Understanding commercialisation in small innovative firms

Throughout the world’s economies, small to medium enterprises (SMEs) comprise around 99% of all businesses, employ most of the workforce, and generate more than half the industry value added. 

They comprise an important source of innovation and form a key part of any national innovation system (NIS). However, despite their importance within the NIS, the process of commercialisation in innovative small firms (ISFs) not well-understood and has been under researched. 

A new book, Commercialisation, and Innovation in Strategy in Small Firms: Learning to Manage Uncertainty, published in 2022 by Springer-Nature, addresses this issue.

It draws upon research undertaken by myself and my colleagues in Australia, New Zealand and France over the past twenty years.

The book provides valuable lessons from a range of case studies and data from ISFs around the world. Among our findings is the lack of clear definition of what commercialisation and ISFs are.

Commercialisation can be defined as a process that integrates knowledge, technology, and associated activities to generate new products, bring them successfully into markets, and transfer both technology and knowledge into and out of the firm engaged in the process. 

Four categories of innovative small firms

To address the lack of clear definition ISFs can be categorised into four types: 

1. Investors

The first are the Inventors, which have an extremely elevated level of innovativeness, built on an analytic knowledge-base that use formal scientific research and development (R&D)_ processes, usually generating small or batch production inventions that comprise pure-play high-tech prototypes. Such firms are commonly within fields such as biotechnology and generate more radical innovations. However, they are a usually not the most successful at commercialisation.

2. Integrators

The second type are the Integrators, which have elevated levels of innovativeness, but build on a foundation of a synthetic knowledge-base that integrates existing technologies to address problems, usually via large-scale production of new products able to integrate into existing markets and processes. These firms, while not generating break-through innovations, are more likely to succeed in commercialisation and the process of scaling-up. 

3. Niche Specialists

The third type are the Niche Specialists, which display medium levels of innovativeness, drawing on a synthetic knowledge-base, to create or co-create small or large-scale production of products and services within specialised markets. 

4. Dominated

The fourth type are the Dominated, which have low levels of innovativeness, building on a synthetic knowledge-base, to create or co-design, product or process innovations that can integrate into complex production systems of larger firms. 

Each type of ISF can achieve success in commercialisation. Furthermore, our research found that firms can pivot between these four types and do so as part of their commercialisation process. 

Five major Factors influencing the behaviour of ISFs

Understanding the behaviour of these ISFs requires consideration of at least five major factors. 

1. The task environment

The first of these is the task environment (e.g., industry, market, local or international) in which they are operating. Key issues here are the level of competition, and the uncertainty and complexity within the industry or market. Factors such as government support, taxation, cost of doing business, availability of skilled employees, and access to capital, R&D support, plus related and supporting industries play a critical role.

2. Nature and type of innovation 

The second is the nature and type of innovation they are commercialising. Complex, radical, and disruptive innovations can prove challenging to commercialise. Most (e.g., biotechnology, advanced engineering) require significant initial investment in R&D before they can progress towards full-scale commercialisation. Their need to fit into existing systems, or to stand alone, are also principal factors that need to be considered. 

3. Organisational configuration

The third is the organisational configuration of the firm. Whatever the nature of the innovation, the success of its commercialisation will depend on how well the firm that is responsible for this project is configured to progress with this task. Commercialisation is a lengthy and expensive process that requires the firm to possess the systems, facilities, expertise, managerial competence, and financial resources to move forward.

4. Managerial characteristics

The fourth is the managerial characteristics of the firm. In addition to the resources and configuration of the firm as an organisation, a critical factor is the characteristics of its senior management and leadership team. ISFs need a balance between managerial competence (e.g., skills in operations, marketing, financial control), and entrepreneurial cognition (e.g., skills in managing within uncertain environments, screening opportunities, forging strategic alliances, leading change, and innovation). 

5. Past track record

The fifth is the past track record of the firm and its management team. Successful commercialisation requires a combination of a leadership team and organisational workforce and systems, which has the knowledge and experience to navigate the challenges of moving from R&D to new product development (NPD), then into go-to-market commercialisation, and scale-up.

Navigating the commercialisation pathway – 5 key questions

Our research suggests that the ability of ISFs to navigate the commercialisation pathway requires consideration of at least five important questions. 

