Managing the university third strand innovation process? Developing innovation support services in...

Managing the University Third Strand Innovation Process? Developing Innovation Support

Services in Regionally Engaged Universities

Paul Benneworth and Stuart Dawley

Universities increasingly provide assistance to innovating finns, particularly in less successful regions lacking other support providers. Universities have to develop such support, just as consultancies learn to work with clients. In this paper, we use an innovation framework to explore how universities learn about developing such services, and the barriers they have to address to improve the development of such services.

Introduction

We live in an age when learning, innovation and knowledge have become key drivers of economic development, and the institutions associated with promoting those attributes are regarded as vital to ensuring sustainable economic success (Robertson, 1999; Cooke, 2002; MacKinnon et al., 2002). A wide range of examples of regions and economies where high levels of connectivity between universities, government laboratories, innovation agencies and firms has led to economic success that has reinforced this beIief(cf. Angel, 1994; Storper & Salais, 1997; Saxenian, 2000; Wicksteed, 2000).

Because universities create, store and transmit knowledge, it is unsurprising that universities should figure intensively in these more general narratives about success. At a meso-scale, the regional innovation systems literature has stressed universities' roles in engendering and supporting particular types o f learning behaviours, whilst evolutionary economists have highlighted universities' roles in creating territorial collective assets (Lorenz, 1999; Maskell & Malmberg, 1999; Cooke, 2002). At a micro-scale, writers such as Jones-Evans et al. (1999), van der Sijde (2002) and Klofsten & Jones-Evans (2000) have taxonomised universities' particular activities that make knowledge more regionally accessible.

Paul Benneworth and Stuart Dawley are at the Centre for Urban and Regional Development Studies at the University of Newcastle upon Tyne (UK). They may be reached at <[email protected]> and <[email protected]> respectively.

Knowledge, Technology, & Policy, Fall 2005, Vol. 18, No. 3, pp. 74-94.

Benneworth and Dawley 75

Recently, however, concern has been raised over the gulf between studies high- lighting specific successful places, and generic arguments placing universities central to territorial knowledge-based development. Uncritical readings of these relationships have created "growth myopia" (Autio, 1997), focusing on a limited number of atypical high-science content, high economic-benefit and high-profile case studies, at the expense of understanding the mundane reality of the knowledge economy in 'ordinary places' (Benneworth, 2004).

Questions in particular remain concerning how particular, one-off university interventions can produce general territorial benefits in these 'ordinary regions'. It is clear that not all universities produce equal territorial benefits (Di Gregario & Shane, 2002; Feldman & Desrocher, 2003), although generalised models do exist, explaining how universities produce their impacts. It is thus fair to ask whether university activities c a n help these less successful places to close the gap with what Armstrong (2001) calls the 'totemic sites of the new economy'.

In this paper, we bridge between the two scales, looking at how meso-scale improvements in regional innovation systems or evolutionary pathways might relate to aggregations of micro-level outcomes. We have previously examined how university/ business interactions improve regional innovation environments, and have found that universities work with innovative firms in developing particular collective activities--networks, clusters and other territorially embedded assets--which have in turn general territorial benefits (Benneworth & Charles, 2004; Benneworth & Dawley, 2004). This previous research focused on how firms learn to work with universities. In this paper, we extend that thinking to explore how universities cre- atively develop innovation support services, and how they--as innovating actors-- can improve that development process to increase their territorial impacts.

University/Business Interactions: From Transactions to Relationships

Recent advances in economics have placed great importance on learning and knowledge creation as drivers of territorial economic development. The basis for what Temple (1998) calls this 'new growth theory' is that knowledge capital is becoming increasingly important as a factor of production, and unlike land, labour and machinery, enjoys increasing returns to scale, implying continual concentra- tion in already well-endowed locations. Universities are clearly potentially very important actors in this new knowledge economy, as they are sources of knowledge capital in many guises, undertaking research, educating skilled workers, and providing consultancy services in support of innovation (cf. Cooke, 2002; Boekma et al., 2003).

Universities throughout advanced economies are under increasing pressure to raise their level of regional engagement (Robertson, 1999; Dahlstrand & Jacobsson, 2003). In recent years, many universities have begun to actively manage their contribution to regional development (Jones-Evans et al., 1999; Heydebrook et al., 2000; van der Sijde et al., 2000). The US has led the way with the establishment of university technology transfer offices, the 1980 Bayh-Dole Act giving strong incentives and rewards for those universities and academics who successfully commercialise their knowledge (Charles et al., 2003). But given the increasing returns to scale of knowledge capital, and the collocation of successful regions and

76 Knowledge, Technology, & Policy / Fall 2005

commercial universities, (Armstrong, 2001), how can universities in 'ordinary regions' improve their contribution to local economic development processes?

University Technology Transfer Activities: Institution or Innovation?

Much has been written in recent years concerning the contribution of universities on regional economic development (Goddard & Chatterton, 1999; Boucher et al., 2001). Some analyses have focused on exemplary institutions, whilst others have accounted for universities' contributions, equating them intuitively with territorial economic impacts. These latter approaches have frequently reduced to bean counting exercises, lacking strong external referents, failing to demonstrate lag- ging regions converging with stronger knowledge economies. This really finesses rather than answers the opening question, by arguing that universities' contributions have broader impacts on the socio-economic and cultural systems in their communities (Robertson, 1999).

