The Impact of an Entrepreneur’s Knowledge - A Case of Nokia’s Spinoff

Bachelor’s Thesis 15 hp Department of Business Studies Uppsala University Fall Semester of 2017

Date of Submission: 2018-01-12

Juulia Olkkonen Annastina Tuovinen Supervisor: Desirée Holm

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Abstract

In recent years the study of entrepreneurial spinoffs has focused on how knowledge spillover

leads to new knowledge and entrepreneurial activity. This study aims to explore the effect of

a founder’s knowledge inherited from an incumbent parent company in the formation of a

spinoff in the ICT sector. As a theoretical framework, the study uses An Absorptive Capacity

Theory of Knowledge Spillover Entrepreneurship (Qian and Acs, 2013). Using a qualitative

approach through interviews with the founder of the spinoff, this study aims to strengthen the

empirical validity of these theories in a single setting. The proposed findings are strongly in

line with the theory, but a certain aspect considering the help from a parent company

proposes a possibility to modify the framework into a particularized framework that can be

implicated to various spinoffs globally. Thus, the findings suggest that entrepreneurial

activity deriving through absorptive capacity and inherited knowledge is affected by the

contributions from the parent company.

Keywords: Absorptive Capacity, Entrepreneurship, ICT, Inherited Knowledge, Nokia, Nokia

Bridge, Spinoff

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Sammandrag

Under senaste åren har forskningen på entreprenöriella spinoff-företag fokuserat på hur

knowledge spillover leder till entreprenöriell aktivitet. Denna studie undersöker effekten av

kunskaper som ett spinoffs grundare har ärvt från ett moderbolag i förhållandet till

formationen av spinoffen inom ICT fältet. Som teoretiskt ramverk används An Absorptive

Capacity Theory of Knowledge Spillover Entrepreneurship (Qian och Acs, 2013). En

kvalitativ undersökning genomförs, och intervjuerna med grundaren av en av Nokia’s

spinoffer syftar till att, under enskilda omständigheter, förstärka den empiriska validiteten av

den valda teorin. Resultatet tyder på att, oavsett unika omständigheter, denna case på många

aspekt är i linje med den presenterade teorin. Däremot identifieras det att hjälp från

moderbolaget presenterar en möjlighet att modifiera modellen med hänsyn till hur så kallad

entrepreneurial absorptive capacity påverkas av en eventuell medverkan från moderbolag.

Nyckelord: Absorptive Capacity, Entrepreneurship, ICT, Inherited Knowledge, Nokia, Nokia

Bridge, Spinoff

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Acknowledgements

We are very grateful for our supervisor, Desirée Holm, for her guidance and feedback

throughout our writing process. Moreover, we would like to present a huge thank you to the

founder of the spinoff for participating in the interviews and providing us with valuable

insight and knowledge about the case. Without your contributions this study would have been

impossible to conduct.

We wish you a pleasant reading!

Uppsala, January 12th 2018.

_____________________________ ____________________________

Juulia Olkkonen Annastina Tuovinen

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Table of Contents 1. Introduction 7

1.1 Research Question 8

1.2 Purpose 9

1.3 Disposition 9

2. Theoretical Review 10

2.1 Literature Overview 10

2.2 Choice of Theory 11

2.3 Theoretical Framework 12

2.3.1 Overview of the Study 12

2.3.1.1 The Knowledge Spillover Theory of Entrepreneurship and Its

Limitations 14

2.3.1.2 An Absorptive Knowledge Spillover Theory of Entrepreneurship 15

2.3.1.3 Key Definitions 16

3. Methodology 17

3.1 Research Design 17

3.1.1 Case Study 17

3.1.2 Choice of Company 17

3.1.3 Choice of Interview Participant 18

3.1.4 Research Approach 18

3.2 Data Collection 18

3.2.1 Design of Data Collection 18

3.2.2 Interview Execution 19

3.2.3 Analysis of Data 20

3.3 Operationalization 20

3.4 Generalization 21

4. Empirical Findings 22

4.1 Background 22

4.2 Nokia Bridge and the License 23

4.3 Building the Spinoff 24

4.4 Behind the Scenes of Nokia Bridge 25

5. Analysis and Discussion 27

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5.1 Knowledge Spillover Entrepreneurship – The Spinoff 27

5.2 Absorptive Capacity in Nokia’s Spinoff Creation 28

5.2.1 Human Capital in Absorptive Capacity 29

5.3 A Helping Hand in Absorptive Capacity 30

6. Conclusion 32

6.1 Implications 33

6.2 Limitations 33

6.3 Future Research Suggestions 34

7. References 35

7.1 Written References 35

7.2 Oral References 39

Appendix 1. 40

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1. Introduction ___________________________________________________________________________

In this chapter, the field of the study is presented with an introduction to its background. The

introduction leads to a presentation of this study’s scientific question and purpose. Finally, a

disposition of the study is shown.

___________________________________________________________________________

In 2011, the Finnish information and communications technology (ICT) multinational

corporation, Nokia, was facing evident difficulties in competing in the highly developing and

ambitious telecommunications market, leading to the closure of several business units around

the world. The company that accounted for as much as 4 percent of Finland’s GDP in 2000

(Aiginger et al., 2009, p. 121), generated the so-called Nokia Bridge Program in order to

soften the effects of the global redundancies. One of the program’s purposes was to assist and

encourage former employees both financially and advisory-wise to entrepreneurship. The

program enabled several new businesses with knowledge deriving from Nokia to be born

(Handelberg et al., 2014). However, the program that originated from the intentions of firing

employees offered great opportunities for the founders of future spinoffs.

