Corporate Incubation as a Tool to Foster Business ...

This paper was presented at The XXVI ISPIM Conference – Shaping the Frontiers of Innovation Management, Budapest, Hungary on 14-17 June 2015. The publication is available to ISPIM members at www.ispim.org.

Corporate Incubation as a Tool to Foster Business Model Innovation Mirjam Roessler* HHL Leipzig Graduate School of Management, Jahnallee 59, 04109 Leipzig, Germany. E-mail: [email protected]

Vivek K. Velamuri HHL Leipzig Graduate School of Management, Jahnallee 59, 04109 Leipzig, Germany. E-mail: [email protected] * Corresponding author Abstract: The rising competition in today’s market environment progressively forces incumbents to reconsider their innovation strategies. Given the barriers to business model innovation established corporations face, they increasingly demand for outside-in innovation through integrated networks. This paper uncovers the potential of corporate incubation as an emerging tool to elicit business model innovation by engaging with the more agile and innovative startup environment. By employing an explorative qualitative study, the paper enhances the understanding of the phenomenon and identifies distinct circumstances under which corporate incubation can be considered a tool to elicit business model innovation within incumbents. More precisely, the effective management of the cognitive barrier between incumbents and startups is emphasized to directly affect the outcome of corporate incubation. Accordingly, the paper provides a set of hypotheses and sets out a future research agenda. Keywords: Business model; Business model innovation; Barriers to business model innovation; Business incubation; Corporate incubation; Cognitive barrier; Incumbents; Startups; Multiple case study

1 Introduction The greater frequency of disruption shortens business model lifecycles and progressively forces companies to find new ways to preserve their competitiveness (Ghoshal et al., 1999; Tidd and Bessant, 2009). Although established organizations devote significant effort to innovate their products or processes, such alterations are often time-consuming and expensive, requiring considerable investments (Amit and Zott, 2010). Given this, business model innovation constitutes an eminent means to fundamentally innovate organizations’ existing markets and to break out of intense competition (Eppler et al., 2011; Markides, 1997; Hamel, 1998).

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Nevertheless, large corporations face difficulties in eliciting breakthrough business model innovation. Although they possess of adequate resources and in-depth market understanding (Koen et al., 2011), venturing into new market spaces constitutes a challenge. Their dominant logic translating into organizational inertia, inflexible as well as rigid business processes discourages incumbents to nurture entrepreneurial spirit within their organizations (Koen et al., 2010). Given this and the fact that innovation has become a matter of survival within today’s market environment, established firms increasingly demand for outside-in innovation through integrated networks (Becker and Gassmann, 2006). In contrast, startups are considered as being at the other end of the continuum of innovation activity since they regularly introduce new products and services that disrupt the competitive positions of incumbent firms. Although evidence is far from comprehensive, it is assumed that startups are more innovative than established firms (Criscuolo et al., 2012). However, startups carry the burden of a deficient resource base which ultimately causes them to fail at higher rates than do incumbents (Freeman and Engel, 2007). Thus, developing synergies with incumbents and transferring resources is a key success factor for new startups to prosper. Given the deficiencies of both incumbents and startups respectively, corporate incubators emerged as a prominent organizational form of bringing novel ideas into established corporations (Becker and Gassmann, 2006). Abstractly, corporate incubators are professional entities that leverage diverse firm resources and provide supporting services to startups in order to facilitate their business development and to attract new ideas to the parent company (Hansen et al., 2000a). Legally structured as a subsidiary of the parent organization, corporate incubators draw on the whole incumbent’s tangible and intangible resources such as capital, expertise, networks as well as administrative support and thus, facilitate the early-stage development of startups (Gassmann and Becker, 2006; Hackett and Dilts, 2004). In exchange of equity stakes (Hansen et al., 2000b) incubators generally provide a “strategic, value-adding intervention system […] of monitoring and business assistance” (Hackett and Dilts, 2004:57). Although a considerable amount of effort has been exerted exploring the phenomenon of incubation, extant literature predominantly focuses on independent incubators and their networks (e.g. Bøllingtoft and Ulhøi, 2005; Bruneel et al., 2012; Grimaldi and Grandi, 2005; Hackett and Dilts, 2004; Hansen et al., 2000b). Indeed, some research already investigated the phenomenon of corporate incubation by highlighting its importance in leveraging knowledge and networks (Becker and Gassmann, 2006) as well as physical resources (Gassmann and Becker, 2006), but its investigation is far from comprehensive. Extant research mainly discusses corporate incubation as a new form of reconsidering incumbent firms’ innovation strategies and practices but fails to directly investigate its potential as a tool to elicit business model innovation (e.g. Becker and Gassmann, 2006; Criscuolo et al., 2012; Gassmann and Becker, 2006; Govindarajan and Trimble, 2005; Hackett and Dilts, 2004; Hansen et al., 2000b; Koen et al., 2010; Weiblen and Chesbrough, 2015). Although the interest in corporate incubation recently surged, both in academia and in practice, the phenomenon is not yet well understood. Therefore, the paper intends to emphasize the factors driving incumbents’ engagement in corporate incubation. Accordingly, it strives to identify the barriers to business model innovation in the context of corporate incubation and the circumstances under which corporate incubation can be