In this paper, we focus on one particular economic development mechanism, firm-based innovation, to explore how universities can directly improve the regional environment. Our conceptual framework for regional economic change begins with the assumption that productivity growth is dependent on innovation, and that barriers to innovation are therefore barriers to productivity (and economic) growth. In less successful regions, where there are sparse environments for entrepreneurship and innovation (Dubini, 1989; Johannisson, 1993), the absence of resources for innovation is such a barrier.

What universities offer to innovating firms is the opportunity to access resources not readily available elsewhere. If firms interact with universities in the innovation process, to access resources that are not otherwise available, the university is helping to solve the innovation problem, and therefore raising the firm's productivity. If one-off relationships can be generalised into recurring territorial behaviours and routines that help firms access these resources, then the university has made a contribution to regional productivity growth and hence economic development.

Heydebrook et al. (2002) argue that universities have "service bundles" of latent capacity which are partially activated in response to specific demands (p. 94). Ser- vice bundles (cf. Heydebrook et al., 2002) coalesce when individuals and teams in universities build up capacities and a shared infrastructure that can be transferred between particular transactions. Heydebrook et al. see an intuitive linkage between these service bundles, and the way universities organise their technology transfer institutions. The link between these novel institutional forms, shared infrastructure and regional economic development is not automatic, and the issue of how particular relationships become transferred into sustainable institutions is complex.

We have previously addressed this by looking at how particular university/business relationships influence the development of innovation support services in weak environments for innovation (Benneworth & Dawley, 2004), but from the perspec- tive of the firm. This assumes that universities were able to respond adequately to meet the needs of their partner firms. However, universities are regularly critiqued for their 'ivory tower' tendencies, for failing to respond functionally to businesses needs, which implies that this process of 'service bundle development' is worthy of consideration as a problematic in its own right. In this paper, we use established


concepts from a resource-based approach to innovation to ask "how do universities develop generalised territorial innovation assets as innovative actors themselves?"

SME Innovation and the Co-Evolution of Territorial Innovation Knowledge Assets

In this paper, we look at how a university in a less successful region has worked with small firms to develop innovation support services for those firms. We have focused on small firms in less successful regions, for two inter-linked reasons. Firstly, small firms (SMEs) have distinct innovation needs, with few internal innovation resources, unique vulnerabilities (Martin & Scott, 2000), and heavily reliance on external resources for solving their innovation problems (Kaufmann &, Trdtling 2001), increasing their dependence on those who can provide those services. "As young, small and technology-oriented organisations, NTBFs have a number of limi- tations, particularly with regard to the level of resources and breadth of skills that can hinder the performance of these roles" (Fontes & Coombes, 2001, p. 81).

This then explains why, secondly, we are interested in peripheral regions, because in such regions, there are few other sources of these resources available be- sides universities (Gomes-Cassarez, 1997). Peripheral regions are thus extreme cases of 'ordinary regions', in contrast to many of the new regionalist theories developed in exceptional places with unreproducible regional contexts. This in- creases the necessity for universities to be regionally engaged, offering resources which few other actors can make available (Fontes & Coombs, 2001). By contrast, in munificent environments, even if universities steadfastly fail to engage regionally, other actors are on hand to provide such resources, such as R&D laboratories, peer/mentor networks and knowledge-intensive business services (cf. Wicksteed, 2000; Lawton Smith et al., 2003).

Fontes & Coombes (2001) note that SMEs in sparse innovation environments can induce universities in their regions to offer better innovation support services. This one-off induction process can potentially open up their services to others, and hence represent a "densification of the techno-economic network", which produces the territorial benefit. Although the collaboration does not begin intending to produce territorial knowledge assets, these benefits do emerge serendipitously, developing a regularity or institution more durable than the initial transaction.

But how can we conceptualise how one-offinteractions produce systematic benefits? To do this, we draw on thinking in an analogous private section situation, in the way consultants in KIBS build their competitive advantage, given their clients generally have greater technical expertise than the generalist consultants. Wood (2002) argues that what they really sell to client firms is problem-solving knowledge, and which complement the clients' greater technical expertise (cf. Creplet et al., 2002).

Muller & Zenker (2001) argue that this mutual advantage is produced as a con- sequence of two separate innovation streams, both of which are supported though one-off consultancy transactions, one by the consultancy and the other by the client firm, so-called co-evolution, each party firstly creating, then drawing on, a shared resource. This process of co-evolution is shown in figure 1 below.

Inserting the 'university' into Muller and Zenker's territorial innovation frame-


Figure 1 The Dual Innovation Spin-Off Loop in Knowledge Intensive Business Services

Knowledge service innovation

f /

Knowledge pool development

.,\

SME (product) innovation

Source: Muller & Zenker (2001)

work allows us to conceptualise the generalisable benefit--produced through university/ business interactions--as a territorial knowledge pool. The SME demand for particular service bundles induces the university to begin their own innovation process, and working with these firms, the university builds up sets of collective assets and the institutions to provide access to them, opening up proprietary knowledge to others in the region. This is done directly, by providing formal access points, but also informally, by those knowledge providers learning about working with SMEs. Although we have already explored SME relationships with universities (Benneworth & Dawley, 2004), we now argue that the way the university pursues this process of innovation has not.

