market share, sales growth,
and new product/service success – is widely hy-
pothesized in many studies in marketing literature
(Avlonitis & Gounaris, 1997, Deshpande & Farley,
1998; Kohli & Jaworski, 1993; Slater & Narver,
1994; Atuahene-Gima, 1996). Although such
performance-related factors generate a consider-
able portion of the organizational performance
concept, innovation-related performance measure-
ment should also be discussed by incorporating
1115

Discovering the Nexus between Market Orientation and Open Innovation
certain variables extracted from grounded theory
such as the degree of innovation diffusion, inno-
vation effectiveness, innovation goal attainment
and innovation measurement. An organization’s
innovation effectiveness is defined as the idea
that the incremental investments of innovating
organizations on research and development and
commercialisation activities are related to di-
minishing returns in terms of the corresponding
degree of innovation/differentiation achieved by
their new products/services in the marketplace
(Sarkar, 2005).
The role of innovation effectiveness in the
organizational performance of the organizations
was highlighted by Kandybin (2009) showing the
connection between the effectiveness of innovation
efforts and the growth of the organization. From the
view point of open innovation literature, analysis
conducted by Sarkar (2005) demonstrated that in-
novation pay-offs and effectiveness are dynamic,
rather than static concepts in the open innovation
systems of the organizations. The same approach
can also be adapted to Daily Maersk service in that
the innovation effectiveness of Daily Maersk is a
dynamic one depending on the open innovation
capability of the Maersk Line as well as the main
contributors to the open innovation practices.
Considering the contribution of the develop-
ment of new products/services to the organization’s
long-time performance, Slater and Narver (1995)
pointed out the importance of customer satisfac-
tion. In addition to the customer orientation, the
model proposed in this study suggested the con-
sideration of stakeholder and employee orientation
for establishing open innovation capabilities. The
findings of the grounded theory also supported that
Daily Maersk was not only developed due to the
feedback and support obtained from the custom-
ers but also from the reactions of the competitors,
benchmarking practices as well as the suppliers’
contribution which are mainly the ports and the
IT-based organizations. Hence, the overall contri-
bution of such parties allowed Maersk Line to be
involved in open innovation practices that lead to
1116

increased organizational performance as provided
in Proposition 6.
Proposition 6: Higher organizational perfor-
mances are achieved in market orientated
and open innovative organizations.
Innovation-Orientation
It is argued that market-orientation and innovation-
orientation should complement each other (Hurley
& Hult, 1998; Han, Kim, & Rajendra, 1998). Kohli
and Jaworski (1990) viewed market-orientation as
a continuous innovative behaviour since it is about
being responsive to changing customer needs with
innovative marketing programs and strategies.
Acting as a bridge between market-orientation and
open innovation, innovation-orientation capability
of the organizations mainly determines the compa-
ny’s openness to innovation (Zaltman, Duncan, &
Holbek, 1973) and its capacity to innovate (Burns
& Stalker, 1977). Innovation- orientation is about
being able to produce goods capable of generat-
ing the maximum profit, quality and monetary
value according to the preferences of customers
or possessing a technological advantage (Han,
Kim, & Rajendra, 1998). It was also considered as
a measure of an organization’s orientation towards
innovation (Hurley & Hult, 1998). A company’s
intention to be an innovative organization (Kundu
& Katz, 2003) as well as the number of innova-
tions the company offers, the number of customers
these innovations are offered to and the degree of
importance given to the innovations (Homburg,
Hoyer, & Fassnacht, 2002) can be considered as
an element of innovation-orientation. Since all
the organizational systems and the departments
of the organization are innovative depending on
their contribution to the open innovation practices,
innovation-orientation can be suggested as a link
maintaining the connection between the market
orientation and the open innovation concepts of
the organization studied in this case as submitted
by Proposition 7.

Discovering the Nexus between Market Orientation and Open Innovation
Proposition 7: Innovation orientation is highly
experienced in market-oriented organiza-
tions in order to achieve open innovation
practices.
DISCUSSION AND CONCLUSION
In this study, grounded theory as a methodology
was developed for, and is particularly suited to, the
study of open innovation and market-orientation.
The procedure of grounded theory applied in
this study allowed a deeper understanding of
open innovation and market- orientation from a
holistic and global perspective. Core categories
of market-orientation and open innovation were
the basis of the research and the missing deter-
minants in maintaining the link between the core
categories were extracted by the use of grounded
theory approach. The extensive literature review
on market-orientation and open innovation is uti-
lized in the later stages of the research process by
contributing the authors to enhance the theoreti-
cal sensitivity. During the theoretical matching
process, a model encompassing the theoretical
categories was developed and, in line with this
model, seven propositions were provided for a
comprehensive understanding of the nexus be-
tween open innovation and market-orientation.
The model suggests there is a strong link
between market-orientation and open innova-
tion through the identification of the critical
components such as stakeholder-, customer-, and
employee-orientation, as well as the characteristics
of the organization launching service innova-
tions. These organizational characteristics mainly
include structural and process-related character-
istics, culture-related components, strategic and
managerial features of the organization as well
as the organizational resources and capabilities
devoted to establish service innovations. Integra-
tion of these characteristics to the open innovation
processes of market-oriented organizations lead
to superior organizational performance.
In addition to the stakeholder-, customer-, and
employee-orientation practices of an organization,
innovation orientation is shown as a link aggregat-
ing market-orientation and open innovation con-
cepts as it provides safe ground for organizations
to innovate according to customer preferences. The
environment surrounding the organization with
certain degrees of market turbulence, competitive
intensity, and technology turbulence prompts the
organization to act accordingly in order to be com-
petitive and innovative by interacting efficiently
with its stakeholders, customers and employees.
The proposed model purports that market-oriented
organizations supported by stakeholder-, cus-
tomer-, and employee-orientation should possess
specific organizational characteristics (structural,
cultural, strategic, managerial and resource-based)
in order to establish open innovation capabilities
under the dynamics of environmental moderators.
As an original contribution of the emerged sub-
stantive theory and a novel theoretical extraction,
employee-orientation was generated in under-
standing the nexus between the core categories.
Another important contribution of the study is that
to the best of the authors’ knowledge, this research
is a pioneer in the literature investigating the nexus
between open innovation and market-orientation
through the application of grounded theory.
Further research can be suggested based on
some specific points. First, the relationship be-
tween open innovation and market-orientation
should be examined in detail and future research
could be based on delving more deeply into these
constructs and their interrelationships in a variety
of settings among several service organizations.
In addition, Mention (2011) pointed out that in-
novation in service industries are different from
the manufacturing sector by emphasizing the role
of the latter in the service sector, innovation, and
use of various information sources remain under
investigated.
In contrast with the relevant literature which
reviewed the relationship between market orien-
tation and service firm performance (Sargeant
1117

Discovering the Nexus between Market Orientation and Open Innovation
& Mohamad, 1999; Caruana, Pitt, & Berthon,
1998), extant literature concerned with market
orientation-innovation is basically product ori-
ented with some exceptions of Han, Kim and
Rajendra (1998), and Lado and Maydeu-Olivares
(2001). Despite the existence of a large body of
literature on market-orientation and innovation,
the relationship between market-orientation and
innovation is not yet fully explained according
to some researchers (Augusto & Coelho, 2009;
Hurley & Hult, 1998; Lukas & Ferrell, 2000).
A similar argument can also be valid for the
relationship between market-orientation and open
innovation due to the limited awareness regarding
the open innovation concept in the market-orien-
tation literature and the problem of integrating the
role of relevant partner organizations of the innova-
tive company, as well as measuring their impacts
on the organizations’ open innovation processes.
From the view point of methodological steps to
be considered in further research, Anderson, Dreu
and Nijstad (2004) emphasized that innovation
research more recently has become predominantly
replication-extension orientation by demonstrat-
ing five possible path ways for innovation research
including innovation as an independent variable,
cross-national generalisability and cultural dif-
ferences, the development of multilevel theories
and designs, the use of meta-analysis, and the
triangulation of research methods.
In a similar vein, involvement of specific
open innovation constructs in understanding the
market-orientation process of service organiza-
tions, cross-industrial analysis of various service
organizations as well as the application of different
theories to understand the nexus between open
innovation and market-orientation, and lastly the
employment of various research techniques rather
than solely focusing on interviews and observa-
tions can be suggested in the further stages of this
research. Considering the next step within the
concept of this research, development of research
hypotheses in order to develop a formal theory
1118

based on the outcomes is also another critical
further research area.
It is worthwhile mentioning the limitations
experienced in the application of grounded theory.
First, as also stated by Carrero, Peiro and Sala-
nova (2000), the specific conditions required in
theoretical sampling make it difficult to forecast
the research plan as well as to identify the sample
in advance. As a limitation of grounded theory,
in line with the criticism of Bryman (2008),
during the coding process researchers may have
been sensitive to the existing conceptualization,
and therefore their investigations could partly be
built upon the work of others. Other limitations
of the research encompass the limited time taken
to transcribe recordings of the interviews and
constantly compare with the existing ones to carry
out a genuine grounded theory methodology. The
resulted grounded theory pertains to the specific
phenomena in this case; the relation between
open innovation and market orientation and for
this reason cannot be regarded as a formal theory,
but as a rather substantive theory.
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This work was previously published in Transcultural Marketing for Incremental and Radical Innovation edited by Bryan Chris-
tiansen, Salih Yildiz, and Emel Yildiz, pages 1-42, copyright year 2014 by Business Science Reference (an imprint of IGI Global).

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Chapter 61
Entrepreneurship Education at
Mtech, University of Maryland
James V. Green
University of Maryland, USA

David F. Barbe
University of Maryland, USA

ABSTRACT
As universities recognize that an entrepreneurial education is an enabler, entrepreneurship is increas-
ingly recognized as higher education’s ally. Today, more than 5,000 entrepreneurship courses are offered
in over 2,000 college and universities in the United States (U.S.) (Kauffman, 2009). Entrepreneurship
education is extending beyond its traditional business school offerings to engineering, arts, and sciences
schools as educators develop specialized, experiential content most relevant to their student popula-
tions. The Maryland Technology Enterprise Institute (Mtech), a unit of the A. James Clark School of
Engineering at the University of Maryland, is a global leader in entrepreneurship education (Barbe,
Green, & Chang, 2010). Mtech’s award-winning programs are being replicated throughout the U.S. and
abroad to serve entrepreneurial students in pursuit of new ventures. Mtech’s entrepreneurship courses
and programs have more than 1,000 student enrollments annually. This chapter introduces Mtech’s ap-
proach to entrepreneurship education, defines the inner workings of Mtech’s entrepreneurship education
initiatives, and discusses best practices and lessons learned.

INTRODUCTION Mtech’s award-winning undergraduate pro-

How can universities best develop the entrepre-
neurial mindset and functional skillsets of entre-
preneurial students? This chapter addresses the
question by reviewing entrepreneurship education
in U.S. colleges and universities, and providing a
comprehensive discussion of the entrepreneurship
education activities of Mtech.
DOI: 10.4018/978-1-4666-8468-3.ch061
grams are discussed first, as these programs
are being rapidly replicated (23 colleges and
universities as of August, 2011). Graduate and
professional programs are examined second as
these fill a central gap in the commercialization
of university-based research. Finally, a discus-
sion of Mtech’s pre-college programs examines
how middle school and high school students are
learning about entrepreneurship and innovation.

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Program assessment is a high priority for
Mtech. A section of the chapter is dedicated to
Mtech’s holistic approach to entrepreneurial edu-
cation progress through both short-term measures
evaluating entrepreneurial mindset and functional
skillsets, and long-term measures including new
venture creation.
Further research directions and conclusions
close the chapter.
The State of Entrepreneurship
Education in U.S. Higher
Education Institutions
As universities recognize the benefits of an entre-
preneurial education, entrepreneurship is increas-
ingly recognized as higher education’s ally. Since
the first entrepreneurship class held in the U.S. in
1947, the academic discipline of entrepreneurship
extends to over 2,000 college and universities in the
U.S., about two-thirds of the total (Cone, 2011). In
1985, studies indicated there were approximately
250 entrepreneurship courses offered across all
college campuses in the U.S. (Kauffman, 2009).
Today, more than 5,000 entrepreneurship courses
are offered in two-year and four-year institutions
in the U.S. (Kauffman, 2009).
With entrepreneurship education expanding in
the U.S. and globally, it is important to understand
that entrepreneurship education is fundamentally
different than business education (Solomon, Duffy
& Tarabishy, 2002). Since business entry is a very
different activity than managing a business (Gart-
ner & Vesper, 1994), entrepreneurial education
must extend to include skill building in negotiation,
leadership, new product development, creative
thinking, and technological innovation (McMul-
len & Long, 1987; Vesper & McMullen, 1988).
Areas identified as important for entrepreneurial
education include awareness of entrepreneur ca-
reer options (Hills, 1988), sources of funding to
include venture capital (Vesper and McMullan,
1988; Zeithaml and Rice, 1987), idea creation and
protection (Vesper &McMullan, 1988), ambigu-
1130

Entrepreneurship Education at Mtech
ity tolerance (Ronstadt, 1987), the characteristics
that define the entrepreneurial personality, (Hills,
1988; Scott & Twomey, 1998; Hood & Young,
1993) and the challenges associated with each
stage of new venture development (McMullan &
Long, 1987; Plaschka & Welsch, 1990).
Within this broad area of entrepreneurship
education, a fundamental question is how to influ-
ence personal development of the entrepreneurial
students within the university environment. This
is tightly tied to learning models and develop-
mental programs. Past research has identified
the contributions of prior knowledge, creativity,
and cognitive mechanisms to entrepreneurial
learning, development, and performance. Ward
(2004) emphasized that the ability to identify
and act on opportunity is strongly influenced by
the way individuals process and use knowledge.
Baron (1998) and Mitchell, Smith, Seawright, and
Morse (2000) theorized that individuals recognize
opportunities differently based on personal dif-
ferences in cognitive processing. In all of these
areas, it is critical to consider that learning is the
source of how knowledge asymmetries evolve.
These studies demonstrate that improved
understanding of new learning models and pro-
grams to build entrepreneurial traits and skills
within collegiate entrepreneurs interested in
new ventures is closely aligned with the psycho-
logical characteristics of the students. Vesper and
Gartner (1997) demonstrated the positive impact
that university entrepreneurship programs have
on students, the university, and the community.
Courses, competitions, internships, public sym-
posia, student consulting projects, and company
spin-offs are examples of high value activities
(Vesper & Gartner, 1997).
The learning tools used by entrepreneurship
educators today are far reaching. These include
business plan development courses (Hills, 1988;
Vesper & McMullan, 1988; Gartner & Vesper,
1994; Gorman, Hanlon, & King, 1997), consulta-
tion with practicing entrepreneurs (Klatt, 1988;
Solomon, Weaver, & Fernald, 1994), computer

Entrepreneurship Education at Mtech
simulations (Brawer, 1997), behavioral simula-
tions, interviews with entrepreneurs, environmen-
tal scans (Solomon et al., 1994), cases (Gartner &
Vesper, 1994), field trips, and the use of video and
films (Klatt, 1988). Student creation and operation
of their own startup companies, under the mentor-
ship of their university, is an emerging learning
model with tremendous experiential learning
benefits (Green, Singal, Barbe, & Thornton, 2006;
Hills, 1988; Truell, Webster, & Davidson, 1998).
The Environment of Higher
Education Students in
the United States
Stable, simple, and generous environments are
productive and friendly grounds for new venture
creation and growth (Baum, Locke, & Smith,
2001). A predictable environment with low
complexity significantly improves the entrepre-
neurial ventures’ formation and success (Aldrich
& Wiedenmayer, 1993). A predictable, simple
environment naturally levels the uncertainty of
forces beyond the control of the individual busi-
ness and is easier to plan for and manage by the
entrepreneurial management team (Baum et al,
2001; Dess & Beard, 1984). A generous environ-
ment provides support and resources for venture
creation and growth (Dess & Beard, 1984).
The university environment in the U.S. is par-
ticularly fertile for venture creation based on its
stability, simplicity, and generosity (Barbe, Green,
& Thornton, 2005). The stability exists in terms
of the availability of courses and programs that
foster entrepreneurship. The classroom provides a
safe environment in which to develop innovative
ideas and receive honest, open feedback from peers
and instructors (Green et al., 2006). The simplic-
ity criteria are fulfilled in the level of instruction
provided, with a syllabus or program guidelines
that clearly articulates the students’ required in-
puts and expected deliverables of each activity.
Generosity exists in the sense of time invested by
peers, faculty, and staff in working with students
on venture concepts, as well as the level of funding
available exclusively for students through business
plan competitions and grant programs (Green et
al., 2006). Based on the stability, simplicity, and
generosity criteria, universities are ideal breeding
grounds for intellectual entrepreneurs.
Overview of the Maryland
Technology Enterprise
Institute (Mtech)
Mtech began in 1984 with an initial mission of
achieving closer collaboration between the Uni-
versity of Maryland’s College of Engineering and
industry in the State of Maryland. Since then, the
mission of Mtech has evolved considerably to:
• Educate the next generation of technology
entrepreneurs;
• Create successful technology ventures; and
• Connect Maryland companies with univer-
sity resources to create new and improved
products and services.
Mtech focuses on possibilities and results with
programs, courses, workshops and competitions
to help aspiring entrepreneurs learn how to bring
their ideas and products to the world. A central
theme is to help faculty, student, and regional
entrepreneurs create successful ventures.
Table 1 highlights the programs and activities
of Mtech for students, faculty, and companies.
The first column shows entrepreneurship educa-
tion programs and activities for students detailed
later in this chapter. The programs and activities
listed in the second column are for both students
and faculty, and those in the third column are for
existing companies.
With a $25.7 billion economic impact since
1985, 368 Maryland companies served by Mtech’s
programs in 2010, and 30 entrepreneurship courses
offered to students at different levels, Mtech is an
international leader in new venture creation and
entrepreneurship education.
1131
 
Entrepreneurship Education at Mtech

Table 1. Mtech’s initiatives for students, faculty, and established companies

For Students For Students and Faculty For Established Companies

Hinman CEOs living-learning program for
undergraduate junior and senior students
Entrepreneurship & Innovation Program
living-learning program for undergraduate
freshmen and sophomore students
Hillman Entrepreneurs Program for
community college students entering UM
Impact Seed Fund grant programs for social
ventures
30 Entrepreneurship Courses: For pre-
college, undergraduate, graduate, and
professional students
Minor in Technology Entrepreneurship
Citrin Graduate Fellowships program
for entrepreneurial engineering students
pursuing research in sustainability
Certificate in Innovation Management
Program for Executives
Young Scholars Programs for pre-college
students
Technology Startup Boot Camp one-day
workshop on new venturing
Business Plan Competition for cash prizes
and services
Entrepreneur Office Hours for individuals
with technology startup ideas
TERP Startup Lab for entrepreneurs’
research and prototyping activities
VentureAccelerator venture assistance
program for early stage technology startups
Technology Advancement Program (TAP)
on-campus incubator
Faculty Venture Fairs to feature technology
commercialization activities
Maryland Industrial Partnerships (MIPS)
program for industry collaborations
Maryland International Incubator for
international companies
Maryland Intellectual Property Legal
Resource Center for free legal services
Biotechnology Research and Education
Program for bioprocessing growth
University of Maryland Manufacturing
Assistance Program for assisting
manufacturing companies

Table 2. Entrepreneurship education initiatives

Overview of Mtech’s
by year introduced
Entrepreneurship
Education Initiatives Year Initiative
1999 Hinman CEOs residential program for juniors and
A firm grasp of the entrepreneurial process and seniors
mindset benefits every person engaged in de- 2001 Technology Startup Boot Camp
veloping technology. Mtech’s goal is to infuse 2001 University of Maryland Business Plan Competition
students, faculty members, and professionals 2002 First technology entrepreneurship course in
with that knowledge and its accompanying skills. engineering at UM
Armed with an entrepreneurial mindset, technol- 2005 Young Scholars Program for high school students
ogy creators drive economic growth by launching 2006 Hillman Entrepreneurs Program
successful ventures and bringing life-changing 2007 Certificate in Innovation Management executive
products and services to market. Mtech’s entre- program for professionals
preneurship education initiatives began in 1999, 2007 First entrepreneurship course for freshmen at UM
with ongoing enhancements and new initiatives 2008 First international collaboration with the Petroleum
thereafter as illustrated in Tables 2 and 3. Institute in Abu Dhabi

Each of the initiatives by audience in the center 2009 First online entrepreneurship course offered at UM

column of Table 3 are discussed in detail in sub- 2010 Entrepreneurship and Innovation residential program
for freshmen and sophomores
sequent pages of this chapter. An introduction to
2010 Young Scholars Discovery Program for middle school
the initiatives available to all audiences, as listed students
in the right column of Table 3, is provided here. 2011 Minor in Technology Entrepreneurship

1132

Entrepreneurship Education at Mtech
Table 3. Entrepreneurship education initiatives by audience
Audience Initiatives by Audience
Middle School Young Scholars Discovery Program for eighth grade
students interested in entrepreneurship
High School • Young Scholars Summer Program for high school
students
• Young Scholars Spring Program on high school
campuses
Freshmen & • Entrepreneurship & Innovation Program (EIP)
Sophomores • Undergraduate courses
Juniors & Seniors • Hinman CEOs Program
• Hillman Entrepreneurs Program
• Undergraduate courses
• Minor in Technology Entrepreneurship
Graduate Students • Citrin Fellows Program
• Graduate courses
Professionals Certificate in Innovation Management Program
• Technology Startup Boot Camp:
Launched in 2001, the Technology Startup
Boot Camp contributes to the development
of an entrepreneurship and innovation cul-
ture on campus and introduces faculty and
students to the processes associated with
technology entrepreneurship. At the start
of each academic year, up to 500 faculty,
students, and professionals attend the Boot
Camp to learn about entrepreneurship, hear
from successful entrepreneurs, meet fellow
aspiring and active entrepreneurs, and be
introduced to programs and activities that
support entrepreneurial endeavors. Faculty
and student attendees come away with a
basic understanding of entrepreneurship and
with two different points of view: interest
in participating in more in-depth activities
and possibly starting an entrepreneurial en-
deavor, or realizing they are too risk averse
to become an entrepreneur. Either result
is considered to be acceptable. Mtech’s
Technology Startup Boot Camp structure
was adopted as the model for the National
Collegiate Inventors and Innovators Alliance
(NCIIA) Invention to Venture (I2V) work-
shop series. I2V is hosted annually at over 20
Initiatives for All Audiences
• Technology Startup Boot Camp
• Business Plan Competition
• Entrepreneur Office Hours
• Maryland Intellectual Property Legal Resource
Center
universities across the U.S. with thousands
of faculty and students attending each year.
• Business Plan Competition: The
University of Maryland Business Plan
Competition started in 2001. Complementing
the cycle of the academic year, the Boot
Camp begins the year and the Business
Plan Competition concludes the year annu-
ally. The competition emphasizes learning
through coaching and the experience of
presenting ideas to an expert panel of judges.
Typically, there are two distinct categories:
(1) the high technology and biotechnology
category which is usually comprised of
graduate students and faculty, and (2) the
undergraduate category. A social impact
award was introduced in 2009 to recognize
promising ventures that can address social
issues and challenges, to include energy,
healthcare, and education concerns. Winning
teams earn non-dilutive grant awards of cash
and services. In 2011, $75,000 in cash awards
were made based on sponsorships from
regional companies and individuals inter-
ested in contributing to the entrepreneurial
culture of the region. Since its inception, the
competition has awarded $627,000 in prizes
1133

to University of Maryland faculty, students,
and alumni to help them launch their inno-
vative ventures. Past winners include five
multi-million dollar ventures, two of which
were among the Inc. 500 list of the fastest
growing companies in 2010 for the second
straight year.
• Entrepreneur Office Hours: The Mtech
Entrepreneur Office Hours Program in-
cludes free monthly office hours to help
aspiring and current entrepreneurs with
technology-based startups or ideas get ad-
vice on how to build and finance a startup
company, develop and protect intellectual
property, navigate the technology transfer
process, refine business strategy for rapid
growth, and tap into other entrepreneur-
ial resources. Representatives from cam-
pus and state-based organizations include
Mtech’s VentureAccelerator Program,
Mtech’s Technology Advancement
Program, UM’s Office of Technology
Commercialization, the Dingman Center
for Entrepreneurship, the Maryland
Intellectual Property Legal Resource
Center, and the Maryland Biotechnology
Center. Representatives from investment
and grant organizations are also often on
campus to participate in Entrepreneur
Office Hours or other Mtech events for new
ventures.
• Maryland Intellectual Property
Legal Resource Center: The Maryland
Intellectual Property Legal Resource Center
was established in 2002 to educate law
students, entrepreneurs, and the commu-
nity about the legal aspects of intellectual
property. As part of its mission, the Center
provides free legal services on intellectual
property and related matters to emerging
technology companies and explores relevant
legal, ethical, and policy issues in the high-
technology and intellectual property areas.
The Center delivers legal services primarily
1134

Entrepreneurship Education at Mtech
through law students, who practice under the
supervision of experienced faculty members.
The Center is therefore a vehicle for training
law students to serve the needs of early stage
high-technology companies and an avenue
for students to receive free legal services
in intellectual property matters. Located in
Mtech’s TAP incubator at the University of
Maryland, approximately 300 clients have
received legal services provided by more
than 90 student attorneys.
UNDERGRADUATE
INITIATIVES OF MTECH
Beyond the entrepreneurial activities available to
all students, Mtech invests significant resources
in undergraduate entrepreneurship education.
Mtech’s undergraduate initiatives are anchored
by three signature programs; the Hinman CEOs
Program, the Entrepreneurship and Innovation
Program, and the Hillman Entrepreneurs Program.
While each program serves a distinct audience,
common elements of these dynamic programs are
highlighted in figure 1. Details of each program,
as well as courses and activities available to all
undergraduate students on campus, are discussed
in turn.
Hinman CEOs Program
As the nation’s first living-learning entrepre-
neurship program, the Hinman CEOs Program
is a groundbreaking initiative placing entrepre-
neurially-minded students from all technical and
non-technical academic disciplines in a unique
community (Green, 2009). Students live together,
learn about entrepreneurship, and can launch
new ventures. The mission of the Hinman CEOs
Program is to foster an entrepreneurial spirit,
create a sense of community and cooperation,
and develop ethical leaders. All undergraduates
from the University of Maryland, College Park

Entrepreneurship Education at Mtech
Figure 1. Signature undergraduate program offerings
are invited to apply for this competitive program.
Brian Hinman, University of Maryland A. James
Clark School of Engineering alumnus and suc-
cessful entrepreneur, provided funding to initiate
and support the Program.
With all Hinman CEOs resident in a common
residence hall, South Campus Commons Two,
the learning experience takes place in a variety
of ways. While students will earn course credit
in Program specific entrepreneurship courses
and lecture series, the learning goes beyond the
classroom. Students can talk one-on-one with
engaging entrepreneurial leaders in the exclusive
speaker series, and then brainstorm late night with
fellow Hinman CEOs in their hall. Not only are
students connected with the 90-member Hinman
CEOs community on-campus, they have unique
access to more than 300 Hinman CEOs alumni.
The net result is expanding students’ personal and
professional networks by making life-long con-
nections to today’s leaders and tomorrow’s CEOs.
The academic component of the Hinman CEOs
Program includes four 3-credit courses, with
students enrolling in one course per semester for
each of their four semesters in the Program. The
course sequence is: ENES 461: Advanced Entre-
preneurial Opportunity Analysis in Technology
Ventures, ENES 462: Marketing High-Technology
Products and Innovations, ENES 463: Strategies
for Managing Innovation, and ENES 464: Inter-
national Entrepreneurship and Innovation.
Activities outside of the formal curriculum that
enhance the student experience include:
• Living Community: The Hinman CEOs’
unique living environment, where all
members live together on-campus, is the
cornerstone of the Program. Roommates
become co-founders and classmates serve
as confidants and advisors. Students have
exclusive access to a board room, semi-
nar room, copying and printing facilities,
1135

and related incubator-style resources. This
technology environment includes wireless
Internet access, modern computing facili-
ties, and state-of-the-art software tools.
The living community and its resources
uniquely positions Hinman CEOs to culti-
vate their entrepreneurial passions as well
as launch and manage their new ventures.
• Experiential Learning: Through student-
owned companies, workshops, competi-
tions, and volunteerism, Hinman CEOs
are part of a special experiential learning
model. While providing entrepreneurship
education and helping teams to start and
operate ventures are important, a continu-
um of hands-on mentoring is provided to
help students not yet engaged in founding
and managing start-ups fully develop their
entrepreneurial skills. Over the course
of the students’ career in the Program,
all students develop a business idea and
write a business plan. Hinman CEOs may
also compete in the University’s $75K
Business Plan Competition and attend the
Technology Start-up Boot Camp each fall.
• On-Demand Coaching and Mentoring:
The valuable residential experience is
complemented with the on-site offices of
the Hinman CEOs staff. In this way, stu-
dents can walk down the hall to staff of-
fices to discuss their latest new venture
idea or to tackle a tough legal, financial, or
ethical question. The Program Director is
a seasoned entrepreneur pairing practical
experience with a graduate education in
entrepreneurship to coach teams and indi-
vidually mentor students.
• Social Activities: Hinman CEOs provides
an enriching community for its students as
they participate in a myriad of events and
activities during their time in the Program.
Each fall begins with an orientation event
that may include a ropes course and dy-
namic team building activities. Cookouts,
1136

Entrepreneurship Education at Mtech
socials, and the annual Technology Start-
Up Boot Camp are hallmarks of the fall.
Spring brings seasonal social activities
including flag football games, team bowl-
ing, and the annual University of Maryland
$75K Business Plan Competition. With
friends and teammates living together,
cross disciplinary teams develop as stu-
dents’ skills and interests intersect in the
Program.
• Entrepreneurial Internships: Internships
play an important role in the Hinman
CEOs experience. Students learn hands-on
with area start-ups, in the offices of ven-
ture capitalists, in faculty laboratories, and
in emerging market areas of existing firms.
Select students participate in internships
through part-time roles during the school
term. Applying their experience in these
environments intensifies their learning, in
turn, bringing energy and expertise back to
their fellow Hinman CEOs.
While the Hinman CEOs students are not
required to start a business, history shows that
approximately 25% of students develop and launch
companies that reach revenues as undergraduates.
Students starting companies are encouraged and
mentored. The Program also supports those stu-
dents attending top graduate schools and joining
innovative corporations. The Hinman CEOs Pro-
gram helps students to secure grants and awards,
and have raised over $500,000 for student ventures.
On-site business coaching, career mentoring, and
an annual $50,000 seed fund provide a fertile
environment for launching new ventures.
Since the Program has been recognized by
other universities as an international model, the
Hinman CEOs Program has hosted deans, faculty,
entrepreneurship staff, and resident life staff from
Bowling Green University, Howard University,
Iowa State University, Johns Hopkins University,
Louisiana State University, Louisiana Tech, Michi-
gan Technology Institute, North Carolina State,

