An exploratory case study on the performance of the SEDA business
incubators in South Africa
Sandheep Ramluckan
Research report presented in partial fulfilment
of the requirements for the degree of
Master of Development Finance
at the University of Stellenbosch
Supervisor: Professor W.H. Thomas
Degree of confidentiality: C
December 2010
ii
Declaration
By submitting this research report electronically, I, Sandheep Ramluckan, declare that the entirety
of the work contained therein is my own, original work, that I am the owner of the copyright thereof
(unless to the extent explicitly otherwise stated) and that I have not previously in its entirety or in
part submitted it for obtaining any qualification.
S. Ramluckan
31 October 2010
Copyright © 2010 Stellenbosch University
All rights reserved
iii
Acknowledgements
I would like to express my sincere appreciation to my supervisor, Prof Wolfgang Thomas, for his
guidance throughout this thesis.
I would also like to thank my fiancé, Reica, for her unselfish love, patience and support which
made this journey possible, and my family and friends, for their words of encouragement.
A special thank you goes to Debbie Jacobs, the course co-ordinator, for her assistance throughout
my studies.
I am grateful to Mr Jahesh Ravjee and the staff of the SEDA Technology Programme, for the
resources that they have made available to me.
I am indebted to Mr Iegshaan Ariefdien of Furntech, for his valuable input in this thesis and Mr
Sipho Ngcai of the STP for providing me with the necessary STP data.
Finally, I would like to thank the management of the STP business incubators that have assisted
me in this thesis.
iv
Abstract
In recent years, the significance of the business incubation process as a public sector instrument in
the promotion of socio-economic development has become quite topical. Although the benefits of
business incubators are well documented, they are not always well received as the most suitable
mechanism through which a country’s socio-economic goals can be achieved. In the light of the
increasing utilisation of business incubators to grow small businesses, create employment and
perform a host of other essential services for governments, it is vital that a common framework
exists through which business incubators can be evaluated and compared. However, as business
incubators come in a variety of models and they continue to evolve, evaluating the performance of
a business incubator is a challenging process.
In this study we have embarked on a process to establish a common and replicable framework for
evaluating the performance of a business incubator. We begin this study by examining the various
classifications of business incubators and their widely varying impacts with respect to the various
stakeholders involved in the business incubation process. We examine the necessary performance
drivers and the different approaches for evaluating performance. The study then reviews key
performance indicators and metrics from which we have established a common international
framework for evaluating a business incubator’s performance. This framework utilises thirty key
performance indicators, divided into three distinct categories. They measure the efficiency,
sustainability and effectiveness of a business incubator. Although this framework is not absolute in
terms of performance measurement, we are satisfied that it is adequately comprehensive to
measure the wide ranging impacts of an incubator and meet the performance appraisal
requirements of its stakeholders.
This study also explores the performance of the SEDA Technology Programme (STP) business
incubators in South Africa. Since the country’s first democratic election in 1994, the country has
embarked on a broad strategy to grow the small business sector and make small businesses more
competitive and technologically efficient. The SEDA business incubation programme has been a
central component to the success of this strategy. However, since its inception in 2006, no known
independent analyses have been conducted on the performance of the STP business incubators. It
is intended that by independently evaluating the performance of the STP incubators, this study will
shed new light on the advancement that has been made in meeting the strategic objectives of
government.
Although the common international framework established in this study is suitable for evaluating
the performances of business incubators in most countries, the specific goals and objectives of a
country may necessitate that additional key performance indicators be introduced into the
evaluation framework. For instance, the SEDA Technology Programme requires that business
incubators are accessed on the number of black-owned and women-owned SMMEs created in
addition to other standard evaluation criteria. For this reason we have utilised the framework of the
v
SEDA Technology Programme instead of the common international framework established in the
study, to evaluate the performance of the STP incubators. In keeping with the format of the STP
framework, incubators have been evaluated based on the promotion of macro-economic goals, the
optimisation of incubator deliverables and the sustainability of the incubator.
Our analysis on the performance of the STP business incubators revealed that the STP incubators
have by and large delivered on their macro-economic goals and that there has been a progressive
improvement on the promotion of macro-economic goals and sustainability of the STP incubators.
