Review of 20 Business Incubation Models – Nowak and Grantham Virtual Incubation Model 2000 (Part 5 of 20)

Today I’m going to provide you with interesting piece of information. The model is a first virtual model of Business Incubation Models series. Mr. Nowak and Mr. Grantham virtual model of business incubation explains structure of potential virtual incubator. Based on the findings of the software industry case study and authors’ observations they presented key premises of the model and then constructed a model itself. Interesting point about the model is a concept of “virtual value chain” or ‘‘network of innovation’, which brings together centers of technical and business or management excellence.

2000, Nowak and Grantham, white-box, structure, operations

Mr. Nowak and Mr. Grantham published the article “The virtual incubator: managing human capital in the software
industry” They argued that in a knowledge-based economy, the creation of wealth becomes “synonymous with creating products and services with large software content.” Taking into the account globalization of the IT industry, “the need for startups and small companies to form strategic partnerships will become increasingly critical to their ability to create wealth.” As far as the authors considered software industry they proposed a new model for public-private partnership that could assist startups in their endeavours. Authors concluded that ‘‘a virtual incubator’’ model could be one of the possible ways to facilitate startup success and business network formation, shifting the focus to the ‘‘virtual value chain’’ and to connecting startups with business expertise and strategic partners in the marketplace. The authors provide a theoretical basis for the model and its implementation, important to potential investors in virtual incubators.

Nowak and Grantham Virtual Incubation Model (2000)

Nowak and Grantham Virtual Incubation Model (2000)

Nowak and Grantham (2000)[1] have established their model on the following premise:  “Traditional business development entrepreneurs face a common challenge: the absence of capital, human resources, and management capabilities.” So, the new model needs to provide the small business community with a structure and mechanism to easily access:

  • information on ‘‘best practices’’ for business development
  • industry and management experience
  • resources for international marketing, sales and distribution

They proposed the creation of a virtual incubation model, based on networked innovation, which brings together, if only in a virtual sense, centers of technical and business or management excellence. Nowak and Grantham consider that the combination of information technologies and experts would assist in establishing strategic alliances between managers, strategists and specialized engineers, thus, achieving better business opportunities and synergies. The components of this virtual model are shown in the figure above.

Nowak and Grantham’s (2000) model is a combination of successful elements of traditional incubation and new elements with a focus on virtual channels and strategic alliances. Authors also stress on profitability of a business incubator. This could be explained that the model was proposed in the time of dot-com-mania and there was a pronounced shift towards profit models. Just to remind you, today 95% of business incubators are non-profit organizations. Nevertheless, main point of the model is providing theoretical evidence that new technologies will strengthen the proliferation of this new kind of incubation. However, their model doesn’t explain the whole cycle of virtual business incubation and seems to be in a very embryonic state.
Authors mainly discussed advantages and potential positive outcome of the proposed virtual model, forgetting to address drawbacks of virtual reality such as:

  • lack of trust and credibility
  • long time to build productive collaboration via virtual channel
  • the cultural differences
  • not all startups can start virtually
  • social Isolation

To support the list I would like to put only one argument by Hackett and Dilts. They believe that the absence of interaction between incubatees might result in the absence of desired effects present the traditional incubation environment.

Summary of the model

 Summary of the model is presented below:

Source (Author, Year): Nowak & Grantham, 2000
Purpose of a model: Proposed to create a virtual incubation model.
Type of a model: Structure model
Abstraction technique: White-box
Theoretical background: Wellman, B. Ed. 1999. Networks in the Global Village; Rayport, Sviokla, 1995, Virtual Value Chains; Shapiro, 1998, Network Economy
Resources: Human resources + capital resources = integration, IT systems and services, internet based distributed resources
Processes and practices: Internet-based, strategic alliances, formalized management control systems
Efficiency and effectiveness: No information provided
Linkages “Entrepreneur – Business Incubator – Innovation Ecosystem”: Strategic alliances incubator-business network, entrepreneur-business network
Key contribution: Proposed the creation of virtual business incubation model, based on networked innovation.Focus on strategic alliance formation helps to underpin all key success ingredients as early as possible.

Lessons learned:

  • a virtual incubator model to facilitate small company and startup success was proposed, which directed towards distributed human resources and a business landscape dominated by strategic partnerships.
  • the development of sustainable competitive advantage for a new firm and its strategic partners would be its operational focus, with ‘‘best practices’’ and excel-lence the underlying theme and wealth creation as the ultimate common goal.
  • by supporting a virtual ‘‘network of innovation’’ to connect centers of technical and business excellence, universities, the public and private sector could play a critical role in addressing the knowledge gap which will increasingly limit growth in a knowledge-based economy.

Good luck and see you soon!


[1] Nowak, M. J. & Grantham, C. E. (2000). Virtual Incubator: Managing Human Capital in the Software Industry. Research Policy, Vol.29, No. 2, pp. 125-134

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