Universities as Institutional Innovators

There are a number of 'ideal' institutional types that universities use to promote improve external engagement; industrial liaison office, graduate entrepreneurship programmes, spin-offpromotion, science parks and incubators (Jones-Evans et al., 1999; Rappert et al., 1998; Oakey et al., 2002; Pirnay et al., 2003). However, these activities have impacts that differ over time, space and context; Clarysse et al. (2003) characterise differences in approaches to forming university spin-off companies depending on the resources required, the link to the university technology base and the economic growth expectations of each approach. Hulsink & Elfring (2003) note that different types of incubator policy likewise have very different characteristics and benefits, particularly at a territorial level.

Different institutional approaches have very different success rates dependent on prior economic conditions. Science parks in the UK were most successful in the most buoyant regional economies, the greater South East of England (Massey et


al., 1992). Elgin et al. (2004) found that knowledge intensive business services (KIBS) spin-offs from German provincial and rural universities tended to relocate to large metropolises, so spin-off policies for KIBS firms only benefited large urban areas. As Cooper (2001) notes, "'The ability of [universities] to contribute to economic development will vary depending on their mix of specialisation...each institution will have to develop its own approach, dependent on its own context" (p. 203).

This suggests that these supposedly ideal technology transfer types are actually constructed in each contextual setting by the university itself. The processes through which they are developed are hence amenable to innovation analysis. In this research, we are less interested in the outputs these institutions produce (such as numbers of spin outs or licensing deals) than how they contribute to a process of co-innovation between SMEs and universities, creating a territorial knowledge pool.

Our conception of innovation is rooted in resource-based approaches, and em- bodies two key assumptions. Firstly, innovators use external knowledge sources to solve problems, in this case, the universities work with firms as 'clients' for the innovation support services. The second assumption is that innovation can be managed better, and that managing it better produces overall better outcomes, in this case activities which are 'better' territorial development activities. The gap we have identified in the literature is in the link between particular institutional management practises, and the economic growth benefits which later arise from firms working with the university. In looking at universities' own practises, we ask:

(i) How do universities work with partner firms in developing innovative support services for innovating firms?

(ii) Does this innovation and institutional development process correspond to a densification of the region's techno-economic network?

(iii) What are the implications of this for the management of universities so their relationships with local businesses have the greatest territorial impact?

Research Method, Analytic Approach and Study Background

This paper seeks to extend the analysis of an existing research project, in response to dissemination activities. We had previously argued that universities needed to be discriminating in developing technology transfer activities and institutions, and to only work with the most strategic and sophisticated innovating firms. We presented the findings at a number of conferences (cf. Benneworth & Dawley, 2004), and were critiqued for making the assumption that the universities were unproblematically good innovators. We were challenged to explore universities' own innovation processes, particularly how universities improved their own innovation practises. Our critics argued that this would produce a more robust understanding of how universities could be managed to improve what they offered to regional innovators rather than purely increasing the outputs from particular activities.

This paper has been written in response to those challenges, extending analysis into three concrete institutional examples where one university developed new activities for technology transfer. Our aim was to characterise how universities developed new technology transfer mechanisms as an innovation process. The initial research project was a study for the UK Small Business Service, looking at how


innovating firms used different sources of information in solving their innovation problems. That project involved 43 interviews that provided an insight into some of the key areas where universities had previously been innovating, which was published in the project working paper (Benneworth & Dawley, 2003).

However, only a handful of those interviews were with university actors and the firms with which they worked, which made it hard to draw deductions relating to the university innovation process. We therefore complemented the initial four university interviews with a number of further interviews which sought to build a bigger picture of what was taking place at the scale o f the university: this included nine further interviews with university academics, managers, two further interviews with collaborating firms, two interviews with the centres of excellence, and one with the Regional Development Agency. These interviews took place from May 2003 to April 2004.

We originally chose the North East of England because of its economic situation as a less favoured region with low levels of business innovation. The North East is the poorest and least populated of the English regions, although the Tyne & Wear city region (the study location) is the richest of its sub-regions, at 82% of UK average GDP (1998). Although the region has a high level of manufacturing, Tyne & Wear is predominantly a service-led economy, with only 18% of employment in manufacturing, 15% in business services, and 28% working in public sector service provision.

Much employment in the private service sector is in business service back-offices, call centres and customer relationship management activities, rather than the kinds of KIBS necessary for regional competitiveness in the global knowledge economy. Newcastle University has a long history of regional engagement, dating to its establishment as an applied technical college for the marine sectors in the 1870s (cf. Potts, 1997). Since the 1990s, it has been pioneering a form of policy- making in regional development informed by academic research (Vestegaard, 2003). Newcastle University is therefore apparently committed to learning about its' regional engagement, in a region with few other regional innovation assets (a low rate of business R&D and non-existent charity and government research), making it a suitable case study for such an exploratory piece of research.

Universities' Business Interaction Innovation Processes

Our previous research had no kind of conceptual framework of how universities innovated in developing innovation support services. In this paper, we explore how firms and universities had co-evolved three such services. The two criteria for the selection of services was that in each case, firms and universities we interviewed had co-developed the services, and secondly, other firms we interviewed had used the activities to help meet their own innovation requirements. It is worth stressing that in each of these three cases below, we had concrete evidence that other regional firms had used the improved services to access resources to solve their own innovation problems.