These kind of companies are called entrepreneurial spinoffs, i.e startups with the initial

business idea driving from an innovation and business opportunity inside an organization. For

instance, Furlan and Grandinetti (2016) define spinoffs in their research on spinoffs’

endowments in the following way:

“Spinoffs are the product of a process of reproduction in which genes (i.e knowledge

and routines) are transmitted from the parent to the child.’’ (Furlan and Grandinetti,

2016, p. 572)

The success of a spinoff is often linked to its plausible birth from a successful parent

company, which is explained by the capabilities inherited from the latter (Boschma and

Frenken, 2011). Furthermore, the knowledge that the founder of a spinoff applies in the new

business is often primarily inherited from the incumbent company. It may include human and

social capital, corporate pre-entry experiences as well as new knowledge arising from these.

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Although the phenomena of knowledge inheritance of spinoffs has theoretically been studied,

Qian and Acs (2013) identify a lack of empirical evidence considering the relationship

between knowledge and entrepreneurship, especially at the individual level. Furthermore, the

studies on entrepreneurial absorptive capacity, which the researchers define as the key factor

in new firm formations, has rarely been studied closely neither theoretically nor empirically

in the context of entrepreneurs and startups (Qian and Acs, 2013). Hence, the primary

motivation for this study is to add to the ability of determining specific traits of spinoffs’

inheritance theories in a particular setting. Furthermore, Nokia Bridge is an example of a

program aiming to help the knowledge spillover process. Although such direct help is a rare

luxury for the founders of startups, there are other programs with the same purposes. The

influence of such programs on the inherited knowledge of the founders offers a possibility to

conclude if the existing theories are applicable under the circumstances of this unique setting.

The practical relevance may be highlighted by the increased interest in technological

spinoffs, demonstrated by their impact on today’s economies and increasing research on the

subject (Bailetti, 2012). This indicates a need of additional knowledge for investors and

support agencies, for instance, in terms of new firm funding (Jones-Evans, 1995; Miner,

1990, p. 222). To sum up, the deficiency of empirical evidence of knowledge inheritance with

a single study object offers an ideal research gap for our study. Nokia as a highly innovative

company and its Nokia Bridge Program as the creator of over 1000 spinoffs globally by 2013

(Vänskä, 2013), subsequently provide a unique research platform for the investigation of a

spinoff formation.

1.1 Research Question

How does a founder’s knowledge inherited from an incumbent ICT company affect the

formation of a spinoff?

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1.2 Purpose

The purpose of this study is to provide empirical evidence of the appearance of a founder’s

previously gained knowledge in a parent company in the context of a spinoff formation. A

case of a Finnish ICT spinoff, which originated from Nokia as a result of a specific

entrepreneurship program, will be presented and analysed in order to explain if and how the

inherited knowledge is utilized by the founder in the spinoff and whether there are factors

that, due to unique circumstances, imply a need to modify the existing models.

1.3 Disposition

This study begins with a leading introduction into the subject, followed by a presentation of a

research question and the purpose of the study. In the next chapter, an overview of the

research field is reviewed in order to create supplementary understanding on the researched

area. Thereafter, the chosen theoretical framework that is used for the study’s analysis is

presented. The third section focuses on the design of the study. Furthermore, the overall

methodology and the applied data gathering methods are motivated. The empirical findings

of the study are shown in chapter four and the analysis is discussed in chapter five. Lastly, the

final chapter concludes the study with a discussion about the study’s implications, limitations

as well as recommendations for future studies.

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2. Theoretical Review ___________________________________________________________________________

This section reviews the relevant earlier research in order to deepen the understanding on

the subject and answers the question: what do we already know? The study’s selected

theoretical framework is motivated, presented and reviewed.

___________________________________________________________________________

2.1 Literature Overview

Factors that affect a spinoff’s foundation as well as performance have been discussed by

different scholars and with several point of views. Various causes have been explored for

why employees leave their parent companies to start their own businesses, i.e. spinoffs, and

some of the discovered contributing factors are disagreements within the parent company

(Klepper and Thompson, 2005), the parent company’s aim to reduce costs or the employee’s

choice to exploit the acquired expertise (Caizza, 2014).

In 2000, Steven Klepper and Sally Sleeper for the first time presented a model where the key

element for the formation of spinoffs is what the employees learn in their parent company.

An advanced version of their knowledge inheritance theory was presented in 2005, which

was based on the same premise.

“-- spinoffs inherit general technical and market-related knowledge from their parents that

shapes their nature at birth.” (Klepper and Sleeper, 2005, p. 2)

After the very first review of the model, Klepper (2002) evolved the theory with an in-depth

study that concluded that out of various new entrants in an automobile market in the USA

between 1895-1966, the ones with a founder with many years of experience within leading

automobile companies were the ones with the highest success rate (Furlan and Grandinetti,

2016; Klepper, 2002). That is to say, experience and the inherited knowledge within the

relevant industry are more likely to generate a successful spinoff. The studies on the

knowledge inheritance theories have been since tested in various settings and geographical

environments (Furlan and Grandinetti, 2016; Klepper, 2009). The emphasis within the field is

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almost always on the knowledge that the founder gains in the parent company and then

transmits to the new venture, i.e the spinoff (Furlan and Grandinetti, 2016).

Klepper’s initial hereditary theory has since then been extended by other researchers as well.

Curran et al. (2016) studied two different types of spinoffs, university and private sector

spinoffs, supplementing two different types of inherited competence to their study, R&D

competence and innovation competence. However, a distinction between the types of spinoffs

originating from different backgrounds is rare. For instance, Klepper (Furlan and Grandinetti,

2016; Klepper, 1997; Klepper, 2001; Klepper, 2008) has mainly focused on private sector

spinoffs instead of spinoffs originating from universities and public research based

organizations (Curran et al., 2016). Furlan and Grandinetti (2016) in turn note that the spinoff

knowledge literature has mainly focused on modern high-tech industries.