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considered a tool to elicit business model innovation. Thus, this research is performed with the overarching research question in mind: How can corporate incubation be considered a tool to foster business model innovation within incumbent firms? This research question is further split into three sub-questions: RQ 1: Why do incumbents engage in corporate incubation? RQ 2: What are barriers to business model innovation in the context of corporate incubation? RQ 3: Under which circumstances can corporate incubation be considered a tool to elicit business model innovation? Referring to the notion of Weiblen and Chesbrough (2015), who consider corporate incubation an inside-out approach to innovation (i.e. corporate ideas are transferred to the corporate incubator and either spun off or reintegrated as a separate division), this paper argues vice versa. As the cross-case analysis revealed, it is the main impetus of established corporations to engage in corporate incubation to overcome the challenges of business model innovation by attracting innovative ideas from outside their organizations. Consequently, corporate incubation is considered an outside-in approach to innovation and within the process of research, an eminent tool to foster business model innovation within incumbents. In this section, the paper has noted the relevance of corporate incubation as a new research phenomenon. The remainder of the paper is organized as follows. First, the paper recapitulates the concept of business model innovation and equally illustrates the barriers incumbents face when striving for business model innovation. Second, it describes the research methodology employed. Third, the phenomenon under study is comprehensively described and the findings are presented in accordance to the prevalent research questions. Finally, the paper concludes by critically reflecting the potential of corporate incubation in eliciting business model innovation.

2 Theoretical Underpinning Business models capture the value of innovation and are considered an eminent means to commercialise new ideas (Chesbrough, 2010; Chesbrough and Rosenbloom, 2002; Schneider and Spieth, 2013; Teece, 2010). However, in response to the increasingly competitive market environment, business models become recurrently obsolete and thus, rose to the subject of innovation. Given its acknowledgement as an enabler for innovation, business models have been a prominent unit of analysis within the last two decades. Although the potential of business model innovation as an additional source of value creation has been widely approved, both by academia and practice, no precise definition is prevalent and the concept is not yet ultimately understood (Zott et al., 2011). At a more abstract level, the underlying paper adheres to the normative understanding of a business model, consisting of the following interlocking elements: (i) value proposition, (ii) profit formula, and (iii) key processes and resources (Johnson, 2010). In its entirety, these elements describe the “rationale of how an organization creates, delivers, and captures value” (Osterwalder and Pigneur, 2010:14). In this respect, this paper defines business model innovation as a novel combination of value proposition, profit formula, as well as key processes and resources (Velamuri et al., 2013).

