A recipe for what? UK universities, enterprise and ...

A recipe for what? UK universities, enterprise and knowledge transfer Evidence from the Federation of Small Businesses 2008 survey David Pickernell, Gary Packham, David Brooksbank and Paul Jones

Abstract: Universities play multiple knowledge-related roles in economies, creating (or co-creating), absorbing, disseminating and utilizing knowledge. These roles, however, are not without difficulty, for reasons related to universities themselves and the small firms that need to use such knowledge. This paper uses the UK Federation of Small Businesses 2008 survey to examine (a) the mechanisms in place to facilitate the dissemination to small and medium-sized enterprises (SMEs) of university knowledge and assistance; (b) the relative importance of the contribution of university-derived assistance to SMEs; (c) the relationship between the assistance obtained from universities and the requirements and capabilities of SMEs; and (d) the relationships between university-derived assistance and measures of growth. Keywords: knowledge transfer; innovation; measures of growth; SMEs; Federation of Small Businesses Professor David Pickernell is Head of the Welsh Enterprise Institute, Professor Gary Packham is Director of the Centre for Enterprise, and Dr Paul Jones is Head of the Enterprise and Economic Development Division, University of Glamorgan Business School, Pontypridd CF37 1DL, UK. E-mail: [email protected]; [email protected]; [email protected]. Professor David Brooksbank is Director of Enterprise at the Cardiff School of Management, University of Wales Institute Cardiff, Colchester Avenue, Cardiff CF23 9XR, UK. E-mail: [email protected].

As discussed previously in Pickernell et al (2008), the potential importance of higher education in economic development is clearly acknowledged, and there is much research worldwide that considers the role of universities in their regions’ economic development (for example, Susman, 1990; Huggins and Cooke, 1996; Sargeant et al, 1998; Goldstein and Renault, 2004; Charles and Benneworth, 2005; Munday et al, 2005). Specifically, it is recognized that knowledge within universities needs to be created, disseminated and spread beyond the narrow confines of the academic community (Mansfield and Lee, 1996; Branscomb et al, 1999;

Hague and Oakley, 2000) and encouraged to spill over into the wider community and to influence practice (O’Shea et al, 2006). More specifically, higher education institutions (HEIs) have been actively encouraged by government to take a larger role in local economic development through innovation (Boucher et al, 2003), particularly as the responsibility for knowledge and innovation is increasingly seen as occurring through the melange and intersection of industry, universities and government. The multifaceted nature of innovation creation processes highlighted by Leydesdorff (2000), for example,

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suggests key and interrelated roles for a range of stakeholders: specifically industry, government and its agencies, along with institutions such as universities. These institutions have often had long experience of directly utilizing internal knowledge to turn discovery and technology into application through strategic resources, to provide support for commercialization and technology transfer to industry through the use of physical spaces including equipment, laboratory space and human resources and to utilize investment capital derived from outside sources (Bird et al, 1993; Allen and Levine, 1986). Since 2000, therefore, business and entrepreneurial development has been listed as one of four strategic goals for UK universities (Universities UK, 2000). Research by Charles and Conway (2001) suggested that UK universities were making considerable progress in this respect, particularly with regard to the spin-out growth of new technology-based firms. The study of UK competitiveness by Porter and Ketels (2003, p 24), however, concluded that UK universities remained ‘less active in commercialisation efforts than their peers in other advanced economies’, with the result that, despite having a strong science base, ‘current levels of UK innovation are insufficient to drive UK productivity growth and close the UK productivity gap versus key competitors’ (p 16). The process is clearly more complicated than might have been assumed initially, as Birley (2002) has recognized. Indeed, it would seem that there are still a considerable number of barriers to the promotion of activities related to entrepreneurship in universities, not just in the UK, but across the EU and even in the USA (Bok, 2003; Clarke, 1998 and 2003; Etzkowitz, 2003; Morrison, 2004). This may also be part of a more general problem related to goal ambiguities in the higher education sector, such as tensions between international academic reputation and regional economic development (for example, see Cohen and March, 1986; Jarzabkowski, 2005). According to Porter and Ketels (2003, p 46) therefore, ‘universities and public research institutions need new structures to strengthen their roles as active parts of the regional business environment of which they are part’. Wright (2004) has also recognized that universities need to focus on how they can overcome their existing cultural values – a point similarly recognized in the USA by Kenney and Goe (2004) and reiterated in the Massachusetts Institute of Technology (MIT) study by O’Shea et al (2005). Thus, it would seem that: ‘at the core of any ambition to create the entrepreneurial university is a clear need to generate an appropriate culture that encourages staff and students