The STP incubators however, have performed poorly in terms of technology transfer. In addition,
the findings of this study have reconfirmed the commonly held conviction that publicly funded
incubators require management that is proactive, has good business skills and entrepreneurial
experience, and which is able to manage the incubation centre on well established business
principles. Over and above this, incubators also need to endeavour to become independent of
public funding by deriving most of their revenue from the services rendered to incubatees.
vi
Table of contents
Page
Declaration
ii Acknowledgements
iii Abstract
iv List of tables
viii List of figures
ix List of acronyms and abbreviations
x CHAPTER 1 INTRODUCTION AND RESEARCH PROBLEM
1 1.1 BACKGROUND
1 1.2 BUSINESS INCUBATION
2 1.3 PROBLEM STATEMENT
3 1.4 RESEARCH OBJECTIVES
4 1.5 BENEFITS OF THE STUDY
5 1.6 RESEARCH DESIGN
5 1.7 DATA COLLECTION
5 1.8 LIMITATIONS OF THE STUDY
5 1.9 STRUCTURE OF THE REPORT
6 CHAPTER 2 THE ROLE AND SIGNIFICANCE OF BUSINESS INCUBATORS
7 2.1 INTRODUCTION
7 2.2 DEFINITION OF BUSINESS INCUBATORS
7 2.3 TYPES AND DESIGNS OF INCUBATORS
9 2.3.1 Sponsors/ Stakeholders
9 2.3.2 Incubator impacts
10 2.3.3 Physical structure
11 2.3.4 Management support and level of technology
12 2.4 BASIC INCUBATOR SERVICES
13 2.5. THE ROLE AND SIGNIFICANCE OF INCUBATORS
13 2.6 PERFORMANCE DRIVERS
14 2.6.1 Principles for successful and sustainable business incubation
15 2.6.2 Critical factors for successful and sustainable business incubation
15 2.7 SUMMARY
19 CHAPTER 3 PERFORMANCE MEASUREMENT
21 3.1 INTRODUCTION
21 3.2 IMPORTANCE OF PERFORMANCE EVALUATION
21 3.3 PERFORMANCE APPROACHES
21 3.4 KEY INDICATORS/ METRICS FOR PERFORMANCE ASSESSMENT
22 3.5 A FRAMEWORK FOR PERFORMANCE EVALUATION
27 vii
3.6 SUMMARY
29 CHAPTER 4 THE SEDA TECHNOLOGY PROGRAMME IN PERSPECTIVE
31 4.1 INTRODUCTION
31 4.2 EVOLUTION OF BUSINESS INCUBATION IN SOUTH AFRICA
31 4.3 OVERVIEW OF THE SEDA TECHNOLOGY PROGRAMME
32 4.4 THE STP BUSINESS INCUBATORS
32 4.5 OTHER PUBLIC AND PRIVATE SECTOR BUSINESS INCUBATORS
40 4.6 SUMMARY
41 CHAPTER 5 EVALUATING THE OVERALL PERFORMANCE OF THE STP INCUBATORS
43 5.1 INTRODUCTION
43 5.2 SAMPLE DATA
44 5.3.1 Spread of STP incubators
45 5.3.2 The STP performance evaluation framework
47 5.3.2.2 Optimisation of centre deliverables
56 5.3.2.3 Sustainability
57 5.4 SUMMARY
60 CHAPTER 6 LESSONS LEARNED AND CONCLUSION
62 6.1 PERFORMANCE REVISITED
62 6.2 LESSONS LEARNED
65 6.3 CONCLUSION
66 REFERENCES
68 APPENDIX A STP KEY PERFORMANCE INDICATORS
75 viii
List of tables
Table 1: Impacts of business incubators
14 Table 2: Performance evaluation framework of the Centre for Strategic and Evaluation Studies
23 Table 3: Performance evaluation framework
24 Table 4: KPIs for a performance evaluation framework
29 Table 5: Public and private sector business incubators
40 Table 6: STP business incubators
45 Table 7: Spread of incubated and graduated firms by sector (2007-2010)
46 Table 8: STP Performance Evaluation Framework (2007-2010)
47 ix
List of figures
Figure 1: The incubation process
8 Figure 2: Types of incubators
12 Figure 3: Core capabilities of incubator management
17 Figure 4: Factors contributing to business incubator failures
18 Figure 5: Hard and soft performance measures
26 Figure 6: Framework for performance evaluation
28 Figure 7: The number of new SMMEs created (2007-2010)
48 Figure 8: New jobs created (2007-2010)
49 Figure 9: New projects initiated (2007-2010)
49 Figure 10: Number of SMMEs supported (2007-2010)
50 Figure 11: Number of clients supported (2007-2010)
51 Figure 12: Number of graduates produced (2007-2010)
51 Figure 13: Total SMME turnover at the end of the financial year (2007-2010)
52 Figure 14: Foreign exchange earned (2007-2010)
52 Figure 15: Percentage growth in SMME income (2007-2010)
53 Figure 16: The number of woman-owned SMMEs created (2007-2010)
53 Figure 17: The number of black-owned SMMEs created (2007-2010)
54 Figure 18: Percentage of clients still in business after 1 and 2 years (2009-2010)
55 Figure 19: Number of clustering activities (2007-2010)
56 Figure 20: Technology transfer interactions completed (2007-2010)
56 Figure 21: Percentage dependency on STP funding (2007- 2010)
57 Figure 22: Percentage of funding that goes to clients (2007-2010)
58 Figure 23: Total grants received as a percentage of costs (2007-2010)
58 Figure 24: Total fees received as a percentage of income (2007-2010)
59 Figure 25: Percentage of clients paying for services (2007-2010)
59 x
List of acronyms and abbreviations
BBIC
Bahrian Business Incubator Centre
BEE
Black Economic Empowerment
BII.GE
Business Incubator Initiative, Georgia
CHEMIN
South African Chemical Technology Incubator
CSES
Centre for Strategy and Evaluation Services
DACT
Downstream Aluminium Centre of Technology
DST
Department of Science and Technology
DTI
Department of Trade and Industry
EGOLIBIO
Egoli Biotechnology Incubator
FURNTECH Furniture Technology Centre
ICT
Information and Communication Technologies
IDISC
InfoDev Incubator Support Centre
InfoDev
Information for Development Programme of the World Bank Group
KPIs
Key Performance Indicators
LEPHARO
Seda Ekurhuleni Base Metals Incubator T/A Lepharo
MASD&T
Mpumalanga Agri-skills Development and Training
MMI
Makhura Maphura Incubator
MSI
Mpumalanga Stainless Initiative
NBIA
National Business Incubation Association
NGO
Non-Governmental Organisation
OECD
Organisation for Economic Corporation and Development
PPP
Public-Private Partnership
SAMI
Seda Agriculture, Mining and Tooling Incubator