In our previous research, we 'black-boxed" the universities' role in innovation, while in this paper, we black-box the firms, merely noting that in each case the innovation to the service improved their own innovation performance. We high-


light three such services which were the focus for exploring how universities developed their services for SMEs through a process to which an innovation analysis could be applied.

Centres of Excellence: Links with the University

The idea for Centres of Excellence emerged in the North East as part of the evolving thinking of a team within the Regional Development Agency who were developing a Innovation Action Plan for the region. In the North West, the Govern- ment had given a well-connected coalition of universities and the RDA s extra research funding, as compensation for an announced closure of a government research laboratory. The North West RDA had commissioned the Massachusetts- based consultants Arthur D. Little to review the linkages and potential for growth in the research base in the North West. This review process (although not the s was duplicated in the North East, and in the course of this, they observed that there were very different science and technology bases underpinning the nine different clusters that had been identified already in the region. The report identified that there were five areas in which the region had or could reasonably build commer- cially-viable research strengths. The report recommended that the existing assets be combined into five regional Centres of Excellence.

The universities were centrally involved in the research base mapping process, and their research strengths were vital to the five areas identified. When one centre came into conflict with the corresponding activities within the university, the research strength of that centre, and its national recognition helped the university to work with the regional development agency to reorient the strategy towards more complementary forms of support, helping to strengthen the regional science base. The university centre then was able to deliver effective services to a range of regional companies in the field, involving commercialisation activity, graduate entrepreneurship, manufacturing services and knowledge-intensive consultancy.

University Commercialisation Activities

A second area where there was considerable service innovation was in the area of university commercialisation activities. In the North East, the regional universities had put a large amount of effort into the development of 'as a single point of contact for regional firms to access university consultancy services, known as Knowledge House'. Knowledge House had originally been funded by European Regional Development Funding, and that limited both the size and geographical location of firms able to access the services it offered. Within Newcastle Univer- sity, it was clear that the approach best suited engineering consultancy activity, particularly in mechanical and electrical engineering, where the university could offer specialist services to support innovating firms. Equally it was less applicable to biotechnology and IT, where collaborative research or licensing deals were opti- mal, depending on the particular circumstances.

In parallel with this, a number of other similar projects in engineering consultancy emerged, such as the Engineering Design Centre and Regional Centre for Indus- trial Design (later Resource Centre for Industrial Design, both RCID) emerged in


the university, delivering similar kinds of activity, but all funded through different mechanisms, with different targets and outputs. The university therefore decided to move the Knowledge House activities into a dedicated engineering services centre along with a number of other outreach activities supporting design and analysis in engineering, to be called the 'Stephenson Centre' after a famous local industri- alist. The experience of the first phase of the project (generic consultancy) was therefore translated into more definite, and more accessible, service bundles much better developed for the institutional and regional context (engineering KIBS).

The Emergence of the Business Development Directorate

A final area where there was significant university/business interaction involved in the development of new business services was in the development of business development posts within the university, to provide an active liaison function and to increase university income from collaborative research projects and university spin-off firms. The idea was originally stimulated by an application to a one-off UK government fund, Higher Education and Reach Out to Business and the Com- munity, (HERO-BAC). Newcastle University put in an application that focused on the appointment of four Business Development Managers to support the development of industrial clusters in which the university had research strengths.

The bid succeeded, and appointments were made in 2000/01, in the first in- stance for three years, and they were broadly successful in developing industrial linkages in the local region; one BDM created a network ofbiotechnology companies, BioNE/T, which grew into a regional cluster over the period of his appointment. During this period, the university appointed a new vice chancellor, specifically appointing someone with experience in commercialisation and university entrepreneurship. One of his first decisions was to create an internal fund for supporting investment and development activities, which allowed the posts to be made permanent within the university. The next step was to unify all university activities within the Business Development Directorate, bringing the BDMs together with licensing, patent protection and legal services, and appointing a new senior manager to run the activity.

The Firms' Contribution to the Universities' Innovation Processes.

Just as consultancies are continually innovating in 'providing consultancy knowledge ' (Muller & Zenker, 2001), so universit ies innovate in developing commercialisation services; this process may involve profound organisational innovation within the university, alongside the development of particular technical services (Jones-Evans et al., 1999). The case of Newcastle University suggests that firms have played a role in shaping the institutional arrangements that have emerged from the university, and their subsequent uptake at a regional scale. We therefore consider the contributions through which the firms made to the universities' innovation processes.

If the development of new innovation services is regarded as an innovation process, it is possible to break it down into a number of inter-related phases through which an idea becomes stabilised into a sustainable support service. Although we


Table 1 The Ways in Which Local Universities Benefited

from Their Linkages to All Innovators

Financial

Consultancy fees

Studentship fees

Matched time

Collaborative research income

Organisational

Status of department within university

Dealing with succession of senior staff

Undergraduate student placement

Prestige

Industrial collaborator

Referee

Reference site

Papers

'Research excellence'

acknowledge that this process is heavily interactive, and characterised by many feedback loops, for analytic purposes consider the stages as a simple progression that involves assembling resources to solve problems. To move between a stage, the university devotes resources to producing something which successfully meets its needs; if success cannot be forthcoming, then the university might try again, try a different approach or abandon the service.