Entrepreneurship Education at Mtech
Oregon State University, Penn State University,
Shenandoah University, Washington State Uni-
versity, Waseda University of Japan, University
of Wisconsin-Madison, Worcester Polytechnic
Institute, and University of the Pacific.
By hosting 16 universities, writing numerous
papers, and presenting at conferences including the
Academy of Management, American Association
of Engineering Education (ASEE), National Col-
legiate Inventors and Innovators Alliance (NCIIA),
and United States Association for Small Business
and Entrepreneurship (USASBE), the Hinman
CEOs Program continues to deliver expertise and
best practices to benefit entrepreneurship educa-
tion worldwide (Barbe, Thornton, Green, Green,
& Eyles, 2005).
The Hinman CEOs Program is funded through
a generous lead gift and supported with in-kind
services and investment from the University and
area companies. The Program was established
through a $2.5 million gift from Brian Hinman’82,
an engineering alumnus and serial entrepreneur.
The University committed to designing and fur-
nishing the residence hall. Funding to support the
competitions and workshops hosted by Program
is sourced from local sponsors including law
firms, venture capitalists, and related providers.
Event and class speakers contribute their time on
a volunteer basis.
Entrepreneurship and
Innovation Program
Based on the growing demand for undergraduate
programs and courses in entrepreneurship and in-
novation, Mtech introduced the Entrepreneurship
and Innovation Program (EIP) in fall 2010 (Green,
2010). In contrast to the Hinman CEOs Program’s
focus on juniors and seniors, the EIP is exclusively
designed for freshmen and sophomores. When
entrepreneurship and innovation are introduced
early, the knowledge gained significantly impacts
direction towards more entrepreneurial and inno-
vative careers. This knowledge combines with the
community to create a dynamic hub for entrepre-
neurial skills building and innovative venturing.
This living-learning, Honors-based Program is a
natural extension of Hinman CEOs and filled a
gap in the entrepreneurship and innovation offer-
ings for underclassmen.
A question may be, “Why not increase the size
of the Hinman CEOs Program to accommodate
150 freshmen and sophomores each year, instead
of creating a new program?” Firstly, it is important
to limit the program to 100 students in order to
facilitate a strong sense of community and inter-
action. Secondly, the needs and interests of un-
derclassmen differ from those of upperclassmen.
Thirdly, while the Hinman CEOs Program encour-
ages business plan development and new venture
creation, this new underclassmen program will
focus on entrepreneurial opportunity discovery,
creativity, and innovation, and related foundational
skills. It is important to develop curriculum that
is attuned to the psychological and sociological
needs of these younger students. Lastly, Hinman
CEOs’ occupancy of 88 beds stretches the limits
of available campus housing for upperclassmen.
For these reasons, a new entrepreneurship and
innovation program specifically designed for the
freshmen and sophomore audience makes sense.
With the support of the University, this new
Program will attract the increasing number of
students interested in extending their major
studies to include dynamic entrepreneurial and
innovation-themed programming and coursework
in a residential community.
Research to date (Shane 2000, 2003) attributes
enhanced discovery and recognition of entrepre-
neurial opportunity to two reasons. First, better
“access to information” about the potential exis-
tence of a given opportunity improves discovery.
Second, select individuals are better at recogniz-
ing opportunity because of superior “cognitive
capabilities” in opportunity recognition. With
opportunity recognition described as “the cogni-
tive processes through which individuals conclude
that they have identified an opportunity” (Baron,
1137

2006: 107), the act of opportunity discovery is the
first stage of the opportunity recognition process.
Therefore, based on the role of opportunity dis-
covery, the emphasis of the EIP experience is to
help these young students discover entrepreneurial
opportunities, and develop an understanding of
the associated challenges and rewards of acting
on these opportunities.
The academic component of EIP includes four
courses totaling nine credits, with student enrolling
in one course per semester for each of their four
semesters in the Program. This provides continuity
between the students and the Program throughout
the two-year experience. Each course is originally
developed for an Honors audience in collaboration
with the EIP Faculty Advisory Council. The EIP
course sequence is HEIP 100: Entrepreneurship
and Innovation Colloquium, HEIP 143: Founda-
tions in Entrepreneurship and Innovation, HEIP
144: Contemporary Issues in Entrepreneurship and
Innovation, HEIP 240: Exploring International
Entrepreneurship and Innovation, and HEIP 241:
Social Entrepreneurship Practicum.
Activities outside of the formal curriculum that
enhance the student experience include:
• Living Community: For both years of the
Program, all students reside in two residence
hall floors exclusive to the Program. This
residential experience has proved invalu-
able to community building of young en-
trepreneurs in the Hinman CEOs Program
(Barbe, Thornton, Green, Ghavam,
Casalena, Weinstein, & Robertson, 2005).
The EIP offices are located within the resi-
dence hall to encourage frequent mentor-
ing and interactions with these students. A
rich set of community building activities
are in place for students.
• Experiential Learning: Through live
companies, courses, seminars, workshops,
competitions, and volunteerism, EIP stu-
dents are part of a special experiential
learning model. While providing entre-
1138

Entrepreneurship Education at Mtech
preneurship and innovation education and
helping teams to start and operate ventures
are important, a continuum of hands-on
mentoring is provided to help students
not yet engaged in founding and manag-
ing start-ups to develop their entrepre-
neurial skills (Kolb & Kolb, 2005). Over
the course of the students’ careers in the
program, all students develop an innova-
tive idea and write a product plan. Students
may also compete in the University’s $75K
Business Plan Competition, attend the
Technology Start-up Boot Camp each fall,
and volunteer through program-managed
activities.
• On-Demand Coaching and Mentoring:
The valuable residential experience is
complemented by the central offices of EIP
faculty and staff. In this way, students can
easily visit staff offices to discuss their lat-
est new venture idea or to tackle a tough
legal, financial, or ethical question. The
director is a seasoned entrepreneur pairing
practical experience with a top-tier educa-
tion to coach teams and individually men-
tor students.
• Social Activities: EIP provides an enrich-
ing community for its students as they par-
ticipate in a myriad of events and activi-
ties during their time in the program. Each
fall begins with an orientation event that
may include a ropes course and dynamic
team building activities. Cookouts, socials,
and the annual Technology Start-Up Boot
Camp are hallmarks of the fall. Spring
brings seasonal social activities includ-
ing flag football games, team bowling, and
the annual University of Maryland $75K
Business Plan Competition. With friends
and teammates living together, cross dis-
ciplinary teams develop as students’ skills
and interests connect in the Program.
• Entrepreneurial Internships: Internships
play an important role in the entrepreneur-

Entrepreneurship Education at Mtech
ship and innovation experience. Students
can learn hands-on with area start-ups, in
the offices of venture capitalists, and in
faculty laboratories. Applying their experi-
ence in these environments amplifies their
learning, in turn, bringing energy and ex-
pertise back to their fellow EIP students.
On a competitive application basis, select
students in the EIP are placed in these en-
trepreneurial internships each summer.
Hillman Entrepreneurs Program
The David H. and Suzanne D. Hillman Family
Foundation created the Hillman Entrepreneurs
program by partnering with the University of
Maryland (UM) in Prince George’s County, Mary-
land, and Prince George’s Community College
(PGCC). Since 2006, the Program has supported
students who might not otherwise be able to afford
a college education by starting their college career
at PGCC on full scholarships, including books,
and then supporting them in a seamless transfer
to UM in pursuit of their bachelor’s degree. All
Hillman Entrepreneurs receive up to 66 percent
of their tuition paid for based on need and merit.
Hillman Entrepreneurs come from diverse
entrepreneurial, academic, and personal back-
grounds, but they share a commitment to ethical
leadership, a dedication to giving back to Maryland
and Prince George’s County, and a passion for
entrepreneurial excellence. Students repeatedly
cite their Hillman colleagues as one of the most
important and beneficial attributes of the Program.
Prince George’s Community College is the
launching point for aspiring Hillman Entrepre-
neurs. Any PGCC student (or prospective student)
who is a citizen or legal resident of Maryland is
eligible to apply and must complete a rigorous ap-
plication process. Once accepted, PGCC students
are immersed in the Hillman experience, including
Monday night networking events, a specialized
curriculum in leadership and entrepreneurship,
and community service opportunities.
A total of 131 students have been admitted to
the Hillman Entrepreneurs Program since the fall
of 2006. During the 2008-2009 academic year, 28
new students were admitted to the Hillman Entre-
preneurs Program, ready to contribute unique and
creative talents. An additional 33 students were
admitted during the 2009-2010 academic year.
The demographics of the Hillman Entrepre-
neurs differ significantly from the typical Uni-
versity of Maryland undergraduate student due
to its approach of recruiting students exclusively
from the community college environment. The
average student age is 25 years old, with a range
of 18 to 47 years old. Eighty percent are African
American, 11 percent are Hispanic, six percent are
Asian American, and three percent are Caucasian.
The gender balance is comparable to the rest of
the University of Maryland at approximately 50
percent. Eighty-six percent are first generation
college graduates.
While the entrepreneurial focus of the Hill-
man Entrepreneurs Program is consistent with
that of the Hinman CEOs Program and EIP,
a key differentiator of Hillman Entrepreneurs
students is that they are not housed together in a
common residential community on campus. As
the average Hillman Entrepreneur is at least 5
years older than students living in the residence
halls on campus, Hillman Entrepreneurs may be
parents, married, or otherwise committed to living
in an off-campus residence. While not resident
on campus, the Hillman Entrepreneurs Program
invests significant time and resources in building
a community among its students and fostering
relationships across the Program.
The University of Maryland provides Hill-
man Entrepreneurs with opportunities to shine.
Whether through award-winning business plans,
academic honors, or competitive internship
placements, Hillman Entrepreneurs are making
a positive impact at the University of Maryland.
Each week during the fall and spring semester,
the UM Hillman Entrepreneurs meet in cohort
classes for intensive entrepreneurial, leadership,
1139

and technology instruction. Here they share ideas,
learn to think outside-the-box, and strengthen
relationships with fellow Hillman Entrepreneurs
that enhance their learning experiences and pro-
fessional growth.
During the 2008-2009 academic year, the Pro-
gram graduated its first seven students to alumni
status. Each of these students expressed very high
satisfaction with the Program. Hillman graduates
reported improving their skills in creativity, social
skills, and academic ability over their time in the
Program. These former-students ranked the finan-
cial support, assistance in transferring from PGCC
to UM, and the Hillman Entrepreneurs classes
among the best aspects of the Program. Looking
to the future, the graduates expressed great inter-
est in maintaining contact with the Program and
building an alumni network to help future gradu-
ates achieve their entrepreneurial goals.
These Hillman graduates have formed an
official alumni program and elected officers.
Students plan to stay active in the Program by
visiting and contributing to the Program, keep-
ing in contact with everyone via the phone, the
Internet, and social gatherings, and by attending
functions and seeking advice from the directors
and support staff.
The Hillman Entrepreneurs program is largely
funded through a generous gift from the Hillman
Family Foundation. The Hillman Family Founda-
tion pledged $1.7 million over a three-year period
to pilot this innovative entrepreneurship program.
True to the Hillmans’ original vision, the majority
of these funds are used for student scholarships,
including full scholarships at Prince George’s
Community College and both partial need and
merit-based scholarships at the University of
Maryland. These funds provide additional support
for the Program, including a dedicated student
center at UM, administrative support staff at each
campus, and technical support for a combined
Blackboard page, a web-based collaborative
tool accessible by students from both campuses
1140

Entrepreneurship Education at Mtech
to foster cross-campus and alumni connections
among Hillman Entrepreneurs.
Due to the overwhelming success of the Pro-
gram, the Hillman Family Foundation has com-
mitted to continue the Program with another three
years of financial support. Through these generous
donations, students receive scholarships, one-on-
one academic mentoring, assistance in securing
internships, and a unique series of entrepreneur-
ship courses designed specifically to develop them
into successful entrepreneurs and community lead-
ers. Equally important, the Program establishes a
rich social and academic network of likeminded
peers, who will carry the legacy of the Program
into their communities as alumni.
Impact Seed Fund
The Impact Seed Fund provides grants of $500 to
$5,000 to student ventures in the Hinman CEOs
Program, the Hillman Entrepreneurs Program,
and the Entrepreneurship and Innovation Pro-
gram. The Fund was established in 2007 with a
five-year donor commitment of $50,000 annually
from Warren Citrin, a successful local entrepre-
neur. “The purpose of the Impact Seed Fund is
to encourage student entrepreneurs to innovate
and think creatively about starting companies
that have some positive influence on the world,
while providing them with resources to execute on
those ideas,” says Warren Citrin, whose donation
supports the Fund.
While plans that address the environment,
education, healthcare, and other underserved mar-
kets and communities often present the strongest
benefit to society with social responsibility lying
at the core of the business plan, any plan that has
considered and offered some kind of positive social
benefit, or benefits some targeted disadvantaged
community as an element of the business idea is
eligible. A goal of the seed fund is to encourage
students to think more broadly when considering
solutions to any problem therefore positive im-

Entrepreneurship Education at Mtech
pact can be the core of the plan or some element
within the plan that has resulted from thinking
about solutions to problems in a new and forward-
thinking way.
The Impact Seed Fund is a grant that incor-
porates no required return of funds by the grant
recipient. There are no obligations to the Fund
with exception of reporting on the proposed use
of the funding in the application and a final writ-
ten report due to the fund managers. Recipients
will communicate with the assigned mentor on a
regular basis to ensure the venture is staying on
track. Neither Mtech nor the University takes an
ownership position in the company exclusively
because of this funding.
Proposals are accepted on a rolling basis.
Typical approved budgets may include expenses
relating to purchasing equipment and parts for
creating a prototype, legal work for company
formation, patents, licensing, contracts, and other
legal needs, marketing costs including strategic
marketing for market research and other marketing
and advertising for the product or service.
A committee reviews each proposal for the
strength of the value proposition, ability for the
team to execute the plan, probability of success
within a reasonable time frame, and promise of the
plan to provide a positive impact as defined. This
committee of Mtech faculty and staff assigns a
mentor to each grant-winning company to oversee
the use of the funds and support the student team.
Since the Fund’s inception in 2007 to spring
2011, 22 awards have been made to 19 student
companies.
Undergraduate Courses
Mtech offers 15 courses for undergraduate stu-
dents. The 100-level courses are designed for
freshmen. The 200-level courses are designed for
sophomores. The 400-level courses are designed
for juniors and seniors. The HEIP courses are
restricted to students enrolled in the Entrepre-
neurship and Innovation Program. The ENES
courses are available to all students on campus.
The Hinman CEOs Program and the Hillman En-
trepreneurs Program will serve students enrolled in
their respective programs by offering a restricted
section of the ENES courses for their students.
Restricted sections are exclusive to students within
a given Program thereby assisting with Program
specific community building.
• HEIP 100 Entrepreneurship and
Innovation Colloquium: Exploration of
the educational and cultural resources of
the campus and metropolitan area, and dis-
cussion on the personal and social value of
higher education, development of a coherent
general education program, participation in a
community service project, and other activi-
ties designed to broaden students’ conception
of what it means to be an educated person.
• HEIP 143 Foundations in
Entrepreneurship and Innovation:
Focused on building the entrepreneurial
mindset and introducing basic entrepreneur-
ship principles and terminology.
• HEIP 144 Contemporary Issues in
Entrepreneurship and Innovation:
Inspires innovation and creativity through in-
teractive lectures, workshops, and case stud-
ies in contemporary issues to include energy,
life sciences, healthcare, and technology.
• ENES 210 Entrepreneurial Opportunity
Analysis and Decision-Making in 21st
Century Technology Ventures:
Undergraduate course helps students learn
the principles of entrepreneurial opportunity
analysis and decision-making in an increas-
ingly technically-inclined society.
• HEIP 240 Exploring International
Entrepreneurship and Innovation:
Offers an introduction to the opportunities
and challenges of entrepreneurship and in-
novation from an international perspective
through lectures and guest speakers with
international experiences.
1141

• HEIP 241 Social Entrepreneurship
Practicum: Capstone course enhances
strategic capabilities and leadership skills
through the development of an innovative
for-profit product or service concept with
social benefits.
• ENES 460 Fundamentals of Technology
Start-Up Ventures: Undergraduate course
offered online and on-campus helps stu-
dents learn the processes and skills need-
ed to launch and manage new technology
ventures, with a focus on business plan
development.
• ENES 461 Advanced Entrepreneurial
Opportunity Analysis in Technology
Ventures: Using a cognitive theoreti-
cal framework the course examines the
integration of motivation, emotions, and
information processing modes to make
complex entrepreneurial decisions in fast
paced technology venture environments.
The course is an informed and interesting
exploration of entrepreneurial cognition
with both theoretical and methodological
contributions.
• ENES 462 Marketing High-Technology
Products and Innovations: Marketing of
high-technology products occurs in turbu-
lent environments, and requires rapid deci-
sion making with incomplete information.
Innovations are introduced at frequent in-
tervals, research-and-development spend-
ing is vital, and there are high mortality
rates for both products and businesses. The
course will provide a balance between con-
ceptual discussions and applied/hands-on
analysis.
• ENES 463 Strategies for Managing
Innovation: Emphasizes how the technol-
ogy entrepreneur can use strategic manage-
ment of innovation and technology to en-
hance firm performance. It helps students
to understand the process of technological
change; the ways that firms come up with
1142

Entrepreneurship Education at Mtech
innovations; the strategies that firms use to
benefit from innovation; and the process of
formulating strategy.
• ENES 464 International
Entrepreneurship and Innovation:
Focuses on the need for every entrepreneur
and innovator to understand the global mar-
ket in today’s hypercompetitive world and
to appreciate how to compete effectively in
domestic markets by managing international
competitors, suppliers, and influencers.
Students develop skills to identify and man-
age opportunities on a global basis.
• ENES 498 Special Topics in
Entrepreneurship: Seminar and case
study-based course that explores technology
entrepreneurship with a focus on leadership
and strategies to launch and manage technol-
ogy ventures.
• ENES 498A Special Topics in
Entrepreneurship/Introduction to
Innovative Thinking: Undergraduate
course helps students learn methods for im-
proving the flexibility and originality of their
thinking and explore multiple approaches to
create and sustain high levels of innovation.
Topics include personal thinking prefer-
ences, everyday creativity and eliminating
mental blocks, creative thinking techniques,
idea selection approaches, teaming tech-
niques for creativity, design for interaction,
and intellectual property.
• ENES 498E Special Topics in
Entrepreneurship/Entrepreneurship in
Chemical and Life Sciences: Explores
technology entrepreneurship with a focus
on leadership and strategies to launch and
manage technology ventures, with special at-
tention to chemical and life sciences ventures.
• ENES 498P Special Topics in
Entrepreneurship/Corporate
Technology Ventures: Examines the role
of corporate entrepreneurship as a valuable
instrument for rejuvenating and revital-

Entrepreneurship Education at Mtech
izing existing companies and enhancing
the practice of innovation for improved
competitiveness. Strategies are explored for
how corporate entrepreneurship can lead to
new business ventures, the development of
new products, services or processes, and
the renewal of strategies and competitive
postures.
Minor in Technology
Entrepreneurship
The Minor in Technology Entrepreneurship pre-
pares students for launching successful technol-
ogy ventures and bringing life-changing products
and services to market. The Minor develops the
entrepreneurial mindset and functional skillsets of
students to improve their ability to create, launch,
and manage technology ventures. Students earn the
Minor by completing coursework which focuses
on entrepreneurial opportunity analysis, marketing
high-technology products, strategies for managing
innovation, and international entrepreneurship
and innovation.
The 15-credit undergraduate Minor may be
fulfilled from nine courses. At least nine credits
must be completed at the 400-level to earn the
minor. While course options are available for sev-
eral topic areas, application of 100- and 200-level
courses is limited to a total of six credits.
GRADUATE AND PROFESSIONAL
INITIATIVES AT MTECH
Mtech’s graduate and professional initiatives are
comprised of a graduate fellowship program,
graduate courses available to all graduate students
on campus, and the Certificate in Innovation
Management Program for professionals.
Citrin Fellowships Program
Mtech is home to the prestigious Warren Citrin
Graduate Fellowships program, which support
entrepreneurial engineering students who have a
desire to pursue research in the broad area of global
sustainability. The purpose of the Citrin Fellow-
ships Program is to attract entrepreneurial students
to the University of Maryland who are interested
in pursuing advanced degrees in engineering while
concurrently developing innovative companies in
the broad field of global sustainability.
Table 4. Course requirements for the Minor in
Technology Entrepreneurship
Topics Courses
Topic 1 Fundamentals of Technology Start-Up
Ventures (3 credits)
    Option 1 ENES 460: Fundamentals of Technology Start-
Up Ventures (3 credits)
    Option 2a HEIP 143: Foundations of Entrepreneurship
and Innovation (1 credit)
    Option 2b HEIP 241: Social Entrepreneurship Practicum
(2 credits)
Topic 2 Entrepreneurial Opportunity Analysis in
Technology Ventures (3 credits)
    Option 1 ENES 461: Advanced Entrepreneurial
Opportunity Analysis in Technology Ventures
    Option 2 ENES 210: Entrepreneurial Opportunity
Analysis and Decision-Making in Technology
Ventures
Topic 3 Marketing High-Technology Products and
Innovations (3 credits)
    Course ENES 462: Marketing High-Technology
Products and Innovations
Topic 4 Strategies for Managing Innovation (3 credits)
    Course ENES 463: Strategies for Managing Innovation
Topic 5 International Entrepreneurship (3 credits)
    Option 1 ENES 464: International Entrepreneurship &
Innovation
    Option 2 HEIP 240: Exploring International
Entrepreneurship & Innovation
1143

Citrin Fellows will demonstrate an entrepre-
neurial mindset and ability and interest in starting
a technology company that has social impact.
Sustainability encompasses technologies that
contribute to maintaining or achieving sustainable
infrastructure, environment and health, including
but not limited to: clean energy sources, energy
efficiency, pollution reduction, water resources,
carbon reduction, energy and waste measurement
systems, and medical devices.
Students are admitted into their departmental
graduate programs and work with their research
advisors while also receiving special training in
entrepreneurship and venture creation through the
Citrin Fellows Program.
Citrin Fellowships offer full-time fellowships
for four years and a stipend of $32,000 to $34,000
year. Assistantships require 20 hours of work
during the semester and 40 hours weekly during
summers. During year one, Fellows may hold a
teaching assistantship. After the first year, Citrin
Fellows are expected to have a graduate research
assistantship. Fellows receive full tuition and
health benefits, free TERP Startup Lab space with
the other Citrin Fellows, and special opportunities
to build a community of student entrepreneurs and
connect with successful entrepreneurs, including
the Citrin Fellows Program benefactor, Warren
Citrin.
Fellows will be automatically admitted into
the Maryland Technology Enterprise Institute’s
VentureAccelerator Program to advance their
entrepreneurial endeavors while pursuing their
graduate degrees. The VentureAccelerator pro-
vides a team of experienced startup and venture
capital veterans to mentor and methodically work
with the Fellows on all aspects of launching and
building a company including conducting market
research, identifying and attracting customers,
defining a product development roadmap, recruit-
ing a management team, developing a fundable
business plan, and obtaining early-stage venture
funding.
1144

Entrepreneurship Education at Mtech
Graduate Courses
Mtech offers five three-credit graduate courses
in entrepreneurship and innovation management.
• BIOE 645 Advanced Engineering
Startup Ventures: Graduate course covers
principles and practices important to engi-
neering startup ventures, especially those
involving bioengineering and medical device
enterprises, and includes the preparation
of business plans and tools used to obtain
funding.
• ENPM 690 Fundamentals of Technology
Startup Ventures: Explores the various
types of entrepreneurship, what makes the
difference between success and failure, the
importance of networking to obtain advice
without letting others know about the idea,
and how to create success. Students devel-
op a full business plan.
• ENPM 691 Strategies for Managing
Innovation: Examines how innovation in
organizations operates as a process, how
the marketplace affects it, how to identify
innovation opportunities, how individuals
find innovative roles in their organization,
how managers foster innovation in their
organization, and how innovation plays a
part in an organization’s overall strategy.
Analyzes the continuum of interdependent
steps (scanning the business environment,
invention, prototype development, venture
sponsorship, and meeting recognized social
and market needs) that are required to gen-
erate commercially successful products.
• ENPM 692 Innovative Thinking:
Introduces students to new and powerful
tools to boost their creative problem solv-
ing skills. A breadth of insightful tools and
methods are discussed that can be used to
develop innovative product and service offer-
ings to improve competitiveness and profit-

Entrepreneurship Education at Mtech
ability of start-ups and corporate ventures
alike. IP aspects are also introduced from an
innovative thinking perspective.
• ENPM 808N Corporate Technology
Venturing: Examines the role of corporate
entrepreneurship as a valuable instrument
for rejuvenating and revitalizing existing
companies and enhancing the practice of
innovation for improved competitiveness.
Strategies are explored for how corporate
entrepreneurship can lead to new business
ventures, new products, services or processes
and the renewal of strategies and competi-
tive postures.
Certificate in Innovation
Management Program
The University of Maryland’s Robert H. Smith
School of Business and the A. James Clark School
of Engineering have partnered to deliver a ground-
breaking executive education series that leverages
the unique capabilities of these two world-class
institutions (Green & Frels, 2009). This jointly
offered Innovation Management Program, co-
managed by Mtech, is designed to provide the
tools and frameworks needed to succeed in an
increasingly competitive landscape delivered
through a series of one-day, non-credit courses.
Course topics include Strategies for Managing
Innovation, Marketing in Technology-Driven
Industries, Introduction to Project Management,
Effective Negotiating Skills, and Essentials of
Financial Analysis. These face-to-face courses
enroll a limited number of working profes-
sionals, typically 25, in an effort to maintain a
classroom dynamic that facilitates networking
and relationship building. Professionals enroll
from a wide variety of organizations that include
startup companies, established corporations, and
government agencies.
PRE-COLLEGE INITIATIVES
Mtech’s pre-college programs consist of a high
school program started in 2005 and a middle
school program started in 2010.
Young Scholars Program
The Young Scholars Program hosts high school
students from throughout the U.S. and the world
to a pre-college experience at the University of
Maryland (Green, 2007b). Rising high school
juniors and seniors with exceptional ability and
promise pursue academic interests, discover career
opportunities, and earn three university credits.
The three-week program offers residential and
commuter options to students. Students earn
three college credits upon successful completion
of the course. Courses offered by Mtech within
the Young Scholars Program include:
• ENES 140 Discovering New Ventures:
Summer high school course for rising ju-
niors and seniors interested in how to de-
sign and launch a new company. Student
work in teams to develop an original new
venture concept and deliver an investor
presentation.
• ENES 141 Introduction to High-Tech
Product Development and Marketing:
Summer high school course for rising ju-
niors and seniors interested in the design,
development, and marketing of new high-
tech products. Students work in teams to
develop and present an innovative product
plan.
• ENES 142 Introduction to Innovative
Thinking and Creativity: Summer high
school course for rising juniors and seniors
interested in the flexibility and originality
of their thinking and approaches to create
and sustain high levels of innovation.
1145

• BIOE 160 Biopharmaceutical
Production: Summer high school course
takes students through a biotechnology cam-
paign where they will transform E.coli into
a green fluorescent protein factory. Students
work in teams, simulating a start-up biotech
company. Focus is placed on the basics of
recombinant DNA technology, as applied
to biopharmaceutical manufacturing. This
course is offered in partnership with the
Fischell Department of Bioengineering at
the University of Maryland.
Young Scholars Discovery Program
The Young Scholars Discovery Program enrolls
rising eighth and ninth grade students at the Uni-
versity of Maryland. For two challenging weeks,
academically talented students explore career
opportunities, engage with experts in innovative
fields, collaborate during interactive seminars,
and learn about university life at Maryland. The
Program offers residential and commuter options
to students. Students earn a non-credit certificate
upon completion of the course instead of college
credit. Courses offered by Mtech within the Young
Scholars Discovery Program include EXST 011
Designing Your Own Business. Course topics
include the basic business, strategy, and leadership
skills needed to launch new ventures.
Table 5. The four-dimensional performance measurement system model
Entrepreneurial Mindset
This assessment is a function of entrepreneurial processes,
entrepreneurial attitudes, and communications and interpersonal
skills.
Launching & Career Activities
Long-term outcomes associated with new venture creation are
measured and include number of companies launched, revenues,
profitability, employees, etc. Career activities of students measured
include graduate school and employment.
1146

Entrepreneurship Education at Mtech
ASSESSMENT
The approach to program evaluation for the
Mtech’s entrepreneurship education initiatives is
based on measuring short- and long-term outcomes
with program activities and courses. As illustrated
in Table 5, Mtech’s performance measurement
system is based on a four-dimensional evalua-
tion model. Assessment of all four areas ensures
that programs employs a holistic approach to
entrepreneurial education progress through both
short-term measures, to include entrepreneurial
mindset and functional skillsets, as well as long-
term measures of new venture creation. Student
satisfaction is also measured to identify areas for
improvement and development in the programs,
courses, and related activities.
With an appreciation of how students’ psycho-
social development progresses through college,
the first step is to question how to cultivate this
development while in college to enhance their
entrepreneurial mindsets. With the relative influ-
ence of 6 psychosocial factors listed in Figure 2,
the development of programs and curricula can
be considered by future researchers and educa-
tors, with an appreciation for the need to focus on
effectively and efficiently fostering self-efficacy,
an internal locus of control, and interpersonal
relationships skills amongst aspiring and active
entrepreneurs.
Functional Skillsets
This assessment is a function of financial management, teamwork,
marketing management, operations management, risk management,
and strategic management.
Student Satisfaction
Customer (student) satisfaction and career activities are measured
to ensure holistic program evaluation and quality assurance.

Entrepreneurship Education at Mtech
Figure 2. Model of late adolescent college students’ entrepreneurial opportunity discovery
The new model that Mtech has supported
through this research is illustrated as Figure 2
(Green, 2007a). Specifically, this provides insights
into what are the key areas within segment 3 of
the model; the psychosocial development factors
critical for late adolescent college students’ entre-
preneurial opportunity discovery (Green, 2007c).
The hypotheses in the performance mea-
surement system are: H1 = Mtech’s education
programs improve its students’ entrepreneurial
mindsets; H2 = Mtech’s education programs
improve its students’ functional knowledge in
entrepreneurship. Student satisfaction and launch-
ing and career activities are also measured for
comprehensive program evaluation.
To examine the entrepreneurial mindset devel-
opment of students, the methodology involves a
longitudinal analysis where students are surveyed
at program entry, at the completion of the first year
(as a midpoint measure), and upon graduation. A
110-question written survey is administered. The
survey is based on the Entrepreneurial Attitude
Orientation scale of Robinson, Stimpson, Heufner,
and Hunt (1991), in addition to questions devel-
oped to examine areas that include opportunity
discovery and interpersonal skills. The Program
has been shown to motivate improvements in a
number of areas including interpersonal relation-
ship skills, self-esteem, need for achievement,
locus of control, identity development, and self-
efficacy (Green & Johnson, 2008).
Notable improvements are also evident in stu-
dents’ functional knowledge in entrepreneurship
based on classroom deliverables and the level and
quality of student ventures. Long-term outcomes
of new venture creation, revenues, profitability,
employment, and traditional start-up measures
are also captured.
1147

Beyond students self-reporting and related
observable impacts, measureable quality and ef-
fectiveness is further evident in:
• Founding Companies: As listed in Table
6, a number of students and alumni are
actively managing their ventures on a full-
time basis, while others are cultivating en-
trepreneurship in corporate settings. Two
Hinman CEOs companies were selected
for the 2010 Inc. 500 lists of the fastest
growing private companies in the U.S.
• Securing Grants and Awards: Mtech’s
students have won grants and awards
exceeding $500,000 from notable or-
ganizations including the National
Collegiate Inventors and Innovators
Alliance (NCIIA), Maryland Industrial
Partnerships (MIPS), and the Maryland
Technology Development Corporation
(TEDCO). Hinman CEOs alumni com-
pany Squarespace raised $38.5 million in
venture capital in 2010.
• Corporate Success: Mtech’s students are
thriving in corporations, typically in entre-
preneurial roles including product manage-
ment, new venture financing, and intellec-
tual property law, to include Booz Allen,
Deloitte, Facebook, GE, Google, Goldman
Sachs, Microsoft, Peace Corps, and Teach
for America.
• Graduate Schools: Alumni also pursue
graduate studies in engineering, busi-
ness, law, medicine, and other disciplines
at leading U.S. universities including
Columbia University, Duke University, the
Georgia Institute of Technology, Harvard
University, the Massachusetts Institute of
Technology (MIT), Princeton University,
Stanford University, the University of
California at Berkeley, the University of
Maryland, the University of Michigan,
the University of Pennsylvania, and Yale
University.
1148

Entrepreneurship Education at Mtech
Rankings and awards at the university, institute,
program, and faculty levels include:
• The University of Maryland ranked #12
in entrepreneurship in the “U.S. News &
World Report’s America’s Best Colleges”
for 2010.
• The University of Maryland was listed at
#14 among the “Top 50 Entrepreneurial
Colleges” for 2007 rankings by The
Princeton Review and Entrepreneur
Magazine.
• The Hinman CEOs Program was featured
in Fortune Small Business’ selection of the
University of Maryland as one “America’s
Best Colleges for Entrepreneurs.”
• In 2002, Stanford University recognized
the Hinman CEOs Program as a national
leader in entrepreneurship with the Price
Institute Innovative Entrepreneurship
Educators Award.
• The Hinman CEOs Program was selected in
August 2003 to receive the 2003 Maryland
Association for Higher Education (MAHE)
Distinguished Program Award in the in-
structional category. The purpose of the
MAHE awards is to recognize innovative
and effective programs of superior merit
that advance higher education in Maryland,
as well as to share information about these
programs so others may benefit.
• Dr. David Barbe, Director of Mtech,
was recognized with the 2003 American
Society of Engineering Education’s
Outstanding Entrepreneurship Educator
Award. The award, sponsored by the
Kaufman Foundation, is given for leader-
ship and innovation in engineering and en-
trepreneurship education.
• In January 2011, Dr. James V. Green,
Director of Mtech’s entrepreneurship edu-
cation programs, took first place in the 2011
3E Learning Innovative Entrepreneurship
Education Competition presented at the

Entrepreneurship Education at Mtech

Table 6. Sample of undergraduate student companies of Mtech

Company Description Website

Alertus For nearly a decade, Alertus has specialized in reliable in-building emergency notification with an www.alertustech.com
Technologies array of highly affordable products, including wall-mounted Alert Beacons which flash-sound and
then display emergency notifications, digital signage override, desktop alerting, and text-to-speech
voice annunciation interfaces to fire alarm systems and public address speakers.

