Case 9: Copper scrap extraction, “too much emphasis on diffusion instead of development”

This Dutch spin-off company developed a recycling technology for separating copper rich parts from metal scrap. The company was founded in 2008 and can be characterised as a adhocracy. The company was founded as a partnership between a technical university and a venture capitalist firm. The former owns 30% of the shares, the latter the other 70%. The company and process innovation were funded by the venture capitalist and through grants and subsidies from government.

The goal of the clean scrap machine is to extract non-contaminated copper parts from a mix stream of metal scrap. By getting the ferrous scrap completely clean, while concurrently doubling the quantity of copper that can be extracted from the ferrous scrap stream, the company ensures that scrap continues to serve as a vital source of raw materials for both the steel and copper production industries. The new separation technique is able to separate copper from metal scrap by using the concept of magnetism combined with velocity and material density. The material is sorted based on density, shape and magnetic properties. The advantages of this technology are higher copper revenues, higher scrap quality, less hand sorting, consistent quality of outputs and a simple and robust recycling system.

This new process can be considered an application innovation. The technological change from a producer's view is rather limited, because it mainly uses existing principles from the recycling industry. Existing Eddy Current separators are known to use both velocity and magnets to separate ferrous and non-ferrous material. The increased benefit from a customer's view, however, is high. Incumbents from the steel industry have highlighted the increasing problem of copper contamination in steel production. This requires more robust techniques that can deliver a clean, copper-free scrap input for steel production, which the current technology realises. The company therefore can be considered to be the result of market pull. Being a spin-off of a Dutch university, the company had access to an advanced prototype on which the current technology is based. The innovation is successful in that it has already been implemented at several customer companies and has won an innovation award.

No key factors from the firm’s meso or macro environment for the development of the innovation or imitation barriers could be identified. Early involvement of a venture capital firm provided the company with substantial financial resources, but also resulted in pressure on swift commercialisation and resulted in initial failure.

The most important resource activities conducted with regard to the development of this innovation and generation of imitation barriers are: the companies ties with the university that possessed valuable research capabilities and knowledge on the required technical disciplines, the acquired patent on the technology and financial resources to defend it, the availability of time to improve the innovation after initial commercialisation failure and the attraction of an experienced CEO after initial commercialisation failure.

Cognitive barriers for this process innovation might originate from inter-organisational conflict. Although inter-organisational being present within the innovator company does not necessarily imply that this should also occur at an imitator firm, it might occur at an imitator that finds itself in a similar situation. There was substantial conflict or friction between the innovator company’s and university's interest to first improve the technology, and the venture capital firm’s interest to commercialise the innovation as quickly as possible.

Willingness barriers arise from different sources, namely institutionalised norms in the recycling industry. The recycling business, according to the company’s manager is often considered to be highly conservative when it comes to new technologies, which can partially be explained by the high investments that are required for the machinery. This also has a direct impact on the ability to sell new recycling processes to the industry. According to the company’s CEO, “It has been a tough business to pitch new ideas in, and stakeholders noted that it has only appeared to become tougher the last few years”. This might deter potential imitators from imitating this technology.

Different types of ability barriers are present for the current process innovation. With regards to IPR, the company acquired a patent on the magnet technology underlying the process. The university professor leading the research activities for this technology is an experienced researcher. Aside from the company's technology, he has patented several of his other innovations. His experience as a researcher and his connections both within and outside the university were prerequisite for the initial development steps and existence of the innovation.

The company experienced the effects of path dependency, in the form of time compression diseconomies, during development of the innovation. The company was too quick to market the new process, due to pressure from the VC company. The CEO acknowledges that “innovations like these need time to diffuse and that instead of aggressive marketing, fundamental improvements needed to be made to the process”. After restructuring, the company started to approach potential clients in a much more focused way. By focusing on fewer potential clients, but investing more time in the relationship with them, they managed to make extra sales. Time therefore was an irreplaceable resource.

The company also established advertisement and channel crowding advantages through the construction of demonstration models, which it did in collaboration with an external manufacturer. The first (of three) external manufacturing companies helped with the basic design of the machinery and produced the first two demonstration models/prototypes with the help of the university. Early realisation of this working demonstration models (only after two years), allowed the company to generate exposure in an early stage of development. In line with other cases, potential imitators might not experience similar exposure due to channel crowding.

The interim manager that was hired by the VC firm after the initial failed commercialisation, had firm-specific knowledge in the form of 10 years experience in the waste industry. After careful consideration, he concluded that the innovation first needed to be further developed. This manager changed the company's culture and

demanded the required changes from the VC firm. The manager subsequently developed a new and complex strategy to foster more sales with a highly focused marketing and sales strategy. By short listing approximately 20 potential clients and subsequently only approaching 5 of those, sales activities became more focused. According to the manager, “it is much easier to grasp the needs of five companies than it is of as many as 70 at the same time”, which is the number of clients they initially approached.

To conclude, the most important relationships in this case were: the facilitating influence of firm characteristics on resource orchestration, through the spin-off relationship the company had with the technical university; and the influence of the firm’s resource orchestration on the created imitation barriers, through for instance the managers firm-specific knowledge and the acquired patent. The innovation characteristics only mediate the relationship between resource orchestration and imitation barriers in that the innovation’s content is patentable. The mediating influence of meso and macro context is neglectable, because its negative and positive effects balance each other and were not of direct influence on imitation barriers.

Figure 19: Relationships model case 9