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Given today’s environmental dynamics, corporations need to progressively rely on business model innovation as a means to foster their competitiveness (Chesbrough, 2007; Lindgardt et al., 2009). However, they face eminent difficulties in innovating their extant activity system. Building on the major contributions in this respect (Amit and Zott, 2001; Chesbrough, 2010; Chesbrough and Rosenbloom, 2002; Christensen, 1997; Christensen and Raynor, 2003; Koen et al., 2010, 2011) firms, and specifically established corporations, experience distinctive barriers to business model experimentation and thus, business model innovation. As indicated by Amit and Zott (2001) novelty, lock-in complementarities, and efficiency are key aspects of business model innovation. However, these may potentially conflict with the extant and more traditionally designed firm assets and hence, impede business model innovation. Initiating the concept of disruptive innovation, Christensen (1997) identifies similar barriers. Especially, the study emphasized the conflict between the business model already established and the business model to be exploited. Moreover, Chesbrough and Rosenbloom (2002) identify another cognitive barrier to business model innovation which builds upon the notion of the dominant logic of a firm. They argue that corporations are misleadingly influenced by the success of their established business models. More in detail, proven business models will non-arbitrarily influence “the information that subsequently gets routed into or filtered out of corporate decision processes” (Chesbrough, 2010:358). In other words, firms will automatically seek information that is compatible with their extant logic which in turn restrains new ideas to infiltrate into the organization. In accordance to the challenges to business model experimentation and respectively business model innovation, some studies already indicated how to overcome these barriers by exploiting distinctive tools and methods (Aspara et al., 2012; Chesbrough, 2010; Doz and Konsonen, 2010; Eppler et al., 2011; Malhotra, 2000; McGrath and Macmillan, 1995; Thomke, 2002). In its entirety, these studies call for experimentation as well as effectuation. Although these tools might be helpful in respect of explicating business models, they will not automatically elicit business model innovation (Chesbrough, 2010). With regard to the pertinent research examining tools and methods to overcome the barriers of business model innovation, it is conspicuous that the plurality of studies focuses on tools that are exploited within the organization. Hitherto, no research explicitly discussed tools to business model innovation in the sense of opening entire ecosystems. As a consequence, the underlying study attempts to conceive corporate incubation a tool to elicit business model innovation by opening the ecosystem of established corporations as well as startups.

3 Research methods Based on a qualitative analysis of a cross-case industry sample of German corporate incubators, the potential of corporate incubation as a means to foster business model innovation was explored in greater detail. The research was started by assuming the phenomenon of corporate incubation an important means to foster business model innovation for incumbents. However, the study restrained from formulating precise hypotheses prior to the interviews. Since the business incubation literature still lacks a theoretical foundation (e.g. Mc Adam et al., 2006), formulating hypotheses seemed premature. Thus, an explorative qualitative research approach was applied. As corporate incubation is a relatively young phenomenon,

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qualitative data provides a better understanding of the underlying research subject by taking into account context-specific factors as well as causal interrelations (Eisenhardt, 1989; Miles and Huberman, 1994). In order to both allow for a rich understanding of an incompletely documented phenomenon and to enhance theoretical explanation a multiple case study was conducted (Eisenhardt, 1989; Yin, 2009). With the objective of a high level of methodological fit, in-depth, qualitative data was collected (Edmondson and McManus, 2007). Accordingly, the data was analysed in a comparative as well as iterative manner so as to strengthen resulting interferences (Yin, 2009).

Sample selection and data collection For sample selection, corporate incubators adhering to the following criteria were taken into consideration: (i) legally structured subsidiary of the parent corporation, (ii) incubation program of minimum 3 months, and (iii) provision of physical and intangible resources. Since the researchers assumed varying rationales driving incumbents’ engagement in corporate incubation cases were selected purposively (Pratt, 2009). As an initial attempt, the study supposed that established corporations that effectively consider corporate incubation a tool to elicit business model innovation aim to reintegrate the startup into the parent organization and thus, incubate a smaller number of startups at a time. This rationale is based on the assumption that a successful reintegration of startups requires a more intense cooperation between the established corporation and the startup. Hence, the study followed the selection criterion of intensity (Patton, 2002), selecting cases deviating in its quantity of incubated startups. Moreover, to increase the scope of findings and to allow for clear pattern recognition (Eisenhardt, 1989) cases from several industries such as banking, media, pharmaceutics, retailing as well as telecommunication, were included1. More precisely, all corporate incubators under study originated from a diverse industry and incubated a diverse quantity of startups, thus making them ideal cases for research (see Table 1). Moreover, the study exclusively focused on the German market so as to minimize sample variation due to environmental factors (Eisenhardt, 1989). Table 1 Overview of sample Corporate incubator

Industry

Incubator age

Quantity of portfolio companies

B-Incubator

Banking

2 years

50

P-Incubator

Pharmaceutics

1 years

>5

R-Incubator

Retail

3 years

>10

T-Incubator

Telecommunication

3 years

~40

Source: Own illustration.