BeVo Media BeVo Media is a state of the art Internet advertising consolidation platform which aggregates affiliate www.bevomedia.com
marketing efforts. The BeVo Media Platform effectively reduces the hardest and most time consuming
aspects of affiliate marketing. BeVo Media lets publishers handle any and all of their needs from one
central interface.

Brainbox Learning Brainbox Learning is developing an advanced integrated learning management system for high schools to www.brainboxlearning.com
provide powerful tools to teachers; connecting parents, teachers, students, and empowering students to learn.

DoseSpot DoseSpot is an easy, effective, and secure E-prescribing system and healthcare technology developer. www.dosespot.com
With the goal of creating an effective and affordable E-prescribing solution that easily integrates into
a physician’s already complicated work flow, DoseSpot offers premier services at a price that today’s
physicians can afford.

FinalTic FinalTic is a new platform that enables charities and organizations to fundraise through an innovative www.finaltic.com
online auction experience. While providing buyers with great products at low prices, this entertainment
shopping model blends auction elements with a raffle component to deliver effective fundraising to groups.

HiveBright HiveBright is an entrepreneur community and a place to find resources to bring business concepts to www.hivebright.com
life. HiveBright offers a suite of services based around starting a business with a web presence.

Invision Media Invision Media Company creates media outlets that educate and promote youth and adults engaged in www.isnsports.com
Company three areas of endeavor: sports, academics, and performing arts. The Invision Sports Network™ (ISN)
is an informational and entertainment outlet for amateur sports fans worldwide. ISN allows athletes,
coaches, scouts, and fans to view amateur athletic events online via Internet streaming video technology.

Lurn Lurn is a two-time Inc. 500 award-winning company that provides a range of products and services www.lurn.com
including online training courses and live events on a variety of online marketing topics, online
communities and publications for Internet marketers and e-learning technology platforms for educators
of business and marketing professionals.

LookThink LookThink is a Washington, D.C. and New York City-based creative firm offering interactive, user www.lookthink.com
experience, branding and strategic expertise. Customer service and a strong focus on reliability are the
keys to the company’s success.

Squarespace Squarespace is a two-time Inc. 500 award-winning next generation Internet publishing company. www.squarespace.com
Customers experience a fully hosted, completely managed environment for creating and maintaining a
website, blog, or portfolio.

Trade Assurance Trade Assurance International is developing a high-definition video platform to mitigate trade risk for www.hdtradeservices.com
International the international B2B trade and procurement industry.

Tseai Energy Tseai Energy Unlimited is an innovative agricultural and renewable energy company focused on social www.tseai.com
and economic development in West Africa. The company helps underdeveloped rural communities to
simultaneously produce their own electricity, develop their economies, and provide social services by
leveraging local agricultural potentials.

Zathyus Networks Zathyus Networks, Inc. is owner of InvisionFree.com and ZetaBoards.com, providers of remotely www.zetaboards.com
hosted message boards currently ranked among the top most trafficked websites with over 1 billion
posts, 40 million registered members, and 3 million forums.

U.S. Association for Small Business and the question of how universities can develop the
Entrepreneurship (USASBE) annual entrepreneurial mindset and functional skillsets
conference. of entrepreneurial students, a comprehensive
examination and comparison of entrepreneurial
universities worldwide is a valuable next step.
FUTURE RESEARCH DIRECTIONS Annual rankings of academic entrepreneurship
programs provide insights into the inputs of uni-
While this chapter’s attention to Mtech’s entrepre- versities, including the number of courses offered
neurship education programs shares insights on in entrepreneurship, number of students enrolling

1149

in these courses, amount of dollars awarded in
business plan competitions, and related easily
quantifiable measures. A deeper understanding of
the outputs of university-based entrepreneurship
education programs is central for universities to
collectively produce entrepreneurial students, en-
trepreneurial ventures, and entrepreneurial leaders
in corporations, organizations, and governments.
Entrepreneurship is unequivocally one of the
fastest growing subject matters in the undergradu-
ate curricula in the U.S. and in select nations aboard
(Kuratko, 2005). Increasingly, universities them-
selves are agents of entrepreneurship by fostering
commercialization of university-based technolo-
gies and ideas. A further area of exploration is
to explore how to link entrepreneurial students
within the university with faculty engaging in new
venture creation. In this way, students and faculty
can pair to create innovative new ventures, rather
than operating in the traditional mold of ventures
being classified as either student ventures or fac-
ulty ventures, instead of student-faculty ventures.
CONCLUSION
Mtech’s commitment to entrepreneurship edu-
cation for all students on-campus is evidenced
in its development and teaching of 30 courses,
management of eight unique entrepreneurship
and innovation initiatives, and support of over
1,000 students annually. By examining Mtech’s
approach to entrepreneurship education, defining
the inner workings of Mtech’s entrepreneurship
education initiatives, and discussing best practices
and lessons learned, this chapter provides a starting
point for the creation of new entrepreneurship and
innovation programs in a university setting, as well
as a platform for improving existing programs.
Entrepreneurship is excellent vehicle to achieve
the aims of integrated, diversified learning that
makes a comprehensive university education. The
study of entrepreneurship requires a comprehen-
1150

Entrepreneurship Education at Mtech
sive dialogue on many fields of learning beyond
business, to include science and technology,
psychology and sociology, and specific industries
within which a specific new venture may compete;
from anthropology to zoology.
Based on the success of Mtech and the promise
of entrepreneurship education, there are compel-
ling reasons to make entrepreneurship a main-
stream subject in every college and university. An
increasingly competitive world requires enhanced
levels of understanding, ingenuity, and technology
advances that must be considered through a holistic
lens. This requires people that can do more than
conceive of great ideas. Society needs people who
can convert ideas into action and commercialize
products and services to serve large populations.
This entrepreneurial society will not emerge or-
ganically or be fuelled by governments alone. It
will have to be built and nurtured by those that
understand how entrepreneurship works, how it is
sustained, and how it is scaled. That understand-
ing is the result of a comprehensive, experiential
entrepreneurship education.
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This work was previously published in Academic Entrepreneurship and Technological Innovation edited by Anna Szopa,
Waldemar Karwowski, and Patricia Ordóñez de Pablos, pages 75-99, copyright year 2013 by Information Science Reference
(an imprint of IGI Global).

1153
1154

Chapter 62
The Practice of Open Innovation
in Chinese Enterprises
Jin Chen
Tsinghua University, China

Yufen Chen
Zhejiang Gongshang University, China

ABSTRACT
Along with the increasing pace and complexity of technology, the importance of external knowledge
exploitation has been acknowledged by many researchers and practitioners. How to manage the in-
novation efficiently is an important issue for firms to enhance competitiveness. Based on the essentials
of open innovation, this chapter describes the conditions of openness in the process of innovation in
Chinese enterprises. This chapter summarizes some modes for the organization of open innovation in
Chinese enterprises, including all employees participate in the innovation process, users involve in the
innovation, suppliers participate in the innovation, collaborations with firms in other industries and
competitors, cooperation with universities and research institutes, and also intellectual property licens-
ing. Finally, this chapter introduces a case of open innovation practice in Baosteel, which is a famous
manufacturing enterprise in China.

INTRODUCTION attach importance to innovation to respond to the

As the key factor to a company’s capability to
thrive, innovation can make enterprises be more
competitive. The research made by PWC England
Corporation indicated that enterprises mastering
innovation well grow quicker and create more prof-
its than others. Innovation is becoming the driver
and headspring of survival and development for
enterprises with the more intense market competi-
tion (Kumpe & Bolwijn, 1994). Enterprises must
rapidly changing market, to satisfy users’ diversi-
fied needs and to maintain competitive advantage.
Through continuous innovation, enterprises can
apperceive and obtain those resources with latent
value and characteristic more thoroughly, thus
forming heterogeneous capabilities which can
be imitated with great difficulties by competitors
(Alchian & Demsetz, 1972).
Today the importance of innovation has
been recognized by all practitioners. Intense

DOI: 10.4018/978-1-4666-8468-3.ch062

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The Practice of Open Innovation in Chinese Enterprises
competition and the faster changing markets and
technologies have made sure of that. But techno-
logical innovation is an activity full of risk with
both high inputs and high rates of failure. With
competition getting more intense, companies that
don’t innovate will die. While most innovations
tend to fail, how to innovate is a key problem. In
today’s world where the only constant is change,
the task of managing innovation is vital for com-
panies of every size in every industry to remain
competitiveness. Innovation is a very difficult
process to manage.
In Chinese enterprises, the technological in-
novation capability is laggard compared with firms
in developed countries. R&D activities in most
enterprises are inactive. In 2011, only 11.5% of
enterprises to total number of enterprises above
designated size (with sales more than 20 million
yuan) have R&D activities. And the percentage of
expenditure on R&D to sales is 0.71 in Chinese
industrial enterprises. Thus the support of R&D
to technological innovation is relatively weak
and technology intensity is very low in Chinese
enterprises. R&D activities, especially basic
research activities, in Chinese enterprises are
usually inactive. Expenditures on basic research
were only 0.11% of the R&D expenditures and
the expenditures on applied research were 2.9%
of the R&D expenditures1.Therefore there is a
lack of original innovation in Chinese enterprises.
Enterprises have to face the global economic
circumstance. The increasingly intense market
competition is challenging the technological
innovation capability in Chinese enterprises
rigorously. The great change of market rule and
the rapid development of global economic inte-
gration lead to the radical change of enterprises’
survival environment. Only through innovation
can enterprises create new opportunity to exist
well and face the new challenge.
The open innovation paradigm campaigned by
Henry Chesbrough offers a new way of thinking
about and managing innovation (Chesbrough,
2003). Open innovation means that companies can
and should use external ideas as well as ideas and
take internal as well as external paths to market.
Open innovation emphasizes the role of other
departments besides the internal R&D depart-
ment, emphasizes R&D collaboration with outside
organizations, emphasizes integration of internal
and external knowledge, and emphasizes outside
distribution to market (Chen & Chen, 2005).
Open innovation may show the advantage
of free flow of new ideas. Through opening the
internal R&D process to outsides such as users,
suppliers, and even competitors systematically,
innovation provides access to more ideas than
could be developed in-house. Open innovation
can speed innovation and reduce the uncertainty
of technology and market. Open innovation may
bring many benefits to the advancement of in-
novation capability and fuel growth. In today’s
hyper-competitive environment, no organization
is capable of generating all the knowledge it
requires for innovation in-house. By leveraging
the discoveries of others, companies can produce
spectacular results (Silverthorne, 2003).
The new mode of innovation also shows a
new direction for Chinese enterprises to innovate
indigenously. More and more enterprises in China
are taking on the open innovation path. For Chi-
nese Enterprises, this new innovation mode may
be especially important. The internal innovation
resources are inferior and insufficient obviously
in Chinese enterprises. It is unable to compare the
scale and intensity of R&D investments of Chinese
enterprises with their multinational counterparts.
Therefore it is more difficult to realize indigenous
innovation by simply relying on internal resources.
Moreover, Chinese enterprises face the erosions
of closed innovation. The mobility of knowledge
staff is frequent, the speed of knowledge creation
and dissemination is getting quicker and venture
capital has been not new in China. Therefore, the
open innovation paradigm is not only the tendency
in the developed countries it but also will become
ubiquitous in Chinese enterprises.
1155

The Practice of Open Innovation in Chinese Enterprises
The Conditions of Openness
in the Process of Innovation
in Chinese Enterprises
Open innovation emphasizes the importance of
external creative ideas and external channels of
commercialization and that of technological col-
laboration with other firms. Firms in the open
innovation mode will open their R&D projects
to outside agencies including leading users, sup-
pliers, other firms, and even competitors. The
openness promotes the fluxion of new ideas and
innovation resources.
With the speed of creation and diffusion of
knowledge becoming quicker, the growing mobil-
ity of highly experienced staff and the availability
of venture capitals, companies have to acceler-
ate the development and commercialization of
new products. If researchers can’t see their new
technology be commercialized they will try to
commercialize it by themselves. They will no
longer wait internal developers to exploit their
new technology and design new products. They
may develop the results of their research through
venture capitals or technology spin-out and make
it be commercialized. Thus, internal knowledge
and technology could leak out. Enterprises must
observe the instantaneous change of the market
and technology synchronously, and react quickly.
In the open innovation paradigm, the boundary
of enterprise is vague. Innovative ideas originate
internally, from R&D department or other depart-
ments. And they can also come from outside. On
the base of intensive internal R&D activities,
companies should monitor external technology
closely, absorb and use external knowledge ad-
equately to fetch up the gap.
The ability of using and integrating external
knowledge is a headspring for enterprises to
acquire competitive advantage. Companies can
acquire technology through R&D cooperation,
technology licensing, and technology acquisition
so as to reduce the cost and risk of innovation.
Leading users and suppliers full of innovation
spirits will be important sources and participants.
Internal innovative ideas may seep out of firm
1156

either in the research stage or later in the develop-
ment stage through the diffusion of knowledge and
mobility of personnel (Chesbrough, 2003). New
ideas and new products can be taken to the market
through external channel, outside the current busi-
ness of the firm to generate additional value and
reduce the uncertainty of market (see Figure 1).
Chinese enterprises are becoming opener in
the process of innovation using external resources
to improve the efficiency of innovation gradually.
An investigation into the innovative activities in
industrial enterprises all over the country was
carried out by the National Bureau of Statistics
in 2007 in order to reflect the indigenous innova-
tion capability and the conditions of innovation
practices. This investigation included all state-
owned enterprises (SOEs) and the non-SOEs
with their yearly sales larger than 5 million yuan.
More than 80,000 enterprises were included in
this investigation. The field of investigation has
covered many industries including mining in-
dustry, food and clothing processing, machinery
and transport vehicle manufacturing, electronic
products manufacturing industry, electric, fuel
gas, water production and supply industry. The
survey covered activities of the whole innovation
process from new ideas, new product design,
research and development, technology acquiring,
production and commercialization. The contents
of the survey covered innovative expenses, the
modes of innovation collaboration and the sources
of innovation etc.. The data showed that internal
R&D expense accounted for 30% of the total in-
novative expense in the enterprises’ innovation
practice. This means that 70% of the funds were
used to contract R&D to outside organizations,
usually institutions of learning and acquire ma-
chinery, equipments and related technologies
(see Table 1). It is very important for enterprises
to obtain technology-related and market-related
information from related organizations including
users, suppliers, firms in the same the industry,
universities, research institutes, the consultant
firms and governments in the process of innova-
tions (see Table 2).

The Practice of Open Innovation in Chinese Enterprises

Figure 1. The open innovation model in Chinese enterprises

Table 1. The expenses for innovation in Chinese industrial enterprises (2006)

Total Innovation The Ratio to the Total Innovation Expense (%)

Expense (Million
Internal External Acquiring the Machine, Acquiring
Yuan)
R&D R&D Equipments and Technology
Software from Outside from Outside
Total expense in industrial 582140 32.4 3.6 55.8 8.1
enterprises
Grouped by the Size
Large 306810 35.5 3.7 54.7 6.1
Medium 165520 34.1 4.0 50.8 11.1
Small 109810 21.4 3.1 66.5 9.0
Grouped by the Industry
Mining industry 24950 27.0 4.4 64.2 4.4
Manufacturing industry 535850 33.7 3.6 54.5 8.3
Electric, fuel gas, water production 21340 8.2 4.6 80.8 6.0
and supply industry
Sources: http://www.stats.gov.cn/tjsj/qtsj/2006cxdc/t20080222_402464451.htm

1157
 
The Practice of Open Innovation in Chinese Enterprises

Some Mode for the Organization

and Media
Literature

29.4
of Open Innovation in

39.9
30.5
28.6

16.1
29.7

22.6
Chinese Enterprises
Exposition

All Employees Participate in

26.0

27.0
27.5
25.6

26.7
7.6

6.1
the Innovation Process

Open innovation is fueled by different sources. The

Governments

management literature provides helpful insights

12.3

21.0
14.1
11.6

19.7
12.2

13.2
to pinpoint the contributions of both internal
and external sources in determining the innova-
tion performance of companies. We start with a
Institutes
Research
The Proportion of the Enterprises Having Innovative Activities (%)

12.4

24.6
16.1
11.1

12.5

10.8
9.2

description of some internal sources, followed

by a description of the contribution of external
sources of innovation.
Universities
Table 2. The distribution of the important sources of information for innovation (2004-2006)

Human capital is the first internal source of

17.5
11.1
8.9

8.0

6.3
8.9

6.8

innovation. Traditionally, innovative performance

has been related to the human capital present in
R&D departments. However, knowledge also
Association
Profession

Grouped by the Industry

14.7

24.1
18.3
13.5

14.8

17.9

originates from a firm’s internal units other than

8.9
Grouped by the Size

the R&D lab, such as marketing and manufacturing

(Cohen & Levinthal, 1990). Several scholars even
Other Firms in the Consultant

go as far as to suggest that innovation should be

Firms
17.0

26.0
19.4
16.0

10.5
17.1

14.9

the responsibility of all employees, and not the

task of a few scientists and engineers. Salesman,
front-line employees, R&D personnel, managers
Sources: http://www.stats.gov.cn/tjsj/qtsj/2006cxdc/t20080222_402464456.htm
Same Industries

and service personnel can all be excellent innova-

tors (Tucker, 2002; Shapiro, 2002; Christiansen,
29.8

39.7
32.1
29.0

32.4
29.6

38.4

2000; Dundon, 2002). Managers in Chinese en-

terprises take employees more and more seriously.
They begin to consider front-line employees as
Suppliers

their most precious resources, and try to embed

21.6

23.5
20.6
21.7

19.7
21.6

19.4

innovation into each part of the organization and

make all employees feel responsible for generating
new ideas. Haier Corporation, a Chinese home
Users

58.6

66.4
62.5
57.4

30.4
59.7

27.6

electric appliance manufacturer, for example, is

structured into different Strategic Business Unit
Internal

33.1

42.7
34.7
32.4

24.1
33.2

35.5

(SBUs) where each unit can introduce novel

products in the market directly. And in Baosteel
Corporation, the largest Chinese steel manufac-
and supply industry
Electric, fuel gas,
water production
Mining industry

turer, the notion of ‘all members are innovators’

Manufacturing
All industrial

allows the company to achieve extraordinary in-

enterprises

Medium

industry

novative performance (Xu, 2007).

Small
Large

1158

The Practice of Open Innovation in Chinese Enterprises
Users Involve in the Innovation
Good ideas come from observations and listening
to users respectively. In a study of 252 new prod-
ucts in 123 enterprises, Kleinschnidt and Cooper
researched concluded that most new products
originated from the ideas put forward by users
not from elaborate R&D activities or brainstorm
meetings within the companies (Tucker, 2002).
Chinese enterprises also start to pay great atten-
tions on user need in order to develop successful
products. Von Hippel defines “sticky informa-
tion” as “the information that is costly to acquire,
transfer, and use in a new location.” The degree of
stickiness is defined as the incremental expenditure
for transferring a certain unit of information to
a specified locus in a form that is useable to the
information seeker. When cost is low information
stickiness is low, when cost is high stickiness is
high (von Hippel, 1994, 1998). New products
and services must be accurately responsive to
user needs if they are to succeed. Because of the
stickiness of users’ need-related information it is
often a very costly and difficult matter for firms
to understand users’ needs deeply and well (von
Hippel, 2001). Therefore enterprises usually invite
users to participate in the process of new product
development directly. This will reduce the cost of
access to sticky innovation-related information.
Manufacturers can combine users’ need-related
information with their own information on the pos-
sibility to provide technological solutions. Firms
can also let users be designers of new products and
‘do it themselves’, thus giving users real freedom
to innovate and allowing them to develop their
customized products via iterative trial-and-error.
Users can create a preliminary design, simulate
or prototype it, evaluate its functioning in their
own use environment, and then iteratively improve
it until satisfied. In this way, the need to shift
problem-solving back and forth between users and
manufactures is eliminated during the trial-and-
error cycles involved in learning by doing (Von
Hippel, 2001). With users’ direct participation in
the new product development process, change the
interface between suppliers and users and benefit
from the important need-related information so
as to speed up the innovation and reduce the
market uncertainty of the new products. Through
continuous customer-centric innovation, Huawei
Corporation, a leading global telecommunications
solutions provider, has established end-to-end
advantages in telecom network infrastructure,
application & software, devices and professional
services. Huawei has gained a leading position in
the All-IP convergence age.
Suppliers Participate in the Innovation
Establishing iterative and long-term contact with
suppliers can allow enterprises to make full use of
external resources and establish more flexible new
product development (NPD) process. Companies
can shorten the period of innovation with suppliers’
participation in the early design and development
process. Through discussion and communication
with suppliers constantly, companies can speed
the innovation. The earlier a supplier obtains the
information of a new product plan, the earlier a
company can attain feedback of the new product
prototype from the supplier and thus shortens the
innovation cycle. It is a source for companies to
acquire competitive advantage through establish-
ing trustful and long-term collaboration with sup-
pliers who have the consciousness of innovation.
Moreover, this kind of competitive advantage is
difficult for competitors to imitate. In this regard,
Baosteel Group Corporation, a leading iron and
steel giant, has set up active and close collabora-
tions with its global leading suppliers to make
up for its lack of technology capabilities and to
guarantee the quality of products.
1159

The Practice of Open Innovation in Chinese Enterprises
Collaborations with Firms in Other
Industries and Competitors
In the open innovation paradigm, resources that
technological innovation needs are diversified.
There is no one company that possesses all re-
sources inside completely. Even the best compa-
nies with the most extensive internal capabilities
can’t undertake technological innovation activity
alone (Chesbrough, 2003). Great technology and
ideas can be found in companies of all sizes.
Therefore, it is important for enterprises to in-
tensify technology cooperation to break out the
restriction of resources. Companies complement
or supplement each other through technology
collaborations. Collaboration can accelerate the
communication of information and promote the
creation and dissemination of knowledge effec-
tively whereby enterprises can increase the abil-
ity to cope with sophisticated circumstance and
increase the rate of successful innovation. Many
Chinese enterprises have learned to draw on tech-
nologies from a network of startups, firms in other
industries, and even competitors. They also make
full use of global resources for innovation through
integrating international and domestic resources.
For example, Zhejiang Hisun Pharmaceutical
Co., Ltd has set up multi-forms of international
research collaborations with international leading
pharmaceutical companies including Lilly, Merck,
Novartis, Bayer, and Syngenta to enhance its in-
digenous innovation capabilities. Hisun uses its
unique product innovation system of ‘bee flowers’
and ‘cross-cutting tactics’ to effectively integrate
internal and external scientific and technological
resources to speed up innovation. Neusoft Com-
pany, China’s leading IT solutions and product
engineering services provider, constantly par-
ticipates in global strategic alliance and in this
way it even has turned potential competitors into
partners. The alliance has helped Neusoft get
access to global resources easily. Huawei has set
up strategic cooperation with users, suppliers and
1160

industry peers to face challenges together. Huawei
has formed numerous partnerships with leading
companies, and cooperated with them on the
foundation of its indigenous technologies. Huawei
also has worked closely with leading multination-
als such as ADI, Agere, Altera, HP, IBM, Intel,
Microsoft, Motorola, Oracle, Sun Microsystems,
TI and Xilinx to improve the time to commercial-
ize new products, and to incorporate the latest
technology and best management practice into
the company. But most of the Chinese enterprises
avoid collaborating with competitors to prevent
the knowledge leakage.
Cooperation with Universities
and Research Institutes
Universities and public research institutes are
important sources of new scientific and techno-
logical knowledge for firms that pursue radical
innovations (Belderbos et al., 2004). Cooperation
with universities and research institutes is an ef-
ficient path through which companies acquire
external knowledge. Science is especially im-
portant as source of information for innovation
in those science-based technology fields such
as information technology, biotechnology, and
nanotechnology where new breakthroughs can
be transferred to applied research and translated
into new products and process. Universities and
research institutes can provide complicated exper-
tise and the emerging technology to enterprises.
Furthermore, universities do not compete with
enterprises. The more generic nature of a joint
research project with universities and research
institutes involves fewer appropriation issues as
compared to the more commercially sensitive
content when cooperating with other businesses.
Therefore, industry-science cooperation is a main
mode for innovative firms to acquire external
sources of knowledge. For example, Hisun has
established long-term relationships with more
than 30 Chinese research institutes to develop new

The Practice of Open Innovation in Chinese Enterprises
technology and new medicines. Yantai Wanhua
Polyurethane Co., Ltd., the only enterprise having
indigenous intellectual property rights of MDI
manufacturing technology in China, has relied
mainly on the technical supports of the Qingdao
Institute of Chemical Technology to develop MDI
technology successfully and made China become
the fifth country that has the capability to deploy
MDI manufacturing technologies in the world.
Intellectual Property Licensing
Monitoring the dynamic development of external
technology closely and purchasing advanced tech-
nology outside in time to fill in the technology gap
is a valid path to increase the rate of successful
technological innovation. Companies can create
value by combining their own ideas with external
technology and also make profits from others’ use
of their technology. Chinese firms are increas-
ingly attaching great importance to intellectual
property rights and acquiring external technology
through licensing or cross licensing. In the initial
period of development, many enterprises used the
advanced technology from multinational corpora-
tions through licensing and gradually accumulated
their own technological capability. But Chinese
enterprises seldom sell their own technology this
way, mostly because of the lag in technology. The
inside-out of technology is rare in Chinese firms.
In summary, in the open innovation paradigm,
the technological innovation is no longer a simple
and linear process, but one with complicated
feedback mechanism and interaction involving
various factors such as science, technology,
learning, manufacturing, policy, and demands.
Enterprises are no longer able to implement in-
novation independently. They usually proceed to
innovation by interacting with other organizations
including suppliers, users, competitors, universi-
ties and governments.
Open Innovation in Chinese
Enterprises: The Case of Baosteel
Having briefly mentioned some examples in which
Chinese enterprises pursue open innovation, this
chapter will devote the section to the practice of
one Chinese company, Baosteel Group Corpora-
tion in Shanghai, in this regard. Baosteel is the
most competitive in steel industry in China as
well as in the world. In 2012, its output was about
43.74 million tons and revenue reached $46.82
billions. Baosteel ranked No. 197 among Global
500 enterprises in 2012 and has been on the list
for nine consecutive years.
Baosteel started its construction in 1978,
with a total investment of $12 billion. The Phase
I Construction was completed in September
1985, with an annual capacity of 3.2 million tons
of steel. Phase II was completed in June 1991,
bringing its annual capacity to 6.71 million tons.
In December 2000, with the completion of the
Phase III Construction, its annual capacity was
increased to 11 million tons. Currently, Baosteel’s
major products include cold-rolled and hot-rolled
sheet, hot dip galvanized sheet, electro-galvanized
sheet, tinplate, electrical steel, color coated sheet,
wire rod and seamless pipes. (Baosteel products
introduction)
Mass Innovation: Innovative
Ideas and Suggestion System
Baosteel advocates the notion of ‘innovation by all
members’ makes innovation based on the improve-
ment of daily work of every employee. In Baosteel,
executives try to advocate the notion of ‘failure
tolerance for the construction of an innovative
culture’ to encourage everyone participate in the
innovation activities, thus stirring up the enthusi-
asm and wisdom of employees and strengthening
the innovation vitality greatly. In Baosteel, the
mass technological innovation activities are very
1161

The Practice of Open Innovation in Chinese Enterprises
active. In 2012, employees put forward more than
320,000 rationalization suggestions a year and 6
technology secrets every day, which generated an
economic value of 2600 million yuan.
Research Cooperation with Users
The guideline of Baosteel is ‘being oriented
towards users’. Direct and open research coopera-
tion with users bridges close interaction between
Baosteel and its users in technological innovation.
Baosteel is strengthening its force in research
of users’ operative technologies, with an aim of
advising users to utilize Baosteel’s products in
an effective way.
Baosteel signed strategic cooperation protocols
with Shanghai Automobile Industry Group, China
FAW Group and Dongfeng Automobile Group
in 2003. Baosteel has developed multiple-aspect
collaboration with these three automobile giants
and changed its original relationship with these
companies as a pure material supplier. When
these car manufactories are still in the early stage
of car development, S&T personnel in Baosteel
are involved in the design, manufacturing, and
material selection of their new cars. Baosteel also
helps users to proceed to technology improvement
and work with users on product upgrade. It also
has changed their services from ‘after-sales’ ’ to
‘before-sales, thus speeding up the development
of new products according to different needs of
the car makers. At the same time, car makers
also shorten the time of new product develop-
ment and lower the risk of innovation. Baosteel
strives to build more stable partnerships with
users and reinforce strategic cooperation to face
challenges together. The cooperative relationship
has fueled the flourish of car manufacturing and
steel industry together.
Baosteel also has established strategic tech-
nology alliance with many domestic electric
appliance corporations and port corporations.
Baosteel signed strategic cooperation protocols
with Gree Electric Appliance Corporation in
1162

2004 and will deepen the cooperation to achieve
win-win for both.
Baosteel has set up a number of technological
service groups and agencies in Shanghai Volkswa-
gen Corporation, China FAW Group and Liaohe
Oilfield, and is gradually sending technical service
personnel to 13 major automobile manufacturers
in China. Meanwhile, R&D personnel have also
worked with overseas users to conduct coopera-
tive research.
Research Cooperation with Suppliers
Baosteel has adopted the cooperation mode known
as ‘Being in harmony with up- and down-stream
domestic and international enterprises’. In January
2004, Baosteel signed a protocol of technology
cooperation with Henkel Corporation, a major
Germany paint supplier for car steel and electric
appliances. The cooperation aims at improving
the quality of environmental protection of steel
used in and electric appliances.
In September 2004, Baosteel signed a protocol
of technology cooperation with Japan’s Shparker
Corporation, a major supplier of antirust oil. The
two corporations develop extensive cooperation in
the disposal of the steel surface and applied R&D.
They will co-establish an R&D group and carry
out concrete projects and communicate research
results effectively and timely. At the same time,
Shparker will dispatch service engineers to provide
technology support for Baosteel. This will be a
win-win through R&D cooperation and technical
information sharing.
Research Cooperation with
Universities, Governments, and All
Kinds of Business Units Including
Domestic and International Enterprises
Baosteel implements the idea of open innovation
along the chain of technological innovation, from
R&D, pilot, to manufacturing and commercial-
ization. To make up for its lack of technological