In addition to the inherited knowledge, the process of creating new knowledge in a spinoff

has been studied by various researchers. Subsequently, besides the inherited knowledge and

knowledge spillovers, the role of human capital has been given additional emphasis in the

spinoff creation and success research (Furlan and Grandinetti, 2016). Moreover, Furlan and

Grandinetti (2016) state that there has been a lack of research that combines the human

capital and knowledge inheritance theories, and therefore further discuss the role of the so-

called intellectual capital with which they aim to explain the often superior performance of

spinoffs among other new companies. The knowledge inheritance theory considers the

knowledge transferred from the parent firm to a spinoff as “genes” through a linear process.

2.2 Choice of Theory

The main theoretical framework used for the analysis of the study is the research An

Absorptive Capacity Theory of Knowledge Spillover Entrepreneurship (Qian and Acs, 2013).

The study presents a Knowledge Spillover Theory of Entrepreneurship, which addresses

different components of creating new knowledge and knowledge spillover in the study of

entrepreneurship. The study is conducted with an entrepreneurial absorptive capacity point of

view that considers the founder’s capabilities to realize and commercialize entrepreneurial

opportunities.

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The choice of the theoretical framework is motivated due to certain factors. The theory

considers various relevant aspects of spinoff creation, such as human capital. The

entrepreneurial absorptive capacity has not previously been given additional emphasis on the

study of entrepreneurship, which makes it a leading research within the field. Another

motivation for the framework is the clear suggestion from the researchers to empirically

study the issue further. Qian and Acs (2013) clearly address a gap in the ability to study the

issue in an individual setting, which this study aims to diminish. Qian and Acs’ (2013) theory

is tested through data on new patents in U.S metropolitan areas, and thus provides a

possibility to challenge the theory by using different research variables.

2.3 Theoretical Framework

2.3.1 Overview of the Study

The study presents a knowledge spillover theory of entrepreneurship, which highlights the

importance of new knowledge as a source for entrepreneurial opportunities. Furthermore, the

paper suggests a concept of entrepreneurial absorptive capacity, which is defined as the

capacity of an entrepreneur to absorb and understand new knowledge in a way that

furthermore enables them to recognizes the value and commercialize it. The research

presented is mostly conceptual, but an empirical test is done to provide practical evidence for

the study.

The theory is based on the important role of entrepreneurs in commercializing new

knowledge that is originally deriving from larger incumbent firms or research organizations.

The article starts off by presenting the foundations of knowledge spillover and a knowledge

production function from with the theory originally derives (Qian and Acs, 2013; Griliches,

1979; Jaffe 1989; Romer, 1990). According to these, new knowledge can occur

automatically. This combined with entrepreneurship, the knowledge spillover theory of

entrepreneurship was developed (Acs et al. 2009; Audretsch, 1995). The theory sees

entrepreneurship and the formation of new firms as way of transmitting the knowledge

spillover, and new knowledge as opportunities for entrepreneurs.

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However, the paper argues that the knowledge spillover theory of entrepreneurship does not

properly address the relationship between knowledge and entrepreneurship, which leads to no

clear mechanisms for knowledge-based entrepreneurial activity. The paper argues that the

theory solely focuses on exogenous knowledge, and presents a need to focus more on

endogenously created knowledge.

Therefore, the paper presents the concept of entrepreneurial absorptive capacity, which is

contemporary in that its aim is to show that absorptive capacity is equally as important for

entrepreneurs and new firms as it is for established firms, for which the importance has been

highlighted since absorptive capacity was firstly defined by Cohen and Levinthal (1990). The

research then proceeds to illustrate a newer model of the traditional knowledge spillover

theory; An Absorptive Capacity Theory of Knowledge Spillover Entrepreneurship. The

model presents various components of the process, including the entrepreneurial absorptive

capacity and human capital.

The knowledge production function (Romer, 1990) illustrates the importance of endogenous

knowledge creation and human capital. The KPF used as a background to knowledge

spillover has the following form:

where A is total stock of technological knowledge and H is human capital for R&D.

The standpoint of the formula is thus the following: R&D activities are undertaken by human

capital, thus the level of R&D is determined by public knowledge. All of the components are

dependent on each other, since the public knowledge is determined by the output of R&D,

and the role of human capital is proven to be the most fundamental. However, weaknesses of

the KPF lie in its disability to present how new knowledge spills over between different

firms. Furthermore, another issue is the extent to which KPF can be applied to small firms,

despite that the research has shown that the most innovative capacity lies in the smaller firms

(Acs and Audretsch, 1987, 1988).

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2.3.1.1 The Knowledge Spillover Theory of Entrepreneurship and Its Limitations

In order to add to the usefulness of the KPF, Knowledge Spillover Theory of

Entrepreneurship was created (Acs and Armington, 2006; Acs et al., 2009; Audretsch, 1995;

Audretsch et al. 2006; Audretsch and Lehmann, 2005). The theory identifies entrepreneurship

as a common result of knowledge spillover and is based on the thought that entrepreneurs

play a significant role in economic growth, and most importantly, innovation. This lies in the

ability to commercialize new knowledge which happens via creating new firms and business

opportunities.

New knowledge created in large organizations and research institutions is often not

considered as worthy of investing in order to create new business opportunities. In other

words, the potential of new knowledge is not perceived similarly by the incumbent

organizations and by the possible entrepreneur, often for example due to a higher expectation

of economic return on the investment. This might result in the individual choosing to depart

from the organization in order to exploit the new knowledge. Additionally, the decision is

also often influenced by the entrepreneurial culture and barriers.

Figure 1. Knowledge Spillover Theory of Entrepreneurship, a schematic description (Qian

and Acs, 2013)

In short, two conclusions are to be expressed: Firstly, new knowledge serves as one source

for entrepreneurial activity; and secondly, the entrepreneurial appropriation process of such

knowledge includes the establishment of new firms. The model does not distinguish

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knowledge from new knowledge which leaves open the question about whether it is

knowledge stock or new knowledge that contributes to entrepreneurial activity, nor does it

consider interpersonal knowledge. Furthermore, the model does make certain assumptions

about the origins of the entrepreneur. The assumption is that the entrepreneur comes from an

inventor- or scientific background, which is not often the case. In contrary, the

commercializing process is often carried out by a non-inventor entrepreneur. The absorptive

capacity theory of entrepreneurship aims to cover these limitations.