SATEC
Seda Automotive Technology Centre
SBDC
Small Business Development Corporation
SBTI
Softstart Business Technology Incubator
SCI
Seda Contractors Incubator
SEDA
Small Enterprise Development Agency
SEOBI
Seda Essential Oils Business Incubator
SESUCI
Seda Sugar Cane Incubator
SLJI
Seda Limpopo Jewellery Incubator
SMEs
Small and Medium Enterprises
SMMEs
Small, Medium and Micro-enterprises
SMTDC
Soshanguve Manufacturing Technology Demonstration Centre
SNMBICT
Seda Nelson Mandela Bay ICT Incubator
SPI
Seda Platinum Incubator
xi
STP
SEDA Technology Programme
TAC
Technology Advisory Centre
TBCs
Technology Business Centres
TIMBALI
Timbali Incubator
UNIDO
United Nations Industrial Development Organisation
ZENZELE
Zenzele Technology Demonstration Centre
1
CHAPTER 1
INTRODUCTION AND RESEARCH PROBLEM
1.1 BACKGROUND
South Africa is a country faced with many challenges. A large segment of its workforce is
unemployed; the country has economic and social inequality and there is significant disparity
between its formal economy and informal economy. In an attempt to grow its economy and narrow
the gap between the informal and the formal economy, the government has adopted an integrated
strategy to develop and grow small, medium and micro enterprises (SMMEs).
One of the institutional pillars of the government’s integrated strategy is the Small Enterprise
Development Agency (SEDA) which is an umbrella body assigned with growing the SMME sector
in South Africa. An important tool in SEDA’s broader strategy for small business development is
the SEDA Technology Programme (STP). This is a special ring-fenced programme of the
Department of Trade and Industry (DTI) that is housed within SEDA and has been created as a
comprehensive platform to provide technology and business development support services to
SMMEs nationwide via its technology business centres (TBCs)(STP, 2009).
SEDA has made available a significant amount of public funding to the STP; by the financial year
ending 31 March 2009, the STP had a budget of R120 million (STP, 2009). An important question
though is whether these funds have been utilised effectively so as to maximise government’s
return on investment towards the development of SMMEs (STP, 2009).
Indeed, in most countries where public funded business incubators have been the favoured
instrument for SMME development; their development has generated intense ideological and
intellectual debate between individuals and organisations advocating and opposing business
incubation. At the heart of this ongoing dispute is the performance of business incubators and their
usefulness as an instrument to stimulate SMME growth and competitiveness and promote local
and regional economic development (Eshun, 2004: 213).
Research has shown that the performances amongst business incubators vary, especially since
business incubators have different objectives. Government sponsored incubators in particular are
poor performers, largely because the key individuals that support these incubators are frequently
changed at government level. Private incubators on the other hand, operate for profit and therefore
focus on enterprises, which promise the highest return on investment. These incubators prove to
be good performers, however this does not necessarily equate to the highest benefit for economic
development and the civil society (Business Incubation Initiative, Georgia).
As the STP business incubators are publicly funded entities that focus on economic development,
job creation and SMME development, it is important to be able to evaluate their performance so as
to determine their socio-economic benefits and impacts, and their effectiveness in promoting the
2
growth of the SMME sector. Furthermore, an evaluation of the STP incubator performance is
necessary because it has implications for future government funding policies and strategies.
1.2 BUSINESS INCUBATION
Throughout the world, small, medium and micro-enterprises (SMMEs) are crucial for fostering
economic growth and social development - a vital tool in a government’s drive to create
employment. In South Africa, research reveals that SMEs employ 52 per cent of the workforce and
contribute 43 per cent to gross domestic product (Mahlangu-Nkabinde, 2010). In addition to job
creation, SMEs also enable governments to close the skills gap since they create labour-intensive
economic opportunities that are less skills-intensive, and they act as a springboard to transform
less skilled workers into skilled workers as their businesses grow (Mahlangu-Nkabinde, 2010).
SMMEs though, require significant public sector support as they traditionally have a very high
failure rate. To reduce SMME failures, governments have adopted a wide array of initiatives, which
consist of a combination of business development services, business advisory services, business
incubation, technology and science parks, industrial parks and industry clusters (World Bank,
2010: 14-15).
At the core of many of these initiatives is business incubation, which is the process of clustering
small businesses in one location, and providing them with a variety of essential services and
sources of capital under an experienced incubator management, thus improving their chances of
collective success (InfoDev, 2009).
Business incubation is an important process in the overall economic development strategy of a
country. It is one of many ways to foster entrepreneurship and business development, and it has