The Practice of Open Innovation in Chinese Enterprises
capabilities, Baosteel attaches great importance to
the use of external innovation resources. Baosteel
‘borrows brains’, makes use of the social capital,
and builds the strong technological innovation
capability.
Baosteel has close contacts with excellent
domestic and foreign universities and research
institutes and proceeds to R&D cooperation ac-
cording to the actuality. Baosteel has been seeking
new forms of industry-science cooperation with
domestic and international mainstream institutes.
Baosteel has established cooperation with more
than 50 universities. The company has taken many
actions to optimize the distribution of coopera-
tion and improve the cooperation quality so that
partnerships are more centralized, steady and
long-term oriented. In 1999, Baosteel signed 189
contracts of cooperative development projects with
related institutions of learning, with an estimated
contract value of RMB 46 million yuan. Baosteel
has co-established the Electromagnetic Process
Research Center and the Vacuum Spraying Metal-
lurgical Lab with partner institutions, and jointly
conducted a number of advanced, high-level and
leading technological research projects. In August
2000, Baosteel and the National Natural Science
Foundation of China (NSFC) co-founded a nation-
wide Joint Iron & Steel Foundation to fund basic
research programs in iron and steel related fields.
Baosteel has carried out its technological
innovation by way of both acquiring, absorb-
ing, and digesting imported technology and in-
novating indigenously. At the beginning of 21st
century, Baosteel is now transforming it from
a company based on technology assimilation to
a more innovation-focused one. In an effort to
strengthen its core technological capabilities,
Baosteel has tried to develop international R&D
cooperation opportunities. In July 2003, Baosteel
signed a cooperation protocol with Arcelor Corp,
the biggest steel group in the world. According
to the agreement, Arcelor will provide advanced
laser solder production technology and transfer
cold stainless steel production technology to Bao-
steel. In December 2003, Baosteel, Nippon Steel
and Arcelor signed a contract of 1,800 millimeter
cold steel engineering. Baosteel has introduced
Japanese advanced car armor plate manufacturing
technology, which has strengthened the technol-
ogy support in car armor plate production and
users service of Baosteel. And the efficiency and
technology of car armor plate manufacturing have
been upgraded as well.
The main channel through which Baosteel has
accumulated social capital includes establishing
joint project groups, constituting centre of de-
velopment spare part, constituting joint graduate
programs, establishing postdoctoral working
stations, endorsing long-term cooperation pro-
tocols in professional realm, constituting joint
professional design companies, among others.
The R&D social cooperation has widened the
way of thinking in Baosteel and has brought many
breakthroughs in innovation. The establishment
of technological innovation networks based on
trust and cooperation has strengthened Baosteel’s
R&D capability significantly.
Achievements
Baosteel insists on the open technology develop-
ment at the same time of introducing advanced
technology and carrying out indigenous innova-
tion. Open innovation has provided the company
with the opportunity to access to knowledge and
technologies that would take years and millions
of dollars to develop in-house. Prominent achieve-
ments have quickly improved its technological
innovation capability and market competitiveness
in a short time.
When Baosteel started its first period of
engineering in December 1978, China’s techno-
logical level in metallurgy lagged behind that of
developed countries for at least 20 years. Baosteel
has achieved technological leapfrogging through
introducing advanced technologies in the world
and through assimilating and mastering these tech-
nologies. It also has monitored the international
1163

The Practice of Open Innovation in Chinese Enterprises
advanced level to keep up with the technological
capability and developed technology with indig-
enous intellectual property rights continuously to
maintain its technological edge. The technological
innovation mode in Baosteel can be described as
a continuous process of technology importation,
assimilation, incremental innovation, dynamic
monitoring, and improvement, which has made
Baosteel catch up with the international advanced
level quickly. To stimulate the enthusiasm of its
S&T personnel and employees, Baosteel has es-
tablished the mechanisms to inspire technological
innovation and employees’ participation in innova-
tion. To break the boundary between departments,
Baosteel has established the internal cooperation
innovation mechanism by integrating research,
manufacturing and marketing. To fill in the gap
and take full advantage of external resources,
Baosteel also has established the mechanism of
international cooperation and manufacturing,
learning, and research cooperation with the new
notion of absorption and innovation, combin-
ing ‘initiative choice’ with ‘indigenous R&D’.
Baosteel is very capable of using and integrating
S&T resources so as to eventually realize the ac-
celeration of indigenous development and mastery
of key technology.
Because of these, Baosteel has witness the
number of patent applications increased 20%
annually since its establishment. By the end of
2011, the accumulative number of invention pat-
ents applications reached 3054 items and patents
applications reached 7579 items. 1,466 items of
invention patents and 5,844 items of patents were
authorized. The transformation rate of corpora-
tion’s science and technology achievements is 95%,
higher than the average level of 20% in China.
CONCLUSION
Open innovation brings many benefits to the
advancement of innovation capability and eco-
nomic growth. It provides access to more ideas
1164

than could be developed in-house. More and more
Chinese enterprises are relaxing their hold on
internal development, directing their engineers to
focus on their core areas of innovation and sourc-
ing technologies that can be integrated from the
outside. By leveraging the discoveries of others,
companies can produce spectacular results. Open
and integrated innovations are the new direction
for Chinese enterprises to innovate.
Though Chinese enterprises lack the original
technological innovation capability, they can
make full use of the global open market, seek
resources available for innovation all over the
world to develop new products with indigenous
intellectual property rights. It is innovation that
turns potential into advantage. With the support
of a national innovation system and through the
accumulation of technological capabilities, Chi-
nese enterprise will realize indigenous innovation
under open conditions
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KEY TERMS AND DEFINITIONS
Employees Participate in Innovation:
Knowledge needed for innovation may originate
from all employees besides the scientific elites.
Salesman, front-line employees, R&D personnel
and service personnel can all be excellent innova-
tors. Innovation should be the responsibility of
all employees but not the task of a few scientists
and engineers. In the process of innovation, try to
embed innovation into each part of the organiza-
tion and make all employees feel responsible for
generating new ideas.
Innovation Performance: Innovation perfor-
mance is the results of the implementation of new
technologies or new products development. It will
usually increase the value of the enterprise. The
ratio of new product sales to firm’s total sales is
generally regarded as a reliable indicator reflect-
ing firms’ innovation performance.
1165
 
The Practice of Open Innovation in Chinese Enterprises

Open Innovation: “Open innovation” was
brought forward by Henry Chesbrough in 2003.
Open innovation means that companies can and
should use external ideas as well as ideas and
take internal as well as external paths to market.
Open innovation emphasizes the role of other
departments besides the internal R&D depart-
ment, emphasizes R&D collaboration with outside
organizations, emphasizes integration of internal
and external knowledge, and emphasizes outside
distribution to market.
R&D Collaboration: With the fast pace of the
change of technology and market, resources that
technological innovation needed are diversified.
Even the best companies with the most extensive
internal capabilities can’t undertake technological
innovation activity alone. Therefore, it is important
for enterprises to set R&D collaboration with users,
suppliers, firms in other industries, competitors,
universities and research institutes to break out
the restriction of resources.
User Innovation: Good ideas come from
observations and listening to users respectively.
Most new products originated from the ideas put
forward by users. In order to develop successful
products, manufactures must understand users’
needs correctly and make new products be accu-
rately responsive to user needs. Therefore, inviting
users to participate in the process of new product
development, letting users be designers of new
products, which will speed up the innovation and
reduce the market uncertainty of the new products.
ENDNOTES
1
Data comes from China S&T Data Book
2012, Ministry of Science and Technology
of the People’s Republic of China.

This work was previously published in Asian Business and Management Practices edited by Dasho Karma Ura and Patricia
Ordoñez de Pablos, pages 41-54, copyright year 2015 by Business Science Reference (an imprint of IGI Global).

1166
 1167

Chapter 63
Chaotic Systems and Their
Recent Implementations on
Improving Intelligent Systems
Utku Köse
Usak University, Turkey

Ahmet Arslan
Selcuk University, Turkey

ABSTRACT
Chaos Theory is a kind of a scientific approach/research effort which is based on examining behaviors
of nonlinear dynamical systems which are highly sensitive to their initial conditions. Currently, there
are many different scientific studies based on the Chaos Theory and the related solution approaches,
methods, or techniques for problems of this theory. Additionally, the theory is used for improving the
introduced studies of different fields in order to get more effective, efficient, and accurate results. At
this point, this chapter aims to provide a review-based study introducing recent implementations of the
Chaos Theory on improving intelligent systems, which can be examined in the context of the Artificial
Intelligence field. In this sense, the main research way is directed into the works performed or introduced
mostly in years between 2008 and 2013. By providing a review-based study, the readers are enabled to
have ideas on Chaos Theory, Artificial Intelligence, and the related works that can be examined within
intersection of both fields. At this point, the chapter aims to discuss not only recent works, but also ex-
press ideas regarding future directions within the related implementations of chaotic systems to improve
intelligent systems. The chapter is generally organized as a reference guide for academics, researchers,
and scientists tracking the literature of the related fields: Artificial Intelligence and the Chaos Theory.

INTRODUCTION are associated with using chaotic systems within

Today, Chaos Theory has a remarkable importance
among scientists and researchers who work on
designing and developing different kinds of ap-
proaches, methods, techniques or applications that
DOI: 10.4018/978-1-4666-8468-3.ch063
the solutions that are wanted to be provided for the
scientific literature. In this sense, it is a popular
research field in Mathematics ensuring many
problem-solution based applications in different
disciplines. The related discipline scope of the

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
theory includes the foremost scientific fields like
Physics, Engineering, Economics, and Biology.
As general, the infrastructure of the Chaos
Theory and its research coverage are based on
scientific studies related to search on behavior of
nonlinear dynamical systems, which are highly
sensitive to their initial conditions. Within the
literature this kind of systems are also defined as
chaotic systems. Currently, there are many scien-
tific studies based on the Chaos Theory and the
related solution approaches, methods or techniques
for problems of this theory. Additionally, the theory
is also used for improving the introduced studies
of different fields in order to get more effective,
efficient and accurate results.
In the context of the mentioned information,
the objective of this chapter is to provide a review-
based study introducing recent implementations
of the Chaos Theory on improving intelligent sys-
tems. At this point, it is important that the chapter
is also some kind of a reference explaining the
usage of the Chaos Theory within the Artificial
Intelligence field. Furthermore, it is also a brief
review for the latest improvements/scientific stud-
ies that take place within the current literature. In
this sense, the chapter has also been organized as
a reference guide for academicians, researchers
and scientists who track the literature of Artificial
Intelligence and the Chaos field.
Within the chapter, typical reviews of the re-
lated implementations are based on the following
approaches also pointing some kind of objective
evaluation – analyze on the literature:
• Introducing the related implementation.
• Pointing out basic features of the
implementation.
• If exists, expressing the main problem of
the work.
• Explaining the evaluation – test processes
and obtained results briefly.
Regarding to the chapter content, it is aimed
to discuss about not only recent works but also
1168

express ideas regarding to future directions within
the related implementations of chaotic systems to
improve intelligent systems.
According to the related explanations, the
rest of the chapter is organized as follows: The
next section provides brief explanations related
to foundations of this chapter. In this sense, the
readers are enabled to have ideas about the Chaos
Theory, chaotic systems, Artificial Intelligence
and also intelligent systems that can be examined
within the subject scope of the chapter. Next, the
Section 3 provides a review-based study regard-
ing to implementations of chaotic systems on
improving intelligent systems. In the context of the
section, some explanations regarding to remark-
able points on the current literature have been
provided firstly. In this way, main problems and
the related applications within the intersection of
the Chaos Theory and the Artificial Intelligence
fields are provided in order to improve readers’
knowledge and awareness levels. After providing
the related information, the recent implementa-
tions in years between 2008 and 2013 are explained
briefly in order to provide a review-based study
to obtain information about the current status of
the literature and have ideas about problems and
applications in this context. Following that, the
Section 4 is devoted to a typical discussion ap-
proach regarding to future research directions on
the related works and the subject scope. Within this
section, a general perspective on future works on
improving intelligent systems via chaotic systems
is provided in order to express ideas about possible
situations that may appear in the following-future
time periods. Finally, the last section; Section 5
outlines the conclusions that have been reached
with this research study.
FOUNDATIONS
As it was mentioned before, the main subject of the
chapter is based on examining the literature and the
related works on improving intelligent systems via

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
chaotic systems. At this point, in order to provide
more information about background of the work
and enable readers to have more idea about the key
research field: Chaos Theory, the related theory
and any other associated sub-subjects must also
be explained briefly.
Chaos Theory
Generally, Chaos Theory is a scientific field
including research and implementation efforts
related to examining, evaluating and analyzing
nonlinear, dynamical systems, which are highly
sensitive to initial conditions and provide random,
unpredictable behaviors. Related to the being
highly sensitive to initial conditions, small dif-
ferences in these kind of conditions cause widely
diverging outcomes in “chaos-based” systems
and because of these outcomes, future behaviors
cannot be predicted (the term ”butterfly effect” is
also used for being highly sensitive to initial con-
ditions)–(Kellert, 1993). Generally, these kind of
systems (which will be called as “chaotic systems”)
ensure a deterministic structure, but although they
ensure such a structure, their behaviors are still
“unpredictable” (Kellert, 1993).
Briefly, it is possible to list basic features of
chaotic systems as follows (Alligood et al., 1996;
Gleick, 2008; Canan, 2011):
• Unpredictability – Incalculability:
Future situations of chaotic systems cannot
be determined according to previously ob-
tained values like parameters and because
of this chaotic systems are unpredictable
and thus, they cannot be calculated in case
of determining future situations.
• High Sensitivity to the Initial Conditions:
Future situations of chaotic systems highly
depend on initial conditions. Because of
this, very small changes in initial condi-
tions – values may result very big changes
in future situations or results of chaotic
systems.
• Nonlinearity: Changes on situations of
chaotic systems are not linear in time. On
the other hand, changes between two dif-
ferent time periods are not same within
the flow because of the nature of chaotic
systems.
• Self-Similarity: When chaotic systems are
examined from a wide – general perspec-
tive, it can be seen that flows of a chaotic
system are self-similar in specific, separate
time parts. This feature is not related to a
linear nature; contrarily, it points to a simi-
lar flow ways in specific time portions.
When the first emergence and introduce of the
Chaos Theory are taken into consideration, there
are some several names that take place within the
literature as being associated with the theory. At
this point, Edward Lorenz is known as an early
pioneer of the theory whereas some other scien-
tists like Henri Poincaré and Jacques Hadamard
have also performed research works including
discoveries on chaotic behaviors (Gleick, 2008;
Wikipedia, 2013). In this sense, in order not to
affect flow of the subject, readers are referred to
(Gleick, 2008; Wikipedia, 2013) to obtain more
information about history of the Chaos Theory.
Mathematical Aspects
to be “Chaotic”
When dynamical systems are taken into consid-
eration in the context of chaotic behaviors, the
systems must include some mathematical features
in order provide chaotic behaviors. In other words,
there are some essential, mathematical features
that must be known in order to evaluate a system
in the context of chaotic behaviors. The related
features can be expressed briefly as (Kavak, 2009):
• If the system is a continuous-time system.
◦◦ It must include at least 3 independent,
dynamical, state variables.
1169

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
◦◦ Its equations must include a nonlinear
term.
• If the system is a discrete-time system.
◦◦ The system must be nonlinear.
Generally, equations of the related systems
are expressed as follows (Akın, & Özer, 2006):
dx 1 / dt = F1(x 1, x 2 ,..., x n )
dx 2 / dt = F2 (x 1, x 2 ,..., x n )
(1)
...
dx n / dt = Fn (x 1, x 2 ,..., x n )
In the Equation 1, the n must be at least 3,
in order to evaluate the system in the context of
chaotic behaviors. Regarding to the related math-
ematical features; it is important that observing
these features does not mean that the related system
will certainly provide chaotic behavior. However,
including these features points the system can be
evaluated in the context of chaotic behaviors, as
it was also mentioned before (Kavak, 2009).
Detecting and Observing
Chaotic Behaviors
In the context of the theory, there are some ap-
proaches for detecting and observing chaotic
behaviors of the related systems. Briefly, these
approaches are based on viewing the chaotic
behaviors from different perspectives via visual
factors. The related approaches can be explained
briefly as (Kavak, 2009):
• Observing Time Series of the System: In
this approach, changes on one of state vari-
ables of the system are observed in time.
In other words, a graph presenting a state
variable on y axis with the time on x axis is
used to observe the time series for chaotic
behaviors.
1170

• Observing Phase Portrait of the System:
This approach is based on observing chang-
es on two state variables. In this sense, a
graph presenting state variables on both x
and y axis is used to observe the “phase
portrait” for complex flows indicating cha-
otic behaviors.
• Computing and Evaluating Lyapunov
Exponents of the System: This approach
is a quantitative method for obtaining in-
formation about how two orbits starting
from near points will move close or move
away from each other. Obtaining one posi-
tive value after the related calculations
points chaotic behaviors.
• Observing Poincare Map of the System:
With this approach, the continues-time
system is turned into a discrete-time sys-
tem by taking samples from specific times.
In this way, a graph presenting state vari-
ables on both x and y axis in discrete-time
state is used to observe the “poincare map”
for complex, random flows indicating cha-
otic behaviors.
• Observing Power Spectrum of the
System: In power spectrum approach, the
related graphic showing the flow of power
spectrum of the system is observed to eval-
uate jumps between frequencies. Chaotic
behaviors can be seen in a system if there
are many jumps between frequencies with-
in the power spectrum of the system.
• Observing Bifurcation Diagram of the
System: In this approach, changes on one
state variable and one parameter of the re-
lated system are taken into consideration to
draw a “bifurcation diagram.” If the system
includes chaotic behaviors, bifurcations re-
garding to changes of both state variable
and the parameter can be seen on the re-
lated diagram.
It is possible to obtain more information about
the related approaches from (Kavak, 2009).

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
Figure 1. The attractor of the Lorenz system
Some Well-Known Chaotic Systems
Within the literature, there are some well-known
chaotic systems (chaotic attractors, chaotic maps
or chaotic flows), which build the general structure
of the current field. These systems are also taken
into consideration while performing research
works related to the Chaos Theory. Readers are
referred to (Sprott & Rowlands, 2001; Sprott,
2004) to learn more about the related systems. At
this point, some of these well-known and remark-
able chaotic systems (as chaotic attractor, chaotic
map, and chaotic flow) and their features can be
expressed briefly as follows:
One of the most remarkable chaotic attrators;
“Lorenz System” can be expressed as follows
(Lorenz, 1963):
dx / dy = σ . (y − x )
dy / dt = r . x − y − x . z (2)
dz / dt = x . y − b . z
Default – standard values of the Lorenz System
is determined as σ = 10, b = 8/3 and r = 28. The
attractor of the system is represented in Figure 1.
Another remarkable chaotic attrator; “Rössler
System” can be expressed as follows (Rössler,
1976):
dx / dy = −z − y
dy / dt = x + a . y (3)
dz / dt = b + z .(x − c)
Default – standard values of the Rössler System
is determined as a = 0.15, b = 0.20 and c = 10. The
attractor of the system is represented in Figure 2.
As the third remarkable one; “Chen’s System”
can be expressed as follows (Chen & Ueta, 1999):
dx / dy = a .(y − x )
dy / dt = d . x − x . z + c . y (4)
dz / dt = x . y − b . z
1171
 
Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems

Figure 2. The attractor of the Rössler system

Default – standard values of the Chen’s System x n +1 = A . x n .(1 − x n ) (5)

is determined as a = 35, b = 3, c = 28 and d =
-7. The attractor of the system is represented in
Default – standard value of the Logistic Map
Figure 3.
is determined as A = 4. In this sense, popular bi-
Logistic Map is one of the most popular chaotic
furcation diagram of Logistic Map is represented
maps within the related literature. In this context,
in Figure 4.
the Logistic Map can be expressed as follows
(Sprott, 2004):

Figure 3. The attractor of the Chen system

1172

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
Figure 4. The bifurcation diagram of the logistic map
As another remarkable chaotic map, “Hénon
System” can be given as an example as being
related to the literature. In this context, the Hénon
System can be expressed as follows (Hénon, 1976):
x n +1 = yn + 1 − a . x n2
(6)
yn +1 = b . x n
Figure 5. The attractor of the Hénon system
Default – standard values of the Hénon System
is determined as a = 1.40 and b = 0.30. In this
context, the attractor of the system is shown in
Figure 5.
“Simplest quadratic dissipative chaotic flow” is
one of the most remarkable chaotic flows, which
can be expressed as follows (Sprott, 2004):
1173

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
dx / dt = y
dy / dt = z (7)
dz / dt = −A . z + y − x
2
Default – standard values of the simplest qua-
dratic dissipative chaotic flow is determined as A
= 2.017. The attractor of the system is represented
in Figure 6 (Sprott, 2006).
When general applications and usages of the
Chaos Theory are taken into consideration, it can
be seen that it is widely used in many different
fields like, including: Physics, Mathematics, Eco-
nomics, Finance, Computer Science, Engineer-
ing, Biology, Geology, Philosophy and Politics.
(Dilão & Domingos, 2001; Kyrtsou & Terraza,
2003; Kyrtsou & Vorlow, 2005; Kyrtsou & Labys,
2006; Kyrtsou & Labys, 2007; Hristu-Varsakelis &
Kyrtsou, 2008; Harney, 2009; Wikipedia, 2013).
For more about the related theory and its ap-
plications, readers are also referred to the sources
provided under the “Additional Reading Section.”
After explaining the Chaos Theory briefly, it is
Figure 6. The attractor of the simplest quadratic dissipative chaotic flow (Sprott, 2006)
1174

also better to explain fundamentals of the Artifi-
cial Intelligence field in order to have idea about
another foundation of the chapter subject.
Artificial Intelligence and
Intelligent Systems
Artificial Intelligence is a field of the Computer
Science in which many different approaches,
methods and techniques are provided for ensuring
more effective and efficient solution ways for solv-
ing encountered problems. These solution ways
are some kind of algorithmic and mathematical
approaches that are mainly originated from the hu-
man thinking behavior or dynamics of the nature.
Today, there are many different Artificial Intel-
ligent based approaches, methods or techniques
that are widely used in many different fields for
providing effective and efficient solutions for
the problems within these fields. Some popular
Artificial Intelligent based techniques can be
expressed briefly as:

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
• Fuzzy Logic: It is an important Artificial
Intelligence technique, which is especial-
ly used to design and develop intelligent,
problem-solving control systems. As dif-
ferent from the crisp logic, the fuzzy log-
ic is used to recognize more than simple
true and false values. With the help of this
technique, linguistic variables are evalu-
ated with degrees of truthfulness and false-
hood. Thus, an effective and strong ap-
proach, which tries to simulate the human
thinking and behaviors, is obtained (Köse,
& Deperlioğlu, 2010). This technique is
based on the fuzzy set theory, which was
first introduced by Lotfi Asker Zadeh
(Zadeh, 1967).
• Artificial Neural Networks: Artificial
neural networks are parallel and dis-
tributed data processing systems, which
were developed to be used for simulat-
ing features and functions of the human
brain. In more detail, they are known as
network structures consist of process ele-
ments, which are connected to each other
via weighted connections. Artificial neural
networks are capable of learning from their
environments and improve the process per-
formance through learning (Elmas, 2003;
Uğur, & Kınacı, 2006).
• Evolutionary Algorithms like Genetic
Algorithms, and Negative Selection
Algorithm: Evolutionary algorithms are
some kind of algorithm structures, which
have been designed and developed based
on features and functions of the evaluation
theory. In this sense; within an evolution-
ary algorithm, a number of artificial ob-
jects – creatures search over the solutions
space of the problem. During this process,
they compete continually with each other
to discover optimal areas of the solution
space. At the end of the related process, the
most successful of the objects – creatures
will evolve to discover the optimal solution
of the problem (Jones, 1998). According
to different evolutionary-based systems,
different kinds of algorithms have been in-
troduced by researchers and scientists and
they are widely used for finding effective
and efficient solutions for real-world based
problems.
• Nature-Inspired Optimization
Algorithms like Particle Swarm
Optimization (PSO), Ant Colony
Optimization (ACO), and Artificial
Bee Colony (ABC): Nature-inspired op-
timization algorithms (these algorithms
can also be evaluated under the “Swarm
Intelligence” title) are some kind of al-
gorithm structures, which are originally
based on dynamics, which occur in the
natural life. In this sense, the evolution-
ary algorithms are also known as nature-
inspired algorithms, but because of their
main function regarding to the evaluation
theory, they are also categorized under a
different title. On the other hand, the work-
ing mechanism and the related features and
functions of a nature-inspired algorithm
are based on mathematical calculations,
which were formed to simulate original,
natural dynamics. Mainly, nature-inspired
optimization algorithms are based on the
search mechanism of the algorithm objects
for finding optimal solution(s) within the
solution spaces of problems (Yang, 2011).
• Other Remaining Techniques like
Support Vector Machines (SVM): There
are also many other Artificial Intelligence
techniques that have been introduced in or-
der to provide alternative solutions for the
problems regarding to the related field. For
example; support vector machine is a re-
markable and important technique, which
is used for especially classification and
regression. In this sense, support vector
machines are known as supervised learn-
ing models employing learning algorithms
1175

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
Figure 7. Application trends of the chaos theory and the related chaotic systems
that analyze data and recognize patterns. In
more detail, it can be expressed that a sup-
port vector machine is used for construct-
ing a hyper-plane or set of hyper-planes in
a high or infinite dimensional space used
for classification, regression, or any other
tasks (Cortes & Vapnik, 1995; Wikipedia,
2013).
As it can be understood from the explana-
tions, there are many different ways to categorize
Artificial Intelligent techniques because of wide
application and usage spectrums of each tech-
nique. Furthermore, there are also many ways
to form different kind of systems (for example;
“expert systems” or unnamed hybrid systems)
including the related techniques and providing
different approaches and methods to improve the
literature and introduce alternative solutions for
the problems. At this point, the term “intelligent
systems” can be used within this chapter to indicate
both single Artificial Intelligence technique and
1176

a typical hybrid system formed by two or more
Artificial Intelligence technique. In this sense,
especially the “hybrid system” approach is an
important and popular way that is widely preferred
by researchers and scientists within the Artificial
Intelligence. When the literature regarding to the
field is examined, readers can find many examples
of hybrid systems formed by two or more Artificial
Intelligence techniques. As being parallel, some
example works – sources are also included under
the “Additional Reading Section.”
Like the Chaos Theory, the Artificial Intel-
ligence field is also a wide scientific subject area
that must be examined in more detail within many
different sources. So, readers are also referred
to some essential sources like (Winston, 1992;
Brighton & Selina, 2007; Warwick, 2011; Lucci
& Kopec, 2012; Vasant, 2012a; Vasant, 2012b;
Dostál, 2013; Senvar et al., 2013) and other related
essential sources provided under the “Additional
Reading Section.”

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
IMPROVING INTELLIGENT
SYSTEMS VIA CHAOTIC SYSTEMS
The literature associated with a specific scientific
subject area consists of many different research
approaches or efforts and ensure their realized
applications and also obtained results to be exam-
ined by the target audience. At this point, it is a
difficult task to examine the whole literature and
provide a full accurate analysis work. But getting
some brief information about the current status
of the literature may give important ideas to be
used within examining steps. Because of this; as
being suitable to the objective(s) of the chapter,
some kind of prior-knowledge must be obtained
before examining the latest implementations –
applications.
Remarkable Points on
Current Literature
In the sense of examining the current literature
about improving intelligent systems via chaotic
systems, it is important to express the most remark-
able points. So; according to the current literature,
application trends of the Chaos Theory and the
related chaotic systems can be schematized as
presented within in Figure 7, firstly.
In the sense of Figure 7, the related application
trends can also be explained briefly as follows:
• Determining of the Chaos and Chaotic
Systems: Research efforts include deter-
mining chaos (chaotic behaviors) within
different kinds of systems. In this sense,
newer approaches, methods and techniques
on determining chaos can be provided
within the related literature. On the other
hand; it is too important that new chaotic
systems are also introduced to the literature
of the Chaos Theory.
• Forecasting (Prediction of) Chaotic
Time Series: By using different kinds of
approaches, methods and techniques, time
series of chaotic systems can be forecasted
(predicted) in order to obtain information
about future flow – states of the chaotic
systems. In this sense, previously observed
values are used for performing the related
operations.
• Control of Chaos (Chaotic Systems):
Stabilization of unstable periodic orbits or
equilibriums within a chaotic behavior is a
remarkable and important application way
that is popular among researchers and sci-
entists within the related field. In this way,
chaotic systems can be controlled, thanks
to suitable actions taken regarding to the
system behaviors. In the context of the
field, many research works are provided
in order to provide effective and efficient,
alternative ways for achieving the control
objectives.
• Anti-Control of Chaos (Chaotic Systems)
– Chaotification: Not only controlling a
chaotic system but also making chaotic a
non-chaotic system or enhancing the active
chaos of a chaotic system is also another
application way, which is popular among
researchers and scientists. Because of this,
there is a remarkable effort of providing al-
ternative ways for achieving the objectives
regarding to anti-control of chaos.
• Chaos Synchronization (Synchronization
of Chaotic Systems): Another remarkable
application trend is based on enabling two
chaotic systems to behave in a synchronous
manner because of interactions – connec-
tions between them. In order to achieve
this, there is an important research effort
provided by researchers and scientists,
within the related literature. Chaos syn-
chronization can also be examined in the
context of the “control of chaos,” but be-
cause of their main starting points, they
have categorized under two different titles
in this chapter.
1177

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
• Chaos Optimization: As being an ex-
tremely important problem subject within
scientific fields, the optimization approach
is also taken into consideration in the con-
text of the Chaos Theory. In this sense,
many different research works are per-
formed widely in order to provide effective
algorithms – approaches for solving the
optimization based problems. At this point,
the chaos optimization concept is actually
known as an algorithm approach regard-
ing to employment of chaotic variables –
systems for providing solution steps via
chaos; but this concept can also evaluated
as an application trend within this chapter;
because works and related research efforts
provided make this concept as a remark-
able trend becoming more popular in time
within the related field.
It is important that the listed application trends
also include sub-research problem areas; however
only main titles are expressed briefly at this point.
Additionally; in the context of applications of
the Chaos Theory in different areas, the follow-
ing approaches are taken into consideration by
researchers, scientists or anyone who are interested
in the related subject areas:
• Improving Solution Approaches –
Algorithms of Introduced Methods:
Chaotic systems are widely used within
already introduced methods in order to
improve effectiveness of these methods.
In order to achieve this, chaotic systems
are usually used for determining param-
eters more accurately or improving general
performance (in the sense of some factors
like calculation, and running-time) of algo-
rithms by producing more accurate values
or providing more practical steps within
the problem solution approach.
1178

• Ensuring more Advanced, Accurate
Hybrid Systems by Supporting
Introduced Methods: One of most popu-
lar ways within the usage of Chaos Theory
in different areas is employing chaotic
systems and different types of systems for
forming a more advanced and accurate hy-
brid system in order to provide improved
solution ways for the related problems.
This approach is very remarkable and im-
portant one to ensure innovative scientific
solution ways for the problems of different
literatures.
• Evaluating Obtained Results of Studies
in Different Areas; by Employing
Chaotic Systems-Based Approaches:
Because the Chaos Theory is originally
based on the “nature,” many results ob-
tained from real-world based events can
be evaluated from the perspective of the
Chaos Theory in order to have more effec-
tive and valuable ideas about the results. In
this way, future research directions regard-
ing to alternative studies can also be deter-
mined better because of the mathematical
aspects of the Chaos Theory. In this sense,
chaotic systems are widely used within
different areas in order to obtain more ob-
jective and effective ideas on the occurred
events – results.
Especially the last paragraph (and the re-
lated explanations) indicates the spread of Chaos
Theory-based approaches among other disciplines
or areas and its wide spectrum of supportive ap-
plications.
In the context of the current literature related
to the main subject of this chapter, remarkable
implementations of chaotic systems on improving
intelligent systems (Artificial Intelligence-based
approaches, methods or techniques) can be sche-
matized as presented within in Figure 8.