There was a range of reasons that universities engaged with firms, shown in table 1 below. Financial resources came in to the university when they sold on pilot services to clients; the first iteration of RCID involved all member firms paying an annual fee ofs to access the services; these resources provided the financial stability to develop the service currently offered, which operates on a hourly fee basis.

Firms also provided organisational resources, as in the case of the appointment of the business development managers; a number of large local firms worked with one BDM to establish the "BioNE2T '' network, which eventually encompassed 16 university spin-offs, 12 corporate spin-offs and six local high technology start-ups.

Thirdly, the firms also provided important legitimation and prestige for the universities in developing services. In bidding for funds from central government for the business development managers to build collaborative research projects; the 1998 bid had a five-page Annex (number 4), "Track Record", which set out that the university already had a strong pedigree in regional engagement. This listed the collaborative research, consultancy and spin-offs, naming companies in the funding application, thereby enrolling them the process of securing project finances. These resources are similar to the kinds of resources that firms require for innovation, namely finance, knowledge, legitimacy, and external contacts.

Table 1 presents a set of final outputs to the university, rather than what those firms inputted to the development of technology transfer activities. These resources were of course subsequently used by the university in developing improved technology transfer services, but clearly, some firms were more actively engaged in the development process than merely providing resources or legitimacy that the university consumed or enrolled in developing new activities. In Table 2 below, we highlight those resources which universities used specifically in developing new


Table 2 The Relationship between Firms and 'Universities' by Firm Sophistication

Mode of activity

Nature of demand

Scope of involvement

Territorial impactof collaboration

Expert firm

Strategic adviser

Articulating to the university a vision of potential technological services.

Willing to pay for high quality R a D including academic outputs.

Shapes the university to support its own high quality research activities.

Experienced

Laboratory

A good source of sophisticated demand encouraging universities to 'raise their game'.

Long term collaborations between key innovators and academics.

Provides a set of sophisticated industrial users to help the university win external funds to support new commercialisation.

Inexperienced Novice

Laboratory rats Mice waiting for crumbs

Willing to buy services already created and approach university with new problems to solve.

Willing to try and comment critically on new services to increase their effectiveness.

Use the services to improve their own innovation performance and hence the territorial outcomes.

Willing to buy any service to solve any problem; very limited comfort zone to absorb new ideas.

Occasional/erratic users of innovation services.

Potentially negative if the novice firms use the services badly or waste money and underperform.

Source: Af t e r B e n n e w o r t h & Dawley , 2004.

technology transfer services and which the university actors accessed through the SMEs. We have segmented this according to how good the firms were at innovating, using a four-fold classification, from novice (worst) to expert (best) (cf. Ap- pendix).

Table 2 shows that universities work with firms in developing new services for firms, but that the benefits differ depending on how good those firms themselves are at innovating (Benneworth & Dawley, 2004). The very best firms involved themselves strategically with the university, through the university's formal governance structure, to enroll the university as a support for their activities, but also to get the university to develop activities supportive of their needs. Lead firms were actually involved in encouraging positive and strategic engagement with the centres of excellence, in part in a hope that the universities would help the new CoEs produce useful support services themselves.

Once such flagship activities had been identified, the university then developed the service or concept, and worked with good innovators in producing the service; only when the activity was complete could less successful innovators engage with the university; this is exemplified in the RCID case study, which went from a way of cheaply supporting design activities of the North East's leading mechanical engineering firms in the early 1990s recession to a technology consultancy used by a broad cross-section of regional firms. The University clearly learned that it was best only to develop new services with firms in a position to give them construc- tive feedback.


Universities as Institutional Innovators: Towards a Barriers Approach?

The next step in such an analysis is to identify how the university performance can be improved, is to identify where improvements can be made in university performance. There are clearly two dimensions along which this can be done. Firstly, within particular development cycles, a university can solve particular one-off problems and develop routines and cultures for avoiding those problems in future. This leads to the second dimension, namely improving the structural organisation of the process in the university, or improving the innovation sophistication of the university itself. In this section, we consider each of these two elements separately, be- ginning with the situation within particular development projects.

Removing the Bottlenecks to the Innovation Process

The first stage of the stabilisation process mentioned above is the idea generation process, and the greatest barrier Newcastle University faced in developing new innovation support concepts was in mutually contradictory ideas. One structural barrier was that different public funding streams tended to be highly specific in terms of mechanisms and outputs which made it hard to integrate their project "concepts" into useful integrated service bundles. Knowledge House was conceived of as a very simple service that met a number of direct goals, and over time was broadened and refined. The issue for the university was that its' strategic thinking on regional engagement quickly became channelled into meeting particular funding requirements. To some extent, the university overcame this in 2003 with the creation of a dedicated organisation and internally-generated funding--the business development directorate--to strategically integrate these services into coher- ent service bundles satisfying real SME demand as effectively as possible.

This problem of conflicting demands made the second innovation stage, project design, very difficult, but much easier when not done in response to the needs of an external funder. RCID was easy to design and scope, because it was created as a club of twelve with a straightforward governance structure, and a director appointed outside the academic system to build a technical research cell. Good links with firms were absolutely critical at this stage to developing sensible projects that could then be run, and if as in the case with RCID and Knowledge House, amended and expanded.