proven to be more cost effective than alternative SME support structures in accelerating the startup of small businesses and maximising their growth potential. Studies have shown that publicly
supported incubators in general are more cost effective in providing jobs than other public
mechanisms, since each job created by a business in the incubator creates 0.5 indirect jobs in the
community (Business Incubator Initiative, Georgia, No year). In the United States, business
incubators generate up to twenty times more jobs than any other federally funded community
infrastructure programme and at a fraction of the cost per job (NBIA, 2010). In addition, evidence
suggests that business incubators can significantly improve the survival and growth prospects of
start-ups and small firms at an early stage of development (Rouwmaat, Reid & Kurik, 2003).
In developing countries the majority of incubators are funded by central or local government
resources (Scaramuzzi, 2002: 6) and operate as non-profit organisations that focus on economic
development goals (Lalkaka, 1999). In most of these countries governments justify public
investment in small business incubators on the argument that business incubators play an
important role in job creation and SMME development. Certainly there is support for this argument
with evidence from Europe indicating that over 40000 net jobs are created each year by business
3
incubators (CSES, 2002), while in North America, business incubators had created nearly 19 000
businesses and more then 245 000 jobs by 1998 (Lavrow & Sample, 2000).
However, on the flip side of the coin, substantial amounts of capital are invested on incubators
based on the objective that they will contribute to local economic development. Bernier (2000) cites
the US as one example where of the 700 small business incubators in existence in 2000,
approximately 90 per cent were established with and are dependent on public subsidy. A similar
picture is revealed in Europe where public support for incubators is critical for the establishment of
business incubators, irrespective of the type or model adopted. Most of the set up costs and
approximately 37 per cent of the operating revenue for business incubators comes from public
funds (CSES, 2002). This is no different in South Africa where the majority of business incubators
are public funded and derive their revenues from the SEDA Technology Programme (STP).
One can argue that the derived social and economic benefits from the incubation process clearly
justify the need for continuing public funding of business incubators. This is especially relevant in
developing countries such as South Africa where most incubators are non-profit, and generally
funded by public resources or multilateral and bilateral donor organisations (Scaramuzzi, 2002).
One can further argue that incubators are designed to fulfil a wide range of developmental goals
and objectives in the pursuit of diverse social, economic and even political agendas (Eshun, 2004:
218), and that self sufficiency is not a key objective of an incubator.
Yet, as the NBIA (1998) points out, the use of business incubators to promote economic
development can be problematic, as not all incubators perform well. In one study, the NBIA (1998)
found that over 80 per cent of the incubators researched in the study had yet to break-even, while
in another study researchers found that nearly two thirds of incubators surveyed nationwide were
not financially self-sustaining.
It follows from the points discussed above that in order to determine whether business incubators
are beneficial to SMME growth and development, it is necessary to conduct a performance
appraisal on the incubators. However, since business incubators vary in models, goals and
objectives, a key challenge for the various stakeholders involved in business incubators is how to
measure the performance of business incubators. In the light of this quandary, this study aims to
develop a suitable framework for assessing business incubator performances. We will then
examine whether this framework is suitable for evaluating the performance of the STP business
incubators in South Africa.
1.3 PROBLEM STATEMENT
Business incubators are viewed as powerful instruments for supporting both SMME growth and for
addressing a variety of socio-economic needs such as job creation, technology and innovation
transfer, poverty alleviation and empowerment of economically disadvantaged groups. Generally
business incubators are designed to pursue defined objectives as part of a broader strategic
4
framework and therefore receive sizeable amounts of public funding and essential policy support
from governments (World Bank, 2010: 16). But not all commentators agree that business
incubators are the most efficient and cost effective instruments to utilise in a small business
development strategy, and their value in preventing SMME failures and achieving other socioeconomic benefits is often questioned. This is especially relevant as many of the benefits of
business incubators are of a qualitative nature and therefore difficult to measure.
Nevertheless, one way to determine the socio-economic impacts and benefits of a business
incubator to a country as a whole is to evaluate its performance. The diversity of business
incubators however makes evaluation difficult, especially since no standard framework exists.
A key challenge therefore is how to measure the performance of business incubators? This
problem statement forms the basis of this study and the research question posed by this study is:

Which are the recommended key performance indicators (KPIs) or metrics that should be
utilised in establishing a framework for evaluating the performance of a business incubator?
We intend to answer this question by reviewing the available literature in order to establish a
theoretical framework for evaluating the performance of business incubators. Thereafter we will
ascertain the suitability of this framework for evaluating the performance of the STP incubators
and other business incubators in South Africa. Finally, having established an appropriate
framework, we will then evaluate the performance of the STP incubators to establish whether key
outputs and deliverables are being met. Subsequent to our foremost research question, this study
will pose two further questions, viz.:

Is the theoretical framework established in this study relevant to the South African context?
and secondly,

How well have the STP business incubators performed in terms of their key objectives?
1.4 RESEARCH OBJECTIVES
The broad research objective of this paper is to establish a suitable framework for evaluating the
performance of business incubators in South Africa. The study will achieve this by identifying
relevant performance indicators/ metrics that should be used in this framework.
In addition to this, the specific objectives of this study are to:

To evaluate the performance of the SEDA Technology Programme (STP) business
incubators;

To examine what are the lessons learned from this exercise; and

To use this information to make recommendations that will assist business incubator
managers and other key stakeholders in improving the performance of business incubators.
5
1.5 BENEFITS OF THE STUDY
In this study, we intend to establish a framework for evaluating the performance of business
incubators that is relevant and applicable to the South African context. This study is therefore
intended to benefit key stakeholders involved in the development, management and operations of
business incubators. It is envisioned that this framework will assist stakeholders in improving the
performance of their incubators and it will also make it easier to compare business incubators in
general.
This study should also contribute to the limited literature on business incubators in South Africa,
and it is hoped that the points raised in this study will stimulate further interest and research by
academia.
1.6 RESEARCH DESIGN
The research design used in this study will be that of a hybrid design using a mix of qualitative and
quantitative data. The research questions will be answered using an exploratory case study
methodology, with the study conducted in two parts. The first part will identify key performance
indicators/metric to be used in a framework for evaluating the performance of a business incubator.
This will be done through a review of the existing literature. The second part of the study will be to
assess the performance of the STP business incubators in SA. This will be done through empirical
research.
1.7 DATA COLLECTION
The sample for the study is drawn from the 29 STP funded business incubators in South Africa.
We have restricted the sample to only the STP business incubators, so that we could compare
incubators that have similar goals and objectives, and have no inherent differences in terms of the
type and model of incubation.
The data used in this study consists of primary data derived from telephonic interviews, secondary
empirical data that was supplied by the STP, and secondary data collected from STP’s annual and
quarterly reports.
The STP incubator performance is evaluated by assessing key performance indicators (KPIs) in
each of the separate categories as stipulated in the performance evaluation framework. This study
utilises descriptive statistics to analyse the data and the evaluated KPIs are presented graphically
using box and whisker graphs.
1.8 LIMITATIONS OF THE STUDY
The conclusions drawn by the study are limited due to the small number of incubators in existence
in South Africa. In addition, due to the infancy of the incubator industry in South Africa, the
collection and availability of incubator data has so far been limited. Lastly, the study is limited to the
6
STP business incubators and the finding may not necessarily be applicable to all the business
incubators in South Africa.
1.9 STRUCTURE OF THE REPORT
The main characteristics and the role and significance of business incubators are discussed in
Chapter 2. This chapter also sets the foundation for the following chapter, by examining key
performance drivers for successful and sustainable business incubation.
Chapter 3 discusses recommended approaches for evaluating the performance of a business
incubator. We examine various frameworks and performance indicators/metrics that have been
suggested for performance evaluation. Out of this, we establish a framework of key performance
indicators that can be used in a common framework for performance evaluation.
Chapter 4 examines the evolution of business incubation in South Africa. This chapter also
provides an overview of the Seda Technology Programme and briefly describe the main
characteristics of the STP business incubators.
Chapter 5 analyses the data collected in this study and evaluates the performance of the STP
incubators. The different KPIs are examined and their performances are illustrated graphically with
box and whisker graphs.
Finally, Chapter 6 examines the lessons learned out of the performance evaluation exercise and
concludes this report with a series of recommendations, which should be of interest to the various
stakeholders involved in the incubation process.
7
CHAPTER 2
THE ROLE AND SIGNIFICANCE OF BUSINESS INCUBATORS
The literature review in this study has been divided into two parts, with Chapter 2 examining the
role and significance and the performance drivers for successful business incubation, and Chapter
3 examining the different performance approaches and metrics that should be used in a
performance evaluation framework.
2.1 INTRODUCTION