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to be continuously innovative and opportunity focused …’ (McGowan et al, 2006, p 4). Whilst identifying the importance of an entrepreneurial ‘culture’ or entrepreneurial orientation, previous research says little about what exactly it is or how it is created. For example, Frenz et al (2005) discovered that the level of UK firm–university cooperation was very low. They concluded more generally, however, that firms also needed to have a certain level of absorptive capacity to provide legitimacy before entering into cooperation with a university. Specific internal, firm-level processes of relevance to knowledge spillovers have also been highlighted by Senyard et al (2007) as being related to entrepreneurial orientation, knowledge and relationship management and knowledge asymmetry. In addition, once absorptive capacity has been established, this cooperation tends to have a positive and significant effect on innovation (Frenz et al, 2005). It is also argued that human capital enhances this absorptive capacity of firms, facilitating local technology transfer, local and regional knowledge spillovers and growth. The key point is that, from the standpoint of a university’s impact on regional development, a contextualized, systemic view is necessary. This should reflect evaluation of not only the type of knowledge supplied by universities and its characteristics, but also of the requirements and characteristics of knowledge users and the effectiveness of knowledge transfer (for example, see Cooke et al, 1997; Braczyk et al, 1998). An analysis of this issue is undertaken by making use of the UK Federation of Small Businesses (FSB, 2008) survey of barriers to growth, which contained a number of questions related to the role of universities as providers of assistance to SMEs, as well as factors that may impact upon the capacity of SMEs both to seek and utilize university assistance. Specifically, this paper examines the mechanisms that are being used to facilitate university knowledge and assistance to be disseminated to SMEs; the relative importance of the contribution of university-derived assistance to SMEs; the relationships between assistance obtained from universities and the requirements and capabilities of SMEs; and the relationship between university-derived assistance and measures of growth.

Literature: knowledge, universities, SMEs and economic development As highlighted earlier, knowledge creation and utilization have become a cornerstone of modern economic activity and policy makers have increasingly sought ways to encourage this, with universities being given an explicit role in the process. Evidence from Goldstein

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and Renault (2004) suggests that, in general terms, universities in smaller, less urbanized areas, with proactive regional development policies, do have positive impacts capable of counteracting at least some of the disadvantages of a lack of agglomeration. Correspondingly, Boucher et al (2003) suggest that the larger, more traditional universities in core regions (such as capital cities) are less regionally engaged than large, single universities in more peripheral regions where they are the only university. The regional innovation systems literature also suggests (for example, see Cooke, 2003), however, that more successful core regions tend to have ‘entrepreneurial’ innovation systems, whilst more peripheral regions have ‘institutional’ ones, whilst Acs et al (2007) argue that it is necessary to integrate individual and firm level entrepreneurial processes with newly created knowledge and processes at various spatial levels in order to maximize the utilization of knowledge and innovation. This raises the question of what needs to be done to increase the roles of UK universities in ways that generate increased competitiveness for both regional and national economies. This is most obviously (although, as we shall see, not exclusively) undertaken by increasing the level of use of university-derived innovations in order to help ‘drive UK productivity growth and close the UK productivity gap versus competitors’ (Porter and Ketels, 2003, p 16). In terms of forums, the university can exhibit a range of behaviours and structures (for example, incubators, licensing, joint ventures, start-ups and spin-outs), which have the potential to enhance or inhibit firm innovation performance and growth (Carlsson and Mudambi, 2003). Limited research has occurred in the commercialization of research and development (R&D) in universities and the risks posed by aggressive technology transfer policies and practices (Griffith, Redding and Simpson, 2004) or regarding the possible contingency effects of particular institutional structures or processes (Powers and McDougall, 2005). Of that which has been undertaken, Shane (2004) finds, however, that academic spin-out (that is, commercialization by the university itself) is a second best solution, behind the best option of licensing patented technology. There may be additional ways, however, through which universities’ capacities can positively impact on an economy’s productivity more generally – through increased start-up activities of recent graduates, for example, but also through improving the entrepreneurial and innovative milieu more generally via focused education and training programmes undertaken by local businesses. Other mechanisms by which universities can play a

