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Little technological innovation in Norway’s fast-growing businesses

For the last few years, Professor Eirik Vatne of the Norwegian School of Economics (SNF) has been following Norwegian gazelles – that is, fast-growing companies that double in size over a four-year period.

Bilde fra et konferanserom med en oppadstigende graf i bakgrunnen  Gazelle companies grow quickly in Norway. Only a small number of these are research-based or associated with knowledge centres. (Photo: Shutterstock) 

Gazelles are considered a vital component of future industry and commerce and an important gauge to how dynamic a regional economy is. Government authorities in most countries are therefore actively investing in the growth potential for this type of business.

Most gazelles flock around the cities

Many gazelles were emerging in southern and western Norway prior to the financial crisis. Following the crisis, most fast-growing enterprises cropped up around Oslo. Most of these companies operated in the information and communications services sector.

It turns out that few businesses experience continual growth over a protracted period.

"The difference in the growth rate between established businesses and new enterprises disappears after only a few years. In other words, the growth of the youngest gazelles flattens out in time as they reach a size more in line with established businesses."

Fast-growing enterprises can be found in all regions of Norway. In relative terms more businesses are starting up in urban regions than in the districts.

"Only a small number of these growth enterprises are research-based or associated with knowledge centres.

An enterprise’s rapid growth may be attributed to a number of factors. Some succeed because they have developed unique products or services that are well suited to the market.

Others have been particularly successful in developing flexible organisations that quickly adapt to change and come up with innovative solutions. And some have simply been lucky enough to be at the right place at the right time," states Professor Vatne.

Technological innovation not a priority

Bilde av plakat fra Viking garn med ung kvinne som har på seg produkter fra viking: vanter, skjerf og lue Viking of Norway earned the distinction of Gazelle company 2011. (Illustration: Viking garn)

Professor Vatne has also studied both how these enterprises develop new knowledge and which underlying qualities lead to their growth.

Unique talents in developing new products or production processes (product and process innovation) are not seen as key elements in promoting rapid growth. This is just as true for industrial enterprises as it is for service providers.

According to Professor Vatne, fast-growing enterprises must have state-of-the-art products and be adept at applying new knowledge in their business.

The one thing distinguishing gazelles from their competitors, however, is their ability to understand the market and to continually adapt products and services to suit their customers’ needs. This applies to everything from developing new value-added services for a product to finding new distribution channels.

"Customer focus and development of services are often more important than technological innovation," Eirik Vatne points out.

The study finds that when these enterprises do focus on technological innovation, the priority is first and foremost related to producing services and products.

Is research superfluous?

One objective of the Norwegian Government is to integrate industry and knowledge communities more closely into innovation activities. The vision is for Norway to become one of the world’s most innovative countries.

"Would you say that the research community is superfluous to the growth of these businesses?"

"It’s never completely straightforward, but the tendency is that gazelles primarily learn and develop their new knowledge from exchanges with partners outside the education and R&D institutions. I also believe that there is too much focus on research and development of high-tech as the drivers behind a company’s growth."

Professor Vatne emphasises that industrial activity is still, by and large, knowledge-based, even if these businesses perform no formal research or development or if they cooperate with educational and research institutions only to a small degree.

"It’s more common for knowledge development to arise from close dialogue with customers and suppliers, through professional networks and the quick adoption of new technology and organisational forms."

Important service sector

"How can politicians make use of your research findings?"

"It’s important to remember, once again, that the service sector is an important part of the Norwegian economy and that services are also provided in connection with industrial production, including oil and gas activities. Knowing what customers need and recognising changes in markets is therefore very important. Companies need new knowledge, cutting-edge initiatives and new service offerings in order to figure out how to re-position themselves."

According to Professor Vatne, there is already a great deal of knowledge about technological innovation and this in turn results in research and innovation policies favouring technology. Much less is known about organisational and service innovation.

"We need political initiatives for innovation that can drive this type of creativity forward in Norwegian businesses. A larger initiative in this field in industrial, research and innovation policy is called for."

Specialising in innovation

Professor Vatne carried out his project over a five-year period (2006-2011) with funding under the Programme on Democracy and Governance in Regional Context (DEMOSREG) at the Research Council of Norway.

Professor Vatne selected gazelles as a topic since growth in this type of company is presumed to result from unique expertise and special abilities in innovation. How knowledge-exchange actually takes place in such workplaces was one of the primary research questions.

The study is based on data from approximately 130 000 Norwegian limited companies in the period from 1998 to 2010. Close to four per cent of these can be defined as gazelles. Nearly 400 directors responded to a survey intended to map out growth strategies and competitive advantages. Responses came from organisations ranging from commerce, construction and manufacturing to the hotel and restaurant sector as well as knowledge-based services such as information, communication and property management.

"Apart from the annual selection of Norwegian gazelles carried out by Norway’s largest financial newspaper, Dagens Næringsliv, we know surprisingly little about this type of fast-growing business here in Norway," says Professor Vatne.

As a result, the primary objective of the project has been to obtain general knowledge on this type of enterprise: which sectors do they operate in, where are they located, how lucrative are they and how do they grow over time? These are some of the big questions.

Professor Eirik Vatne headed the project, "Regional growth, innovation and learning" (2006 to 2011) which received funding under the DEMOSREG programme at the Research Council of Norway.

 

The Gazelle company was coined by David Birch, a researcher in the USA. As early as the 1980s, he understood that it was the small, fast-growing businesses that created the greatest amount of employment, whereas financial “elephants” must constantly streamline efficiency and often reduce the number of employees in their companies.

Bilde av logo til årets gasellebedrift (Illustration: Dagens næringsliv)

Each year, the financial newspaper, Dagens Næringsliv, selects gazelle companies based on the following criteria:

  • Submitted approved financial accounts
  • Doubled in size or more in the period of four years
  • Attained revenues of over NOK 1 million in the first year
  • Achieved positive operating profits
  • Experienced no negative growth
  • Organised as a limited company

(Translation: Glenn Wells/Carol B. Eckmann)

 

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