In the five incubators under study, data was primarily gathered through open-ended and semi-structured interviews. This approach aimed to avoid biased replies and allowed to pursue a consistent line of inquiry, while at the same time ensuring flexibility in 1

All corporate incubators have been anonymized.

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capturing promising facets burgeoning in the course of conversation. Aspects covered included the underlying motivation of established companies as well as startups to engage in corporate incubation, the selection process, the added value of joining a corporate incubator, the tensions arising within the incubation process as well as critical success factors of corporate incubation in respect of its potential to elicit business model innovation. A total of 15 interviews were conducted over a period of five months, including interviews with incubator managers as well as representatives of incubated startups at a ratio of 2:1. Although the study examined the phenomenon of corporate incubation from an incumbent’s perspective, the inclusion of startups aimed to enhance the validity of the respective findings. All conversations were held in German or English via the telephone and lasted 60 minutes on average. So as to reduce bias from recall and rationalization, the researchers additionally collected data from other secondary sources such as publicly available company data, web presence as well as business press.

Data analysis All interviews were recorded, transcribed as well as transferred into a protocol for each case under study (Yin, 2009), constituting the basis for subsequent analysis. Data analysis followed widely recognized standards for qualitative research (Eisenhardt, 1989; Miles and Huberman, 1994) and proceeded in three steps. First, data analysis was started by analysing each case separately, including interviews, observations as well as secondary sources. Second, a cross-case analysis was conducted, comparing first-order findings related to the research questions across the entirety of cases (Yin, 2009). This step aimed at identifying similarities and differences as well as recognizing overarching patterns across industries (Eisenhardt, 1989; Miles and Huberman, 1994). Third, to go beyond initial impressions, the data were continuously reanalysed. Employing an investigator triangulation process, data were analysed by two researchers independently (Yin, 2009). By reaching confirmation across the researchers, the credibility of the findings was enhanced.

4 Findings According to the prevalent research questions, the study presents its findings in three parts. First, the underlying rationale of incumbents to engage in corporate incubation is pointed out. Second, an eminent barrier to business model innovation in the context of corporate incubation is revealed and third, circumstances determining corporate incubation a tool to elicit business model innovation are stated. In line with this, the core aspects of the underlying analysis are summarized and linked together in Figure 1. Prior to illustrating the findings, the phenomenon of corporate incubation is briefly characterized. Corporate incubators recently emerged as a new prominent phenomenon within the ecosystem of established corporations. Initially thought to seize on new business ideas while providing essential resources to new and resource deficient ventures, corporate incubators inverted the organizational form of R&D management. Abstractly, corporate incubators constitute corporate business units that exclusively focus on new venture

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creation, thereby drawing on the unexploited resource base of the corporation. Acting as a mediator between the startup and the parent holding firm, the incubator management governs the resource as well as knowledge flow between both parties. Specifically, in exchange of equity stakes (5-15%) corporate incubators provide their startups with financial, physical as well as intangible resources in the form of capital investment, office space, IT infrastructure, administrative support as well as mentoring and access to business networks. Depending on the design of the corporate incubator, startups receive support for a predetermined timeframe, ranging from 3-12 months. In order to be admitted to the incubation program startups need to apply by providing an expressive pitch desk, including their initial idea and a first business case. Based on the criteria market, product, and team, startups are selected. After successfully graduating from the program, corporate incubators additionally support their incubatees in attaining follow-up financing. At this stage, the incubation process terminates.