part in the knowledge creation–dissemination–utilization process also exist. Cluster and network theory (Wright, 2004) suggests that knowledge creation and dissemination can be encouraged through licensing and technology transfer, as well as high-technology-based clustering initiatives. Geographical clustering in certain highly R&D-intensive industries often occurs within close proximity of leading universities in a region (Galambos and Sewell, 1996). These institutions provide access to knowledge and information that is often tacit, ‘sticky’ and location-specific, and the ability to transfer information may reduce with distance (Bell, 2005). Conversely, research by Rodriguez-Pose (1999), Fernandez et al (1996) and Jensen and Tragardh (2004) suggests that, in an economy dominated by small and medium-sized firms with an intermediate technological and industrial base, the returns may be greater from more applied research that is more easily absorbed by local firms (for example, see Oughton et al, 2002). University-based training in specific skills and access to human resources including staff can also facilitate understanding and absorption of innovation, benefiting and enriching the local labour market and providing an incentive to attract further researchers into the location. There thus exists a range of direct and indirect mechanisms by which SMEs may create links with local universities, which facilitate knowledge transfer specifically and promote growth more generally. Ultimately, to play a full role in regional economic development, universities may need to participate in many of these fields, while facing the challenge of promoting and developing the enabling mechanisms necessary to generate and disseminate innovation. Ultimately, to exploit fully the knowledge created and disseminated, entrepreneurs also require appropriate personal ‘knowledge resources’ and management abilities, or at least the ability to utilize these skills sets when dealing with universities. The potential inhibitors to university–local economy interactions (highlighted, for example, by Gunasekara, 2006) also suggest a need to analyse further the mechanisms with respect to university–SME interactions.


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Methodology This examination of the literature highlights that the role of universities in economic development can vary in importance, depending on the type of knowledge supplied by universities, its characteristics and the value ascribed to it by firms. In addition, the requirements, characteristics and capabilities of the SMEs who use the knowledge and the effectiveness of knowledge transfer mechanisms used are of importance. Four (overlapping) areas in which further research is needed are:


•

• •

•

the mechanisms that are being used to facilitate university knowledge and assistance to be disseminated to SMEs; the relative importance of the contribution of university-derived assistance to SMEs; the relationships between assistance obtained from the university and the requirements and capabilities of SMEs; and the relationship between university-derived assistance and measures of growth.

In order to evaluate these issues for UK universities, data from the Federation of Small Businesses (FSB) 2008 survey of barriers to growth are used. The questionnaire was sent out to FSB members during April 2008 and a total of 8,742 usable responses was received, with the data found to be representative as compared with the two most recent UK Government Small Business Surveys (SBS, 2007 and 2008). The questionnaire contained a number of questions specifically related to the role of universities. Firms were asked whether universities had provided beneficial assistance in terms of help in start-up, raising capital, increasing sales, reducing costs, improving supply chain operations, improving existing products or services, introducing new products or services, finding new markets, improving contacts, improving skills, improving overall capacity, increasing confidence, business recovery, improving management skills, and dealing with environmental legislation. Respondents were also asked these questions in relation to comparable sources such as professional services, friends and family, government business services, customers and suppliers and informal networks/trade associations. Further analysis was undertaken on factors that may impact upon their ability to access assistance, as well as the capacity of SMEs to seek and/or utilize university assistance, plus their need to seek such assistance. This was conducted utilizing bivariate cross-tabulations of nominal and ordinal data against a wide range of factors associated with locational characteristics (rural–urban location, regional growth), the owner (education, age, gender, occupational and business background) and the firm (age, size, industry sector, use of Website and various forms of intellectual property). Finally, data were gathered on the firm’s actual (turnover) growth rate in the previous year and growth aspirations for the following two years, allowing the creation of a 4-category variable in line with Department for Business Enterprise and Regulatory Reform (BERR) definitions of growth aspirations (BERR, 2008): •

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sustained growth (grown by more than 5% in previous year and intend to continue to grow in next two years);

• •

•

new growth (grown by less than 5% in previous year, but intend to grow in next two years); constrained growth (grown by more than 5% in previous year, but do not intend to grow in next two years); and no growth (grown by less than 5% in previous year and do not intend to grow in next two years).