2.3.1.2 An Absorptive Knowledge Spillover Theory of Entrepreneurship

Entrepreneurial absorptive capacity is defined as ”Ability of an entrepreneur to understand

new knowledge, recognize its value, and subsequently commercialize it by creating a new

firm” (Qian and Acs, 2013, p. 191). The aim of the capacity theory is to, in order to extend

the knowledge spillover theory, solve the problems discussed earlier. The absorptive capacity

theory of entrepreneurship is developed, and argues that ”the level of knowledge spillover

entrepreneurship depends not only of the speed of knowledge creation, or the level of

knowledge, or the level new knowledge, but also on entrepreneurial absorptive capacity”

(Qian and Acs, 2013, p. 191). The theory is illustrated in the figure 2, in which the double

arrow signifies that new knowledge and entrepreneurial absorptive capacity are both needed

for the entrepreneurial activity:

Figure 2. The Absorptive Capacity Theory of Knowledge Spillover Entrepreneurship, a

schematic description (Qian and Acs, 2013)

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The model is now also adjusted to non-investors, since with the absorptive capacity the

entrepreneur is able to understand the potential of new knowledge and successfully turn it

into a commercialized business. Another advancement can be found in its representation of

how human capital has an impact on entrepreneurship. Human capital in this context is

defined as the knowledge and skills embodied in people (Qian and Acs, 2013; Schultz, 1961).

The presented adjustments of this model makes it a suitable theoretical framework for this

study, because it is modified so that it includes all relevant aspects of the case analyzed in this

study. Thus, the model (see Figure 2) becomes the main analytical tool of this research.

2.3.1.3 Key Definitions

The most important terms and concepts of the theory are presented and explained in the

enclosed glossary (Qian and Acs, 2013).

Table 1. Key Definitions of the Theory (Qian and Acs, 2013)

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3. Methodology ___________________________________________________________________________

In this chapter, the method for this study is presented and justified for within the purpose of

the research. Furthermore, the collection of data and limitations of the method are discussed.

___________________________________________________________________________

3.1 Research Design

3.1.1 Case Study

A case study is conducted for this research. A case study is a form of research strategy that

focuses on understanding the dynamics of a single setting (Eisenhardt, 1989). The identified

research gap between the existing theories and the lack of empirical evidence presents a

possibility to study unexplored settings. Studying a spinoff offers unique circumstances,

which is required for a case study method (Saunders et al., 2012). Moreover, the research

question of this study focuses on understanding how the inherited knowledge of a founder

affects the formation of a spinoff. A case study is preferred in examining questions that have

“how’’ and “why’’ in the focus (Yin, 2013).

3.1.2 Choice of Company

The choice of company was affected by criteria considering the type of company in order for

it to be considered a spinoff. For this study, these included for example an origin in another

company, the amount of personnel and the size of the business. After a thorough evaluation

of the criteria, the choice of company for this study was made: the case considers a Finnish

digital spinoff originating from the multinational telecommunications giant Nokia. The

spinoff represents a typical case (Bryman and Bell, 2013, p. 87; Yin, 2003/2007) which is in

line with this study’s aim of providing empirical evidence for a theory.

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3.1.3 Choice of Interview Participant

Since the study focuses on the founder’s background and its contribution to the spinoff

formation, the interview participant is the person in the company who is considered as the

original founder. The nature of the inherited knowledge of the founder is subjective and thus

must be explored through the individual.

3.1.4 Research Approach

This study’s purpose is to narrow a gap in the research by providing empirical evidence to

support an existing theory. Thus, the research approach of this study is deductive, of which

the research strategy derives from existing hypothesis and theories (Bryman and Bell, 2013,

p. 31).

3.2 Data Collection

3.2.1 Design of Data Collection

Collection of the data is achieved in a qualitative manner, with interviews. Receiving a wide

empirical understanding of the inherited knowledge requires firstly an understanding of the

overall events. Of these the most relevant issues are identified, of which gaining more

specific information is preferable. Thus, the interviews are conducted in two parts.

The first part, unstructured interview, provides this study with a wide understanding of the

relevant events. The aim of this interview is to capture how the interviewee sees and

understands his or hers reality in a particular setting. In an unstructured interview there is a

lesser risk for the interviewed to be approached in a manner that sets boundaries and

preconceptions on the answers (Bryman and Bell, 2013, p. 477).

The second part of the interview holds a semi-structured manner, in which the aim is to

deepen the understanding of particular themes and events. At that moment the researchers

have a clearer understanding of which themes and events are especially relevant for the

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analysis and further are of higher importance for the study’s purpose. An interview guide (see

Appendix 1) is utilized in the semi-structured interview to serve as an overview of the

interview. (Bryman and Bell, 2013, p. 475)

3.2.2 Interview Execution

The first initiation of the interview included a short presentation of the study’s purpose and

the research question. Anonymity was suggested, since it increases the reliability of a

qualitative study due to its tendency for respondents to give honest answers (Saunders et al.,

2012). Staying anonymous was not of high importance to the respondent due to the non-

personal and somewhat public nature of the study. However, after a short discussion with the

founder of the company, a decision about an anonymous presentation of the company and the

respondent was made.

Prior to the interviews, a discussion about the date and the time for the interview was held.

Furthermore, the design of the interview was partly revealed to ensure a shared perception of

the execution of the interview. Both parts of the interviews were conducted through telephone

due to a geographical distance at the agreed time of the interviews. Interviews that are not

held in person have certain disadvantages that might affect the interpretation, such as the

disability to interpret body language (Saunders et al., 2012). The interview was conducted in

the native tongue of the participant, i.e Finnish, which facilitates creative and clear responses

from the respondent. However, for the purpose of this study, the interview data had to be

translated to English, which might create a disadvantage in its tendency to create

misunderstanding. To compensate for the practical disadvantages of the method, the

interviews were recorded with the interviewee’s permission.