Underlying rationale of incumbents to engage in corporate incubation Although it is widely acknowledged in literature that incubators are predominantly profit driven and concentrate on financial returns (e.g. Gassmann and Becker, 2006; Grimaldi and Grandi, 2005; Hackett and Dilts, 2004), the study argues differently. As the findings indicate it is the main impetus of incumbents to engage in corporate incubation in order to attract innovation and especially, business model innovation to the parent organization. Given the competitive constraints prompted by innovative startups entering the market space, the incumbents under study find it increasingly difficult to keep pace. Organizational inertia as well as rigid business processes prevent established corporations from initiating meaning making innovations within their own organizations. As a consequence, established corporations strive to attract business model innovation by engaging with the more innovative and agile startup sphere. Besides the distinct assertions of the interviewees, this concrete finding is further reflected within the setup of the corporate incubator. First, incumbents solely target new ventures that exhibit a strategic fit to the parent organization. Therefore, the prevailing majority of corporate incubators under study predetermined distinctive areas of focus that are closely related to the extant business and in which they seek for outstanding business ideas. Second, incumbents exclusively focus on early-stage startups as it allows getting into contact with the innovation as early as possible while directly governing the innovation process ab initio. By focusing on ventures in their seed phase established corporations can purposively align the new venture’s underlying processes and structures to meet corporate requirements. Third, the incubator management evaluates applications in close consultation with the respective business units of the corporation. More precisely, as soon as the incubator management anticipates a business idea being relevant for an internal business unit, they call in the management to assist the proceeding selection process. In its entirety, the above stated factors indicate the endeavour of incumbents to reintegrate the startup into the parent organization after successfully graduating from the incubation program. Hence, the assumption that the motivation of incumbents to engage in corporate incubation is rather innovation driven than induced by financial return is manifested. However, inconsistencies within the findings need to be acknowledged. Some corporate incubators under study claimed that it is not the exclusive objective to attract business model innovation to the parent organization. It is rather about reputation, pure

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investment or the learning of the entrepreneurial mental model. Especially, this was prevalent in respect of the corporate incubators incubating a plurality of ventures simultaneously and for a shorter period of time. Hence, the assumption underlying the sampling strategy has been confirmed and the following proposition can be derived (see Figure 1, H1): Hypothesis 1 Incumbents vary in their rationale of engaging in corporate incubation. The underlying rationale of engaging in corporate incubation affects the setup of the corporate incubator. Hypothesis 1a Incumbents that consider corporate incubation as a tool to foster business model innovation within their organizations incubate a small number of early-stage startups and support startups for a longer timeframe. Hypothesis 1b Incumbents that engage in corporate incubation for reasons of reputation, pure investment or bringing the entrepreneurial mind-set into their organizations incubate a plurality of early-stage startups and support startups for a shorter timeframe. To purposively uncover the potential of corporate incubation as a tool to elicit business model innovation, this research is continued by exclusively focusing on the corporate incubators pertaining to hypothesis 1a.

Barriers to business model innovation in the context of corporate incubation The researchers strived to first uncover the major points of tension underlying the process of incubation so as to unambiguously identify the circumstances under which corporate incubation provides maximum contribution to eliciting business model innovation. As the findings indicate, incumbents under study face varying difficulties in incubating new ventures. Factors such as the extant employer base being reluctant to provide resources to the incubation of new startups as well as the rejection of novel ideas due to the ‘not-invented-here syndrome’ progressively impede the process of incubation. Given established corporation’s dominant logic, i.e. the way in which they “conceptualize and make decisions” (Prahalad and Bettis, 1986:490), the reluctance to engage with the startup environment becomes explicit. Taking into consideration the contradictory institutional logics of incumbents and startups alike, their organizational practices differ. More precisely, the way in which both parties make decisions as well as design processes and structures ascribes to designated logics that are significantly diverse. Whereas incumbents exhibit rigid and inflexible structures that induce slow decision-making procedures, startups distinguish themselves by ascendant agility as well as flexibility in their set up. As the analysis revealed, balancing the interests of both established corporations as well as startups, is of vital importance. As a consequence, the cognitive gap, i.e. contrasting institutional logics between incumbents and startups, must be overcome so as to effectively elicit business model innovation through corporate incubation. According to the barriers to business model innovation already stated in the literature (e.g. Amit and Zott, 2001; Chesbrough, 2010; Chesbrough and Rosenbloom, 2002; Christensen, 1997; Christensen and Raynor, 2003; Koen et al., 2010, 2011), this study adds another dimension. Given the contradicting institutional logics, this paper argues that the cognitive gap between incumbents and startups impedes the process of