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
Figure 8. Remarkable implementations of chaotic systems on improving intelligent systems
Regarding to the Figure 8, the related imple-
mentations can also be explained briefly as follows:
• Using Chaotic Maps to Improve
Effectiveness of Specific Intelligent
Algorithms: Chaotic maps are widely
employed for improving effectiveness of
intelligent algorithms. In this context, cha-
otic maps are usually used for obtaining
random values or improving values of spe-
cific parameters of algorithms in order to
improve effectiveness. On the other hand,
intelligent algorithms can also be improved
in terms of effectiveness by including an
additional step – approach including the
usage of chaotic maps for providing better
mathematical results within the solution
process.
• Employing Chaotic Systems (Chaotic
Attractors, Chaotic Maps or
Chaotic Flows) to Improve General
Characteristics of Specific Artificial
Intelligent Techniques: Rather than using
only chaotic maps, employing also chaotic
attractors or chaotic flows are also widely
preferred in order to provide improved
intelligent systems. In this sense, usage
of chaotic systems can also be done in a
more comprehensive area and thus, gener-
al characteristics of intelligent systems are
changed. At this point, especially proven
and popular Artificial Intelligence-based
techniques like Genetic Algorithms, Fuzzy
Logic, and Artificial Neural Networks are
taken into consideration for obtaining more
improved solution ways.
1179

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
• Using Chaotic Systems (Chaotic
Attractors, Chaotic Maps or Chaotic
Flows) to Solve Some Problems of
Artificial Intelligence Techniques: A re-
markable research way regarding to chaotic
systems and the Artificial Intelligence field
is using the related chaotic systems to solve
problems of Artificial Intelligence tech-
niques. In this sense, effective solutions for
some problems like parameter estimation,
model improvements, and running-times
can be provide by using chaotic systems.
With this approach, a strong “bridge” be-
tween the Chaos Theory and the Artificial
Intelligence is build.
• Using Chaotic Systems (Chaotic
Attractors, Chaotic Maps or Chaotic
Flows) with Artificial Intelligence
Techniques to Form more Effective
and Advanced, “Hybrid” Intelligent
Systems: As it was also mentioned before,
forming hybrid systems is a widely used
research-way within usage of the Chaos
Theory in different areas. As being paral-
lel, using chaotic systems and Artificial
Intelligence-based techniques for forming
hybrid systems is also a widely-used ap-
proach in the context of related research
efforts. At this point, more effective and
advanced solution ways can easily be pro-
vided, thanks to advantages of chaotic sys-
tems and Artificial Intelligence-based sys-
tems specifically chosen according to the
related problems.
As being appropriate to the flow of the re-
markable points on current literature, some recent
implementations about improving intelligent
systems via chaotic systems can be explained
briefly, as follows:
1180

Recent Implementations
in 2008-2013
In order not to provide a complex analyze approach
while ensuring a comprehensive enough study,
only some remarkable and important works, which
have been published in years between 2008 and
2013 are introduced within this section. In this
sense, works related to improvement of intelligent
systems via chaotic systems can be explained
briefly as follows:
Table 1 provides a list of some works performed
in years 2008, and 2009.
More details regarding to the works are pro-
vided as follows:
• Bo and Tao (2008) have introduced a re-
markable approach on image watermark-
ing, in the context of chaos and intelligent
systems. In this sense, they have developed
a block-based scheme on binary image wa-
termarking optimized via chaotic map and
genetic algorithm. Regarding to the intro-
duced approach, the original image is di-
vided into fixed-size blocks and characters
are then extracted from the related blocks.
At this point, genetic algorithm is employed
in order to determine optimum parameter
of the related chaotic system for getting the
best consistency between the character of
the blocks and the sequences of watermark
bits. According to the authors’ report, the
number of flipped pixels can be reduced to
minimum via this approach and thus, the
visual quality of the binary image can be
improved in this way.
• Regarding to parameter selection problem
of support vector machine (SVM) tech-
nique, Yuan and Wang (2008) have pro-
posed an approach, which is based on the

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
Table 1. A list of some works performed in years 2008, and 2009
Title
“Application chaos map and genetic algorithm in binary image data
hiding”
“Parameter selection of support vector machine for function
approximation based on chaos optimization”
“A modified particle swarm optimization algorithm based on improved
chaos search strategy”
“Chaos-ant colony algorithm and its application in continuous space
optimization”
“Application of neural network trained by chaos particle swarm
optimization to prediction of silicon content in hot metal”
“Chaos immune particle swarm optimization algorithm with hybrid
discrete variables and its application to mechanical optimization”
“Ant colony algorithm based on chaos annealing”
“A new hybrid genetic algorithm based on chaos and PSO”
“Genetic and simulated annealing algorithm based on chaos variables”
“The application of chaos support vector machines in transformer fault
diagnosis”
usage of chaos optimization algorithm. In
the sense of this approach, the authors have
regarded the SVM parameter selection for
function approximation as a compound
optimization problem and because of this;
they have employed a mutative scale chaos
optimization algorithm in order to search
for optimal parameter values. Experiments
– evaluation approaches performed within
their work have approved the effectiveness
of the proposed approach.
• Gao et al. (2008) have improved the stan-
dard particle swarm optimization (PSO) al-
gorithm by using a chaos based method. In
this sense, they have aimed to prevent get-
ting trapped to local extremums by using a
search method, which they have named as
“chaos search strategy.” In more detail re-
garding to the method; in case of trapping
to a local extremum, the related particles
are activated by the chaos search strategy,
and chaos search area are controlled in
Source Year
IEEE International Conference on Granular
2008
Computing
Journal of Systems Engineering and Electronics 2008
International Symposium on Computational
2008
Intelligence and Design
Chinese Control and Decision Conference 2008
World Congress on Intelligent Control and
2008
Automation
International Symposium on Intelligent
2009
Information Technology Applications
International Forum on Computer Science-
2009
Technology and Applications
IEEE International Conference on Intelligent
2009
Computing and Intelligent Systems
IEEE International Conference on Automation
2009
and Logistics
International Conference on Properties and
2009
Applications of Dielectric Materials
the neighborhood of the current optimal
solution by reducing search area of vari-
ables. The authors have reported that the
proposed algorithm can solve local extre-
mum problem and also enhance the preci-
sion of convergence. Evaluation processes
performed within their work also have also
approved that the proposed algorithm have
provided better results than the standard
PSO.
• As being related to improvement of ant
colony optimization (ACO) technique,
Chen et al. (2008) have provided chaos-
ant colony algorithm, which is formed by
ACO using gridding method and the chaos.
In more detail regarding to the proposed al-
gorithm – approach, some MAX-MIN ant
system method has been used for limiting
the pheromone remained in the path. In
this sense, the related improvements have
been done within initialization and update
of the pheromone. The proposed approach
1181

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
has been approved with the evaluation
processes – experiments, which have been
done within the related work.
• Tang et al. (2008) have provided a work
on improvement of artificial neural net-
works (ANN) by training with chaos par-
ticle swarm optimization (CPSO), for pre-
dicting silicon content in hot metal. In the
context of the proposed approach – system,
CPSO has been used for improving the lo-
cal searching ability and the convergence
speed. Regarding to the ANN, CPSO has
been employed in order to train ANN and
use for predicting the silicon content in hot
metal. According to the evaluation pro-
cesses performed within work, the provid-
ed approach has successfully achieved the
related objectives of the work.
• In their work, Luo and Che (2009) have
introduced a system based on chaos, arti-
ficial immunity and particle swarm opti-
mization (PSO) approaches. In this work,
they have aimed to improve searching abil-
ity of the PSO by preventing the premature
convergence of particles within a typical
PSO structure. By employing the selection
strategy based on antibody density and ini-
tiation based on equal probability chaos,
the related system, which is also called as
chaos immune particle swarm optimization
(CIPSO) algorithm have been developed.
Regarding to the working mechanism of
the system, usage of chaos enable initial
particles to provide better performance and
the selection strategy on antibody density
makes the particles of the immune par-
ticle swarm optimization to maintain the
diversity. Evaluation – test works on com-
parison of the introduced system and other
algorithms via mechanical optimization
examples show that the introduced system
has successfully achieved the expressed
objectives of the work.
1182

• Xiong and Xiu (2009) have proposed an
ant colony optimization (ACO) based algo-
rithm approach supported by chaos and an-
nealing process. Within this approach, ants
search the new path according to both con-
centration of the pheromone and the cha-
os. In this way, the algorithm has become
more effective at searching ability. In the
context of the terminal optimization pro-
cess of the algorithm, the chaos decayed to
zero gradually and at the end of the related
processes, the algorithm transforms into
the conventional ACO and completes the
optimal process based on principle of pher-
omone positive feedback. This feedback
mechanism enables the related algorithm
to have a quick convergence rate. In the
sense of the evaluation approaches within
Xiong and Xiu’s work, the algorithm has
also been validated.
• Regarding to the usage of three different
systems – approach, Wang and Yao (2009)
has provided a work on intelligent system
formed via genetic algorithm, chaos and
particle swarm optimization (PSO). In this
sense, the authors have aimed to fix two
important disadvantages of the genetic al-
gorithm; premature convergence and weak
local search ability. In order to achieve the
related objective, chaotic search mecha-
nism and PSO mutation have been added
into the standard genetic algorithm (SGA).
In the context of evaluation – test approach-
es performed with five classic benchmark
functions, the introduced algorithm has
improved both global convergence and
convergence precision.
• Jiang et al. (2009) have proposed an algo-
rithm on genetic and simulated annealing
hybrid system, which searches the neigh-
borhood via chaos variables. In order to
test effectiveness of the proposed algo-
rithm, they have trained an artificial neural
network system by using standard genetic

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
algorithm and the proposed one. The ob-
tained results via this work has shown that
proposed algorithm had more rapid con-
vergent speed and better searching ability
to find the global optimum.
• Li et al. (2009) have provided a work on
application of chaos support vector ma-
chines (SVM) approach in transformer
fault diagnosis. In the context of the ap-
proach, the five characteristic gases dis-
solved in transformer oil are extracted by
the K-means clustering technique as fea-
ture vectors and the related vectors are
input to chaotic optimal multi-classified
SVMs for the training process. In this way,
chaos support vector machines (CSVMs)
diagnosis system is provided to implement
fault samples classification. The related
evaluation – test studies performed within
this work have showed that the diagnosis
information was concentrated and the con-
suming in parameter determination was
also solved effectively. On the other hand,
Table 2. A list of some works performed in years 2010 and 2011
Title
“Genetic algorithm-based chaos clustering approach for
nonlinear optimization”
“Research on one-dimensional chaos maps for fuzzy
optimal selection neural network”
“A new artificial glowworm swarm optimization algorithm
based on chaos method”
“Research on fault diagnosis based on BP neural network
optimized by chaos ant colony algorithm”
“Improved artificial bee colony algorithm with chaos”
“Classification technology by least squares support vector
machine trained by chaos particle swarm optimization”
“Study on parameter identification of excitation system
based on chaos genetic algorithm”
“Improvement and application of transient chaos neural
networks”
“Injecting chaos in feedforward neural networks”
the chaos optimization based approach has
also improved model extension ability. The
authors also report that the introduced ap-
proach has allowed detecting transformer
faults with a high correct judgment rate,
and this approach can also be used as an
automation approach for diagnosis in the
context of small samples.
• In their work, Gao et al. (2010) have in-
troduced a genetic algorithm approach,
supported by the chaos. In this sense, they
have aimed to remedy the defect of prema-
ture convergence in the genetic algorithm
by using the ergodic property of the chaos
movement. According to the results ob-
tained after the experimental processes, the
proposed approach have been evaluated as
an effective and rapid solution way.
Table 2 provides a list of some works performed
in years 2010, and 2011.
More details regarding to the works are pro-
vided as follows:
Source Year
Journal of Marine Science and Technology-Taiwan 2010
Advances in Neural Networks-PT 1 Proceedings Book Series:
2010
Lecture Notes in Computer Science
Quantitative Logic and Soft Computing-VOL 2 Book Series:
2010
Advances in Intelligent and Soft Computing
Advances in Swarm Intelligence, PT 1, Proceedings Book
2010
Series: Lecture Notes in Computer Science
Computer Science for Environmental Engineering and
Ecoinformatics-PT 1 Book Series: Communications in 2011
Computer and Information Science
International Conference on Energy and Environmental
2011
Science
Advanced Science Letters 2011
International Conference on Advances in Engineering – Book
2011
Series: Procedia Engineering
Neural Processing Letters 2011
1183

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
• Cheng and Huang (2010) have provided
a system based on combination of genetic
algorithm, chaos and K-means cluster-
ing approaches. In their work, Cheng and
Huang have expressed that the hybrid
chaotic approach with genetic algorithm
(CGA) approach can result to more ac-
curate estimates of true optimum points
rather than other optimization approaches.
At this point, they have also employed the
K-means clustering approach into the CGA
(KCGA) and improved the convergence
performance. Regarding to the results of
the study, KCGA has been evaluated as an
effective and efficient system in terms of
locating optimal solutions.
• Ding et al. (2010) have performed a work
related to using chaotic maps within in-
telligent systems. In this sense, they have
aimed to provide a solution for slow con-
vergence speed and local optimum in fuzzy
optimal selection neural network and for
this aim; they have applied the chaos op-
timization algorithm to optimize the ar-
tificial neural network weight, by using a
chaos variable from one-dimensional itera-
tive map. In order to employ an effective
enough chaotic map, they have compared
several multi-dimensional chaotic maps
like Logistic Map, Sine Map, Cosine Map,
and Cubic Map. According to the results
obtained via this study, the chaos optimi-
zation algorithm has been evaluated as an
efficient learning algorithm which has the
advantage of speed convergence and high
precision for fuzzy optimal selection artifi-
cial neural network.
• In their work, Zhang et al. (2010) have pro-
vided a system based on improvement of
the artificial glowworm swarm optimiza-
tion (GSO) algorithm via chaos optimiza-
tion. In this sense, the authors have aimed
to prevent some shortcomings of the GSO
like slow convergence speed, easily fall-
1184

ing into the local optimums, low computa-
tional accuracy, and success rate of conver-
gence. By applying an approach based on
the chaos optimization, they have obtained
an improved algorithm – system having
good convergence efficiency, high conver-
gence precision, and better capability of
global search and local optimization. This
result – achievement have been approved
via evaluation process performed in the
sense of testing approaches regarding to
the employment of the improved algorithm
for six different functions.
• Ling et al. (2010) have performed a work
regarding to improvement of BP neural
network by optimizing with chaos ant col-
ony algorithm, in order to provide more ef-
fective approach for fault diagnosis. Within
this context, they have tried to prevent slow
convergence and local optimum disadvan-
tages of the standard BP neural network ap-
proach. In more detail, they have employed
real-coded and the weights and thresholds
of the BP neural network are taken as ant
space position searched by the chaos ant
colony algorithm, in order to train the BP
neural network. The improved algorithm
has compared with the conventional BP
algorithm and tested by being used for ma-
chinery fault diagnosis of the mine ventila-
tor. According to the obtained results, the
improved approach has successfully over-
come the related disadvantages of the stan-
dard BP neural network approach.
• Wu and Fan (2011) have provided a re-
markable study on improvement of the
artificial bee colony (ABC) algorithm via
chaotic systems. At this point, they have
introduced a chaotic ABC (CABC), which
uses “chaotic searching behavior” for can-
didate food position produced in order to
improve the convergence characteristics
and prevent getting stuck on local solu-
tions. In order to test the performance of

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
the CABC, some well-known benchmark
continuous optimization problems have
been tried to be solved and some other
algorithms including standard ABC have
also been taken into the related evaluation
process. According to the obtained results,
the searching efficiency and the searching
quality have been improved greatly, thanks
to the introduced CABC system.
• Li and Liu (2011) have performed a study
on using the least squares support vector
machine trained by chaos particle swarm
optimization (CPSO-LSSVM) in the con-
text of classification problems. In this sys-
tem, chaos particle swarm optimization
algorithm (CPSO) has been employed for
determining training parameters of the least
squares support vector machine (LSSVM).
By using the CPSO, authors have aimed to
avoid being trapped in local optimums and
determining the global optimum rapidly,
thanks to the chaos queues run within the
PSO. According to the results obtained via
evaluation processes, the CPSO-LSSVM
has performed good performances within
classification problems.
• Sun et al. (2011) have introduced a system,
which aims to provide an effective solution
way for parameter identification of excita-
tion system, by using a chaotic genetic al-
gorithm (CGA) approach. In this approach,
chaos-based approaches have been used for
initializing the population of genetic algo-
rithm (in order to guarantee the initial val-
ues of identified parameters to be ergodic
in the ranges) and reconstructing newer
individuals after the processes of crossover
and mutation (in order to prevent prema-
ture convergence and getting being trapped
in local optimums). Evaluation processes
including the comparison of CGA and
standard genetic algorithm have shown
that the introduced system (CGA) has pro-
vided better performance in the context of
problem regarding to parameter identifica-
tion of excitation system.
• Regarding to studies within artificial neu-
ral networks, Yi et al. (2011) has provided
a work on improvement the transient chaos
neural networks (TCNN). In this study,
they have aimed to get better control of
the chaotic randomness and improve the
convergence rate of the TCNN. Evaluation
studies on the channel allocation problem
have shown that the improved TCNN can
better solve the combinatorial optimiza-
tion problem-types examined in the con-
text of the study. The results have also
pointed that the performance of the TCNN
has been improved, local optimums are
avoided, and the convergence speed is also
improved, thanks to the related modifica-
tions. As it can be understood from the ex-
planations, this work is based on improv-
ing a chaos-based intelligent system rather
than improving a plain intelligent system;
but it is a remarkable study to understand
the effectiveness of chaos-based intelligent
systems.
• Ahmed et al. (2011) have performed a
study on using chaos within a supervised
feed-forward neural network (SFNN)
structure. In this sense, chaos-based ap-
proaches have been employed within the
learnable temperature coefficient of the
sigmoid activation function and in the
weights of the neural network structure. In
order to test the effectiveness of this sys-
tem, it has been compared with other ar-
tificial neural networks-based approaches
like back propagation, and adaptive neuron
model, by employing them within differ-
ent benchmark classification problems like
heart disease, glass, breast cancer, diabetes
identification, and time series prediction.
According to the obtained results, the pro-
posed system has been evaluated as more
effective than other systems.
1185
 
Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems

Table 3. A list of some works performed in years 2012 and 2013

Title Source Year

Communications in Nonlinear Science and
A novel GCM chaotic neural network for information processing 2012
Numerical Simulation
K-means particle swarm optimization with embedded chaotic search
Applied Mathematics and Computation 2012
for solving multidimensional problems
Chaotic imperialist competitive algorithm for optimum design of truss
Structural and Multidisciplinary Optimization 2012
structures
Chaotic ant swarm approach for data clustering Applied Soft Computing 2012
An improved particle swarm optimization with double-bottom chaotic
Applied Mathematics and Computation 2012
maps for numerical optimization
Dynamic economic dispatch for wind-thermal power system using a International Journal of Electrical Power and
2012
novel bi-population chaotic differential evolution algorithm Energy Systems
Fast chaotic optimization algorithm based on locally averaged strategy
Applied Mathematics and Computation 2012
and multifold chaotic attractor
Application of SVR with chaotic GASA algorithm in cyclic electric
Energy 2012
load forecasting
Predicting the critical heat flux in concentric-tube open thermosiphon:
a method based on support vector machine optimized by chaotic Heat and Mass Transfer 2012
particle swarm optimization algorithm
Particle swarm optimization with chaotic opposition-based population Communications in Nonlinear Science and
2012
initialization and stochastic search technique Numerical Simulation
Chaotic immune optimization based resource allocation in cognitive
Acta Physica Sinica 2012
radio network
A novel image encryption/decryption scheme based on chaotic neural
Engineering Applications of Artificial Intelligence 2012
networks
Fuzzy neural network based on a Sigmoid chaotic neuron Chinese Physics B 2012
Firefly algorithm approach based on chaotic Tinkerbell map applied to
Computers and Mathematics with Applications 2012
multivariable PID controller tuning
Application of seasonal SVR with chaotic immune algorithm in traffic
Neural Computing and Applications 2012
flow forecasting
Support vector regression with chaos-based firefly algorithm for stock
Applied Soft Computing 2013
market price forecasting
Communications in Nonlinear Science and
Firefly algorithm with chaos 2013
Numerical Simulation
Communications in Nonlinear Science and
Chaos-enhanced accelerated particle swarm optimization 2013
Numerical Simulation

Table 3 provides a list of some works performed
in years 2012, and 2013.
More details regarding to the works are pro-
vided as follows:
• In their work, Wang et al. (2012) have pro-
vided a new chaotic neural network model
for performing information processing ap-
proaches. In this context, the designed and
developed model is called as “globally
coupled map using sine map” (SI-GCM).
At this point, it is also some kind of modi-
fied version of the Kaneko’s globally cou-
pled map model and it can be controlled to
specified period orbit. Additionally it also
ensures a dynamic structure in the context

1186

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
of output patterns. Finally, it shows ef-
fective running performance with a good
associative memory performance. In this
sense, the authors have obtained good sim-
ulation results.
• Cheng et al. (2012) have performed a
work, which provides some kind of intelli-
gent system combining k-means clustering
algorithm and particle swarm optimization
(PSO) algorithm supported with chaotic
search approach in order to solve complex,
multidimensional problems. At this point,
the system comes with a chaotic search ap-
proach in the context of search for global
best (gbest) whereas k-means algorithm is
used for ensuring more rapid convergence.
Finally, the system, which can also be
called as KCPSO provides a fast and suc-
cessful method for solving complex, multi-
dimensional problems.
• Talatahari et al. (2012) have provided a re-
markable work on using chaotic maps for
improving features of intelligent systems.
In this context, they have used chaotic
maps for ensuring a more effective impe-
rialist competitive algorithm, which have
also been introduced before. The new al-
gorithm structure, which is also called as
CICA has performed efficient runs within
the related evaluation – test processes.
• As being an alternative and effective data
clustering method, Wan et al. (2012) have
provided a system, which is some kind of
chaotic ant swarm (CAS) algorithm. In this
sense, the proposed method employs an
optimization approach for handling the re-
lated data clustering problems. According
to the performed evaluation – test process-
es the CAS algorithm is an effective way
for working on data sets including com-
plex cluster sizes, densities and multiple
dimensions.
• In their work, Yang et al. (2012) have used
a chaotic system named “double-bottom
map” to form a chaotic PSO algorithm for
providing a new and effective approach
for numerical optimization. In the work,
the double-bottom map has been used
for improving performance of the PSO.
In this context, the proposed algorithm
(DBMPSO) has also been tested and com-
pared with other chaotic PSO algorithms
designed with different chaotic maps and
finally, the DBMPSO has provided bet-
ter results in the context of the related test
processes.
• In the context of electrical power and en-
ergy systems fields, Peng et al. (2012)
have proposed a new algorithm structure
for providing an effective solution in the
context of dynamic economic dispatch for
wind-thermal power system. At this point,
the authors have employed bi-population
evolution approach, chaotic map-based up-
dating and Metropolis rule for improving
standard features of a well-known intelli-
gent system approach called as differential
evaluation algorithm. In this context, the
global search ability of the related algo-
rithm has been improved as it has also been
understood from the performed evaluation
– test processes.
• As it was mentioned before, chaotic sys-
tems have also been used for solving some
problems of that are also been examined
within the Artificial Intelligence field. At
this point, chaotic optimization algorithms
have been proposed many times for ensur-
ing alternative ways for the related opti-
mization problems. As being parallel with
these works, a recent work performed by
Hamaizia et al. (2012) provides an im-
proved chaotic optimization algorithm
structure in which a new two dimensional
discrete multifold mapping approach is
used for optimizing nonlinear functions.
According to the obtained results, the pro-
posed system provides a strong optimiza-
1187

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
tion approach in the context of the related
problems.
• Another remarkable work has been done
by Zhang et al. (2012) by forming a hybrid
intelligent system in the context of fore-
casting problems. In this sense, support
vector regression (SVR) approach, chaotic
systems and two evolutionary algorithms
(genetic algorithms and simulated anneal-
ing algorithm) have been used to form a
general, hybrid intelligent system provid-
ing a solution methods for cyclic electric
load forecasting. At this point, the related
intelligent systems and chaotic systems
have been used for improving the forecast-
ing performance and providing an effective
way to avoid trappings in local optimums.
Within the performed evaluation – test
processes the system (SSVRCGASA) has
been compared with some other mod-
els and according to the obtained results,
the proposed system has provided effec-
tive approaches for the related forecasting
operations.
• Cai (2012) has performed a work on form-
ing an intelligent system optimized by
another intelligent system supported with
chaotic system based approach. In this
sense; in order to solve the problem of pre-
dicting the critical heat flux in concentric-
tube open thermosiphon, the support vec-
tor machine (SVM) has been used. At this
point, some parameters of the SVM are
optimized – determined by a chaotic par-
ticle swarm optimization (CPSO) system.
Within the evaluation – test processes, the
designed system has also been compared
with some other approaches and accord-
ing to the obtained results; it has provided
a more accurate solution approach in the
related problem context.
• In their work, Gao et al. (2012) have pro-
vided an alternative way–system to im-
prove PSO algorithm. In this context, they
1188

have used the stochastic search technique
for enabling PSO to be avoided from trap-
ping into local optimums. Additionally,
opposition-based learning method and
chaotic maps are also used in the context of
this system (CSPSO) in order to enhance
the global convergence during the produc-
tion of the initial population. As it can be
seen from the reported results, the CSPSO
has provided an effective approach in the
context of complex multimodal problems.
• In the context of optimization problems,
Chai et al. (2012) have introduced a chaot-
ic immune algorithm structure, which aims
to solve constraint optimization problem
within the multi user subcarrier allocation
of cognitive wireless network. According
to the obtained evaluation – test results; in
conditions of user rate, the bit error rate
and inference constraints, the designed and
developed approach provides an effective
way to minimize the total transmit power
and converge it rapidly. Additionally, the
approach also allows obtaining better al-
location scheme and improving the utiliza-
tion efficiency of high frequency spectrum.
• Bigdeli et al. (2012) have designed and
developed an image encryption/decryp-
tion structure embedded with chaotic neu-
ral networks. In the context of the chaotic
neural networks structure, different kinds
of chaotic systems (chaotic attractors and
chaotic maps) are employed for deter-
mining system parameters or forming the
whole encryption/decryption approach. At
this point, three color codes (RGB: Red-
Green-Blue) are encoded by the system
(CNN) in an effective way. In this sense;
according to the results obtained via per-
formed tests, the CNN has provided high
security in image encryption.
• Another work on related to chaotic intelli-
gent systems has been performed by Zhang
and Wang (2012) in the context combining

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
fuzzy logic, artificial neural networks and
chaotic systems together. In this sense, the
proposed hybrid intelligent system is some
kind of fuzzy chaotic neural network. In
more detail, the model structure is based
on the Sigmoid map and in this context,
the authors have performed some works on
analyzing and explaining general structure
and behavior of this intelligent system.
• Coelho and Mariani (2012) have per-
formed a work on developing a multivari-
able PID controller tuning method using
some kind of chaotic firefly algorithm. In
this sense, the chaotic “Tinkerbell map”
has been used in the context of design and
development of the related chaotic intelli-
gent system. Within the evaluation – test
processes of the work, the proposed algo-
rithm (CFA) has been compared with some
other approaches provided for the related
tuning problem.
• Hong (2012) has proposed an intelligent
system structure including support vector
regression (SVR) model and chaotic im-
mune algorithm in order to forecast traffic
flow. As different from current researches
on using the SVR for non-cyclic trend time
series, the system (SSVRCIA) has been
employed for cyclic trend time series. In
this context, the proposed system has pro-
vided better performances on forecasting
traffic flows, according to other approaches
evaluated – tested within the related work.
• Kazem et al. (2013) have introduced a
system, which is based on support vector
regression (SVR) and chaotic firefly al-
gorithm system. In this sense, they have
aimed to forecast stock market prices from
stock market time series data, by using an
intelligent approach. Within the system,
hyper-parameters of the SVR have been
optimized by using a chaotic firefly al-
gorithm technique. The system has been
tested with three most challenging stock
market time series data and compared with
some other hybrid systems like genetic
algorithm-based SVR (SVR-GA), cha-
otic genetic algorithm-based SVR (SVR-
CGA), firefly-based SVR (SVR-FA), artifi-
cial neural networks (ANNs) and adaptive
neuro-fuzzy inference systems (ANFIS).
In this sense, the introduced system has
provided the best performance according
to the obtained results within the related
evaluation processes.
• Regarding to the employment of chaos
within the firefly algorithm (FA), Gandomi
et al. (2013a) have also provided a com-
prehensive study to improve standard func-
tions of the related algorithm. In this sense,
they have applied chaotic maps into the FA
in order to improve its “global search mo-
bility for robust global optimization.” For
this aim, 12 different chaotic maps have
been used in order to optimize attractive
movement of the fireflies in the context of
the algorithm. According to the evaluation
results obtain within the related processes,
some chaotic FA systems have provided
better results than the standard FA.
• In addition to the work related to the fire-
fly algorithm, Gandomi et al. (2013b) have
also performed a work on improving the
accelerated particle swarm optimization
(APSO) by using chaotic maps. In the con-
text of this study, they have tested 12 dif-
ferent chaotic maps to determine the best
one that can be used to enhance global
search ability of the standard APSO. After
forming the chaotic APSO (CAPSO), it
has been compared with some other cha-
otic PSO systems by using three different
engineering problems. According to the
obtained results; the CAPSO has provided
better performances and outperformed oth-
er systems included within the evaluation
process.
1189

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
As it was also mentioned before, explained
implementations provide some kind of brief
review regarding to applications – works within
the literature in years between 2012 and 2013.
At this point, it is possible to discuss some more
about the current view of the literature in the
context of explained works. Some remarkable
points that must be expressed within this context
are provided as follows:
• When the related works and their authors
are examined in more detail, it can be seen
that there is an extremely important contri-
bution to the related literature from espe-
cially Far East (in the context of publishes
within Science Citation Index and other top
indexes). Certainly, there are wide num-
bers of authors making remarkable and
effective contributions to the literature,
from other sides of the World. However, it
is also clear that researchers and scientists
from especially Far East have an important
role on the improvement of the literature.
• The works provided within the literature
on improvement of intelligent systems
via chaotic systems show that there is a
remarkable focus on fixing disadvantages
of previously introduced systems–algo-
rithms–approaches or improvement their
working mechanisms in the context of dif-
ferent perspectives.
• In order to perform the related fixes and/or
improvements, researchers and scientists
mostly prefer to design a typical hybrid
system. Certainly, chaotic systems or any
other chaos based approaches take active
roles within this kind of hybrid systems.
• Regarding to the results obtained among
works, it can be said that using of chaotic
systems has an important role on fixing
related disadvantages or improving cur-
rent features and functions of the intelli-
gent systems. In this sense, it can be said
clearly that the related fields of Artificial
1190

Intelligence and the Chaos Theory have a
strong relation in the context of effective
and innovative scientific perspectives–ap-
proaches for solving the real-world based
problems.
• It is clear that newly developed algorithms–
approaches are mostly tried to be improved
by using hybrid system based approaches.
In the sense of the chapter subject-scope,
chaotic systems are active actors of the re-
lated efforts–trends. At this point, it seems
that some ideas regarding to possible fu-
ture research directions can be expressed,
thanks to the recent status of the related
literature within subject scope.
FUTURE RESEARCH DIRECTIONS
It is important that discussing about future re-
search directions associated with the subject of
this chapter is a remarkable aspect of this work
in order to have ideas about potential views of the
future literature. In this sense, readers can also be
enabled to understand the subject scope better,
have ideas about the future and obtain brief but
comprehensive enough knowledge about the lit-
erature for employing their own approaches within
this context. As being parallel with the expressed
factors, some ideas about future research directions
can be expressed briefly as follows:
• When the related examinations and evalu-
ations are analyzed in more detail, it seems
that the future research directions about
improving intelligent systems via chaotic
systems will be continued to be based on
the related implementations (using cha-
otic maps for improvements, using chaotic
systems–attractors, maps or flows for solv-
ing problems of the Artificial Intelligence,
improving hybrid intelligent systems via
chaotic systems–attractors, and maps or
flows). However, it can be expressed that

Chaotic Systems and Their Recent Implementations on Improving Intelligent Systems
effectiveness of each implementation and
open areas within the related problems or
research areas will determine future re-
search directions and popular implementa-
tions in the context of the literature.
• It can also be expressed that the status of
“focus on fixing disadvantages of previ-
ously introduced systems–algorithms–ap-
proaches or improvement their working
mechanisms in the context of different
perspectives” will be remained in the fu-
ture periods. Because there will be always
some disadvantages, open problems within
a newly developed system–approach event
though it is evaluated as the most effective,
efficient, fast, or comprehensive one.
• On the other hand, it must also expressed
that both Chaos Theory and Artificial
Intelligence fields are dynamical scientific
areas in which newer and sometimes more
effective approaches, methods, techniques
or findings are often appeared in order to
improve the current literature and research
directions. In this sense, newer chaotic sys-
tems or newer Artificial Intelligence based
approaches, methods or techniques and so
intelligent systems may provide newer and
more remarkable directions within future
research works. It is important that all of
these processes can be examined, evalu-
ated and analyzed within conditions of the
future literature.
CONCLUSION
This chapter was based on a research work on
examining and evaluating the literature on com-
binations among Chaos Theory based factors and
Artificial Intelligent based works. In this sense,
the main subject of the chapter was related to
examining recent implementations on improving
intelligent systems via chaotic systems.
As it was explained within the chapter, there
are many different types of research efforts on
improving intelligent systems via chaotic systems.
In this context, the main emphasis is ensured on
especially improving effectiveness of already
designed and developed Artificial Intelligence
techniques or intelligent systems by using chaotic
systems or related approaches within the Chaos
Theory. Additionally, there are also research works
on introducing alternative ways to solve problems
within the context of Artificial Intelligence field
and providing some kind of hybrid systems formed
by both chaotic systems and Artificial Intelligence
based techniques or intelligent systems.
Generally, all of the mentioned–explained
research directions support the literature and open
new doors for better research efforts for reaching
to desired research objectives and developments.
In this sense, it must also be expressed that the
related developments, improvements and research
efforts are some kind of outputs of separate
developments within the Chaos Theory and the
Artificial Intelligence fields. Because of this, new
research works and developments in both fields
must also be examined and analyzed separately
in order to have better ideas about connections
between these fields (understand the structure
of the “bridge” between the Chaos Theory and
the Artificial Intelligence fields) and support the
associated literature by providing such scientific
works examined briefly in this work.
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KEY TERMS AND DEFINITIONS
Artificial: An adjective used for defining an
element – object, which is not natural but trying
to simulate the related natural dynamics.
Artificial Intelligence: (1) A term that is used
to describe the feature, function or characteristic of
computer systems or machines that try to simulate
human-thinking behavior or human intelligence.
(2) A field of Computer Science, which is based
This work was previously published in a Handbook of Research on Novel Soft Computing Intelligent Algorithms edited by
Pandian M. Vasant, pages 69-101, copyright year 2014 by Information Science Reference (an imprint of IGI Global).
1200

on research studies or developments on providing
intelligent systems simulating the human-thinking
behavior or human intelligence.
Chaos: A term used for defining the ran-
dom – nonlinear and unpredictable behavior of
something.
Chaos Theory: A scientific approach – re-
search effort which is based on examining behav-
iors of nonlinear dynamical systems, which are
highly sensitive to their initial conditions.
Chaotic: An adjective used for defining
something which shows random – nonlinear and
unpredictable behavior.
Chaotic Attractor: A term used for defining
the type of attractor in the context of the phase
space of a chaotic system (It is also called as
“Strange Attractor”).
Chaotic Flow: A term used for defining the
type of flow observed on a chaotic system.
Chaotic Map: Some kind of evaluation func-
tion that include chaotic behaviors.
Chaotic System: A nonlinear and dynamical
system, which is highly sensitive to its initial
conditions and performs random, unpredictable
behaviors in time.
Chaotification: An effort to enable the chaotic
system to continue its chaotic behaviors.
Intelligent System: A system, which is based
on approach(es), method(s) or technique(s) of
the Artificial Intelligence field to perform more
accurate and effective operations for solving the
related problems.
Optimization: The mathematical approach for
finding the most appropriate solution for a problem
function having some pre-determined constraints.
Time Series: A term defining the whole values
which are obtained by a variable in course of time.
 1201

Chapter 64
A Standardized Marketing Audit
Model for Entrepreneurship
Education in Egypt
Sherein H. Abou-Warda
Kafrelsheikh University, Egypt

ABSTRACT
Entrepreneurship education (EPE) plays a vital role to enhance employment creation and reduce poverty.
Marketing audit is a main tool for evaluating and improving the marketing performance in a manufactur-
ing or service sector. Despite the vast amount of literature which emphasizes entrepreneurship education,
no empirical studies address the marketing audit model for EPE in the higher education sector. This
study aims to develop a standardized marketing audit model for the EPE at higher education generally,
business schools specially. A total of 200 participants were chosen by a purposive judgmental sampling
technique from the only two universities which took steps towards establishing EPE in Egypt. A descrip-
tive survey method using a questionnaire, focus group, semi-structured interviews and workshops were
employed to develop a standardized model. The results showed the importance of the six dimensions in
a standardized marketing audit model for EPE at business schools in Egypt.