The third stage was the development and piloting of the programmes, and the universities had to be skilled in ensuring that they received useful feedback from partners. Because a number of the projects were externally funded, this meant they could be subject to intense pressure for interim reorientation. During the creation of the Centres of Excellence, for example, the development agency decided that new institutions were required outside the universities. This posed problems for Newcastle University, particularly in terms of duplicating its' own activities, di- verting resources from building critical mass, or undermining its legitimacy in the eyes of its' existing clients.

The fourth stage was the launch and evaluation of the particular programmes; the three activities were all heavily dependent on public sector funding, and so there was always a risk that the activities would be prematurely abandoned because


of short-term funding problems. With HERO-BAC, university managers decided to continue finding the BDMs beyond the life of the project, which was particularly fortuitous given that the fotlow-up bid, so-caLled Higher Education Innova- tion Fund (HEIF) 1, was unsuccessful. This allowed the BDM programme to continue, and when subsequent funding was won under HEIF 2, at least two o f the original cohorts of BDM were in post to implement the lessons learned. This suc- cessor project, which was very different to the original plan, incorporated lessons from both the first project, and the bid for the failed second project.

In each of these stages, we can see that there are dissonances between running the activities as a service delivering a set of outcomes (i.e., contributing to the regional economy) and learning within the university to create a regional support institutions (i.e., transforming the regional innovation environment). If pilot schemes are an intermediary in the development of better innovation support services, this has a number of implications for the way that universities' pilot programmes are evaluated, because they are not just a miniature version o f a full project, rather they aim to produce the most learning at the least cost. This learning would potentially cover four dimensions, and it is possible to see that projects that would be regarded as failures on traditional output measures could be regarded more positively using these learning outcome scales:

�9 How to make the service most accessible to the least sophisticated innovators, �9 Whether the pilot has made the service more accessible, �9 How firms have used the service, rather than what they immediately thought of that

service, and �9 What university business support staff have learned about managing business sup-

port projects, for future application.

Classifying Universities'Institutional Innovation Processes

We have so far identified that universities developing technology transfer services has two hallmarks o f innovation. Firstly, such services are developed in processes in which problems are encountered, solved through use of internal and external resources, and that universities' relationships with firms are critical to accessing these external resources. Secondly, universities are seeking to improve their own performance of innovation, changing their internal structures to better access external resources (as in the case of Knowledge House), or to ensure better knowledge flow in the technology transfer process, such as with the creation of business development managers. In this final section, we reflect on the issues raised for developing (in the future) a methodology to look more closely at the institutional response to innovating SMEs' needs.

The key question is whether it is possible to segment universities as robustly as we have already done with firms, and clearly, given the scope of the research undertaken, and with the limit o f the three examples of university new service development from an opportunistic interview sample from one university, there is not the volume of evidence to confidently develop a fully-worked through model. How- ever, two features appear clearest in determining Newcastle University's success in particular reach-out development activities. These two features are:


�9 Strategic commitment: ensuring that particular relationships and deals were structured in sustainable ways; where relationships were ad hoc, then there was a risk that the interests of academic and firms were not properly aligned. Conversely, when universities were engaged with particular activities in a strategic and corporate manner, then those activities were not threatened by changes in academics working environment (such as the Centres of Excellence).

�9 Culture for collaboration: where the universities were most successful is where particular activities fitted with their existing interests. Knowledge House and RCID sat well within the Schools of Engineering and were well adapted to the regional knowledge base; the creation of the Stephenson Centre offering integrated 'service bundles' for engineering alone was therefore an interactive response by firms and universities to a particular set of university innovation needs.

Having in previous research projects already classified innovating firms into four groups, we can attempt to repeat this exercise for universities in an exploratory way, drawing on Fontes & Coombs' own classification. Table 3 (below) sets out a potential framework for segmenting universities' innovation capacity in terms of four sets of characteristics. In the lowest class might be those universities who have placed no strategic priority on regional business collaboration; although collaboration might take place, it is out of the sight of university managers, and thus tends to be reactive to the demands of local partners, and vulnerable to unforeseen consequences of changes elsewhere within the university. At the other end of the spectrum are those universities that are exemplars of regionally engaged universities, with strong strategies for regional business support, which are widely imple- mented within the institution.

Univ level

1

Table 3 Key Barriers to Improvement in the Institutional Innovation Process

The strategic approach of the institution to business interactions.

No strategic plan.

2 Strategic plan for reach- out developed centrally, with limited internal embedding.

3 Strategic plan for reach- out developed centrally, with greater internal embedding.

4 Strategic plan developed in inclusive consultation across university.

The 'new service generation' process working with businesses.

The university only offers routine technical services in response to client needs (e.g., rendering drawings electronically).

The university develops new technologies and ideas in demand to requests from SMEs.

The university introduces and develops new ideas with a limited/ selected range of clients.

The university disseminates its new ideas to a wider range of clients and stimulates their own innovative processes.

The 'organisational style' of the university's business interactions.

Reactive/ad-hoc.

Collaborative/technological.

Collaborative/strategic.

Positional] strategic.