1. How to measure success in commercialisation?

The first question that should be addressed is how to measure success in commercialisation? Success is typically measured by annual growth in sales, but this may not be the most appropriate metric. You should determine what success looks like for your specific purpose and focus on this. Success might be increased sales and scaling-up, formation of partnership and joint ventures, licencing rights to others to use innovative technologies, or trade sale of the firm.

2. What business planning should be used?

The second question is what business planning should be used? While formal planning is essential, the highly dynamic and uncertain nature of commercialisation requires that planning be flexible and adaptive, with expertise, judgment and alertness to customer and market feedback guiding decisions.

3. What competitive market positions should be used?

The third question is what competitive market positions should be used? This relates to whether the firm builds its competitive advantage around product and process technology and/or market entry and positioning. Either strategy can be successful, but the key ingredient is whether this positioning is supported by isolating mechanisms (e.g., legal, commercial, technological) that can help sustain competitive leadership.

4. What impact does the firm’s relationship with leading customers have on success?

The fourth question is what impact? does the firm’s relationship with leading customers have on success? Our research suggests that success will be enhanced if the firm can engage with leading customers as early as possible, co-create value with them, and continue to leverage these relationships to support future commercialisation activity.

5. Do ISFs follow common growth paths?

The fifth question is do ISFs follow common growth paths? Here the answer is that growth can take a range of paths from continuous organic growth, mergers, scaling-up for local domestic markets, or for global growth. This depends on the vision the firm has in relation to its  definition of success.

Navigating the commercialisation pathway – 4 key attributes 

Our research also suggests that successful commercialisation by ISFs is contingent on whether the firm possesses and can apply at least four attributes:

1. The first of these is its ability to screen and assess the commercial value of innovations in the initial stages of their commercialisation. This involves examining the nature of the innovation against the task environment and its own organisational configuration, managerial characteristics, and past track record to ascertain what potential value it might be able to secure. This should be done as early as possible, both prior to and post initial market insertion and used to guide future action.

2. The second attribute is the firm’s ability to learn from its interaction with the market and other forces within the task environment. This process is known as absorptive capacity and involves the ability to rapidly acquire, assimilate, transform, and exploit knowledge. Simultaneously, the firm must also be able to use its dynamic capabilities to rapidly sense opportunities, co-create value with customers and other key stakeholders, seize and transform these opportunities for commercial success.

3. The third attribute is the firm’s ability to effectively use new product development (NPD) techniques and business model design principles to undertake the necessary strategic planning and product-technology market development activities required for commercialisation.

4. Finally, the fourth, and the most important, attribute is the firm’s possession of a capabilities architecture that comprises the ability to make best use of knowledge and learning, and to have within the team a balance of managerial competence for implementation, and entrepreneurial orientation and cognition for opportunity identification, innovation generation and the navigation of uncertainty. This entrepreneurial ability is also important to the development of open innovation that forges strategic partnerships with valuable network alliance partners and maintains social capital that is an essential element throughout the commercialisation and growth process. 

Summing up our findings

Our research into the commercialisation behaviour of ISFs confirmed many pre-existing assumptions, but also unearthed several surprises. What the study confirmed was the informal and idiosyncratic behaviour of these firms, and attention given to Inventor ISFs within the academic research literature compared to the other three types. However, we were surprised at the lack of a systematic definition of commercialisation within the research literature. Among the key lessons from the study are:

1. Commercialisation is a process that can be approached in a structured, strategic way by ISFs even if they are small and resourced constrained. This helps the project team within the firm think and act in a more cost-effective way when making decisions.

2. Commercialisation should be approached with both a strategic and operational mindset, and all opportunities for innovation should be approached as discrete projects and not automatically incorporated into the overall business strategy, even if the firm has only one project.

3. Commercialisation requires ever increasing resources (e.g., money, people, capabilities), and these should be considered at each stage of the process. Decisions about the final pathway for commercialisation are likely to be contingent on resource availability. 

4. Commercialisation takes time and patience, with the journey lasting more than a decade, and requiring both a strategic and operational capability. There are few short cuts, no magic bullets or sauce that can be applied to guarantee success, and many versions of what “success” looks like.  

However, as we state in the book's final chapter, “… the national and global economies require more commercialisation activity from ISFs, their success, whatever form it takes, will enhance the economic and social well-being of the world.”