The process of business incubation has evolved in the past 30 years. From the 1980s, where ‘first
generation’ business incubators provided affordable space and shared facilities to selected
entrepreneurs, to the 1990s, where ‘second generation’ business incubators supplemented the
work space environment with counselling, skills enhancement, networking services and access to
professional support and seed capital. Finally, the current ‘third generation’ model of business
incubation, which is more like an international enterprise centre, provides a platform for the
convergence of equity capital and management consulting services, with the added dimension of
looking outwards (Lalkaka, 2003: 3).
Today, business incubators exist in many different models, with varying goals and objectives and
offering a wide-array of services.
2.2 DEFINITION OF BUSINESS INCUBATORS
No one standard definition exists for business incubators. This is mainly because incubators go by
different names in different countries and reflect designs, local cultures and national policies that
differ in every country. Nevertheless, one useful way to describe an incubator is by the services it
offers (Hamdani, 2006). We have decided to utilise this method of defining an incubator and have
explored the different definitions that have been proposed in the current literature.
The Bahrian Business Incubator Centre (BBIC) states that business incubation is a business
support process that is designed to accelerate the successful development of entrepreneurial small
businesses through an array of targeted resources and services which are offered both in the
incubator and through its network of contacts. The main goal of this process is to produce
successful enterprises that leave the business incubator financially viable and freestanding. A
critical component of the definition of an incubator is the provision of management guidance,
technical assistance and consulting tailored to small and emerging enterprises.
Lalkaka (2001: 5) describes the traditional business incubator as a microenvironment with a small
management team that provides a shared physical workspace to small businesses in which office
facilities, counselling, information, training and access to finance and professional services, are
offered in one affordable package. However, Lalkaka (2002: 167–170) differentiates between a
8
traditional and a technology based incubator. He describes business incubation in the latter as a
process that provides the platform for the convergence of three interrelated forces: technological
progress, entrepreneurship and competitive markets, in a synergistic support system (Figure 1).
Figure 1: The incubation process
Source: Idisc.
The Centre for Strategy and Evaluation Studies (2002) states that the business incubation process
adds value to a technology by accelerating the start-up of new businesses and helps to establish
and develop an enterprise and maximise their growth potential. This is achieved in a supportive
environment that provides services on a “one-stop” basis and enables overhead costs to be
reduced by sharing facilities. In this way, business incubators can significantly improve the survival
and growth prospects of start-ups and small firms.
Finally, Business Incubation Initiative, Georgia (2010) states that a business incubator is a
business support process that accelerates the successful development of start-up and fledgling
companies by providing these companies with an array of targeted resources and services that are
developed or orchestrated by the incubator’s management. The main goal of the incubation
process is to produce successful firms that will leave the program financially viable and
freestanding.
From the review of the various definitions discussed, it can be concluded that a business incubator
describes a wide range of organisations that provide an instructive and supportive environment to
start-up businesses. In so doing, business incubators help entrepreneurs develop their ideas from
inception through to commercialisation, reduce the failure rate of early stage companies, speed the
growth of companies and in the process help create jobs and contribute to economic development
(Centre for Strategy and Evaluation Studies, 2002).
9
To a large extent, “incubators provide three main ingredients for growing successful businesses an entrepreneurial and learning environment, ready access to mentors and investors and visibility
in the marketplace” (Kimambo, 2005:113).
2.3 TYPES AND DESIGNS OF INCUBATORS
There is substantial diversity in the number of incubator models. Although most incubators share
basic features in common (Centre for Strategy and Evaluation Studies, 2002), they vary widely in
their economic and social framework, business model, target markets and sponsors/ stakeholders
objectives. In addition, incubators also differ in the facilities and services they offer, as well as in
other location-specific factors (Business Incubator Initiative Georgia; Lalkaka, 2001).
Business incubators are also identified by a wide variety of names, such as technology parks,
science parks, business and innovation centres (BICs), and as incubators evolve, newer versions
continue to emerge (NESTA, 2004, as cited in Wynarczyk & Raine, 2005). Despite this diversity,
most incubator types can be assigned into different categories within a classification method. We
have found that the most commonly utilised methods to classify an incubator is by the incubator’s
sponsors or stakeholders, its impacts, physical structure or by the level of technology development
and management support that it offers (Centre for Strategy and Evaluation Studies, 2002).
2.3.1 Sponsors/ Stakeholders
Classifying a business incubator by its sponsor/stakeholder has the added advantage, that it also
explains to a large extent what the goals and objectives of the incubator are likely to be. This
manner of classification is one of the more conventional ways to identify an incubator.
Under this classification there are four categories. These are as follows:

Public or non-profit incubators that are sponsored by the government or non-profit
organisations. The primary objective of public incubators is to reduce the costs of doing
business and to promote local economic development. As expected, the main source of
income for these incubators comes from local, national and international funding schemes
(Grimaldi & Grandi, 2005: 112; Bayhan, 2001: 4).

Private incubators are privately sponsored. Private incubators are for-profit incubators and
their primary objective is to obtain a return on investment (Bayhan, 2001). These incubators
earn income from service fees and from equity stakes in the new ventures that they help
create (Grimaldi et al., 2005: 113).
Private incubators fall into two main categories: (1) independent business incubators and
(2) corporate business incubators. Corporate business incubators are also referred to as
corporate spin-offs. They are set up by large companies and are usually the outcome of
diversification strategies that aim to support the emergence of new independent business
10
units. On the other hand, independent business incubators are owned and set up by
individuals who invest their own funds in the business (Grimaldi et al., 2005: 113).

Public-Private incubators combine the expertise and efficiency of the private sector with the
funding benefits of the public sector. This type of incubator benefits from the closer
collaboration between both sectors, which can lead to a better yield from investments by
the public sector, and a shorter time to achieve returns (Lojkowski et al., 2007). The
Business Incubator Initiative of Georgia views a public-private partnership that is managed
by a non-profit NGO as the best model for sustainability. This is because these hybrid
incubator models sustainably connect the interests of public and private stakeholders,
thereby producing incubators that are both profit-orientated and social-orientated.

Academic related/university-based incubators refer to business incubators that have strong
links to academic institutions such as universities and technology colleges. In many
instances these incubators are located at the academic institution itself and are owned by
the university, although they can exist as a stand-alone business incubator that
collaborates with one or more academic institutions. The primary objective of an academic
related incubator is the development and transfer of new technology (Bayhan, 2001). Van
Biljon (2006: 12) states that academic university-based incubators have now become the
norm rather than the exception. These incubators have specific features that differentiate
them from the other categories on incubators. For instance, staff of these institutions are
encouraged and given incentives to optimise their research and development to the benefit
of the individual, the university and broader commercial and industrial communities. Van
Biljon (2006:12) states that this is evident at the University of Twente in the Netherlands as
well as many other universities in Europe and the USA which have extensive policies and
systems that allow academic staff to commercialise IP through the incubation process
resulting in separate spin-off companies of which staff are the major shareholders. In
addition to this, academic related incubators integrate postgraduate students into
incubation facilities and start-ups who together with university staff provide consulting
services to start-ups. They also facilitate strong international cooperation and exchange
opportunities for the incubatees and provide access to and support from the university’s
innovation and technology transfer offices (van Biljon, 2006: 13).
2.3.2 Incubator impacts
A second category of classification has been proposed by the Business Incubator Initiative of
Georgia (Bii.Ge). They suggest that business incubators should be categorised according to their
impacts. Within this classification method, the main categories are the following:

Strategic focus: In this category, incubator models are differentiated according to their
primary focus of fighting poverty or promoting innovation and technology. Both models
differ according to corporate culture and key skills, but they can be combined to create a
11
hybrid incubator model that supports both small businesses in general and innovation and
technology transfer in special cases. The main small business impacts for these incubators
are increased competitiveness and survival rates and the main economic impacts are
employment creation, diversification and competitiveness of the SME sector.