Extending the Sophistication Approach: Barriers to Improvement

The rationale for distinguishing between different levels of university performance, as do Fontes & Coombs, is that it implies the possibility of practical improvement, that addressing those barriers university face can improve their performance and contribution to the regional knowledge pool. In the light of the study, improving performance appears to involve stabilising a tailored service with wider applicability to the regional structure, and which transforms, rather than contributes to, the regional economy. Newcastle University has over the last de- cade taken a series of quite explicit steps to improve regional engagement both in strategic terms and in encouraging a culture of collaboration--appointing a new Vice Chancellor, reorganising academic and service units, and prioritising bidding for funding streams which support regional engagement.

These steps and this process have not proceeded entirely smoothly; it has been a learning process for the institution, and has been associated with other changes more broad in their scope than simply regional innovation. The university has embedded cultural change towards commercialisation within a business plan to create a permanent surplus for the university which can be invested in the wider institutional development, but that investment programme potentially will create regional development benefits. In terms of establishing a future research agenda for exploring the detail of how universities support innovation in less successful territories, we can identify some of the barriers that universities might face in improving their own ability to contribute to territorial innovation outcomes. These barriers are summarised in Table 4 below.

We offer a number of caveats about using the innovation sophistication approach to gauge universities' regional engagement. The first is that universities are incred- ibly complex organisations, and do not necessarily have a single culture or organisation. In just one university, there were examples of behaviours at all levels of sophistication. In one case, an academic was helping a business as a means of getting some research data for a publication, while at the other extreme, the university involved its own academics as experts in the strategic negotiations around the various centres of excellence being established. The most innovative firms typi- cally have different R&D teams with their own styles of innovation, and this raises the question of whether this multiple approach within universities is likewise part of a 'one organisation, many cultures' which has its own value, or whether closer management of the process will lead to improved regional innovation activities.

The second caveat we would suggest in testing this framework is that 'universities' are not a simple type of organisation, and different institutions may give different priorities to regional engagement. While it is fair enough to assume in firms that well-managed innovation is always a benefit to a business, and more innovation is better than less innovation, that is not true with universities. There are universities which regard themselves as primarily teaching or research institutions, and which are not primarily interested in a regional role. There are also institutions that are interested in commercialisation without regard for its territorial implications, and focus on exploiting R&D through licensing deals with external partners.

A third caveat is that this research has been illustrative and conceptual, and is admittedly limited on what can definitively be said. The classification of univer-


Table 4 Possible Barriers to Move Between the Different

Sophistication Levels for Universities

BSO sophistication

The interaction between the firm and the BSO (cf. Fontes & Coombs, 2001)

The BSO only offers routine technical services in response to client needs (e.g., rendering drawings electronically).

The BSO sources new technologies and ideas in demand to requests from SMEs.

The BSO introduces and develops new ideas with a limited/selected range of clients.

The BSO disseminates its new ideas to a wider range of clients and stimulates their own innovative processes.

Key barriers to improvement

Lack of sophisticated clientele.

Management structure compartmentalises tasks.

Closely tied to programme funding.

Few incentives to be creative in the organisation (risk averse culture).

Weak demand from clients means not challenge to improve service.

Difficulty in building up internal expertise because of need to chase external funding.

Lock-in to existing projects because not designed to be opened up to a wider clientele.

[barriers to remaining at level 4]

External disruption: reorganisation creates climate of uncertainty and leads to staff loss.

BSO becomes associated with high profile failure and unable to organise sophisticated network activities.

sity approaches to regional business interaction is suggested as a framework for future exploration rather than as a definitive statement that can be applied to universities without further refinement. We have certainly not attempted to use this framework to analyse Newcastle University. We have rather looked at elements within particular projects to illustrative more general issues, in attempting to un- derstand the contribution of technology transfer to regional economic development, and ident i fy features which could inf luence univers i t ies ' regional contributions. Much further work needs to be done within universities, exploring this process of innovation in developing new commercialisation institutions before this model can be used in its own right.

Conclusion: Latency and Enactment in University/Business Interactions

This paper has examined the case of a university assisting innovative companies by developing supportive institutions collaboratively with a range of partner firms. We concentrated on SMEs because of their distinctive innovation needs. We argue improvements in universities' reach-out activities can be regarded as a meso-scale change as long as it can be demonstrated that new capacities have been created. We


have done this by arguing that other firms have drawn on the institutional solutions that emerged from universities' innovation processes to solve their innovation problems.

Treating universities as KIBS---even as a temporary analytic device--offers interesting possibilities for understanding the creation and transfer of best-practice ideas between institutions. This is potentially of great interest to policy-makers; in the UK, there is a mix of reactive and prescriptive approaches at the centre, between allowing universities to propose their own solutions, and imposing programmes to which the universities must conform. If universities' technology transfer activities are analogous to KIBS, then their innovation processes might well follow Wood's hierarchy of knowledge transfer. Best-practise would generally be derived from universities working with MNCs, but there would be a role for universities oriented to national and local firms.

A second institutional dimension to this point is the way in which universities themselves improve their 'innovation sophistication'. Although none of the improvements such as the Centres of Excellence were consciously developed and managed as innovation projects, there appears to be scope for managing the creation of novel knowledge-brokerage institutions as innovation projects. It involves the development of complementary knowledges about "applying academics knowledges to solving clients business problems" (cf. Wood, 2002).