1. INTRODUCTION services, service processes and service production

In today’s knowledge-intensive economy, the
service sector and service innovation for business
and society represent the fastest growing portion
of the world economy (Al-Badarneh, Spohrer, &
Al-Duwairi, 2013). The service economy refers
to the service sector, which has become the most
important economic sector, surpassing traditional
sectors such as agriculture and manufacturing
(Dinh & Thi, 2012). Consequently, effectiveness of
has become vital in modern economies (Tinnilä,
2013). Services generally, and services offered by
education specially, are intangible, heterogeneous,
inseparable, and perishable; therefore, “Educa-
tion” being a very unique service in every form has
been of interest to many researchers (Agrawal&
Sharma, 2014).
Entrepreneurship Education (EPE) is a ma-
jor educational service to address the problem
of university students’ employment, economic

DOI: 10.4018/978-1-4666-8468-3.ch064

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt
growth, innovation, economic flexibility, aiding
culture formation, population integration, and
social mobility (Hisrich, Langan-Fox & Grant,
2007). The importance of this education comes
from three major themes: a solid demand for
more entrepreneurship programs in the schools;
Educational access to the “Make-a-Job” option;
and Economic growth (Kourilsky, 1995). Gener-
ally, the main objectives of the entrepreneurship
education are: (1) to promote better understanding
of entrepreneurship, (2) to enhance entrepreneurial
skills, and (3) to create more entrepreneurs. En-
trepreneurship Education may take the form of an
academic program, entrepreneurship training, and
individual or peer coaching (Katz, 2007). Entrepre-
neurship Education Programmes prepare students
to be entrepreneurs or entrepreneurial thinkers and
contributes to economic development and sustain-
able communities. It focuses on innovation and
enterprise as well as the drive towards “Teach Less
and Learn More” initiative. Specifically, the objec-
tives of entrepreneurship education programmes
are (1) to nurture and strengthen the values and
culture of entrepreneurship among students, (2) to
provide exposure and knowledge about business
management, (3) to provide insights into business
potential and entrepreneurial opportunities, and (4)
to encourage students to pursue entrepreneurship
after graduation (Mohamed, 2011).
EPE has emerged strongly in United States,
Europe and China. In the United States alone,
there has been a substantial increase in the num-
ber of courses offered in the past 20 years - over
2,000 courses 1,500 schools, and 100 funded
centres (Kuratko, 2003); German government
recently funded 25 chairs in entrepreneurship,
and in China courses are taught in many higher
education institutions (Hisrich, 2005).
Egypt took steps towards establishing entrepre-
neurship education; it is already cooperating with
the OECD and the European Union in promoting
SME’s development and related entrepreneur-
ship education (European Commission, OECD
& ETF, 2008). The results of the Global Entre-
1202

preneurship Monitor (GEM) for Egypt (2008)
have identified education and training as one of
the main constraining factors to entrepreneur-
ship development (Hattab, 2008). An important
OECD report (2008) also calls for attention for
appropriate action on entrepreneurship education,
not only in Egypt but also in other Mediterranean
(MED) countries (OECD-EU & ETF, 2008: p.17).
UNESCO program was developed to support the
creation of a number of science and technology
parks and link researches at Egyptian universities
to the industrial sector with the aim of establishing
small and medium enterprises (SME’s) (UNESCO
report on Science and Technology Parks in Egypt,
2007: p.7). Some Egyptian Ministries and several
other main actors issue the necessary “regulations”
to promote, support and provide financing to
entrepreneurs (Abou-Warda, 2014a). Also, most
educational policies have been developed towards
supporting entrepreneurship (Abou-Warda, 2014
b). These efforts encouraged some universities in
Egypt to establishing entrepreneurship education
as a formalized structured programme.
The American University in Cairo (AUC) is the
only foreign university in Egypt which has estab-
lished Entrepreneurship and Innovation Program
(EIP) since 2010 within the School of Business.
The programme is based on the school’s mission of
creating an environment that fosters the develop-
ment of principled and innovative business leaders
and entrepreneurs who can make a difference. As
part of EIP’s development, in 2013 the University
launched the AUC Venture Lab, a startup accelera-
tor and incubator located in the School of Busi-
ness that serves both the university and external
actors. On the other side, Cairo University is the
only public university in Egypt where a business
school was established, the International Business
School of Cairo (IBSCU), through cooperation
between Aalto and Cairo University. Within the
school, the Centre for Entrepreneurship and Small
and Medium Enterprises Management was estab-
lished for Entrepreneurship Programme (Kortam
& Abbas, 2012). Very recently, the perceptions

A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt
of entrepreneurial orientation have emerged in
the four main kinds of business schools (private;
internationally affiliated; public with local pro-
grams; and public with international programs)
in Egypt (Abou-Warda, 2015).
In general, entrepreneurship education takes
place in public and private universities, techni-
cal training institutes, institutes of technology,
national polytechnics and youth polytechnics;
and widely recognized by some researchers in
all over the world. Whilst a wide range of studies
emphasizes entrepreneurship education, until now
no study has developed a marketing audit model
for EPE. There is a need for a standardized market-
ing audit model for the EPE in higher education
generally, business schools context specially,
which would potentially be more useful for HEI
based research.
The remainder of the current study is structured
as follows. Section 2 outlines literature review and
research gap, in section 3 a methodology used
by this study. Discussion of results is presented
in section 4. In section 5 conclusions and issues
for future research are drawn. Finally, section 6
outlines recommendations for actions.
2. THEORETICAL BACKGROUND
RELATED WORK AND
RESEARCH GAP
Many studies have focused on entrepreneurship
education in higher education institutions gener-
ally (e.g. Robinson & Hayes, 1991; Hills, 1988;
Katz, 2003; Solomon, Duffy& Tarabishy, 2002;
and Rasmussen & Sørheim, 2006), in Business
Schools especially (e.g. Kirby, 2002; Gibb, 1996;
Wilson, 2004; and Han, & Lee, 1998). Points of
interest include: the impact of entrepreneurship
education on societies across the world, within and
between countries and cultures (e.g. Charney &
Libecap, 2000; Lee, Chang, and Lim, 2005; Gibb,
2002; and Solomon, Duffy& Tarabishy, 2002); en-
trepreneurship education activities (Rasmussen&
Sørheim, 2006); teaching methods (Solomon,
Weaver& Fernald, 1994; and Brown, 2000), learn-
ing (Matlay & Mitra, 2002); training objectives
(Bechard& Toulouse, 1998); curricula (Kourilsky,
1995; Collinson, 1999; Plaschka & Welsch, 1990;
and Noll, 1993); and evaluation of entrepreneur-
ship education (Pesonen& Kiuru, 2012; Charney,
Libecap& Center, 2000; Sexton & Upton, 1987;
Ashmore, 2012; Vesper& Gartner, 1997; Hills &
Morris, 1998; and Fayolle, 2004); the progress of
the entrepreneurship education (Vesper & Gartner,
1997); the effectiveness of the entrepreneurship
education (Sexton& Upton, 1984); development
of entrepreneurship programme (Mitra, 2002);
and evaluation of entrepreneurship programme
(Nasrudin & Othman, 2012). However, until
now no study has focused a marketing audit of
entrepreneurship education.
In 1959, the American Management Asso-
ciation published a set of papers on marketing
auditing (Report No. 32, 1959). From this date,
marketing audit has become a generally accepted
method to examine the marketing environments,
marketing plan practice, and the effectiveness of
marketing efforts (Vaňa& Černá, 2012). Very dif-
ferent definitions of marketing audit can be found
in the literature, and they are usually targeted and
purpose-oriented. In 1967, Kotler identified the
marketing audit as “something apart from and
more comprehensive than the other control ef-
forts of the firm” (Kotler & Armstrong, 2004).
Andreasen, (1983) define marketing audit as
“A comprehensive and systematic evaluation
of the processes and outcomes of a marketing
program.” Vana & Černa, (2012) define it as “a
systematic, comprehensive, objective, and inde-
pendent approach which can assist the manager
to understand the working of the individual parts
of the organisation and their contribution to the
total system geared toward the achievement of
the organisational objectives.” However, Broberg,
Umans & Gerlofstig (2013) view marketing audit
as “The balance between marketing activities as
an important part of the work and the inherent
1203

A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt
tasks of the auditing profession.” (Vaňa & Černá,
2012 developed a conceptual framework for a full
marketing audit, it includes six major components:
marketing environment audit, marketing strategy
audit, marketing organization audit, marketing
systems audit, marketing productivity audit, and
marketing function audit.
Generally, based on these definitions, at least
four elements are common to the concept of mar-
keting audit. First, it is method for comprehensive
and systematic evaluation. Second, it emphasizes
a balance between the auditing profession and
marketing activities as an important part of the
work. Third, it focus on audit to marketing environ-
ment, marketing organization, marketing strategy,
marketing systems, marketing functions, market-
ing productivity. Finally, it leads to achievement
of the organisational objectives. Therefore, the
author proposes the following working definition
for marketing audit to EPE in higher education:
Marketing audit is a comprehensive and system-
atic evaluation method which should balance
between the auditing profession and marketing
for auditing of marketing environment, marketing
organization, marketing strategy, marketing sys-
tems, marketing functions, marketing productivity
geared toward the achievement of entrepreneur-
ship education objectives.
Marketing audit has two primary goals to
monitor the achievements or failures of the mar-
keting program over time, and to offer actionable
recommendations for the improvement of market-
ing programs over the relevant planning horizon
(Andreasen, 1983). For a comprehensive market-
ing audit, a diversity of methods and sources is
employed, including: i) review of external second-
ary data; ii) review of internal archives; iii) review
of original field studies; and iv) discussions with
relevant key individuals and institutions involved
in contraceptive marketing.
1204

Research on marketing auditing has emerged
over the past decade, partly as a response to
changes in the business environment. Recent
studies have investigated the audit function (e.g.
Cameran, Moizer, & Pettinicchio, 2010; Ohman,
Hackner, & Sorbom, 2012; Broberg, and Umans,
& Gerlofstig, 2013). Few studies were specialized
in marketing auditing for entrepreneurship edu-
cation (Kortam, Mourad & Mahrous, 2011; and
Kortam & Abbas, 2012). Despite the importance
of these two studies which highlight the marketing
audit of EPE as a vital issue at the present time,
but these studies were theoretical studies which
identified how a marketing audit approach can be
adopted to re-invent the Egyptian business school,
and presented a conceptual framework for using
marketing audit to globalize entrepreneurial uni-
versities. Therefore, we can say that, marketing
auditing for entrepreneurship education, which
existed solely, is too narrow and hinders its ability
to address the major objectives of this vital issue.
From the above, it can be evinced that there
are three salient research gaps. First, marketing
auditing in the marketing literature is incoherent
(Vana & Černa, 2012). Second, marketing prac-
tices of higher education institutions lacks the
model which reflects marketing audit (Broberg,
Umans, & Gerlofstig, 2013). Finally, no empiri-
cal study addresses a marketing audit model for
EPE. Therefore, there is a need for developing a
standardized marketing audit model to the entre-
preneurship education.
The major research question is determined
in the following question: “Can we fill the four
gaps mentioned above through development a
standardized marketing audit model for entrepre-
neurship education at business schools context?.”
The overall purpose of this study is to develop a
standardized marketing audit model to generate
helpful insights geared toward the achievement
of the entrepreneurship education objectives at
business schools in Egypt.

A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

3. METHODOLOGY The validity of the questionnaire was veri-

This study employs descriptive survey method,
focus group, semi-structured interviews and
workshops to develop a standardized marketing
audit model for EPE. Data were collected in three
steps: i) review of available information about the
marketing audit procedure to design questionnaire
of marketing audit for EPE; ii) a descriptive survey
carried out between January and May 2013 to
create a form which documents desired market-
ing audit for EPE; iii) theme interviews on the
phone and face-to-face interviews in April-June
2013 to develop a marketing audit model; and
iv) two workshops were held in March 2014 and
August 2014 respectively to monitor and discuss
a marketing audit model for EPE in the business
school context. Each step was designed to exploit
its potential for gaining reliable, valid, rich and
insightful data that would assist in answering the
research question.
The study population is adapted from An-
dreasen, (1983) which is based on the value to the
“relevant publics” with a stake in the processes
and outcomes of the marketing strategy. Data
were collected from senior lecturers, lecturer, and
program leaders, senior officials of the relevant
universities, consultants, and the general public at
the only two universities which took steps towards
fied using the view of experts and its reliability
was verified by Cronbach’s Alpha. The overall
Cronbach’s Alpha value is 0.87. The reliability
also was obtained for each indicator of market-
ing environment (0.91), marketing organization
(0.90), marketing strategy (0.97), marketing
systems (0.96), marketing functions (0.98), and
marketing productivity (0.95). All values are
above the minimum value of reliability suggested
by Zaidatol and Hisyamuddin (2010).
4. RESULTS AND DISCUSSION
Table 2 shows that, overall, participants mod-
erately agreed on the six dimensions of market-
ing audit. The highest mean rating (3.91) is for
marketing functions. However, the lowest mean
rating (3.20) is obtained for marketing organiza-
tion. These findings indicate to the importance of
Table 1. Interpretation of the mean score
Interpretation Mean Score
Low (L) 1.00 – 2.00
Moderately low (ML) 2.01 – 3.00
Moderately high (MH) 3.01 – 4.00

establishing EPE in Egypt. In total, 100 partici- High (H) 4.01 – 5.00

pants were selected using a purposive sampling

technique. Purposive sampling is a practical, most
Table 2. Mean, standard deviation and the in-
effective tool and even more efficient than, random
terpretation
sampling when used for studying a certain cultural
domain with knowledgeable experts within; also No Items Mean SD Level
when used with qualitative research techniques 1 Marketing 3.37 0.677 MH
(Dolores, 2007). 80 questionnaires were returned environment
(80% response rate). The questionnaires consisted 2 Marketing systems 3.30 0.587 MH
of 6 main parts to examine the dimensions of 3 Marketing strategy 3.78 0.627 MH
marketing audit model for EPE on a five-point 4 Marketing 3.20 0.667 MH
Likert scale. organization

Table 1. shows the interpretation of the mean 5 Marketing functions 3.91 0.615 MH
score of each dimension according to Othman’s 6 Marketing 3.76 0.683 MH
productivity
study, (2002).

1205
 
A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

Table 3. Interpretation results of marketing func-

the six dimensions to evaluate EPE in marketing
tions
audit model.
As Table 3 shows, most participants highly No. Items Mean SD Level
agreed on partnership arrangements (4.76). This
1 Programme 3.37 0.638 MH
finding indicates to the importance of partnership development
arrangements factor as a marketing function in 2 Pricing 3.30 0.671 MH
marketing audit model to evaluate EPE. However, 3 Partnership 4.76 0.601 H
they agreed only moderately on the marketing arrangements
communications (3.78), programme development 4 Marketing 3.78 0.657 MH
communications
(3.37), and pricing (3.30).
Table 4 summarizes the participants’ percep-
tions of the findings regarding marketing strategy. Table 4.Interpretation results of marketing strategy
Mission is the highest mean rating (3.98), followed
by the goals, (3.82). The lowest mean rating (3.71) No. Items Mean SD Level
is marketing plan. These findings indicate that, 1 Mission 3.98 0.634 MH
overall, participants moderately agreed on the 2 Goals 3.82 0.643 MH
factors of marketing strategy in marketing audit 3 Marketing Plan 3.71 0.667 MH
model for EPE
As Table 5 shows, most participants highly
agreed on location of the school (4.12). However, Table 5. Interpretation results of marketing en-
they agreed only moderately on the competition vironment
(3.30).
No. Items Mean SD Level
As Table 6shows, most participants highly
1 Location 4.12 0.610 H
agreed on marketing tools (4.30). However, they
agreed only moderately on the marketing future 2 Competition 3.30 0.677 MH

(3.78), followed by the past performance indica-

tors & lessons learned (3.37). Table 6. Interpretation results of marketing or-
Based on the findings presented here; the ganization
author developed a marketing audit model for
EPE from Andreasen’s model for contraceptive No. Items Mean SD Level
social marketing programs (Andreasen, 1983). 1 Past performance indicators 3.37 0.656 MH
The interviews on phone and face-to-face with 20 & lessons learned

senior officials of the relevant universities were 2 Marketing tools 4.30 0.590 H

selected to discuss this model and its problems
which can be anticipated in the application at
business schools. Participants pointed out that a
first relevant problem is the management teams’
attitudes and auditors’ attitudes toward marketing
activities. To increase the success of a marketing
audit model, universities should spread the con-
cept of marketing audit among school; and it is
essential to stress that auditors do balance their
inherent auditing responsibilities with the newly-
imposed marketing activities. A second problem is
3 Marketing future 3.78 0.687 MH
that the availability of data from school, archives
or secondary sources in reality is quite limited.
To tackle this problem, the timetable and budget
should contain contingency plans and provide the
auditor with adequate funds, which are discretion-
ary and do not need further approval. However,
the potential problem with the final report appears
when two versions of the report are developed and

1206

A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt
approval of the content is required. To increase the
success of a marketing audit model, two versions
of the report should be developed: first, the audi-
tor’s draft, which should cover all of the auditing
process, be correct and complete; second, the
auditor’s final report, which should include fea-
sible and appealing recommendations. Generally,
in-depth analysis of relevant official documents
and dissemination of information about initiatives
to a variety of audiences involves practices that
have so far been undertaken only at the national
level. The stories are both credible and verifiable
and dramatically illustrate the commonalities in
the results that a “successful” a marketing audit
model for EPE is capable of producing. Review-
ing them in advance may prove useful to later
applications.
Confirming findings contributes to refine-
ments that will ensure that purpose of a study
is best served. Therefore, the two workshops
were held respectively by author to monitor and
discuss a marketing audit model for EPE at the
business school context. 100 Participants in these
workshops recommend continuing development
of marketing audit model for EPE in the business
school context, especially in areas that received
the weakest mean ratings; and continuing develop-
ment of statement to marketing audit information
requirements.
Based on a data base generated from all par-
ticipants and their recommendations; the author
developed a standardized marketing audit model
for entrepreneurship education at the business
school context and a statement to marketing audit
information requirements. A standardized market-
ing audit model divides into two parts and accom-
plishes two objectives. First, precise information
requirements of the audit; second, the marketing
information which includes six dimensions (mar-
keting environment, marketing systems, marketing
strategy, marketing organization, marketing func-
tions, and marketing productivity) (See: Appendix
A). A statement of marketing audit information
requirements includes the information requested
to a standardized marketing audit model and its
relevant part (See: Appendix B).
5. CONCLUSION
This study aims to develop a standardized mar-
keting audit model for EPE at business school
in Egypt. In order to achieve the study’s goal,
a background of entrepreneurship education in
Egypt was identified; available information about
the marketing audit procedure was reviewed to
build a marketing audit model for EPE, specialists
and specialized bodies were displayed for looking
into validity of a model, descriptive survey was
carried out, interviews with senior officials were
done to discuss its application problems, and
two workshops were held to confirm the study’s
findings.
This study is different from the previous ones
on several grounds. Firstly, this study focuses on
a new evaluation dimension of marketing, and
a synthesis dimension to model. Secondly, this
study traces the evolution of the audit philosophy
for the new holistic control system (marketing
audit). Thirdly, it looks at two different cases of
the higher education market in Egypt, one leader
public university and one leader foreign university.
Finally, this study was done on based of depth
methodology. Author believes that the results of
this study can improve marketing practices for
EPE in universities generally, and in business
schools especially.
The current study developed a standardized
marketing audit model to generate helpful in-
sights into the achievement of the entrepreneur-
ship education objectives at business school
context. It should be introduced at the beginning
of the marketing planning process, to facilitate
continuous auditing and the close monitoring of
the current and changing business landscape on
both the internal and external level. This study
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A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt
has several practical implications. First, it pro-
poses a standardized marketing audit model for
EEP that may be used by universities to make
sure that the right marketing is in place and is
operating as efficiently as possible to ensure that
entrepreneurship education is growing. Second,
this study indicates that the marketing audit is a
tool to be used to respond to enhancing the role
of the higher education sector as a major source
of employment, economic growth and innova-
tion. Third, this study may be seen by marketing
professionals at universities as a signal that the
doors of once closed professions are opening up
for them, and that there might be an opportunity
for mutually beneficial collaboration.
The major future directions is to test the
proposed standardized marketing audit model
with on-going programmes in other countries
and update it with one or more proposed new
programmes of entrepreneurship education (e.g.
technology entrepreneurship education and in-
novation entrepreneurship programme).
6. RECOMMENDATION
Despite of entrepreneurship education are a main
source of employment, innovation, quality promo-
tion, economic growth, and economic flexibility;
until now the supply of entrepreneurship education
is still limited in the Egypt. Therefore, it is strongly
recommended that government authorities in
Egypt formulate a national marketing strategy
to entrepreneurship education in the business
school context aimed at sustainable value creation
by integrating entrepreneurship at all levels of
education, training, research. Universities should
empower the concept of marketing audit in the
culture of faculties, and faculties should prepare
the academic leaders for marketing audit process
very early. The major recommendation is that, it
is highly necessary to use a standardized market-
ing audit model for EPE at business schools to
gain the realized organizational objectives. This
1208

model can examine business schools’ marketing
practices to improve marketing performance of
entrepreneurship education; it can also provide
the facility for progressive marketing replanning
in the light of market evolution.
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This work was previously published in the International Journal of Service Science, Management, Engineering, and Technol-
ogy (IJSSMET), 6(1); edited by Ghazy Assassa and Ahmad Taher Azar, pages 75-92, copyright year 2015 by IGI Publishing
(an imprint of IGI Global).

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APPENDIX A

Standardized Marketing Audit Model for EEP

Audited Institution: ______________________________________________

Date of Marketing Audit’s Report: ____
__________________________
Period of Marketing Auditing: From _____________To: _________________
Auditor(s): ______________________________________________

A. The marketing organization audit (designed to assess the interactions between marketing and
entrepreneurship education).
1. Past Performance Indicators & Lessons Learned
a. Was a previous marketing audit conducted, what were the conclusions?
b. How successful were the implemented suggestions from earlier marketing audits?
c. How often does your institution conduct marketing audits?
d. What surveys are used to determine what customers know about your services?
e. Do you know what the customer knows, feels and believes about your institution?
f. Have you ever asked what they know, feel, believe about your competitors?
g. What do you want them to ‘believe’ about your institution?
h. What do you want them to ‘know’ about your institution?
i. What do you want them to ‘feel’, about your institution?
j. Is your plan market-driven (build it and they will come)?
k. Do you use any type of strategic account management practices? If so, what?
i. Do you know how your institution develops new business opportunities?
2. Marketing Tools
a. What marketing tools and marketing communications tools are you using currently?
b. Do you have a complete database?
c. Do you do email marketing?
d. Does you website come up when keywords are searched?
e. Have these been successful?
f. Why/Why not?
3. For the future
a. What new marketing and marketing communications tools or techniques can you think
of that you would like to see implemented and made available?
b. Do you see your competitors doing anything special? (Events, sponsorships, blogs, social
media, community development, etc).

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 A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

B. The marketing environment audit (including analyses of both the macro environment and the
task environment):
1. Competition
a. Within 5 miles of my institution, there are private institution (s) __________________
_____________________________________________________________________
b. With regard to the answer above, my greatest competition comes from_____________,
because _________________________________________, I think they are successful
because: ________________________________________________________________
c. Does anyone have a brand position you admire? Who and what? Describe
2. Location: Location can play a major role for some universities and less so for others. Feel
free to share some thoughts or skip the section if you perceive that institution’s location is
not that important.
a. In your own words, please describe your location(s): ___________________________
_____________________________________________________________________
b. Are there any special characteristics to your location? __________________________
_____________________________________________________________________
c. What else would you like to tell us about your location(s)? ______________________
_____________________________________________________________________
d. How would you describe the socio-economic environment in your immediate vicinity?
Upper class ___Upper Middle ___Middle Income ____ Lower Middle _____Lower

C. The marketing strategy audit (assess the consistency of marketing strategy with environmental
opportunities and threats):
1. Mission
a. What is the institution’s statement of its basic mission?
___ No mission statement
___ Mission is _________________________________________________________
___ Source of Statement: ________________________________________________
___ Date: ____________________________________________________________
b. How available is the basic mission statement to the institution’s relevant publics?
___ Widely available in many documents and several media.
___ Available in one or two key documents.
___ Available for those who ask for it.
___ Not easily available.
c. When did entrepreneurship education start? __________________________________
_____________________________________________________________________
d. Is entrepreneurship education currently assisted by a partner?
___ Yes (termination date) _______________________________________________
___ No, partner terminated (Date) _________________________________________
___ No, there was never a partner

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A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

e. Describe your current entrepreneurship education program. _____________________

_____________________________________________________________________
f. What is working and what is not working? ___________________________________
____________________________________________________________________
g. Do you have a vision of your business in the future? ___________________________
_____________________________________________________________________
h. What do you want to accomplish from your dream? ___________________________
_____________________________________________________________________
i. Create new job opportunities for graduates - work to reduce unemployment? ________
______________________________________________________________________
j. What are your thoughts with respect to providing students with new skills to have the
ability to create small projects, etc. _________________________________________
_____________________________________________________________________
2. Goals: To what extent do the goals for the planning period meet the following criteria?
a. Realistic ______________________________________________________________
b. Measurable ___________________________________________________________
c. Motivating ____________________________________________________________
d. Hierarchical ___________________________________________________________
e. Consistent over time ____________________________________________________
f. Well communicated _____________________________________________________
3. Marketing Plan
a. Which of the following topics are included in the most recent marketing plans?
___ Business & economic environment (economy, fiscal, social, technological).
___ The market (size, characteristics, trends, customers, industry behavior).
___ The competition (major competitors, marketing methods, key strengths and weak-
nesses, extent of diversification).
___ Sales (total sales revenues, geographic reach and location, type of industry, by cus-
tomer type, by service).
___ Marketing (procedures, organizations, information).
b. Do you have a written marketing plan? How often do you review it? Is it up to date? (if
you wish we can review it) _______________________________________________
_____________________________________________________________________
c. Out of all your marketing activities to date, what has worked the best for you? Why?
What has not worked well? _______________________________________________
_____________________________________________________________________
d. Talk about your graduates and educational services. ___________________________
_____________________________________________________________________
e. How you satisfy your stakeholders. ________________________________________
_____________________________________________________________________
f. What is your current budget for marketing activities for the current academic year? ___
_____________________________________________________________________

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 A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

g. What activities does the budget support? (Activities might include public relations; events;
direct marketing; e-marketing; billboards; couponing; door hangers; co-op with local
merchants; interior signage; exterior signage) Can you give us a rough breakdown on
a percentage basis (for instance 30%)
______ % ___________________
_______% ___________________
h. To some extent, your marketing budget is no doubt based upon your graduates’ projects.
Can you please provide your projections for this year and next year? ______________
_____________________________________________________________________
i. For what periods are formal, written marketing plans routinely prepared?
___ No formal written plans.
___ 3month quarterly plans.
___ Yearly plans.
___ 5 -year plans.
___ Other_____________________________________________________________
j. How are individual departments or functional areas in marketing involved in the prepa-
ration of formal marketing plans? __________________________________________
_____________________________________________________________________
k. How extensive is contingency planning in the marketing planning process?
___ No contingency plans.
___ One or two contingencies planned for.
___ Most major contingencies planned for.
4. The marketing systems audit (to evaluate procedures used to obtain information, plan and
control marketing operations):
a. How does your current marketing strategy align to business objectives and strategy?
b. Are institutions properly budgeted to achieve their respective objectives?
c. Are institutions/organizational objectives clearly defined and articulated?
d. Do you feel you are getting value for money from your marketing budgets?
e. Who are your current best customers?
f. Who do you think are your competitors’ best customers?
g. Does the institution’s core marketing strategy have the following characteristics?
___ Customer oriented.
___ Well coordinated with government programs.
___ Heavily reliant on market research.
___ Contains many contingency strategies.
___ Makes heavy use of consultants.
___ Sensitive to costs.
___ Emphasizes higher status Customers.
___ Expands the market.
___ Each step builds on earlier accomplishments.
h. What changes in the above dimensions would improve the core marketing strategy?
__________________________________________________________________________

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A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

i. What is your process for collecting the above-mentioned information?

