Value creation and digital disruption

Dr Lorraine WarrenEntrepreneurship Research Network

Islamabad, 2014

About me…• Interested in all forms of entrepreneurship and innovation (usually qualitative

approaches, drawing on critical realism, constructionist methodologies)• Particularly science & technology (creativity, concept development,

incubation, new paradigms in regard to low-cost, high impact methods)• Currently, Director of Research Centre for Strategic Innovation at University

of Southampton, Management School, www.soton.ac.uk/csi • From July 2014, Professor of Entrepreneurship & Innovation at Massey

University in New Zealand• Longstanding interests in KPK through British Council INSPIRE project

www.soton.ac.uk/inspire, www.blog.soton.ac.uk/inspire • One PhD completion (Muhammad Nouman, IMSciences) and two underway

(Adnan Javed, Javed Iqbal), plus curriculum development• More about me on www.doclorraine.com, https://

www.southampton.ac.uk/management/about/staff/lw4.page

Crossnan and Apaydin, 2010, Journal of Management Studies

• Innovation is widely regarded as a critical source of competitive advantage in an increasingly changing environment (Dess and Picken, 2000; Tushman and O’Reilly, 1996).

• According to management scholars, innovation capability is the most important determinant of firm performance (Mone et al., 1998).

• An unrestricted search of academic publications using the keyword innovation produces tens of thousands of articles, yet reviews and meta-analyses are rare and narrowly focused, either around the level of analysis (individual, group, firm, industry, consumer group, region, and nation) or the type of innovation (product, process, and business model).

Emerging technologies: value creation?

Relevant to Innovation and Entrepreneurship:

• Technology transfer/ Commercialisation• New product development• New business model development• Incubation• Open innovation/lead user/ crowdfunding• Plethora of reports: Gov, EU, NESTA -> how do we do this

better? (Sainsbury, 2005; Hauser, 2010; Dyson, 2010; Wilson, 2012)

• International perspectives: MIT/Silicon Valley; Fraunhofer; ITRI

• What do we mean by value?

Crossing the valley…*

• Rarely straightforward: Markham et al, 2010; Barr et al, 2009; Boocock & Warren, 2009

• and highly context dependent (Casper, 2007)• Spin out rates remain low, and many patents are not

developed further• high uncertainty within those so-important innovation

networks which contain multiple factors and stakeholders, including social, political, technological, legislative and cultural transitions as well as material and financial resource limitations

* there isn’t a valley? It’s a metaphor

Approaches….

• Stage gate (Cooper)• Role theory (Markham et al, 2010)• voice of the customer (Griffin and Hauser,

1993)• lead user techniques (von Hippel,1986)• open innovation (Chesbrough, 2003)• technology roadmapping (Phaal et al 2004)

Theories….(not forgetting actor-network, structure-agency, complexity, entrepreneurship)

Digital disruption?• Widespread access to broadband technologies• Smartphones and tablets • Social media• Increasing availability of government datasets to the public (open data)• Awareness of potential of ‘big data’• Falling prices for some technology areas digitisation has lowered entry

barriers to new forms of technological innovation• traditional incubation pathways have been supplemented by free-form

crowd-driven patterns of activity (unconference, barcamp, hackathon)• Many applications – education, health, transport, energy (many forms of

value)• Not all ‘high tech’ -> simple process innovations/applications, home-based

Crowd Funding is an internet-inspired, and usually internet-based means of raising money from the mass market, for a project or business.

It is a relatively recent concept that originally had its origins in community and arts-based ventures, which members of the public were inclined to support for mainly benevolent reasons.

Initially, businesses/ new ventures/ individuals approached the public at large for cash/ loans/ donations/ investment into their film/ music/ arts projects and in return the individuals would typically receive a gift such as tickets to a film premier/ opening night or a mention in the credits etc.

Crowd Funding was initially seen by many as a concept unsuitable for use in the business world.

More recently, drawing on the popularity of crowdsourcing and social media, it has become a bigger phenomenon (von Hippel).

Despite this scepticism, the tightening of banks’ lending criteria and unavailability of commercial finance has meant that Crowd Funding is gaining attraction on both sides of the Atlantic.

An example: Crowd Funding

1997: British rock group Marillion’s USA tour was underwritten by donations from fans. $60,000 raised.

2009: “The Age of Stupid” was the first full length feature film to be financed entirely by Crowd Funding. £1.5 m raised.2009: Nine Inch Nails https://www.kickstarter.com/blog/josh-freeses-crazy-crowdfunding-adventure

Crow Funding : Arts examples

• Flying Car

Technology example:

Debt: Investors are repaid for their investment over a period of time at a specified rate of interest.

Equity: Investors receive a stake/ shares in the company.

Donations: Contributions go towards a benevolent cause with the ‘investor’ receiving nothing in return.

Rewards: Investors receive a tangible item or service in return for their funds. (Invest in film, and get tickets to the premier.)

Models for crowdfunding

USA: c. $900 million (2012)The World: c. $2 billion (2012)

Forecast: $6.8 billion forecast for 2013 CFP= Crowd

Funding Platform

(Difficult to validate)

Crowd Funding : The size of the market

© Lupton Fawcett Lee & Priestley 2013

Increase in market sizeEquity based Crowd Funding has seen the greatest compoundaggregate growth rate (CAGR)since 2007, however Rewards Based Crowd Funding still holds the lion’s share of the Crowd Funding market.

Crowd Funding : Increase in market size

© Lupton Fawcett Lee & Priestley 2013

• Regulation is looming• https://theconversation.com/crunch-time-for-

crowdfunders-as-regulation-looms-19630

BUT….

• In the USA, will be regulated by the Securities Exchange Commission

• In the UK, the Financial Services and Markets Act and the Financial Services Authority were both designed prior to the Crowd Funding concept.

• Current UK legislation is not fit for purpose and Crowd Funding businesses face a number of obstacles.

• Typically in the UK, lending is governed by the Consumer Credit Act and/ or the issue of a banking licence.

• The raising of share/ equity capital requires the issue of a prospectus or an investment memorandum. The targeting by private limited companies of potential investors is generally limited to high net worth individuals/ sophisticated investors.

• FSA approval can take 6 to 18 months.• Currently under consultation by the Financial Conduct Authority

Crowd Funding : recent legislative developments

FSA “Websites which allow businesses to raise finance from consumers should not be promoted to amateur investors.”

FSA “Crowd Funding website(s) … should be targeted at sophisticated investors who know how to value a start up business.”

BIS “The government is working with industry to support a range of new ways of lending and other innovative financial models.”

Thoughts, quotes

Another example:

• MOOCs

• Many possibilities here for European perspective studies (new phenomena, new perspectives)

• Significance of Pakistani context• Example from yesterday• Personal note

• am open to collaboration on research, teaching, outreach, knowledge transfer

• New position from July 1 (Chair in entrepreneurship and Innovation at Massey University)

• Going home tomorrow morning (domestic commitment)• lw4@soton.ac.uk

For discussion