This was then used in bivariate cross-tabulations that examined the relationship between the growth variable and the range of areas in which universities provided assistance. The aim of this was to begin to delve more deeply into the roles of universities and determine further areas for research.

Results As can be seen in Table 1, universities only provided beneficial assistance (in one or more of the categories) to 5.7% of responding firms. More specifically, this was mainly focused on skills and training, general business confidence and start-up. Assistance in improving existing product offerings or introducing new ones was by comparison relatively rare, with less than 1% highlighting this as an area of beneficial assistance. The relatively small role of universities is also reinforced by Table 2, which compares the role of universities in providing beneficial advice with that of other potential providers. This highlights that, of the six categories covered, universities benefit by far the smallest percentage of the total number of firms (with the differences in percentages for universities in Tables 1 and 2 reflecting non-response issues). Table 3 indicates that SMEs gaining beneficial assistance from universities is related – to a statistically significant extent – to a range of owner- and firmspecific factors, though in terms of location, higher regional growth rates were also positively related to universities being helpful, perhaps supporting the idea that the overall regional setting is of importance in encouraging beneficial relationships between universities and SMEs. As far as statistically significant owner-related factors are concerned, Table 3 indicates that: • • •

higher levels of owner qualifications are positively related to universities being helpful to the SME; the owner being under 45 years old is positively related to universities being helpful to the SME; and the owner having previously worked for a multinational or doing something other than working in a small business is positively related to universities being helpful to the SME.

In terms of the more firm-specific factors, Table 3


UK universities, enterprise and knowledge transfer Table 1. University assistance in various areas. University assisted firms with:

Number of responding firms assisted

Start-up Raise capital Increase sales Reduce costs Improve supply chain operations Improve existing products/services Introduce new products/services Find new markets Improve contacts Helped improve skills Helped improve overall capacity Helped increase confidence Business recovery Improve management skills Environmental legislation Total: university helpful in at least one area

138 24 51 23 29 79 67 42 81 256 56 117 28 176 64 495

Percentage of responding firms assisted 1.6 0.3 0.6 0.3 0.3 0.9 0.8 0.5 0.9 2.9 0.6 1.3 0.3 2.0 0.7 5.7

Table 2. Sources of beneficial advice (percentage of respondents). Source of advice (a) (b) (c) (d) (e) (f)

Percentage of responding firms finding beneficial advice

Significant at 5% 2-tailed level*

56.76 27.52 6.31 42.31 48.82 42.73

b, c, d, e, f a, c, d, e, f a, b, d, e, f a, b, c, e a, b, c, d, f a, b, c, e

Professional services Government business services Universities Friends and family Customers and suppliers Networks and trade associations

Note: Significantly different when comparing confidence intervals around percentages.

indicates that the following relationships were statistically significant: • •

• •

larger firm size was positively related to universities being helpful; firms being in more knowledge-related service sectors was positively related to finding universities helpful (computing and R&D business services, but also health and social work); firms using their Websites more extensively was positively related to universities being helpful; and firms having intellectual property (in patents, copyright or design) was positively related to universities being helpful.

These results suggest that not only the background and previous experience of the entrepreneur, but also the capacities and focus of the firm are related to the degree to which universities are seen as helpful to SMEs. Again, this tends to support evidence presented in the literature concerning firm capacity and capability, as well as highlighting that the actual range of SMEs that could be identified as potentially being able to make beneficial use of university knowledge, which may require a narrow focus by policy makers. Finally, relationships between firm growth aspirations


and the areas in which universities had assisted SMEs were analysed in Table 4. There were found to be statistically significant relationships (in which receiving a benefit from the university in this area was positively associated with the growth aspirations of the firm) in the areas of start-up, contacts, skills (both general workforce and management) and in the overall assistance variable. This suggests that beneficial university assistance is most strongly associated with firm growth aspirations in areas where they have the greatest direct influence (for example, start-up via spin-outs, etc) and improving firms’ skills sets, rather than through assisting firms in improving products or services. This does at least find some relationship between firms being assisted by universities generally and growth aspirations. It does not suggest, however, that the beneficial relationships concerning knowledge flows into product or process innovations are occurring with relatively more growthoriented firms.

