Entrepreneurs: how investing in Grey Matter
Patenting has long been the standard way for public institutions to protect their intellectual property. This only represents a stop-gap solution as large companies with big budgets can afford to pay out the royalties demanded. However, the emerging importance of “tacit knowledge” and the trend of start-ups integrating research centres in order to tap into this less tangible type of expertise offers a more affordable option for entrepreneurs.
Entrepreneurs are, by definition, businesspeople with a high level of curiosity and a desire to innovate. However, in order to convert this drive to innovate into concrete business, they will often need to access pre-existing knowledge by one means or another. Patents represent the ultimate barrier to knowledge in two ways. The cost often represents a financial no-no for smaller organisations, such that they are priced out of the market by bigger businesses with larger budgets. Worse still, even being able to pay royalties offers no absolute guarantee of gaining full access to the knowledge required to be able to innovate. It is for this reason that the phenomenon of knowledge piracy has come about, where businesses and entrepreneurs will try to circumnavigate intellectual property rights in order to keep costs down while obtaining what they need in order to do innovative business. However, understanding the types of knowledge available may just help entrepreneurs in particular identify the right legitimate way of obtaining them.
Explicit versus tacit knowledge
Research into knowledge types breaks identifies two main forms – explicit and tacit. The former corresponds to formalised and documented findings, for example in the form of patents, copyrights, trademarks, books, the internet, databases, or case studies, to name a few. The latter refers to the more intangible, unwritten or unexpressed manifestations of knowledge, such as communities of practice, skills, interactions between employees, experience, or know-how. Whilst the former can be more easily accessed (admittedly at a cost, in the case of trademark-protected or patented material), the latter requires an altogether different approach.
Absorbing from within
In response to the increasing search for explicit and tacit knowledge by entrepreneurs, public institutions regularly create structures known as “spin-offs” that enable both types of knowledge to be accessed from within. This win-win situation generates revenues for institutions such as research centres who, for a fee, allow entrepreneurs to integrate their structure in order to tap into the various types of knowledge available on-site and in-house. In return, entrepreneurs enjoy privileged access to information that would otherwise be much more costly in time and money to unearth from outside, if possible at all in the case of tacit knowledge. However, studies into this new form of collaboration have, until recently, been purely quantitative and mainly focussed upon explicit knowledge.
Understanding the incubator
Recent in-depth qualitative analysis of the “incubator” approach whereby spin-offs integrate public institutions in order to access both explicit and tacit knowledge has been conducted via three case studies of the CEA-LETI research centre and three spin-offs: Tronics, Beamind and STMicroelectronics.
Of the main findings to emerge from the three varyingly successful cases, maintaining a balance of tacit and explicit knowledge had an especially positive impact on the relative success of each partnership. In all instances, the incubator or “spin-off” set-up enabled knowledge to be transferred at a competitive price, representing a relative saving for the purchasing entrepreneurs and a source of commercial revenue for the selling institution.
Beyond the financial interests of the model examined, it also offers another key merit – the potential eradication of knowledge piracy. It is clear that making knowledge entirely public and accessible would not be in the long-term interest of R&D. However, by keeping innovation private up to a certain point but then enabling the fruits of researchers’ labours to be accessed via a balanced partnership with entrepreneurs and not exclusively with the large firms that can stump up the large sums required to pay out royalties, a new way of “legally pirating” knowledge in a mutually beneficial way is now a reality.
This article draws inspiration from Smart-stolen tacit knowledge: institutional arrangements for invited piracy, written by Laurent Scaringella published in Int. J. Entrepreneurship and Small Business, Vol. 22, No. 4 (2014).
Laurent Scaringella is an Assistant Professor of Strategy and Innovation at Rennes School of Business, France. His research interests include the management of innovation, knowledge management, entrepreneurship, geographical economics, and organisational design.