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Interview Participant

*

Company* Title Type of

Interview

Date Duration

1 CEO Spinoff Founder/CEO Telephone

Interview

17-12-08 1 hour

2 CEO Spinoff Founder/CEO Telephone

Interview

17-12-11 30 minutes

* The names of the participant and the company are changed.

Table 2. Overview of the Interviews

3.2.3 Analysis of Data

The interviews offer raw material for the study which then has to be analyzed with attention

to detail and increased level of observation to facilitate the translation of material to results.

Qualitative data is often hard to interpret due to its comprehensive nature (Robson, 2002),

which implies a need to transcribe the interviews (Bryman, 2011, p. 428). Due to this, the

interviews were recorded to ensure that any details of what was said during the interviews

were not missed or forgotten and to ensure a thorough analysis of the oral material.

3.3 Operationalization

Operationalization considers the process of forming the concepts on which this study bases

its empirical findings on (Bryman and Bell, 2013, p. 163). The theoretical framework used

for this study is presented in chapter 2. The concepts of the model (see Figure 2 and Table 1)

include human capital, new knowledge, entrepreneurial absorptive capacity and

entrepreneurship. To empirically capture the inherited knowledge of the founder, these terms

are translated into an interview guide (see Appendix 1). Although the terms are not directly

presented in the interview guide, with an understanding of the theory the concepts are notable

in the form of the questions. This is possible due to the clear and dynamic causations between

the variables illustrated in the model.

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3.4 Generalization

Since the study focuses on a single case with a single spinoff and a single respondent, it may

decrease the validity of the study, in terms of generalization. Challenges related to studies at

an individual level may include the problem of a subjective perspective (Bryman and Bell,

2013, p. 46). According to the reliability of interviews, the respondent may consider his or

hers opinion as the only correct way to see a phenomenon and the researchers may further

generalize that particular view as a fact. Moreover, semi-structured and unstructured

interviews present their own negative effect on reliability, since the lack of questions of a

structured manner makes it challenging to repeat a study (Saunders et al., 2012).

Another factor to be considered is the limitation to a Finnish context. However, the limitation

to a particular country may imply that the findings are applicable and generalizable in other

countries of the same size, economy or culture. Moreover, a case study considering a spinoff

may indicate a possible generalization of other spinoffs, which will further be discussed in

chapter 6.1. Additional limitations of the study can be found in chapter 6.2.

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4. Empirical Findings ___________________________________________________________________________

This section presents the empirical findings that were explored through the qualitative

research method.

___________________________________________________________________________

4.1 Background

While working at Nokia the respondent, later the founder of the spinoff, was a General

Manager in a business unit that was responsible of a mobile internet service and its overall

businesses. The system was firstly developed in Nokia’s comprehensive R&D department,

but the company wanted to find out if there was an opportunity for a new profitable business.

The responsibility for market research was signed to the respondent, i.e the business unit

leader.

Prior to this particular position, the respondent had 11 years of other experience inside Nokia,

for example in Business and Strategy Development. Before accepting the position the

respondent had thought about leaving the firm and joining other startup-like activities.

However, CEO found the suggestion from Nokia appealing due to a personally interesting

area of the mobile business and appreciated the possibility to learn about the market before

exploring entrepreneurship.

The position included the establishment of the unit as well as an ongoing leading the team of

30 permanent employees. His primary task, however, was to research the market and analyze

possible business opportunities within the segment. The respondent found that there was a

market opening to explore so-called enterprise solutions, i.e to offer services and business

solutions to bigger companies. However, the suggestion was not completely in line with what

the decision-makers had in mind for the division and so the board of Nokia turned down the

suggestion and chose to continue with the original direction. Also, a unit focusing on

enterprise solutions had been shut down prior to this. Consequently, what the respondent

found out was not exactly what had been expected from the market research, and thus was

not further explored at the time.

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After 4 years of operations, the business unit faced a turning point. By 2012, Nokia was in

trouble. It had to shut down a noticeable part of its businesses due to a lack of profits, one of

which was the respondent’s unit. The respondent now had a choice: to be replaced in another

position inside Nokia, or to continue within the market he had researched and individually

explore the market he had found to be worth exploring. He saw an opening and thus chose to

leave Nokia and start his own business.

“It was a good opportunity for me.” (CEO, 2017)

4.2 Nokia Bridge and the License

To help the employees of Nokia who were under the risk of losing their jobs, as of spring

2011 the company launched a program called the Nokia Bridge Program. The main aim of

Nokia Bridge was to help the employees with finding the right, individual career path for the

future. The five alternatives included a job within Nokia, outplacement, education, creation of

an own career path or entrepreneurship (Vänskä, 2013). The program comprehended different

sums of monetary aids in order to help to kickstart the re-employment of Nokia’s soon

previous employees as well as classes, courses and guidance. That is to say, Nokia Bridge

was a full employment package offered to eligible employees in order to prevent

unemployment in as large a scale as possible.

In 2013, the results of Nokia Bridge already were visible. Approximately 18 000 employees

of Nokia worldwide were found to be eligible for the program (5 000 in Finland) and 60

percent of the attendees had found their next step in their career by the end of their

employment. Furthermore, Nokia Bridge program gave birth to over 1000 new companies

established internationally (400 in Finland), of which 42 percent were ICT startups. (Vänskä,

2013)

For the respondent’s company, Nokia Bridge offered a loan that was by 60 percent

guaranteed by Nokia. Furthermore, it offered money that due to Finnish regulations had to be

24

paid as additional salary that was taxed. Later on, the money was spent to purchase for

example laptops for the staff and other new equipment to kickstart the operations.

