Establishing appropriate criteria to select the target group and support innovation activities

Why is this a policy challenge?

Overly strict competitive selection criteria might disqualify individuals from disadvantaged groups as well as laggard firms and regions. For example, the Thuthuka Programme in South Africa could not receive the necessary number of applicants as the eligibility criteria were very demanding. The Latvian Measure for Commencing Commercial Activity or Self-Employment programme, which aimed to support business creation by unemployed individuals, encountered similar challenges (OECD/EU, 2016).

In turn, eligibility criteria that are not specific enough (e.g. vague definitions of what are considered innovation activities, lagging firms or disadvantaged groups) and insufficient monitoring of policy implementation may result in policies benefiting firms that are not in need for such funding. In other cases, some firms might define as “innovative” some of their usual activities, or introduce changes to comply with requirements but with no effective long-lasting impacts on inclusiveness and the innovation performance of firms (such as recruiting workers from minority groups without giving them the opportunity to engage in research), with benefiting from funding the only objective. For example, some benefitiaries of the Hungarian Innovation Voucher programme were found to use vouchers to finance their “usual” innovation activities. This is known as the “crowding out” effect of public funding.  

How can these challenges be addressed?
  • Establish selection criteria that go beyond skills and past performance to also value applicants’ motivation and potential for success, taking into account the objectives of the intervention. See examples.
  • Clearly define the scope of activities that could be supported and plan monitoring activities to confirm effective implementation of the programme. This could also involve setting rewards for results. See examples.
  • Establish criteria to select firms with the potential to become profitable businesses and create jobs. See examples.
  • Provide public support that is conditional on the participation of the private sector in financing the programmes, and establish fixed monetary and temporallimits for the provision of public funding. This increases chances of public funding being allocated to projects with positive returns on investments and long-term impact. See examples.
  • Involve third party organisations, experts and the target group itself in designing the programme’s structure, including the application procedure and the eligibility and award criteria. See examples.
  • In some cases, equity investment can be an adequate alternative to loans and grants to reduce the risk of moral hazard. See examples.

Science and Technology Entrepreneurship Development - India

2001-present

Measure implemented: Plan monitoring activities to confirm the effective implementation of programmes

While grants to implementing agencies are allocated for four years, yearly continuation of the project is contingent on satisfactory performance. Performance of projects is evaluated quantitatively and qualitatively by the STED Expert Advisory Committee, which meets two to three times a year at the project site to assess progress. Regular site visits by experts are also organised to monitor its evolution and suggest mid-term corrective actions if necessary.

Competitive Start Fund for Female Entrepreneurs Programme - Ireland

2012-present

Measure implemented: Establish criteria to select firms with the potential to become profitable businesses and create jobs

To be eligible to receive grants from the Fund, companies must demonstrate that they are capable of creating ten jobs and realising sales of EUR 1 million within the following three years. Their application is then evaluated based, among other criteria, on their ability to deliver key commercial and technical milestones over the following year, and on the expected impact of an investment of EUR 50 000 on the execution of their business plan. 

Large companies’ R&D Centres in Israel’s Periphery programme – Israel

2010-present

Measure implemented: Provide public support conditional on the participation of the private sector in financing the programmes

The Large companies’ R&D Centres in the Periphery programme in Israel provides grants to large firms, covering 65% to 75% of the expenses of R&D centres created in peripheral regions for 24 to 36 months. 

Competitive Feasibility Fund for Female Entrepreneurs Programme – Ireland

2012-2014 

Measure implemented: Provide public support conditional on the participation of the private sector in financing the programmes

The Competitive Feasibility Fund for Women Entrepreneurs in Ireland provides grants to fund feasibility studies covering up to 50% of eligible expenditures, up to a maximum of EUR 25 000. 

Innovation Fund for SMEs – China

1999-present

Measure implemented: Use equity investment as an alternative to loans/grants when appropriate

In China, the Innovation Fund, which supports the enhancement of the innovation capacities of local SME, includes equity investments among its policy instruments.

Competitive Start Fund for the design sector – Ireland

2015-present

Measure implemented: Use equity investment as an alternative to loans/grants when appropriate

Enterprise Ireland also provides equity financing to innovative start-ups, for instance through the Competitive Start Fund for start-ups in the design sector.

Other examples

Measure implemented:Establish selection criteria that go beyond skills and past performance, to value applicants’ motivation and potential for success

The Mature Entrepreneur programme in Poland targeted unemployed or inactive individuals aged 50-64 who wanted to create a business. The programme introduced measures to select candidates with the highest chances of succeeding in their entrepreneurial venture. Applicants had to submit a written application, undergo an interview, and make a short oral presentation about their business ideas and motivations. Selected applicants were provided with 150 hours of training during which they developed their business plans. At the end of the training, only the most motivated and diligent participants with a feasible business plan got the one-time grant (OECD/EU, 2016). 

Measure implemented:Involve third party organisations and experts in designing the programme structure 

The Italian region of Piedmont has improved the bottom-up identification of innovation policy priorities by promoting sustained dialogue among various innovation stakeholders (such as the regional executive council, representatives from the most innovative companies in the region, employer associations and trade unions, regional universities, research organisations, etc.) (OECD, 2009).

Measure implemented: Involve third party organisations and experts in designing the programme structure 

 

In the context of the European Union’s Framework Programmes for Research and Innovation aimed at SMEs (industrial inclusiveness) or regional programmes aimed at lagging regions (territorial inclusiveness), the European Commission and national bodies organise local workshops and develop online questionnaires for potential target groups in order to be able to design the most effective innovation initiatives.

References

OECD/EU (2016), Inclusive Business Creation: Good Practice Compendium, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264251496-en.

OECD (2009), OECD Reviews of Regional Innovation: Piedmont, Italy 2009, OECD Publishing, Paris,  http://dx.doi.org/10.1787/9789264039162-en