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incubation and thus, constitutes a barrier to business model innovation in the context of corporate incubation. By emphasizing that the cognitive barrier is not just inherited within the incumbent itself, but rather externally induced through the context of incubation, i.e. contradictory institutional logics between incumbents and startups, another barrier to business model innovation could be identified. Thus, the following proposition can be drawn (see Figure 1, H2): Hypothesis 2 The cognitive gap between incumbents and startups constitutes a barrier to business model innovation in the context of corporate incubation. Referring to the study of Chesbrough and Rosenbloom (2002), who state that the dominant logic of established corporations constitutes a barrier to business model innovation, this study extends this view by arguing that the dominant logic of incumbents constituting a barrier to business model innovation takes increased effect through collaboration with the startup environment. Thus, it is not the inherited dominant logic of incumbents that impedes the process of incubation, but rather the contrasting institutional logics between incumbents and startups respectively.

Circumstances under which corporate incubation can be considered a tool to elicit business model innovation Referring to hypothesis 2 and to overcoming the identified barrier to business model innovation in the context of corporate incubation, the corporate incubator needs to act as a mediator between the more complex and rigid corporate environment as well as the more agile and flexible startup world and thus, must adhere to distinctive requirements. Besides the fact that the objectives of setting up the corporate incubator need to be embedded within the corporate strategy of incumbents, the incentives of incumbents of engaging in corporate incubation must be aligned to the incentives of the startups. Misaligned incentives would inevitably increase the cognitive gap and hence, slow down the innovation process. Moreover, the study revealed that it is essential to place top management priority on corporate incubation. Since the direction set by management significantly affects the mind-set of the employer base, the cognitive gap between the established corporation and the startup is assumed to decrease. Concerning the design of structures and processes, the corporate incubator needs to consciously address the conflict between the dominant logic of incumbents and the mere entrepreneurial mind-set of startups. Specifically, all corporate incubators under study that strive to ensure proximity to the parent organization tend to face fewer difficulties arising from cognitive barriers. By involving corporate business units ab initio, the interchange of both parties is strengthened and thus, mutual comprehension improved. The same underlying rationale applies to the argument that the corporate incubator management needs to consist of managers from a corporate as well as entrepreneurial background. Whereas managers descending from the corporate environment exactly know the corporate procedures and processes and their requisitions, entrepreneurial managers possess extensive expertise in building new ventures. So as to facilitate this knowledge transfer, extensive mentoring and short communication cycles need to be ensured. Given this, all corporate incubators under study set up continuous exchange and reporting mechanisms. To summarize, fostering the bilateral exchange between incumbents and startups is of vital importance to overcome the cognitive barrier between the parties involved. On an

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aggregate level, strategic as well as organizational alignment between the incumbent, the corporate incubator as well as the startup is the most emphasized success factor in eliciting business model innovation through corporate incubation. Thus, the following proposition can be derived (see Figure 1, H3): Hypothesis 3 To overcome the cognitive barrier between incumbents and startups and to effectively elicit business model innovation, strategic and organizational alignment must be ensured. In Figure 1, the underlying paper summarizes and contextualizes the core aspects of analysis. The dotted lines thereby indicate elements of the phenomenon under study that were not subject to analysis but were included for the sake of completeness. Referring to hypothesis 1, the research identified two distinct forms of corporate incubators in accordance to their underlying rationale of engaging in corporate incubation and hypothesized that the initial objective underlying the corporate incubator affects its setup. By arguing that the cognitive gap between incumbents and startups impedes to elicit business model innovation, the study proposed an additional barrier to business model innovation in the context of corporate incubation. Subsequently, the research revealed distinctive success factors to overcome the cognitive barrier between incumbents and startups. On an abstract level, strategic as well as organizational alignment is assumed to bridge the cognitive gap between the corporate as well as startup environment so as to successfully elicit business model innovation through corporate incubation. In its entirety, the findings effectively indicate that corporate incubation can be considered a tool to foster business model innovation within incumbents presuming certain circumstances.

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Incumbents H1 Incumbents vary in their rationale of engaging in corporate incubation. [...]