However, the spinoff process started with preliminary negotiations about a license to use the

softwares and systems that were developed in the respondent’s business unit in Nokia. The

negotiations took place with a board of Nokia’s decision-makers. After months of

negotiations, a decision and a price for the license was settled and the spinoff was ready to

operate on its own. Approximately 18 percent of the startups generated by Nokia Bridge

Program made a similar technology licensing or idea release agreement with Nokia (Vänskä,

2013).

4.3 Building the Spinoff

Building a suitable team for the spinoff was of high importance for the respondent. There was

interest in joining the spinoff in the business unit from which the spinoff emerged. However,

solely one co-founder was found within the original team. The respondent described him as a

“technological wizard”, and later specified that he was in charge of the technological

development of the spinoff. The respondent speculated around the reasons for why, despite

the high interest, there was only one who initially joined the spinoff:

“The co-founder was relatively young at the time, with no kids or a big

family to take care of. There were others that were more dependent on every

monthly salary, so they very significantly more risk averse.” (CEO, 2017)

After a team was partly set up, the search for first clients begun. Even though the range of

potential clients has been in an ongoing change during the years of the spinoff’s operations,

the initial clients were reached out to via Nokia. Many companies were Nokia’s previous or

then present partners, with whom the respondent had had contact with during his years in

Nokia. Those contacts were also exploited when the spinoff was in search for employees and

suitable candidates were found: for example, two persons in key positions within the firm

were found through Nokia’s prior business partners.

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“I have found many suitable employees and partners from

Nokia’s previous business partners.” (CEO, 2017)

The founders’ background in Nokia brought interest and credibility to the young startup.

When asked about the advantages of a “Nokia reputation”, the respondent could describe

plenty. Among others, it facilitated the spinoffs possibilities of connecting with the biggest

companies in the Finnish market, but most importantly abroad. The spinoff had operations in,

for example, the Netherlands in which a background in Nokia was a huge facilitator to

improve the image of the spinoff in the eyes of local players.

The license bought from Nokia simplified the spinoff establishment process, since it meant

that there was no need to build a new product from the start. The spinoff had a “finished

product” in just a couple of months, which was an advantage financially as well as

strategically.

“It was much quicker to start doing business than it had had

if we had had to develop a product from the start.” (CEO, 2017)

4.4 Behind the Scenes of Nokia Bridge

At its most profitable times, Nokia’s contribution to R&D and innovation was significant for

the entire Finnish innovation system, in which the most crucial factor was the diffusion of

know-how from Nokia to other companies, universities and research institutions (Ali-Yrkkö

and Hermans, 2002). In 2006, Nokia accounted for as much as 47% of the total business

sector R&D in Finland (Aiginger et al., 2009, p. 121). This indicates that enormous amounts

of new knowledge was born within the firm. The respondent describes how it was very

common that people working in Nokia gained extremely valuable knowledge about high-tech

matters that, if not explored as an entrepreneur, often resulted in respected job positions

elsewhere. In other words, the focus on innovation and R&D in Nokia gave birth to plenty

new remarkable knowledge. Thus, spinoffs and other kinds of entrepreneurial, expert

activities were a distinguished phenomena associated with Nokia.

26

However, the respondent describes the Nokia’s attitudes and position towards its spinoffs as

somewhat complicated. The Nokia Bridge Program was supportive towards entrepreneurship

deriving from Nokia’s previous units and operations. It offered a helping hand in many ways

and despite that the aspiring entrepreneurs had to apply for the program, the atmosphere was

tranquil and positive. Furthermore, by 2013 the overall satisfaction rate for the program stood

around 85 percent (Vänskä, 2013).

The license negotiations, however, were a strongly separate phase for the spinoff process. In

the interviews, the respondent described the license negotiations as hostile and mentioned

that the hostility might have been due to personal factors inside the firm:

“There might have been a different tone if the

negotiations had not been designed in such a way.” (CEO, 2017)

It seemed as Nokia was not willing to give away the ideas and systems that had risen in its

previous operations, at least without a price tag. At last, the outcome of the negotiations

became that the spinoff would have to pay a payment based on the spinoff’s yearly turnover

in order to put the specific innovation born in Nokia into operation.

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5. Analysis and Discussion ___________________________________________________________________________

In this section, the empirical findings will be compared with the theoretical framework. An

analysis regarding the study’s purpose will be conducted and, through a deeper discussion,

all parts of the study will be linked together.

___________________________________________________________________________

5.1 Knowledge Spillover Entrepreneurship - The Spinoff

The Knowledge Spillover Theory of Entrepreneurship suggests that new knowledge is a

source for entrepreneurship. The authors conclude that knowledge spilling from a parent

company to a spinoff is the main contribution to and explanation for a spinoff’s success. The

knowledge inheritance theory considers the knowledge transferred from the parent company

to a spinoff as “genes” through a linear process. (Qian and Acs, 2013)

In this study, new knowledge was in fact a source for entrepreneurship. The new business

opportunity found by the respondent was a result of a persistent market exploration under the

terms of Nokia’s guidance. Knowledge stock was increased, but new knowledge was also

born through the exploration and ideas deriving from it.

It is maintained that the intellectual capital inherited from a successful parent is the main

explanation for the superiority of its spinoffs (Furlan and Grandinetti, 2016). Nokia was a

leading company in the ICT sector, which implies a favourable position for absorbing useful

knowledge for future entrepreneurial purposes. Though it might be rather questionable to

imply superiority of this study’s spinoff, it is reasonable to assign some of the spinoff’s

survival and continuous operations to the founder’s past in Nokia.