It is important not to overemphasise the extent or significance of what emerges from universities innovation processes, not least because regional development activities remain a fairly small part of what universities do. Teaching and research are universities' core 'businesses' and the employment and spending multipliers that these generate may be much greater than the regional benef i t s o f commercialisation activities. Indeed the fact that teaching and research are the 'core business' emphasises the experimental--but also marginal--nature of activities creating reach-out services. In the literature review, we noted that university institutions which support innovation often appear as 'black boxes" which produce 'contributions' or 'outputs': in contrast, we would argue that the innovation and learning that universities undertake within the region relating to the so-called 'third mission' of regional development complements the R&D (principally research) undertaken by academics.

This reflects Wood's (2002) observation that "national and regional systems also possess technological, organisational and cultural knowledge that is vital for economic success" (p. 79). Particular universities may be able to specialise in technology transfer in particular sectoral or technological areas, rather than having research expertise in those areas that they seek to commercialise. However, there remains a need for much more empirical work to explore the interesting theoretical issues raised by exploring universities as commercial-type innovators, and considering the territorial consequences of universities' attempts to improve their own performance in developing technology transfer institutions.

Acknowledgements

This paper draws on research funded by the English Small Business Service Research and Evaluation Service, from a small project in 2002, entitled "Targeted Innovation Support for SMEs". Early versions of this paper were presented at the


11 th High Technology Small Firms Conference, in Manchester, 12-13 July and the The Business of Higher Education conference at Newcastle Business School, 2 October 2003. The final revisions to the paper were undertaken as part of the ESRC- funded project "Bringing Cambridge to Consett? University spin-offs in the pe- riphery", RES-000-22-0659 Thanks are also due to Professor David Charles, Lars Coenen, Catherine Hodgson and Fiona Whitehurst for their support, advice and participation in the follow-up interviews. Particular thanks is also due to those firms, academics and technology transfer staff who gave their time during the interviews, although any errors remain the sole responsibility of the authors.

Appendix: The Sophistication Classification for Innovation (700 words)

To classify firms innovation performance, we have developed a synthetic vari- able, 'sophistication level', which measures how firms manage the innovation process. In this approach (Charles & Benneworth 2004), we segment firms into four classes which we term 'sophistication levels':

�9 Novice: an absence of formal systems and evaluation mechanisms, with a heavy reliance on luck to get the best of situations,

�9 Inexperienced: the presence of formal systems which sit uneasily with the culture and practises of the firm,

�9 Experienced: the presence of formal systems which have been modified to a degree to reflect the needs of the firm, and

�9 Expert: the boundaries of the firm have disintegrated with respect to their innovation collaborators, but innovation always takes place in the best interests of the firm.

Sophistication level is composed of three elements, practice, performance and reflexivity. Experience has shown that firms in one sophistication level demonstrate similar characteristics for each o f the elements, except in those cases where firms are improving their sophistication level. In those cases, there may be an in- terval between firms improving reflexivity and practise to observing material improvements in performance. Some further detail on the characteristics of firms at each of the four levels are given below in Table 5.


T a b l e 5 T h e Key Features of Interviewed Firms b y S o p h i s t i c a t i o n Level

Novice

Inexperienced

Experienced

Expert

Practise

Absence of innovation management systems.

Innovation is implicit and limited to very few individuals in the firm.

Weak and poorly handled linkages with external partners and contractors.

Basic/generic quality systems, but still highly reliant on key individuals.

Some strategic new product development planning.

No managing of the drivers of R&D projects; customer-oriented firms over-reliant on firms, R&D teams too divorced from applications and marketing work.

Sensitive management and systems; functional differentiation of R&D teams.

Delegation of responsibility alongside work elements in development programmes.

Broad staff involvement in strategic planning

Good understanding of positions in corporate, supply, technological hierarchies.

Use of technology roadmaps in business planning so NPD totally focused on business goals.

NPD process totally under control, world class performance.

Corporate structures effectively allocate resources to NPD.

Source: B e n n e w o r t h & Char le s (2004)

Performance

Innovation performance is out of control, with very rapid growth leading to potential overtrading and jeopardising the basis of the company.

Cash may be generated but very little kudos or market leverage is consolidated from this.

Vulnerability to external shocks; too much volatility to really consolidate seamlessly.

Good sales not always converted into profitability because of the R&D overhead.

Firm begins to win outside recognition as a good company, and one that others can work with.

Problems in maximising the opportunities to be exploited by their technological and organisational asset base, gives steady state growth.

Hiccups (e.g., flooding, market movement) mitigated by systems and strategies (disaster recovery).

Seen as a sophisticated client for other firms' own innovation activities.

Firm is recognised leader in innovation.

Firm is seen as a good partner to work with

Other firms benefit fi'om their association with the firm.

Sustainable and profitable growth.

Reflexivity

Unawareness that the company is innovating.

Unawareness that the company looks bad in comparison with its peers.

Underestimating the effort involved in systematising the approach to innovation.

Aware of needs for systems but unaware of nuances of different approaches.

Unsophisticated consumers of novel ideas outside main area of organisational competence, especially management thinking.

Individuals managed on a personal basis to get the best out of them; awareness that management needs grass roots knowledge.

Good at understanding suppliers innovation processes and shaping them for their best advantage.

Belief that own systems arriving at best practise.

Willingness to accept decisions can be totally wrong or wrong for current context.

Adoption of continuous improvement to ensure own systems remain up to date and to prevent complacency.

Able to mentor suppliers.


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