Additionality of R&D support for Young Innovative Companies

1 Problem definition and research questions

Young Innovative Companies (YICs) play a crucial role in today’s innovation landscape. Because these companies spend at least 15 percent of their budget on R&D, they are considered to be highly innovative. Moreover, these companies are also very young, small and often lack financial resources. Therefore, they face so-called innovation boundaries that prevent them from intensifying their innovation and R&D activities. This research is an assessment of some of the current innovation and R&D support programs offered by the IWT (the central innovation support agency in Flanders), and their impact on YICs. This report does not address all the support programs offered by the IWT, but focusses on those programs that facilitate R&D partnerships or target innovative SMEs. The central research question of this research is “What is the additional impact of IWT support for innovation and R&D on YICs?”. To make sure that the effects of R&D are “additional”, we adopted the concepts of input, output and behavioral additionality. Furthermore, we focused on both the similarities and differences in additionality amongst YICs.

2 Research method

We interviewed eight YICs from different industries, such as chemistry, engineering and textiles. During the interviews, we asked four series of questions. The first series encompass basic questions regarding their main products, services and activities, the size of the company etc. Because most companies did not have a formal R&D budget, we performed an innovation audit in the second series of questions, as an alternative to measure the innovativeness according to one of the YIC criteria. In the third and fourth series of questions, we addressed the participation in the IWT programs and the additionality of IWT support (the main topic of this research). Several important aspects were taken into account for measuring additionality. Firstly, additionality effects are strongly interrelated and can occur on both the short and long run. Secondly, most interview questions are also hypothetical (What would the company have done if it did not receive R&D support?). Moreover, company statements may have a subject bias, meaning that some companies could over-estimate additionality effects.

3 Findings and conclusion

Based on the interview results we were able to formulate several key findings. With regards to input additionality, we addressed two topics: employment effects and general R&D spending. In relation to employment effects, we found that short term support for R&D does mostly not provide a sound basis for long term employment in research related roles. In relation to R&D spending, we found that for most of the interviewed companies, government support for R&D does not impact the decision of companies to engage in specific R&D projects. However, it does impact the way that companies carry out their R&D projects. Another key finding is that for most of the interviewed companies, output (outcome) additionality occurs only in the long run, and typically results from behavioral additionality. Some companies were able to increase the scope of their projects (scope additionality), by engaging new project partners, or by exploring new trends such as sustainability. This also gave them the ability to become more ambitious for their innovation projects (risk additionality). For example, some companies would more likely engage university partners. Thereby, they could focus more on research and fundamental issues, instead of solely development.

Another key finding is that, according to some of the interviewed companies, R&D support also affects project priority and thereby leads to project acceleration. For example, some companies would delay their innovation and R&D projects if they did not have the support from the IWT programs. Furthermore, by engaging in IWT projects, some companies were able to build new competences regarding innovation management and gain more product knowledge. This helps them improve their innovation strategy and develop new business opportunities (strategy additionality). Finally, the results from the interviews also show that the IWT programs allowed some of the companies to intensify relationships with university partners and make new contacts with other companies that have similar interests (networking additionality).

The results from the interviews also show that there are several key differences amongst companies. We find that, for the sample of eight interviewed companies, input-output and behavioral additionality is highest for the companies that were classified as Schumpeterian Pioneers. Schumpeterian Pioneers are YICs that focus on innovation based on new (breakthrough) technologies. The results from the interviews show that, because these companies focus on developing breakthrough innovations, risk and scope additionality is particularly high. Because of the importance of partnering with other companies and universities in developing breakthrough innovations, networking additionality is also high for these YICs. This seems in line with previous research that suggests that highly innovative firms appear to derive most benefit from collaborative research with (foreign) universities. Moreover, because these companies also focus on gaining more control over the supply chain, knowledge and strategy additionality is also very high.

4 Implications

The results from the interviews may have several implications for future innovation policy, as well as for future additionality research. The current IWT program portfolio does a very good job in addressing the needs of different types of companies. However, the results from the interviews show that there should be more focus on the alignment between companies’ (strategic) objectives and the objectives of the IWT programs. Some IWT programs such as TETRA and SBO are better suited for companies that fit the Schumpeterian Pioneers criteria. For Resource Based Innovators, it is especially important that programs have a light overhead structure. With regards to the time horizon of effects, we found that scope additionality typically results in risk additionality (more ambitious projects) and input additionality. In addition, scope additionality and knowledge additionality typically result in output additionality in the long run. It is very important that future additionality research takes into account this interrelation and the time horizon of additionality effects. Moreover, as input-and output additionality are mainly long term (consequential) effects, policy research should focus more on behavioral effects, instead of input-output additionality.