One of the most visible causations according the spinoff and its parent is, in this case, an

external one. The respondent described in various occasions the effect of the reputation that a

spinoff deriving from Nokia encountered. The young ICT-startup had the chance to interact

with the major players of the market mainly because of its origin, Nokia. The theory does not

address this aspect but the somewhat obvious and functional nature of the matter calls for

28

some reflection on the issue. In line with the theory’s theme of knowledge spillover, a

possible explanation might be the existing reputation of the knowledge within the parent

company. This suggests that the knowledge is not only spilling over through the parties

internally, but can also be perceived externally and by third parties. This becomes evident in

the case of Nokia, which had a high amount of co-operations with other companies and

institutions and thus, many plausible third-parties to observe its operations (Ali-Yrkkö and

Hermans, 2002). In other words, the knowledge spillover theory might be able to be turned

into a extrinsic knowledge spillover theory that aims to explain some external issues of a

spinoff process and success, such as its reputation linked to the parent company. In practise, it

might suggest that a reputation of high-value and respected knowledge within a parent

company might lead to a good reputation for its spinoffs, but this might remain a question

that would require additional research in the future.

5.2 Absorptive Capacity in Nokia’s Spinoff Creation

The theory, however, states that the knowledge spillover theory is not sufficient enough for

describing entrepreneurial activity and new knowledge, and thus introduces the

entrepreneurial absorptive capacity. The absorptive capacity allows potential entrepreneurs to

recognize possibilities for emerging businesses, but also includes their ability to

commercialize the ideas into real-life, valuable businesses.

The theory suggests that new knowledge combined with absorptive capacity might lead to

entrepreneurial activity. However, the absorptive capacity theory of entrepreneurship

suggests that new knowledge does not automatically lead to entrepreneurial activity (Qian

and Acs, 2013; Michelacci, 2002). It also depends on other factors, such as human capital,

R&D and barriers for entrepreneurial activity among others. According to the findings of this

study, all of the components were present, and the presence of absorptive capacity is evident.

In fact, this study’s main empirical findings turned out to lie on the high levels of absorptive

capacity from the respondent. In the case, the entrepreneur’s previously gained knowledge in

both technology and in business are of crucial importance. The roles of these are, as well,

highlighted in the theory as a vital part in absorptive capacity. This is apparent in the case;

29

without the knowledge gained in Nokia’s business unit, realizing the value of the business

idea would have been impossible, not to mention the capability of actually making it happen.

Furthermore, the theory highlights the importance of market knowledge in the absorptive

capacity process: “Entrepreneurial absorptive capacity addresses such capability especially

in terms of market knowledge to undertake entrepreneurial discovery and exploitation.”

(Qian and Acs, 2013, p. 192).

If the business opportunity was there, why did Nokia not see the potential of the initial

business idea in the case? The decision-makers of the incumbent firm might have prioritized

other inventions that for example give higher short-term return on investment. Other possible

explanations for the turn-down might have included a limited possibility for flexibility in

business strategy and model. Additionally, the business idea might have been out of the usual

range of Nokia’s business markets.

5.2.1 Human Capital in Absorptive Capacity

Human capital is defined as the skills and knowledge embodied in people (Qian and Acs,

2013; Schultz 1961). In the case, the respondent described social relationships as a part of the

spinoff process. Especially during the time when the spinoff was emerging from its previous

business unit, i.e when founder was in search of partners for the spinoff, relationships were

beneficial. The positive effect of human capital on the formation of new firms (Acs and

Armington, 2006) is in line with the case.

The theory suggests that internal knowledge is exchanged through social relationships.

Furthermore, Furlan and Grandinetti (2016) maintain that in the context of spinoffs, social

relationships are bound to be developed within, through or outside the parent company. They

further suggest that social capital is a crucial mechanism for creating intellectual capital prior

to the establishment of the spinoff, as well as a complement to it after the establishment. As it

becomes clear from the case, relationships were found particularly within and through Nokia.

In addition to employing ex-employees of Nokia, new business partners were also found from

among Nokia’s previous business partners.

30

What about the role of human capital in the context of entrepreneurial absorptive capacity? It

is maintained in the theory that human capital is a key determinant of absorptive capacity.

Human capital does not only represent the existing knowledge stock and new knowledge, but

is a key in helping the entrepreneurs in understanding new technology and realizing its

market value (Qian and Acs, 2013). In the case, it remains unclear whether and to which

extent the CEO considered human capital and social ties to have influenced to realization of

the business idea. Commercializing it, however, was strongly affected by relationships and

other social bonds. New knowledge was generated starting from the earliest phases. The two

ways in which human capital affects entrepreneurship are illustrated in the model (see Figure

2) by the two arrows starting from Human Capital.

5.3 A Helping Hand in Absorptive Capacity

Despite the spinoff process’ obvious overall linearity with the theoretical framework of this

study, our empirical findings reveal a specific trait in the process that contributes to the

research with a unique perspective. The role of Nokia Bridge in the spinoff creation is crucial

in the studied case. How did it modify the spinoff and the absorptive capacity of the founder?

The main aim of Nokia Bridge’s entrepreneurial career path choice was to help the previous

employees of Nokia to provide them with knowledge needed to succeed as an entrepreneur in

addition to financial aids. Thus, in the case of this spinoff, the inherited internal knowledge

was presumably more comprehensive than in a usual spinoff formation due to the specific

program created to help the employees at Nokia. In other words, Nokia Bridge facilitated and

strengthened the knowledge spillover process.

Another factor affecting the creation of this particular spinoff was the license negotiations.

The absorptive capacity focuses heavily on the entrepreneur’s ability to commercialize the

business idea, and a license at its best can contribute to that ability, which was evident in the

case of this study. The license made it possible for the founder to kick-start the operations of

the spinoff, since there was no need to build the product from the very start.

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This perspective leads to the main point of the analysis: Should a new model modified to the

parent company’s help be constructed or are the circumstances relevant for this case only?

This study thus implies that contributions from the parent company, whether positive or

negative towards spinoffs deriving from it, affect the absorptive capacity in the Absorptive

Capacity Theory of Knowledge Spillover Entrepreneurship.

The model could be specified for a spinoff born from a parent firm that in some way

contributes to or tries to prevent entrepreneurial activity deriving from it. The absorptive

capacity in the model (see Figure 2) could include, in addition to the dimensions of scientific

knowledge and market knowledge, a third dimension: contributions from the parent

company. In case the circumstances of this study are fulfilled, this dimension would

contribute to the knowledge of knowledge spillover entrepreneurship.