___ Requested as part of a registration process
___ Requested directly using a card or form
___ POS(point of Sale) System input
___ Other _____________________________________________________________
j. What is the best source of new customers right now?
___ Advertising
___ Professional Referrals
___ Events

D. The marketing functions audit (reviewing key marketing functions based primarily on prior audit
findings).
1. EPE Programme Development
a. How do you develop new educational services?
b. How long does development normally take?
c. How many successful new educational services did you introduce in the last year?
d. Are feasibility and investment criteria set for new educational services assessment?
e. Do you employ and evaluate launch plans for new educational services?
f. Do you link new services development to your business and marketing strategies? How
do you do this?
g. Is your services portfolio managed centrally or locally?
h. How are new service ideas encouraged and captured?
2. Pricing (skip this section if you wish for us not to address this)
a. Describe your approach to pricing?
b. Do you offer a price-match guarantee?
c. Do you offer “loss leaders” in your advertising and promotions to gain traffic?
d. Do you offer financing programs?
e. Do you think it would be valuable to offer an affinity credit card? Do you think this
would be useful for your marketing and sales efforts?
3. Distribution and Partnership Arrangements
a. Have you considered or discussed associating with other local entrepreneurship educa-
tion to conduct cross-marketing activities?
b. What are the top charitable organizations in your area? Are you tied in with them? How?
c. Share your ideas, can add value to entrepreneurship education. ___________________
_____________________________________________________________________
4. Marketing Communications.
a. Public Relations. For each of the following public relations activity, please let us know
if you have tried the activity or not:
___ Newsletter for customers or potential customers
___ Sponsorship Activities
___ Blogs, Podcasts, Twitter, Facebook,
___ Speeches, school programs, etc
___ Community Involvement (high schools, churches, etc)
___ Club or membership program (loyalty program)

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 A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

b. Advertising. For each of the following advertising activities, please let us know if you
have tried the activity or not:
___ Newspaper (display ads or newspaper inserts)
___ Local coupon books, door hangers, etc
___ Digital advertising (banners, search sponsorship, digital coupons, review sites)
___ Television (spot; cable; local access)
___ Miscellaneous Media
c. Promotions. For each of the following promotion activities, please let us know if you
have tried the activity or not:
___ Referral campaign.
___ Loyalty program for frequent or returning customers.
___ Registry Services.
d. Direct Marketing. For each of the following direct marketing activities, please let us
know if you have tried the activity or not:
___ E-Mail Marketing.
___ Direct mailing.
e. E-Marketing. For each of the following e-marketing activities, please let us know if you
have tried the activity or not:
___ Word of mouth via blogging
___ Offer micro-sites for local entrepreneurship education centers
___ Facebook and/or Twitter
___ E-Mail Marketing
f. Experimental Marketing: For each of the following guerilla marketing activities, please
let us know if you have tried the activity or not:
___ Partnerships and Affiliations
___ Educational Programs
___ Seminars and other events
___ Shop Dropping (example: dropping flyers into magazines at libraries.)
___ Local event participation (local expos, and other public gatherings)
5. Marketing Productivity
a. To what extent does the institution evaluate the cost effectiveness of different marketing
expenditures?
___ Little or no cost effectiveness evaluation
___ Some cost effectiveness evaluation
___ Extensive cost effectiveness evaluation
b. How frequently are marketing audits conducted?
___ No marketing audit
___ Infrequent marketing audits
___ Regular marketing audits
c. What improvements in marketing program evaluation are needed in the near or longer
term? ________________________________________________________________
_____________________________________________________________________

1218
A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

APPENDIX B

Marketing Audit Information Requirements

Information Requested: Relevant Part

1. Past marketing performance indicators Part A

2. Previous marketing audit observations report Part A
3. Previous marketing audit conclusions report Part A
4. Previous marketing audit suggestions report Part A
5. Examples of marketing communications techniques Part A
a. Events
b. Sponsorships
c. Blogs
d. Social media
e. Community development
f. Other _________________________
6. Descriptions of market environment Part B
7. Examples of competitor’s marketing materials Part B
a. Advertisements
b. Packaging
c. Educational materials
d. Promotional materials
e. Public Relations releases
f. Other _________________________
8. Mission statement Part C
9. Goals statement Part C
10. Formal marketing plans Part C
11. Institution’s reports of marketing activity Part D
12. Institution reports of Financial performance Part D
13. Formal marketing job description Part D
14. Other marketing research studies Part D
15. Marketing staff training materials Part D
16. Sales force compensation plan Part D
17. Institution’s report of the number enrolled with new EPP Part E
18. Consumer research studies Part E
19. Pricing structure Part E
20. Regulations that restrict advertising Part E
21. Partnership and arrangements statement Part E

1219
 A Standardized Marketing Audit Model for Entrepreneurship Education in Egypt

22. Examples of institution ‘s promotion materials Part E

a. Advertisements,
b. Packaging,
c. Educational materials,
d. Promotional materials,
e. Public Relations releases,
f. Other _________________________
23. Examples of institution ‘s promotion materials Part E
24. Examples of institution ‘s public relations activities materials Part E
a. Newsletter for customers or potential customers
b. Sponsorship activities
c. Blogs, Podcasts, Twitter, Facebook,
d. Speeches, school programs, etc
e. Charity or hospital donations and events
f. Community involvement
g. Club or membership program (loyalty program)
25. Examples of institution ‘s advertisements activities materials Part E
a. Newspaper (display ads or newspaper inserts)
b. Local coupon books, door hangers, etc
c. Digital advertising (banners, local digital coupons, review sites)
d. Television
e. Miscellaneous Media
26. Institution’s report of the marketing expenditures evaluation Part F
27. Report of improvements in marketing program evaluation Part F

1220
 1221

Chapter 65
Managing Fisheries in Light of
Complexity and Chaos Theories
Manuel Alberto Martins Ferreira Manuel Francisco Pacheco Coelho
Instituto Universitário de Lisboa (ISCTE-IUL), SOCIUS/ISEG-UTL, Portugal
BRU-UNIDE, Portugal
Maria Isabel Pedro
José António Candeias Bonito Filipe CEGIST/IST, Portugal
Instituto Universitário de Lisboa (ISCTE-IUL),
BRU-UNIDE, Portugal

ABSTRACT
Chaos theory - and models related to non-linear dynamic systems - has increased in importance in
recent decades. In fact, chaos is one of the concepts that has most rapidly expanded in research topics.
Chaos is ordinarily disorder or confusion; scientifically, it represents a disarray connection, but basi-
cally, it involves much more than that. Change and time are closely linked, and they are essential when
considered together as chaos theory foundations are intended to be understood. Given the large number
of applications in several areas, the goal of this work is to present chaos theory - and dynamical systems
such as the theories of complexity - in terms of the interpretation of ecological phenomena. The theory
of chaos applied in the context of ecological systems, especially in the context of fisheries, has allowed
the recognition of the relevance of this kind of theories to explain fishing events. It raised new advances
in the study of marine systems, contributing to the preservation of fish stocks.

INTRODUCTION
Mankind’s oldest concern inhabits necessarily on
its survival. For thousands of years the Humanity
always lived with an almost steady level in the
way of living. Production followed the growth
of the population. To the generality of the times
and to the generality of the people, the historical
rule was a life with the strictly necessary for the
populations’ day-to-day.
The development is an exception in the history
of the Humanity that exists just for a period not
longer than 250 years. The Humanity had never
had a so significant, consistent and intense trans-
formation in its History. In this period, a complete
revolution in the life style of the world-wide

DOI: 10.4018/978-1-4666-8468-3.ch065

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Managing Fisheries in Light of Complexity and Chaos Theories
population happened to the countries currently
appointed as developed countries. However, its
effects were not bordered to these zones. Its pres-
ence has been extensive to the whole world. In
particular, with what it is assigned as external aid,
the rich countries changed the stages of develop-
ment of a great part of the globe, shortening the
development stages of many countries and pro-
voking several kinds of unbalances and disturbs
- see, for example, what happened with vaccines
on the field of health, with the pollution, with all
the problems emerged on the feeding area and
with other many forms of intrusion, with visible
effects and heavy direct impacts.
This development represents a large step for the
Humanity. The comfort, the best levels of health
and the best standards of life correspond to a set of
advantages which medal reverse represents so big
costs that their effects we are not able to study yet.
It is not the progress and the development
that may be contested but the way the societies
do not find ways to get a supported and balanced
development, respecting the principles of equity
that must exist among our specie and the others.
Throughout the 20th century the extreme
exploitation of resources brought out very big
concerns about their preservation. Along the time
the immoderation has shown the necessity of mea-
sures to avoid the depletion of many resources.
That is why common resources become studied
worldwide. Nowadays, they are an important
subject to analyze resources problems. In the last
few decades, international organizations have
successively looked for balances to the problem
of fragile resources preservation and environ-
mental questions, searching for solutions. The
international agents and the private interests are
numerous and the convergences seem to be tradi-
tionally very difficult. National and international
organizations and States have seen the balances of
life and resources on Earth to be frequently broken.
It is on the basis of the existence of this type
of position divergences that we intend to analyze
1222

the framings and this idea relative to the Earth
resources. Our study intends to conjugate the need
of resources preservation - specially the common
resources - with the perception of the way the
involved agents face the subjects studied.
We intend to answer to the necessity of find-
ing solutions that aim the preservation and the
improvement of the conditions of life in society
compatible with the environment.
The existing risks to the Humanity and to all
the live resources require that some theoretical
contexts are posed in a way that allow investiga-
tors to develop possible solutions and to find out
the best ways to achieve them.
Since its beginning, chaos has become rapidly
a developing field and many of the progresses in
this area were revealed just since the 1970s. This
means that many facets of chaos are distant from
being understood or determined yet, making of it
a field with great potential. It is important to note
that nowadays chaos is extremely difficult to be
identified in real world information in order to be
workable. It is possible to find it in mathematical
computer problems to be solved and laboratory
research. As soon as the idea of nonlinearity1 is
introduced into theoretical models, chaos gets
obvious. A very complex structure is observed
in the field data. Simple patterns can be found
and approximated; complex patterns are another
matter. In any event, we can’t just grab a nice little
set of data, apply a simple test or two, and declare
“chaos” or “no chaos.” (Williams, 1997).
The chaos theory involves multiple interac-
tions and supposes the existence of an enormous
number of interrelations, with direct developments
in vast fields of study. It got an important role in
the context of recent theoretical developments
of the non-equilibrium theories. The word chaos
assumes the idea of the existence of turbulence
and disorder; an unwanted chance or even the idea
of an “abyss.” The predisposition to a profound
change in the direction of a phenomenon gener-
ates an own force, understood as a depth change

Managing Fisheries in Light of Complexity and Chaos Theories
that results from small changes in their initial
conditions. The chaos is, from this point of view,
something extremely sensitive to the initial condi-
tions. It is interesting to note, however, that the
chaotic system normally seems to develop itself
in a very smooth and orderly way, although inside
changes may be complex and paradoxical.
Recent developments in the dynamical systems
theories, which require the existence of an inher-
ent complexity of the systems themselves that
are based on a set of large inside interactions, led
in some cases to understand and highlight self-
organizing systems, revealing strong strengths
and reinforcing their internal cohesion factors.
Given the non-linearity conditions of the
nature phenomena, theories which are based on
the dynamics of non-equilibrium seem to explain
quite well the spatial and temporal heterogeneity
observed in ecological systems. Chaos occurs often
in deterministic, nonlinear, dynamical systems.
The disturbances and heterogeneity are inter-
dependent factors that create opportunities for
re-colonization and determine the structure of
communities. It is important to note, for reflec-
tion about the effects of the disturbances in the
systems, that the ability to recover the ecological
systems depends, to some extent, on the existence
of refuge areas both for flora and fauna, acting as
reservoirs of re-colonizers, after the disturbances
occurred in the ecosystem.
Many live resources, particularly many ma-
rine resources have suffered drastic reductions
motivated by their overexploitation. Populations
of many species have been led to the rupture and
close to the extinction. How can Humanity modify
this state of things? Is there a line of evolution
that helps to explain this kind of events? How
can we shape these facts in this perspective? Is
there any ways to invert these trends? Or simply
to find the principles that underline the facts? The
main agents in this process may be questioned?
The supranational institutions just emit simple
indicative rules?
CHAOS IN DYNAMICAL
SYSTEMS’ THEORIES
A dynamical system represents moving, chang-
ing or evolving in time. For this reason, chaos
deals with dynamical systems theory - the study
of phenomena that vary with time - or nonlinear
dynamics - the study of nonlinear movement or
evolution.
Dynamical systems fall into one of two cat-
egories, depending on whether the system loses
energy. A conservative dynamical system has
no friction and it doesn’t lose energy over time.
In contrast, a dissipative dynamical system has
friction; it loses energy over time and therefore
always approaches some asymptotic or limiting
condition. That asymptotic or limiting state, under
certain conditions, is where chaos occurs (see
Williams, 1997).
The dynamical systems theories have been
applied to numerous areas of knowledge. In the
80’s, several exact sciences - physics, chemistry
or biology, for example - and some social sciences
- economics or management or even the sociol-
ogy - still had their own objects of study and their
own methods of analysis and each one of them
was different from the others. The science has
been branched and specialized, so that each one
uses to have its own world. Recently new forms
of analysis, looking for an integrated study, have
emerged (Filipe, 2006; Filipe et al, 2007).
The theory of chaos and complexity theory
itself reflect the phenomena that in many activi-
ties, such as fisheries, are translated into dynamic
forms of analysis and reflect a very complex and
widespread reality, specific of complex systems.
That reality falls within a range of situations in-
tegrated in a broader context, which is expressed
in the theory itself but also in terms of their own
realities - fisheries, for example - dynamic, com-
plex and often chaotic features in their essence.
The theory of chaos stresses that the world does
not necessarily work as a linear relationship with
perfectly defined or with direct relations in terms of
1223

Managing Fisheries in Light of Complexity and Chaos Theories
expected proportions between causes and effects.
The chaos occurs when a system is very sensitive
to the initial conditions. These initial conditions
are the measured values for a given initial time.
The presence of chaotic systems in nature seems
to place a limit on our ability to apply physical
deterministic laws to predict movements with
any degree of certainty. Indeed, one of the most
interesting subjects in the study of chaotic systems
is the question of whether the presence of chaos
may or may not produce ordered structures and
patterns on a wider scale. In the past, the dynamic
systems showed up completely unpredictable and
the only ones who could aspire to be understood
were those that were represented by linear rela-
tionships, which are not the rule. On the contrary,
there are some situations clearly isolated.
Today, with the help of computers, it is possible
to make extremely complex calculations and to
understand better the occurrence of chaos.
As Williams (1997) says, phenomena happen
over time either as at discrete, separate or distinct,
intervals2 or as continuously3. Discrete intervals
can be spaced evenly in time or irregularly in
time. Continuous phenomena might be measured
continuously. However, we can measure them at
discrete intervals4. Special types of equations apply
to each of those two ways in which phenomena
happen over time. Equations for discrete time
changes are difference equations and are solved
either analytically or by iteration methods. In
contrast, equations based on a continuous change
- continuous measurements - are differential
equations. The term “flow” often is associated
to differential equations5.
Differential equations are often the most ac-
curate mathematical way to describe a smooth
continuous evolution. However, some of these
equations are difficult or impossible to solve.
In contrast, difference equations usually can be
solved right away. Furthermore, they are often
acceptable approximations of differential equa-
tions. Olsen and Degn (1985) say that difference
1224

equations are the most powerful vehicle to the
understanding of chaos.
Many scientists see, with particular interest, the
theory of chaos as a way to explain the environ-
ment. Therefore, the theory of chaos stresses the
fundamental laws of nature and natural processes
and requires a course for a constant evolution and
recreation of nature. The theory of chaos allows
to realize the endless alternative ways leading to
a new form or new ways that will be disclosed
and that eventually emerge from the chaos as a
new structure. The reality is a process in which
structure and chaos rotate between form and
deformation in an eternal cycle of death and
renewal. Conditions of instability seem to be the
rule and, in fact, a small inaccuracy in the condi-
tions of departure tends to grow to a huge scale.
Basically, two insignificant changes in the initial
conditions for the same system tend to end in two
situations completely different. This situation is
known, poetically, as the “butterfly wing effect.”
A small movement of the wings of a butterfly can
have huge consequences. It is the microscopic
turbulence having effects in a macroscopic scale
- an effect called by Grabinski (2004) as hydro-
dynamics. Mathematically, the “butterfly wing
effect” corresponds to the effect of chaos, which
can be expressed as follows.
Given the initial conditions x1, x2, x3, …, xn it is
possible to calculate the final condition given by
Final Result = f(x1, x2, x3, …, xn).
If the initial conditions xi have a margin of error
(variation), the final result will be influenced by
the existence of this margin. If these margins in xi
are small as the margin of error in the final result,
we have a situation non-chaotic. Otherwise if the
margins of error in xi are small but the final result
has a big variation, there is a chaotic situation.
Therefore, small variations in initial conditions
can lead to a major effect in the final outcome.

Managing Fisheries in Light of Complexity and Chaos Theories
Sometimes small changes in xi have exponential
effects on the final result due to the passage of time.
This effect can be demonstrated mathemati-
cally6 using the Lyapunov Exponent7 (see Grabin-
ski, 2008). Given the initial value x0 and ε being
its - arbitrarily small - variation, we are conducted
to an initial value between x0 and x0+ε. The gen-
eral form of Lyapunov indicator is presented by
xn+1=f(xn) that after N iterations leads to a value
for xn between fN(x0) and fN(x0+ε) being the differ-
ence between these two values
f N (x 0+ε ) − f N (x 0 )  εe
N λ (x 0 )
where λ is a parameter.
Dividing both sides by the variation ε and
assuming the limit ε→0, we have a differential
quotient. Making its logarithm and assuming the
limit N→∞, we get the final definition of the
Lyapunov Exponent
1 combine the chaos theory with business situations.
λ (x 0 ) = lim log | df N (x 0 ) / dx 0 |
N →∞ N For that, he presents the function about the value
and there is chaos when λ >0.
Through this function the chaos exist when
arbitrary small variations in initial conditions grow
exponentially with a positive exponent.
Grabinski also says that the nonlinearity is
the main characteristic of a chaotic situation.
Mathematically, the nonlinear functions to be
considered chaotic should be based on variables
with some resistance. The author also argues
that is not enough to describe the chaotic situ-
ations, such as turbulence, but it is necessary to
find ways to better cope with the nonlinearity. A
smooth flow of a river, non-chaotic, that can be
described in quantities like the flow velocity can
reach a chaotic behavior with variations of many
situations. The best example is a waterfall where
the speed of the flow reaches a certain point. In
a smoothly flowing river it is easy to calculate or
predict the flow velocity of the river at any point.
However, to calculate it in a river with a waterfall,
it is necessary to introduce chaos. In an attempt
to make this calculation, man has focused on the
construction of super computers that have shown
to be useless due the infinity of factors that may
cause turbulence in the flow of the river. Thus,
the analysis of frequency on the change of flow’s
velocity is much more promising than the analysis
of velocities themselves.
Moreover, Grabinski, shows the situation in
which there is chaos on a microscopic scale but
not on a macroscopic scale - the hydrodynamics.
An example is a glass of water resting on a table,
a not chaotic event. A slight disturbance on the
table causes a small flow on a macroscopic level
in the water. However, a microscopic observation
reveals a great agitation of millions of molecules,
a chaotic event. This is a situation where there is
chaos on the microscopic scale but a smooth flow
on the macroscopic scale. Mathematically Gra-
binski presents hydrodynamics equations which
of a company (v) that depends on two variables,
the revenue (r) and the number of employees (n).
Its general form is
v(r,n) = v0 + a10r + a01n + a11rn + a20r2 + a02n2
+...
being aij general parameters. For n=0 (no employ-
ees) or r=0 (no revenue) the company doesn’t exist
because the function value is equal to 0.
So some terms of the function must be removed
(v0 = a10 = a01 = a20 = a02 =…= 0). The general
form comes as v(r,n) = a11rn + a21r2n + a12rn2 +
a22r2n2 +…
Now to the case of symmetry, r and n could
be negative. A negative employee means that the
employee is paying to work and negative revenue
means that the company is paying the costumer
to consume. So the previous formula can lead to
negative results if r and n change signs simultane-
1225

Managing Fisheries in Light of Complexity and Chaos Theories
ously. Only these terms are allowed for which the
sums of the powers of r and v are even numbers.
Thus the general expression of the equation is
v(r,n) = a11rn + a22r2n2 +…
CHAOS, DYNAMICAL SYSTEMS’
THEORY, AND ECOLOGY
Chaos, that is, deterministic chaos, deals with
long-term evolution - how something changes over
a long time. A chaotic time series looks irregular.
Two of chaos’s important practical implications
are that long-term predictions under chaotic con-
ditions are worthless and complex behaviour can
have simple causes. Chaos is difficult to identify
in real world data because the available tools
generally were developed for idealistic condi-
tions that are difficult to fulfil in practice (see
Williams, 1997).
The ecology where many things are random
and uncertain, in which everything interacts with
everything at the same time is, itself, a fertile
area for a cross search to the world explanations
(Filipe et al, 2005).
Lansing (2003) states that the initial phase of
the research of nonlinear systems was based on
the deterministic chaos, and it was later redirected
to new outbreaks of research focusing on the
systems properties, which are self-organizing.
What is called anti-chaos. It also says that the
study of complex adaptive systems, discussed in
the context of non-linear dynamic systems, has
become a major focus of interest resulting from
the interdisciplinary research in the social sciences
and the natural sciences.
The theory of systems in general represents
the natural world as a series of reservoirs and
streams governed by various feedback processes.
However, the mathematical representations were
ignoring the role of these adjustment processes.
1226

The theory of complex adaptive systems part of
the theory of systems, although it has in specific
account the diversity and heterogeneity of systems
rather than representing them only by reservoirs.
It explicitly considers the role of adaptation on the
control of the dynamics and of the responses of
these heterogeneous reservoirs. This theory allows
ecologists to analyze the reasons inherent to the
process at the lower levels of the organization that
lead to patterns at higher levels of organization
and ecosystems. The adaptive systems represent
one of the means to understand how the organi-
zation is produced to a large scale and how it is
controlled by processes that operate at lower levels
of organization. According to Lansing (2003),
came to be a general idea involving physical and
mathematical complexity that is hidden behind
systems very simple.
Considering a system composed by many in-
teractive parts, if it is sufficiently complex, it may
not be practical or even not be possible to know
the details of each interaction place. Moreover, the
interactions can generate local non-linear effects
that often it becomes impossible to find a solution
even for simple systems. However, diverting us
from causal forces that move the individual ele-
ments, if we focus on the system behavior as a
whole we can highlight certain global behavior
standards. However, these behavior standards may
hide an associated cost: it cannot be expected to
understand the causes at the level of individual
behavior.
Indeed, the systems do not match the simple
decomposition of the whole into parts and there-
fore do not correspond to the mere sum of the
parts, as living systems are not the juxtaposition
of molecules and atoms. Since the molecule to the
biosphere, the whole is organized and each level
of integration leads to properties that cannot be
analyzed only from mechanisms that have explana-
tory value in the lower levels of integration. This
corresponds to the appearance of new features

Managing Fisheries in Light of Complexity and Chaos Theories
to the level of the set that does not exist at the
level of the constituent elements. Lansing (2003)
believes that the adoption in the social sciences of
the idea that complex global patterns can emerge
with new properties from local interactions had
a huge impact here.
The ecological systems are comparable to
systems self-organized as they are open systems
which arise far from thermodynamic equilibrium.
On self-organized and self-regulated systems, the
reciprocal interactions within the system between
the structures and the processes contribute to the
regulation of its dynamics and the maintenance
of its organization; partly due to the phenomena
of feedback (see Lévêque, 2002). These systems
seem to develop themselves in accordance with
the properties referred to the anti-chaotic systems.
Indeed, we have auto-regulated systems that chan-
nel different initial conditions for the same stage,
instead of what is happening with chaotic systems,
which are very sensitive to initial conditions (see
Kauffman, 1993). These systems would be rela-
tively robust for a particular type of disturbance,
to which the components of the system fit, creat-
ing a meta-stability that depends not only on the
internal interactions within the system but also on
external forces that can regulate and strengthen the
internal factors of cohesion (see Lévêque, 2002).
Scoones (1999) argues that should be con-
cluded a new commitment in research on the
ecological new thinking and he develops its
search precisely in the area of ecology around
the concepts of chaotic dynamics and systems
of non-equilibrium. In turn, Levin (2003) shows
that in the study of complex adaptive systems
anti-chaos involves the understanding of how the
cooperation, alliances and networks of interac-
tions emerge from individual behaviors and how
it generates a feed-back effect to influence these
behaviors within the spontaneous order and self-
organization of ecosystems.
DYNAMICAL SYSTEMS AND
CHAOS THEORY AND FISHERIES
In order to frame some methodological devel-
opments, it must be mentioned, first of all, that
some characteristics associated with some spe-
cies support strategic survival features that are
exploited by the present theory. Its aim is to find
the reasons and the way in which these strategies
are developed and the resulting consequences.
The species use their biological characteristics
resulting from evolutionary ancient processes to
establish defense strategies.
However, given the emergence of new forms of
predation, species got weaker because they are not
prepared with mechanisms for effective protection
for such situations. In fisheries there is a preda-
tor, man, with new fishing technologies who can
completely destabilize the ecosystem. By using
certain fisheries technologies, such as networks
of siege, allowing the capture of all individuals
of the population who are in a particular area of
fishing, the fishers cause the breakdown of certain
species, particularly the pelagic ones, normally
designated by schooling species.
To that extent, with small changes in ecosys-
tems, this may cause the complete deterioration
of stocks and the final collapse of ecosystems,
which in extreme cases can lead to extinction.
These species are concentrated in high density
areas in small space. These are species that tend
to live in large schools.
Usually, large schools allow the protection
against large predators. The mathematical theory,
which examines the relationship between schools
and predators, due to Brock and Riffenburgh (see
Clark, 1974), indicates that the effectiveness of
predators is a reverse function of the size of the
school. Since the amount of fish that a predator
can consume has a maximum average value, over-
coming this limit, the growth of school means a
reduction in the rate of consumption by the preda-
1227

Managing Fisheries in Light of Complexity and Chaos Theories
tor. Other aspects defensive for the school such
as intimidation or confusing predators are also
an evidence of greater effectiveness of schools.
However this type of behavior has allowed the
development of very effective fishing techniques.
With modern equipment for detecting schools -
sonar, satellites, etc. - and with modern artificial
fibers’ networks - strong, easy to handle and quick
placement - fishing can keep up advantageous for
small stocks (Bjorndal, 1987; Mangel and Clark,
1983). As soon as schools become scarce, stocks
become less protected. Moreover, the existence
of these modern techniques prevents an effect of
stock in the costs of businesses, as opposed to
the so-called search fisheries, for which a fishery
involves an action of demand and slow detection.
Therefore, the existence of larger populations is
essential for fishermen because it reduces the
cost of their detection (Neher, 1990). But, the
easy detection by new technologies means that
the costs are no longer sensitive to the size of the
stock (Bjorndal and Conrad, 1987).
This can be extremely dangerous due to poor
biotic potential of the species subject to this kind
of pressure. The reproductive capacity requires
a minimum value below which the extinction is
inevitable. Since the efficiency of the school is
proportional to its size, the losses due to the effects
of predation are relatively high for low levels of
stocks. This implies non-feedback in the relation
stock-recruitment, which causes a break in the
curves of income-effort, so that an infinitesimal
increase on fishing effort leads to an unstable
condition that can lead to its extinction.
Considering however the fishing as a broader
issue, we may consider the modeling of the stocks
of fish on the basis of an approach associated with
the theory of chaos instead considering the usual
prospect based on classical models. Indeed, the
issue can be placed within this framework from
two different prisms: the traditional vision and the
vision resulting from theories of non-equilibrium.
Around the traditional Newtonian view, the facts
can be modeled in terms of linear relationships:
1228

involving the definition of parameters, identifying
relevant variables and using differential equations
to describe the processes that change slowly over
time. For a given system, it should then carry out
measurements in a context that remains stable
during various periods.
Moreover, we may have models based on
the theory of chaos. These models are based on
non-linear relationships and are very close to
several disciplines, particularly in the branch of
mathematics that study the invariant processes of
scale, the fractals, and in a huge range of other
subjects in the area of self spontaneous creation of
order: the theory of disasters or complex systems,
for example.
The first way is largely used by the majority
of biologists, economists and environmentalists,
scientists and technical experts that conduct studies
in marine search and senior technicians from state
and transnational agencies in the area of fisheries.
It treats nature as a system, which has a regular
order. But today there are many responsible for
fisheries management who also base their deci-
sions on models of chaos.
The classical models center on a particular sys-
tem and depend on a local analysis, studying sev-
eral species, age, class, sub-regions of the marine
eco-niche, the various ports and their discharges,
depending on the account of an even wider range
of other factors. Probably, the classic expression
of linearity on the dynamics of the population -
the principle that nature is orderly, balanced and
that has a dynamic balance - is due to Maynard
Smith (1968), which argues that the populations
either remain relatively constant or regularly vary
around an alleged point of balance. In the specific
case of commercial fisheries, biologists believe
that the fishing effort is often relevant to explain
the deviations of actual populations’ values for the
model. They say that, specially based on studies
made in the last decade, fish stocks sustainability
should be ensured by the control made through
fisheries regulation.