Conclusions These results reinforce earlier work in a number of ways. First, it can clearly be seen that only a small proportion of SMEs are benefiting from relationships

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UK universities, enterprise and knowledge transfer Table 3. University helpful in at least one area against independent factors. Independent factors

Phi

Kruskal’s Tau B/C

Location-specific factors Rural/urban location Regional growth rate

0.005 0.012*

Owner-specific factors Educational attainment

–0.069**

Owner’s age Gender Years of firm ownership Previously owned/managed a business Previous occupation

–0.013* being helpful. 0.008 0.07 0 0.031*

How started firm

–0.014**

Limited company

–0.019

Firm-specific factors Firm size (by employment) Industry sector

0.013* 0.128**

Firm use of Website

0.012*

Has patent intellectual property rights

0.062**

Has trademark intellectual property rights Has copyright intellectual property rights

0.023 0.061**

Has design intellectual property rights

0.054**

Nature of relationship

Higher regional growth rate positively related to university being helpful. Higher levels of qualifications positively related to university being helpful. Owner being under 45 positively related to university

Owner previously working for a multinational or doing something other than working in a small business positively related to university being helpful. Firm being started from scratch positively related to university being helpful.

Larger firm size positively related to university being helpful. Firms in high knowledge-related sectors positively related to university being helpful (computing and R&D business services, but also health and social work). Firm using Website more extensively positively related to university being helpful. Firm having patent IP positively related to university being helpful. Firm having copyright IP positively related to university being helpful. Firm having design IP positively related to university being helpful.

Note: Kruskal’s Tau C is the appropriate statistic, assuming that both variables are ordinal. If one of the variables is nominal, then Phi is the appropriate variable.

Note: Negative relationship indicates that assistance from university is positively related to growth. **Significant at 1% level; **significant at 5% level.

with universities, either absolutely or relative to other providers of business support (see, for example, Frenz et al, 2005). Second, it can be seen that the benefits for SMEs (including in terms of growth orientation) are most likely to be seen in areas other than new products or processes, being more strongly related to skills and training. Third, the types of SMEs most likely to find benefit are linked to a range of location-, owner- and firm-specific factors that highlight the potential roles of access, firm capacity and capability, and owner perception. These are factors in SMEs deriving benefit from university assistance that are related to earlier studies (see Jensen and Tragardh, 2004; Oughton et al, 2002). In addition to the firms, however, the capacity and capability of universities to link successfully with SMEs in groups other than those highlighted in the analysis (for example, smaller firms in non-high-tech services) may need to be reviewed and developed. In terms of policy and further research, this suggests that SMEs may

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Table 4: Cross-tab of growth in four categories against university assistance areas. University assisted firms with: Start-up Raise capital Increase sales Reduce costs Improve supply chain operations Improve existing products or services Introduce new products or services Find new markets Improve contacts Helped improve skills Helped improve overall capacity Helped increase confidence Business recovery Improve management skills Environmental legislation Total: university helpful in at least one area

Kruskal’s Tau C –0.009** –0.001 0.0 0.0 0.001 –0.004 –0.001 –0.002 –0.008** –0.011** –0.002 –0.002 –0.001 –0.012** 0.0 –0.018**


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need to be more fully evaluated to determine whether they have the internal capabilities that enable them to absorb university-derived information and to access assistance in those areas that need to be upgraded. The relationship with firm size and age, however, also suggests that there needs to be a focus on the smaller SMEs to enable them to access university expertise in future. It may be, for example, that university-provided training may be a conduit through which such a focus could begin, with relationships deepening over time. In addition, the processes through which universities engage with the SME community may need to be reviewed to ensure that benefits are maximized and university–SME interactions become a recipe for much more than the relatively narrow set of relationships they currently seem to provide to the SME sector in general. It is therefore evident that further work needs to be undertaken to ascertain more clearly the relative importance of key factors in order to develop a greater understanding of the engagement process between higher education and small firms (most obviously through multivariate regression analysis). In particular, quantitative and qualitative studies should examine this relationship more closely in micro-firms in which engagement is less evident and/or prevalent.

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