H1 [...] The underlying rationale of engaging in corporate incubation affects the setup of the corporate incubator.

Corporate incubator H3 To overcome the cognitive barrier between incumbents and startups and to effectively elicit business model innovation, strategic and organizational alignment must be ensured.

H2 The cognitive gap between incumbents and startups constitutes a barrier to business model innovation in the context of corporate incubation.

Business model innovation

Financial return on investment

Reputation

Entrepreneurial mindset

Startups Figure 1 Summary of core aspects of analysis

5 Discussion Although the notion of business incubation is around since 1984 (Hackett and Dilts, 2004), corporate incubation itself recently emerged as a new research phenomenon that has been given surprisingly little attention by scholars hitherto. As a consequence, the study provided a first attempt to illuminate the phenomenon of corporate incubation from a business model innovation perspective. By employing an explorative qualitative approach, the study uncovered its potential to foster business model innovation within incumbents and hence, added an additional perspective to the pertinent literature. First, by differentiating corporate incubators according to their underlying rationale, the data analysis unambiguously identified two distinct forms of corporate incubators, i.e. corporate incubators that engage in corporate incubation to overcome the inherited barriers of business model innovation as well as corporate incubators that engage in corporate incubation for reasons of reputation, pure investment or the learning of the entrepreneurial mental model. Thereby, the study provided an initial attempt in classifying corporate incubators according to certain characteristics. Second, the analysis uncovered a distinct barrier to business model innovation which is not indispensably inherited within the incumbent itself but rather induced through engagement with burgeoning ventures. Particularly, the cognitive gap between incumbents and startups

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alike constitutes a barrier to business model innovation which has not been addressed by previous research in the context of corporate incubation. Third, as the effective management of the cognitive gap is assumed to directly impact the outcome of corporate incubation, the study made first efforts in identifying distinct mechanisms to overcome this barrier. Presuming strategic as well as organizational alignment between all parties involved, the potential of corporate incubation in eliciting business model innovation was acknowledged. In this sense, this paper contributes to the understanding of the phenomenon under study by considering corporate incubation both an outside-in approach to innovation in general and an emerging tool to commercialize corporate innovation in particular. However, some limitations of the underlying study are worth mentioning. Referring to hypothesis 1a and 1b, the study cannot claim integrity since it restrictedly allowed classifying corporate incubators according to their underlying rationale of engaging in corporate incubation. Further dimensions of classification have not been examined and ought to be addressed in future research. Moreover, to which extent the rationale of engaging in corporate incubation indeed affects the number of startups incubated is debatable. As current research lacks a theoretical distinction between business incubators, corporate incubators as well as accelerators, the sample might unforeseenly include accelerators. Since accelerators are assumed to significantly differ in their rationale of engaging with startups, i.e. to incubate a plurality of ventures so as to leverage an encompassing portfolio, the evidence might be subject to bias. To enhance clarity, future research should strive to compile a coherent typology of the aggregate of incubators and accelerators alike. According to hypothesis 2, the research design delimits generalizability outside the context that was studied (Yin, 2009). Thus, to enhance validity as well as generalization, the proposition claiming the cognitive gap between incumbents and startups to constitute a barrier to business model innovation should be studied in diverse contexts. With regard to hypothesis 3, the introduced success factors are neither mutually exclusive nor comprehensively exhaustive. In fact, leveraging on the cognitive barrier between the corporate and startup environment, this paper provided an initial attempt in identifying success factors critical to eliciting business model innovation through corporate incubation. Particularly, the study has to admit that the phenomenon of corporate incubation is rather young and therefore, lacks significant track record. Thus, factors critical to the success of corporate incubation were initially emphasized based on the assessment of the interviewees. As a consequence, the study calls for a more comprehensive analysis of critical success factors in the context of corporate incubation. Particularly, in respect of progressively failing corporate incubators in today’s market environment, future research covering this aspect appears imperative. Although taking into consideration the advances the study has made in enlightening the phenomenon of corporate incubation, this research field is rather unexplored. Soaring in its empirical relevance, the phenomenon of corporate incubation should receive increased future appreciation by scholars in general and particularly, by scholars of innovation.

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