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6. Conclusion ___________________________________________________________________________

The conclusion of this study based on the empirical findings is presented in this chapter. It

will primarily answer the research question and discuss the purpose of the study. Moreover,

the findings are put into a perspective with a discussion about the study’s implications and

limitations. Finally, thoughts on future research suggestions are presented.

___________________________________________________________________________

This study is original in its perspective and offers an interesting and relevant case of today’s

entrepreneurship. The paper combines conceptual phenomena and a schematic model and

offers empirical evidence that aims to answer the scientific question of the study: How does a

founder’s knowledge inherited from an incumbent ICT company affect the formation of a

spinoff?

The purpose of this study is to contribute to the research on a founder’s knowledge inherited

from a parent company prior to creating a spinoff by providing empirical evidence on the

issue. The study is based on a case of a Finnish ICT spinoff deriving from the

telecommunications giant Nokia, and the research is designed in an exploring, qualitative

manner through interviews with the founder of the spinoff.

The theory implemented to analyze the empirical findings suggests that entrepreneurial

absorptive capacity affects how new knowledge is transformed into entrepreneurial activity.

This study is in line with the suggestion on the impact of absorptive capacity, but offers a

case-specific perspective in what can be called a helping hand in a spinoff creation process.

The findings of this study thus include that the model presented for the creation of

entrepreneurial activity is affected by the contributions from the parent company. In other

words, a positive or a negative approach from the incumbent firm, which might appear in

different direct or indirect ways affects the entrepreneurial absorptive capacity. The findings

are strongly illustrated by the case, in which the Nokia Bridge Program and license

negotiations affected the knowledge spillover process. Thus, the formation of a spinoff is

33

shaped by the founder’s knowledge inherited from an incumbent firm, but the inheritance is

directly affected by the parent company.

6.1 Implications

This study’s findings might be applicable to spinoffs from similar backgrounds and most

importantly, to parent companies that have generated multitude of spinoffs with a direct

approach in trying to help them. Although the model of Nokia as such can not be copied to

many companies, similar programs could be implemented by companies relying on

redundancies by aligning the program to the company’s size.

The most evident implication, however, lies in its Nokia-specific nature. By 2013, Nokia had

already given birth to over 1000 spinoffs through its Nokia Bridge Program (Vänskä, 2013),

one of which is the spinoff in this study. Since all the spinoffs went through the same

program and were shaped by the process, the findings of this study are most likely applicable

to the reflection on all of these. Furthermore, a possible implication of a bigger scale is all

spinoffs of which the founders have received notable help from a bigger company.

6.2 Limitations

The limitations of this study lie in the difficulties to research an individual unit. Qian and Acs

(2013) in their study An Absorptive Capacity Theory of Knowledge Spillover

Entrepreneurship maintain that it is nearly impossible to measure the different factors in the

model and thus, measure the individual entrepreneur. However, they imply a suggestion to try

to do so.

Furthermore, to try to cover for the limitation, Qian and Acs’ (2013) study uses rather

different measuring objects than this paper. While this paper is constructed rather

conceptually and qualitatively, Qian and Acs’ paper tries to capture the individual through

measuring a geographical area, namely U.S metropolitan areas. For example, the study

measures new knowledge being generated through human capital and entrepreneurial

34

absorptive capacity as the amount of new patents in an area. The differences in these studies’

operationalization decreases the capability to replicate either of them.

6.3 Future Research Suggestions

The lack of empirical research on absorptive capacity, and furthermore absorptive capacity in

entrepreneurship, with an individual approach results in that efforts towards further research

should be encouraged in this area.

Moreover, as Furlan and Grandinetti (2016) note, the spinoff knowledge has primarily

confined to modern high-tech industries, which indicates a lack of spinoff research

considering different industries.

Further research on Nokia’s spinoffs might add to the reliability of this study. Moreover, the

effects of Nokia Bridge for the individuals who chose other career paths than

entrepreneurship might show different result on Nokia’s contributions to the Finnish and

global economy. Thus, this study encourages additional future research on Nokia Bridge.

35

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Ali-Yrkkö, J. and Hermans, R. (2002). Nokia in the Finnish Innovation System. Helsinki,

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Bailetti, T. (2012). Technology Entrepreneurship: Overview, Definition, and Distinctive

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39

7.2 Oral References

CEO, Telephone Interview, 2017-12-08

CEO, Telephone Interview, 2017-12-11

40

Appendix 1.

Interview Guide

Background:

Thank the respondent for taking the time for the interview and participating in the study.

Present the structure of the interview. Explain briefly the purpose of the study. Discuss and

make a decision about the anonymity. Ask for permission to record the interview.

Interview Questions:

1. Can you please tell us about the company you currently work at?

2. What is your current position and has it changed at any point?

3. For how long have you worked for the company?

4. For how long did you work for Nokia?

5. What were your position(s) and general work tasks at Nokia?

6. Why and/or how did you leave Nokia?

7. Please tell us about the results of the market exploration.

8. Why and/or how were you offered to participate in the Nokia Bridge Program?

9. What did the program exactly offer to you?

10. Why did you choose the entrepreneurship path of the program?

11. In what ways did the program help you with the establishment of your own company?

12. Were there any downsides with the program?

13. Did you get a product license from Nokia?

14. How did the negotiations with Nokia go?

15. How did you get in contact with your first clients?

16. How did you find your first employees?

17. What kind of social relationships did you use in the course of the first years of the

operations of your company?

18. Did your previous corporate knowledge (inherited from Nokia) help you with the

formation process of your own company?

19. To what extent did you utilize the inherited knowledge?

20. What part of the inherited knowledge was most apparent in the formation process?

41

21. Do you consider that the help received from Nokia affected the establishment of your

own company - and to what extent?

Final Words:

Do you have anything to add to the discussion? Thank you for your answers and participation

in the study!