Managing Fisheries in Light of Complexity and Chaos Theories
Moreover, some people see nature as not ca-
sual and unpredictable. The natural processes are
complex and dynamic, and the causal relations
and sequential patterns may extend so much in
time that may seem to be non-periodical. The
data appear as selected random works, disorderly,
not causal in their connections and chaotic. The
vision provided by nature leads to consider the
fish stocks, time, the market and the various
processes of fisheries management as likely to
be continuously in imbalance rather than behave
in a linear fashion and in a constant search for
internal balance. It is this perspective that opens
the way for the adoption of the theory of chaos
in fisheries. However, the models of chaos do
not deny, for themselves, some of the linearity
resulting from the application of usual bionomic
models. What is considered is that there are no
conditions to implement all significant variables
in a predictive model. Moreover, in finding that
a slight change in initial conditions caused by a
component of the system may cause major changes
and deep consequences in the system itself. So,
the application of the theory of chaos to fishing
is considered essential, by many researchers. The
theory of chaos depends on a multitude of factors,
all major, and in the prospect of this theory all very
important at the outset, on the basis of the wide
range of unpredictable effects that they can cause.
MODELLING FISHERIES’
DISSIPATIVE EFFECT
In order to frame some additional methodological
developments, it must be mentioned that some
characteristics associated with some species sup-
port strategic survival features that are exploited
by these species. Considering that, it is important
to find the reasons and the way these strategies
are developed and the resulting consequences.
The species use their biological characteristics
resulting from evolutionary ancient processes to
establish defense strategies.
However, given the emergence of new forms of
predation, species got weaker because they are not
prepared with mechanisms for effective protection
for such situations. In fisheries there is a preda-
tor, man, with new fishing technologies who can
completely destabilize the ecosystem. By using
certain fisheries technologies, such as networks
of siege, allowing the capture of all individuals
of the population who are in a particular area of
fishing, the fishers cause the breakdown of certain
species, particularly the pelagic ones, normally
designated by schooling species.
To that extent, with small changes in ecosys-
tems, this may cause the complete deterioration
of stocks and the final collapse of ecosystems,
which in extreme cases can lead to extinction.
These species are concentrated in high density
areas in small space. These are species that tend
to live in large schools.
For the application of a mathematical model
to fisheries, let’s inspire in the model presented
in Berliner (1992) related to dissipative systems
in the presence of chaos.
In Berliner (1992) it is referred that nonin-
vertibility is required to observe chaos for one-
dimensional dynamic systems. Additionally it is
said that “everywhere invertible maps in two or
more dimensions can exhibit chaotic behavior.”
The study of strange attractors shows that in the
long term, as time proceeds, the trajectories of
systems may become trapped in certain bounded
regions of the state space of the system.
The model presented in Berliner (1992) is an
example in two dimensions of the Hénon map (dis-
playing the property of having a strange attractor).
The Hénon map appears represented by the
equations:
x t +1 = 1 + yt − ax t2
and yt+1=bxt, for fixed values of a and b and
t=0,1,…
1229
 
Managing Fisheries in Light of Complexity and Chaos Theories

This invertible map possesses strange attrac- calling ∆ = 1 – 4b and being 0<b<1, comes that
tors and simultaneously has strong sensitivity to ‑3<∆<1. So, 0<∆<1 if
initial conditions.
The Hénon map, representing a transformation 1
0 <b <
from the Cartesian plane to itself, has Jacobian 4
equal to –b.
If 0<b<1, the Hénon map contracts the do- and ‑3<∆<0 if
mains to which it is applied. These maps are
said to be dissipative (on the contrary, maps that
1
maintain the application domain are said to be < b < 1,
4
conservative).
Presented the model, it is possible now to sug-
gest a model on this basis for fisheries. being ∆=0 when
So, if a general situation is considered, the
following equations may represent a system in 1
b= .
which fish stocks, at time t, are given by xt and 4
catches by yt. The model is as follows:
1
xt+1 = F(xt) ‑ yt and yt+1 = bxt. Consequently for 0 < b < ,
4
t t
It is a generalization of Hénon model. The 1 + 1 − 4b   

x t = A1   + A 1 − 1 − 4b 
Jacobian is equal to b. As yt+1 is a portion of xt,   2
 
2  2 
0<b<1. So, it is a dissipative model and the values
of xt are restricted to a bounded domain.
Considering the particular case below:
and for
xt+1 = xt – yt, and yt+1 = bxt.
t
1 1
b = , x t = (A1 + A2t )  
So, 4  2 

xt+2 = xt+1 – yt+1 and xt+2 = xt+1 + bxt = 0. Finally, for

Now, after solving the characteristic equation

1
associated to the difference equation (see Ferreira < b < 1
4
and Menezes, 1992) it is obtained:

    
1 + 1 − 4b A cos arccos 1  t  
k=  1    
2 b   
( b) 
t
2 
xt =   
   1  
+A2sen arccoss  t 
or 

 2 b  

1 − 1 − 4b
k= ; In these solutions, A1 and A2 are real constants.
2

1230

Managing Fisheries in Light of Complexity and Chaos Theories

Note that the bases of t powers are always On the fisheries analysis, it is interesting to see
between 0 and 1. So, lim x t = 0 and whatever that overfishing may cause a problem of irrevers-
t →∞
ibility in the recovering of several species, after
the value of b, the dissipative effect is real, even
certain stages for the stocks. Anyway, to analyze
leading to the extinction of the specie. Of course,
the specific situation of each case, it is necessary
this is evident according to the hypotheses of this
to obtain enough data to analyze the kind of func-
particular situation of the model.
tion which is specific for that particular case, and
Concluding this approach, the general model
it must be analyzed the situation for certain phases
does not allow to obtain in general such explicit
of fishing and it must be seen the consequences
solutions by analytical means. But, of course,
for these species.
with simple computational tools it is possible to
In this paper, a general model that evidences
obtain recursively concrete time series solutions
the dissipative effect of catches on fisheries was
after establishing the initial value x0 and to check
proposed. Moreover, a particular case, with a
the dissipative effect.
system of two difference equations analytically
treatable, shows how fishing stocks are dissipated
and may tend to the extinction.
CONCLUSION
On the fisheries analysis it is interesting to see
that overfishing may cause a problem of irrevers-
The models of chaos are based on non-linear
ibility in the recovering of several species, after
relationships and are very close to several disci-
certain stages for the stocks. Anyway, to analyze
plines, particularly in the branch of mathematics
the specific situation of each case it is necessary
that study the invariant processes of scale or the
to obtain enough data to analyze the kind of func-
fractals, for example.
tion which is specific for that particular case and it
Chaos theory got its own space among sciences
must be analyzed the situation for certain phases
and has become itself an outstanding science. How-
of fishing and it must be seen the consequences
ever there is much left to be discovered. Anyway,
for these species.
many scientists consider that chaos theory is one
of the most important developed sciences on the
twentieth century.
Aspects of chaos are shown up everywhere
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282, copyright year 2013 by Business Science Reference (an imprint of IGI Global).
ENDNOTES
1
Nonlinear means that output isn’t directly
proportional to input, or that a change in
one variable doesn’t produce a proportional
change or reaction in the related variable(s).
2
Examples are of the occurrence earthquakes,
rainstorms or volcanic eruptions.
3
Examples are air temperature and humidity
or the flow of water in perennial rivers.
4
For example, we may measure air tempera-
ture only once per hour, over many days or
years.
5
To some authors (see Bergé et al., 1984), a
flow is a system of differential equations.
To others (see Rasband, 1990), a flow is the
solution of differential equations.
6
Several statistics may indicate chaos and
can express how chaotic a system is. One
of the most important statistics to measure
magnitude of chaos is at present Lyapunov
exponents. Other statistics could be pre-
sented as the Kolmogorov-Sinai entropy or
the mutual information or redundancy.
7
A Lyapunov Exponent is a number that
reflects the rate of divergence or conver-
gence, averaged over the entire attractor, of
two neighbouring phase space trajectories.
Trajectory divergence or convergence has to
follow an exponential law, for the exponent
to be definable.
1233
1234

Chapter 66
Chaotic Essence inside the
Organizational Reality
Ulas Cakar
Dokuz Eylul University Tınaztepe Yerleskesi, Turkey

Ozan Nadir Alakavuklar

Dokuz Eylul University Tınaztepe Yerleskesi, Turkey

ABSTRACT
In the chaotic reality of the human civilizations, organizations were always seen as bastions of order.
Even in the extreme cases of organizations that sought to bring chaos and confusion, their purpose was
generally to clear the present situation and bring a new order. Except the cases of some extreme sects and
marginal crime organizations, almost all organizations strive to bring their own existential definitions of
order. In this process, management has been the tool of bringing order to organization. Even though mod-
ern management is a relatively new concept, all through the history the elements of management such as
superior-subordinate relation, persuasion, direction, and administration were seen (Starbuck, 2003; Wren,
2004). But underneath the idealistic goal of bringing order, all organizations are suffering from the chaotic
essence that is in their midst. In the organizational theory literature, this chaotic essence is either ignored
or it is treated as a problem of good implementation of managerial control. And this problem has been
treated in a surprisingly linear way whereas non-linearity of the organizational reality is not considered.

INTRODUCTION comparison to main stream of management and

This chapter examines the organizational reality in
a non-linear approach. Lately the study of chaos
theory has opened a new path for observing the
organizational reality. As the studies on effect of
chaos theory on management and organization
(Johnson et al.,1994; Levy, 1994; Thiétart &
Forgues, 1995, McKelvey, 1999,Wilding, 1998,
Mendenhall et al., 2000, Smith, 2003) are few in
organization literature, there is an increasing need
for further studies. This chapter reviews main
studies on the field and in addition provides an
epistemological lens to look into this relation. For
this, dialectics of order and chaos in the organiza-
tional reality has been deeply examined.
Within this scope, our aim is to define the
chaotic essence inside organizational reality.
Organizations are chaotic and complex by their

DOI: 10.4018/978-1-4666-8468-3.ch066

Copyright © 2015, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Chaotic Essence inside the Organizational Reality
nature (Daft & Lewin, 1990). But we claim this
chaotic and complex nature is coming from the
chaotic essence inside them. As it is not easy
to define this concept, we have to examine the
aspects of chaotic essence. Basically, chaos can
be defined as a state that lacks order or stability.
But the reality of chaos is more complex than just
a matter of lack of order or stability. At one hand
it represents the forces of entropy, on the other
hand it represents the force of creation, and these
characteristics of chaos are not mutually exclusive
with each other. These issues have not been only
concern for organizations, all through the world
history; the concept of chaos has been discussed in
all cultures. It takes different names according to
culture but the forces of disorder and complexity
are common among them.
BACKGROUND
In order to discuss all this development and growth
in management and organization studies, first, we
have to examine the mythical roots of the chaotic
essence considering its relation with the human
history. Whilst present belief in the orderly nature
of the organization is a myth of the modern times,
on the other hand it has so deep roots. Study of
the myth and analysis of the myth is crucial in
the human process of understanding and giving
meaning to the world surrounding us (Berger &
Luckmann, 1967; Bowles, 1997); hence we need
to examine this deep mythical root. Creation myths
all around the world is concentrated on the issue
of the primordial state, the chaotic essence before
the universe comes into being. Then the god or a
god-like entity comes and tames this chaos and
brings an order to the existence of the universe.
But forces of chaos are always at the edge of the
universe. That is why it may be argued that this
struggle is an endless fight of good and evil.
But when we look deeper, we see the forces of
good are representing the order and evil forces
are always trying to overthrow the order of the
universe. Then we can ask why this mythical be-
ginning is so important? It is important because
the concept of chaos can’t be just defined in terms
of a mathematical evaluation or can’t be reduced
to a simplistic implementation of chaos theory
to the management field of which are the main
approaches in the literature. Therefore, primarily
we have to digest the essence. Chaos is a state of
existence for the organizations, it can’t be subdued.
It is not possible to define it in a reductionist way
(Çakar & Alakavuklar, 2011).
Concept of creation offers a chance for under-
standing the complexity of chaos concept. Chaos
is the beginning and forces of order come to bring
a meaning to this confusion. But the interesting
point is that chaos is the raw material of the uni-
verse. Forces of good and order are taming this
darkness and confusion, but they worked with the
material that comes before them. And as soon as
the order comes into being, it desires an eternal
vigilance against the forces of evil, which wait
for their chances to overthrow the order of the
universe. The creation is always threatened by the
forces of chaos. Chaos is at the beginning and at
the end, besides it is eating the borders of order
continually. In this dialectical relation, chaos and
order is not just a matter of opposing forces like
we define good and evil. Contrarily, in this relation
order has a meaning because it moves from the
chaotic primordial essence it comes from. Here,
it is very important to cover the intertwining and
nested structure of chaos and order rather than
assuming they are two separate forces coming
face to face.
All this talk about primordial essence and the
basics of creation may feel like out of the mana-
gerial understanding of the world. But in reality,
it is in the very essence of managerial existence.
Organization is a force of creation. But it can’t
exist without the primordial essence of the chaos
before it. When organization comes into being it
brings a new meaning to the chaos before it. In
order to predict the entrepreneurial beginnings of
a system we need to take complexity and chaos
1235

into consideration (Peterson & Meckler, 2001).
As long as an organization lives, it will try to
maintain the orderly nature of the world around
it. Organizational activities are based on actions
toward stability (Stacey, 1992), and as long as the
chaos exists, management justifies its legitimacy.
Leadership concept can be a good example
of complex relation between chaos and order. By
nature, leaders are strong supporters of the present
order or they work towards bringing a new order
to organizational chaos. But there is a crucial
problem here, as the leader’s power increases
the tendency towards chaos accelerates. Because
strong leaders exercise a great deal of power, the
strucutre tends to unify organization’s employees.
Or, they might cause over-adaptation to environ-
ment, since a long term vision of a leader is a kind
of fantasy based on people’s beliefs. On the other
hand, the organization needs to have leaders that
shall help organization to discover its “sweet spot”
for sensemaking of complexity (Raghavendran &
Rajagopalan, 2011). Leader shall be a participating
factor facing the emergent events (Simpson, 2007).
But in the practice, leaders are seen as defenders
of order and therefore organizations act as if they
are eternal. But there is an important flaw in this
approach. Despite the heroism of the leader and
organization’s powers, the chaotic reality is already
inside the organization (Anderson, 1999; Thiétart
& Forgues, 1995). When something is the raw
material of what we have, how can we ignore it?
It is in the foundational stones of the organization.
As time passes its origin begins to challenge the
organization. Adaptability of the organization
predicts this struggle’s length. But one thing is
for sure, no matter what we may want to believe,
nothing lasts forever. They can only seem like
immortal because of the short length of human
lives. An organization is born, it lives, it adapts,
and it evolves. When it’s overridden with entropy,
it loses the power to adapt and evolve, subsequently
and it dies. Organization’s existence is at the edge
of chaos (Smith & Graetz, 2006), when it loses
its vigilance, it can lose its existence, and fade
1236

Chaotic Essence inside the Organizational Reality
away. In order to survive management faces the
need to adapt to complexity and chaos (Smith,
2003). The chaotic essence of the organizational
environment is challenging the well established
theories and approaches of the organizational field.
Complexity theory, which has chaos at its focus,
has been bringing new paradigms to management
and organization. It is challenging the century of
organization theory, but it still needs more theoreti-
cal studies to replace some of the main assumptions
(Anderson, 1999, Boisot & McKelvey, 2010). So
we shall examine the last century of organization
theory and the current situation in the field. The
focus of this examination is based on identifying
the existence and necessity of the chaotic essence
in the organizational reality.
EVOLUTION OF CHAOTIC ESSENCE
IN ORGANIZATIONAL THEORY
Lives of organizations are parallel to human experi-
ence. It is clear that a human can’t be just identified
with simplistic evaluation. Every human is unique
and their experiences are so different than each
other. Humans have unpredictable characteristics
inside of them. Saying that we are a group of
mammals having certain sets of behaviors is just a
reductionism. Similarly, as organizations are bod-
ies formed of this complex humans, their basics
can’t be identified easily. An exact evaluation of
organizational activity is almost impossible and
it is not logical to assume that their activities are
linear and predictable. As it can be seen since the
early periods of organization theory, companies
were seen as the shining bastions of order that
brings new meanings to human existence. But
we have to emphasize the fact that this miscon-
ception is not as young as modern management
thought. Contrarily it’s the basic assumption of
the human civilization. When humans began
to get organized into communities their main
struggle was to manage the disorderly situation
of the nature and the human existence. The laws

Chaotic Essence inside the Organizational Reality
were made, civilizations, religions, ideologies
all strived the goal of reaching an orderly human
existence. All through this, relations of superior
and subordinate and the ways to manage it was
always discussed (Starbuck, 2003; Wren, 2004).
In this long process, we see how the mighty has
risen and how they fell. So many has fallen that
some are forgotten, and new beginnings rise from
them. Regarding that all through human experi-
ence, there is the essence of chaos. Human orders
collapse because of it and at the same time new
orders rise from it. In this case, chaotic essence
is like a phoenix of the myth. Like the legendary
bird, order of the people reborn from the ashes
of the former order every time.
Chaos began from mythological roots, evolved
into a philosophical concept and then became
part of the forces of evil. In medieval times, cha-
otic things were seen as a part of evil. When the
renaissance raised, chaotic issues became part
of the old order. The new human of renaissance
was seen as someone that brings a new order.
And this time this order was getting more and
more technical. This issue can be seen from the
evolution of utopias. Utopias are an interesting
concept at this point. Because in the antiquity
there were revelations of lost kingdoms which were
fair, good and missed. Among these, Atlantis is a
very good example of this approach. In Platon’s
writings it was like the shadow of an order of
the past. In medieval times we see the legendary
kingdom of Camelot that represents the ideals of
order in it. Atlantis and Camelot utopias might be
considered as exemplars of the entropic powers of
the chaos. Because they are ideal structures that
ended in catastrophe and more importantly their
seeds of doom were in them from the beginning.
Then Bacon used it as an inspiration of the New
Atlantis and a new imagination of orderly state.
Utopia by Thomas More also shows an idealized
state. But the interesting part is after renaissance
period as these fictions of order weren’t mention-
ing their seeds of doom. They were perfections
that got rid of the chaos of the old order. After the
industrial revolution the new utopia became the
machine and mechanization of the world. Machine
became the ideal. Its orderly nature was seen as
a thing that was missing all through history. The
implications of such a mentality are important
for us, because this mentality is at the center of
the scientific management. Taylorist idealization
of order at the end of 19th century was parallel to
the new order conception in the minds of people.
Scientific management made a new definition
of organizations depending on the machine ideal.
This approach has brought a measurable manage-
ment depending on calculating of the output and
reaching a efficiency ideal (Morgan, 2006; Perrow,
1986, Taylor, 1911). This ideal was based on the
ideal of the machine. It was trying to remove the
inefficiencies of the past that the Taylorist ap-
proach was part of the Zeitgeist of the age of the
machine. And it wasn’t the only one. Fayol had
more humane focus but still his theory had the
machine spirit in it. More importantly Weber’s
bureaucracy was also defining a mechanistic per-
fection of organization that he was also warning
about the iron cage (Weber, 1947). These origins
are important, because they are inside the core
management philosophy of today. The assumption
of a linearly ordered organization is challenged
today but the main resistance is coming from the
scientific management roots of the theory.
Barnard’s (1938) expressing the mortality of
the organization and organization’s need to satisfy
human motives was interesting reliefs from the
zeitgeist but still its main assumption were parallel.
Follet was also offering some non-linear points
(Mendelhall et al., 2000) but still they were lost
in the main stream. Dominantly Taylor, Fayol
and Weber’s followers carried the machine-like
idealization to a new level. And this was not only a
matter of capitalist world. In the beginning of the
Soviet Union, leading Bolsheviks, especially Lenin
had a fascination with the Taylorist approaches
(Braverman, 1974). This has been seen in the early
economic plans and more interestingly during
the Stalin period this machine like idealization
1237

has caused great sufferings. Stakhanovite move-
ment was a showcase idealization that lived in the
Soviet Union; it was just a propaganda showcase
type of organizational reality. This reductionist
approach to worker effectiveness was all part of
this idealization.
It can be argued that Hawthorne studies was
an objection to the machine-like evolution of
the organizational reality. But the problem is,
in the terms of machine-like order definition of
the organizational reality, there was not much
change in the main assumptions. Machine-like
order definition was still the same, but the main
difference was an understanding of the human
factor in the organization. The problem is clear
enough; this new approach was not an improve-
ment in understanding the chaotic nature of the
organizational existence. This was just an effort
in maintaining the order. Followers of Taylor
were puzzled by these new human variables and
were trying to capitalize in their control of these
variables (Bramel & Friend, 1981). The machine
of the 19th century improved and in time it has
evolved to a kind of cybernetic being in the 20th
century. Seemingly organic but originally half-
machine half-biological paradigm was formed.
Even though there was a new biological existence,
it was based on the similar linear understanding of
the order of the nature. Linearity gained flesh and
blood, and as time passed it gained emotions, but
still linearity was linearity. Goals and objectives
were still based on linear thinking and incom-
patible with nonlinear characteristics of human
behaviors. Today, panaceas that are offered by
the human resource specialists and management
consultants are still defending the same trenches
of the linearity. Some organizational behavior
concepts become trendy and offered as a remedy
to all organizational problems. But it is beginning
to be seen that organizational behavior applications
such as teamwork can also benefit from complex-
ity and non linear approaches (Bokeno, 2008).
During Second World War, the machine like
order understanding of the past has evolved into
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Chaotic Essence inside the Organizational Reality
a new linearity. Army production and logistics
calculations of the war period have given birth
to Operations Research (Hillier et al., 2008). The
power of the numbers and quantitative nature of
reality has reached a new peak. This situation was
not limited to Allied Forces, also Nazi Germany
and Imperial Japan was using the machine-like
organizational approaches to feed their war efforts.
They also used highly technical approaches to uti-
lize their limited resources. But when the resource
powers of Soviet Russia and United States were
fully utilized, they have been overwhelmed with
this continuous flow. The numbers of production
was everything; amount of planes, tanks, guns
and gallons of oil were all the time watched. All
other things except them were neglected. After
the war, when the iron curtain began to cover
Eastern Europe and Russia, the production figures
were also dominating the life of the people, and
these figures depending on the reality of 1950s
has planted a seed of doom inside the systems.
In the post-war period organization theory
has evolved greatly. System (Katz & Kahn, 1966;
Scott, 1961) and contingency views (Pugh, 1973;
Thompson, 1967) has provided a more realistic
approach to the reality. Organization being seen as
open systems and the acceptance of the contingent
nature of the organizational truths has disrupted
the machine-like half biological structure. Open
systems were different than the machine-ideal
based closed systems of micro perfection. Thanks
to this organizational reality has gained more
depth. But because of the zeitgeist of the time,
this improvement didn’t result in eliminating the
linearity of organizational truth. Organization was
accepted as an open system that interacts with
internal & external factors. But this was for the
sake of maintaining the linear approach to deal
with this problem. And contingency theory was
listing the alternatives and backup plans instead
of a non-linear approach to organizational reality.
Still, we have to admit that even though there was
a lack of depth in understanding the non-linear
structure of the organizational reality, system

Chaotic Essence inside the Organizational Reality
and contingency approaches helped to provide a
crack in the monolithic power of the order in the
organizations.
Oil crisis in the 1970s has increased a ques-
tioning of the present situation, but the core
assumptions were still strong. When the 1980s
came, the paradigm was changing; especially
Japanese success in this period has brought a
questioning of organizational reality (Shafritz &
Ott, 1996, pp. 485-486). It has become the time
of the culture studies which became another crack
in the monolithic power, because it showed there
were so many different roads to organizational
efficiency. Success was a key issue here, because
theoretical approaches mentioned above was about
evaluating the reality in an academic way. But
rising success of different countries has caused a
challenge to commonly accepted organizational
reality. Japanese success, growth of Asian Tigers
and also the crisis they have faced, they were all
new issues. Collapse of Soviet Union and organi-
zational complications of the post Soviet Union
period has shown another aspect of this chaotic
reality. The dominant paradigm of the infallibility
of the machine-like approach and its cultural roots
were widely questioned.
Due to scientific improvements, implications of
chaos theory have begun to enter social sciences
field, and it began to be discussed in organiza-
tional theory (Anderson, 1999, Matthews et al.,
1999a; 1999b, Stewart, 2001). With this step,
chaos theory began to challenge the linear truth
of the organizations. Basically chaos theory ques-
tions the classical view about an orderly world,
and identifies a world consisting of disorder and
unpredictability (Preismeyer, 1992). Handling the
creation of order as a part of complexity science
made the study of chaos theory a crucial point
for study of organizational reality (McKelvey,
2004).But at the same time it faced problem of
popularization that helped its becoming common
but at the same time causing loss of meaning
(Smith & Higgins, 2003). During that course,
many has treated chaos as a popular buzzword,
it has faced the risk of becoming a management
fad (McKelvey, 1999). At the same time for some
others chaos theory was a new beginning in the
study of the numbers. The situation has become
strengthened by the acceleration in computer tech-
nology after 1990s. Recently computer technology
has reached a point that enables more complex
simulations of the reality. More and more effort
is spent on making simulations closer to reality.
Approaches like symbionomic evolution claims
the computer simulation power is enabling us
to grasp the basics of human organizations and
civilization (Rosnay, 2011). Specific efforts tried
to integrate chaos theory in different functions of
business applications such as supply chain man-
agement (Stapleton et al., 1996, Wilding, 1998).
However, this kind of examination of the truths in
social sciences seems problematic, because social
reality is facing the risk of interpreted as a matter
of formulas. The increasing power of mathemati-
cal analysts in social psychology and management
and organization field already created a kind of
special field that plays with the numbers (Min-
gers, 2006). But chaos and complexity theory can
benefit social sciences the most if they are used
as a source of inspiration rather than a set of new
calculations (Tsoukas, 2005, pp. 224-225). But
instead of this, understanding of the complexity
and chaos has created a new dangerous belief;
the belief that new technology with its analytical
abilities will be able to take over when individuals
can’t (Katopes, 2011). This is even beyond the
machine paradigm, because this time it reaches
a new dogma of technology worship. When the
mainstream is in this dogmatic position, we need
to inquire the position of alternative theories of
management. As there is a present paradigm
problem in social sciences that might cause real
complications in the field (Lichtenstein, 2000).
Critical approaches and postmodern thinking
are prominent ideas challenging the mainstream or-
ganizational theory. In the polyphonous area of the
organization studies (Westwood & Clegg, 2003)
the field has always interacted with the various
1239

traditions of social science, and in this pluralism
critical management and postmodern theories of-
fer a whole different set of approaches (Alvesson
et al., 2009; Boje et al., 1996; Fournier & Grey,
2000). Marxism, Critical Theory, postmarxism,
poststructuralism, feminism and postmodernism
are some to name among the influential philosophi-
cal and social theories that these scholars benefit
in order to analyze organizations and managerial
applications. It is not easy to combine the differing
assumptions of each tradition under the title critical
management, however in essence such an approach
tries to understand the dark side of the organiza-
tions as a contrast to functional understanding of
organizations. Abuse of managerial power over
employees, disciplining discourses of the manag-
ers and corporations, oppression, exploitation or
commodization of human values by the manage-
ment might be some themes critical management
scholars might focus on. This dark-side of the
organization is not only forces or sources of evil
in organization, at the same time they are forces
of entropy. Organizations as the shiny bastions of
order had a dark side which was neglected by the
mainstream. At best, these kind of organizational
problems are seen as exceptional events. Critical
and postmodern approaches provide a deeper
philosophical understanding to observe the nature
of the reality with a social constructionist view,
particularly the organizations and management ap-
plications. However, it is not common to see these
approaches also interact with the philosophical
aspects of chaos and complexity. Though, there
have been discussions regarding whether chaos
theory or complexity are part of a postmodern ap-
proach (Cilliers, 1998; Young, 2001), the general
tendency of critical or postmodern approaches is
not to employ complexity or chaos for analyzing
the dark side of the organizations. So they still
have something parallel to mainstream approaches.
One of the possible explanations might be
due to the nature of the complexity theory as a
science. Taking complexity as a totally different
scientific paradigm in order to understand orga-
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Chaotic Essence inside the Organizational Reality
nizations would be another explanation why we
do not see chaos, complexity or non-linearity in
critical studies (Cooksey, 2001). It is very likely
that complexity, non-linearity, emergence or chaos
might be considered as analytically scientific
rather than philosophical for the post-positivist
approaches such as feminism or post-structuralism.
Or, it might be considered as just a playing of
numbers. Furthermore, although critical and
postmodern approaches might be distinguished in
their basic assumptions (Alvesson, 1995; Parker,
1995), complexity or chaos theory would not be
associated well with both of the approaches.
Accordingly, in the studies of critical schol-
ars, implicitly or explicitly, there is a belief in
changing or transforming the structures of ideol-
ogy, domination or hierarchy (Adler, Forbes and
Willmott, 2008; Alvesson, 2008) whilst there
might be micro-emancipations (Alvesson &
Willmott, 1992) in the organizations. Consider-
ing the basic assumptions of complexity, which
is completely different than critical assumptions,
such an argument might be considered as invalid
as the evil and the good is constantly in play with
randomness and numerous variables are in ac-
tion. The feeling of loss of control regarding the
wills and the future of people in the big frame
might undermine the foundational assumptions of
critical studies. Regarding postmodernism (even
poststructuralism), admitting the variety of the
beliefs and explanations under these labels, the
changeable nature of the truth or the lack of truth
do not fit into the ideas of complexity theory. As
chaos theory explains the insufficiency of linear,
Newtonian-cartesian understanding of the realities
which is seemingly similar to postmodernism, it
brings a wider and complex explanation of truth
or reality which is in contrast to postmodernism
declaring there might be no absolute truth.
In Lyotard’s words, “it is changing the meaning
of the word knowledge, while expressing how such
a change can take place. It is producing not the
known, but the unknown” (Lyotard, 1984, p. 60).
According to Phelan (2001) complexity is a new

Chaotic Essence inside the Organizational Reality
science studying regularities with new methods
rather than studying the complexity of the world.
The ontological, epistemological and methodolog-
ical differences are also clear as complexity has
realist ontology, postpositivist epistemology (due
to contextual knowledge assumption) and holistic
methodology (both qualitative and quantitative)
whereas postmodernism has nominalist ontol-
ogy and epistemology with a deconstructionist
methodology (Morçöl, 2001). Postmodernism as
a constructionist position defends that the fact is
constructed in the forms of modernist discourses
where it is important to unmask the privileged and
ideological position of science (Phelan, 2001). In
that case, postmodernism having trouble with the
scientific explanations would not go well with the
chaos and complexity although there developed
such an assumption (as postmodern science) in
the course of popularization of science (Smith &
Higgins, 2003). In contrary to the main assump-
tions of critical and postmodern approaches it is
also stated that complexity theory has the risk of
developing a new refined tool of social control
when considering the search for understanding
underlying mechanisms of the order (Levy, 2000).
On the other hand, such contrasts would not
mean that chaos theory or complexity is unneces-
sary or should be ignored especially by critical
oriented scholars. Dialectic essence defended in
this study that is based on the nature of the order
and chaos should be discussed in order to put
forward the critical ideals. Admitting that there
is a big cosmological picture would not mean
that there should not be studies challenging or
interrogating the dark side of the current system
or the organizations. On the contrary, it should be
welcomed that everything is continuously chang-
ing and the things that are presented as “taken-for-
granted” will change in the end. Yet, the efforts
for transformation or emancipation would not
mean it will have effects directly, however in the
course of struggle it will be one of the numerous
causes in the big picture. The success for change
is not determined, however in the flow of the
continuous re-settlement of the patterns there will
be the possibility of some transformations. That
perfectly fits to the understanding of the dialectic
in the critical studies. Another perspective would
be focusing on ethics and philosophy in order to
overcome the insufficiencies related to limits of
human knowledge about the complex and the cha-
otic (Cilliers, 2000). There might be uncountable
forces that would affect the consequences of our
decisions or actions, and that does not mean we
should stop acting or deciding for the values that
make us human. However, the ethics, morality and
philosophy might be defended in the course of
such actions and decisions which critical scholars
can contribute. Combining theories, methods or
applications with a non-linear perspective would
also help develop new understandings and new
inquiries for studying organizations (Cooksey,
2001). As a different suggestion for bringing
postmodernism and complexity together, narra-
tive can be used for organizational discourses so
that “organization’s contextualized and emergent
discourse” might be understood “as members
interpret, reinterpret, and negotiate discourse
within a spatial/temporal intersection” (Luhman
& Boje, 2001, p. 166). Maybe then the chaotic
essence can be given its rightful place in the criti-
cal stream of thought.
As we can see above, not only the mainstream
also the alternative theories of management are
also facing problems in grasping the non-linear
structure of the chaotic systems. And more im-
portantly chaotic essence is mainly ignored. One
thing is certain about the chaotic reality. The
uncertainty and unknowns in the present chaos
shall be acknowledged (Schumann, 2010). And
there is another problem in the studies of chaos.
This chaotic situation increases people’s demand
for management fads that are seemingly dealing
with parts of this chaotic reality. Management of
concepts (such as stress, time, quality and etc.) is
presented as a panacea to the ills of the modern
corporate world. In micro level they provide a
certain level of control to the individual and this
1241

makes them soothing factors. But the big and
challenging chaotic reality is still everywhere. A
very good example can be given as Enron. Despite
its ethical shortcomings, it can be argued that
management of Enron had superior management
and organization skills in motivating and leading.
But this had only worked to delay the inevitable
collapse that was coming from the financial errors
of the company. Inability to deal with the changing
reality of the sector has made Enron desperate and
even caused for further unethical collapse, and
in the end collapse has been tremendous, it even
shook the base of the financial system of the world,
because Enron was connected with the financial
institutions in this acts. The small spheres of order
in leading success couldn’t be successful because
they were not in sync with the chaotic complexity
of the bigger system. Management fads are claims
which are very similar that they serve success
to the managers and employers with the help of
a small set of variables. But the reality is more
complicated than it seems.
Modern management and management consul-
tancy is offering a seemingly complicated, but an
actual linear solutions to the problems of today. If
all this acts are done without a holistic approach
to organizational reality, they are doomed to
failure. It may be said that there have been many
activities with such an approach and they were
successful. But we need to ask, are they really
successful? Or are they a part of reinterpreting
the reality in the way that we want it to be seen.
It is not easy to determine the effects of success.
As chaos concept is more complicated than the
common management fads, it can’t be expressed
with simple catchphrases and its fashion has
faded a bit nowadays, anyway. How should we
understand that situation? Because there was a
problem about its depiction many studies on it

Chaotic Essence inside the Organizational Reality
growth and recently accelerated development in
human civilization are making the social reality
even more chaotic than it has ever been. Think
about Arab spring in 2011, it has been affected by
many aspects and it affected a lot of issues in the
world. For a business scholar its effects are even
more curious. Especially in the field of tourism
there has been a great effect. The possible tour-
ist amount aiming for those countries has been
transferring to other countries. This reassigning
of tourists has its own dynamics. But if we don’t
look at the big picture of the tourism system, we
can claim that we succeeded in improving our
organizations and reached a higher position. We
might assume our efforts brought the success for
hospitality and tourism industry. On the other hand,
it shall be argued that people acknowledge there is
an increase of tourists in other regions because of
the present incidents. Basically, cognitive biases of
the human psychology make people to attribute the
success to the internal factors anyway. However,
that has connections to organizations as there
might be misconceptions in the organizations.
Many times organizations believe they can play
on most of the variables around them and they can
manage all aspects beginning from the employees
to environmental factors. But even for the multi-
national corporations it is not easy to control the
variables, let alone the majority of the organiza-
tions that are much smaller than them. Illusion of
control of the nature, the life and especially the
organizational environment causing complicated
problems for the organizations.
First decade of the 2000 has ended. In this
decade we have seen that uncertainty and chaos
factors are increasing. The shiny 2000 that was
dreamt in the last century didn’t come. It doesn’t
mean that this era is a dark-era, but it means linear
predictions of tod