Specialisation (versus non-specialisation): These are incubators that specialise in specific
fields such as the empowerment of minority or disadvantaged groups or in market
segments. Generally, specialisation on market segments is most effective in regions with
significant economic clusters.

Shareholder and business model: These can be categorised according to public, private or
public-private partnerships. The impacts of these incubators are directly related to the
interest groups involved in the incubator development process. In the case of a pubic
private partnership, the main impacts are strengthening ties between government, NGOs
and private businesses.

Infrastructure model: These incubators can be categorised into physical incubators, which
are incubators with physical facilities or virtual incubators, which are incubators without
physical facilities.
2.3.3 Physical structure
The InfoDev Incubator Support Centre (idisc) method of classification expands on the infrastructure
model as a means of categorising incubators and suggests that incubators fall in the following
three categories:

Bricks and Mortar (BAM) describes the traditional incubator model, which is centred on
offering physical facilities to the clients of the incubator. Because the entire incubation
process and services offered are concentrated in one building (complex), the proximity of
the businesses and entrepreneurs in the incubator stimulates interaction, the formation of
networks and enables common problems to be resolved. This is the “natural” business
incubator model, which is widely used amongst traditional incubators (InfoDev Incubator
Support Centre).

Virtual: The virtual incubator is also called a portal or “without walls” incubator. Virtual
incubators differ from traditional incubator models in that traditional incubators operate from
fixed premises while virtual incubators do not provide a physical space for the incubated
businesses and support and services are offered over the Internet. The primary advantage
of this type of business model is that it is the least expensive to establish because the
overheads are greatly reduced in comparison to other schemes. It also allows for
integration of entrepreneurs from different regions. But virtual incubation is also the most
difficult to evaluate because the entrepreneurs are located off-site and may be remote to
the incubator office (InfoDev Incubator Support Centre).
12

Mixed: This model describes an incubator that offers physical premises to some businesses
while also supporting the generation and development of companies over the Internet. This
type of incubator is sometimes called the “HUB/Venture Incubator” model (InfoDev
Incubator Support Centre).
2.3.4 Management support and level of technology
The fourth method of classification is that proposed by the Centre for Strategy and Evaluation
Studies (2002) which utilises the categories of management support and the level of technology to
classify business incubators. This method of classification is illustrated in Figure 2.
Figure 2: Types of incubators
Source: Centre for Strategy and Evaluation Studies (2002).
Although the CSES method of business incubator categorisation is very distinct, these definitions
are not always observed in real life. To a large extent, there is significant overlap in the different
incubator types.
This can also be stated about the other classifications methods where there are close parallels
amongst the incubator models in the different categories. As an example, in the Bii.Ge classification
method, it is not uncommon to find a shareholder and business incubator model that strategically
focuses on poverty alleviation and job creation and also specialises in the empowerment of
disadvantaged groups. In this instance the business incubator would fall into any one of the three
Bii.Ge categories.
13
2.4 BASIC INCUBATOR SERVICES
Business incubators assist small firms and entrepreneurs develop their businesses by providing
them with a comprehensive and integrated range of services. Although these services are widely
varying and depend largely on the type of incubator and its goals and objectives, incubators do offer
a range of basic services that usually consist of a combination of the following services:

Physical infrastructure which includes incubator space that is available on an affordable and
temporary basis;

Shared office facilities such as secretarial services and office equipment;

Specialised machinery and equipment either onsite or offsite;

Telecommunications and information technology services;

Accounting services and assistance with business plans;

Business mentoring and counselling services;

Access to finance and markets;

Specialised assistance such as research and development;

Training, education and information programmes;

Business networks and linkages;

Security services; and

Aftercare and outreach services
(United Nations, 2001; Yunos, 2002; Lavrow and Sample, 2000)
2.5. THE ROLE AND SIGNIFICANCE OF INCUBATORS
Incubators are regarded as important instruments in developing SMMEs as well as contributing to a
variety of economic and socioeconomic policy needs. Within this context, business incubators are
expected to act as catalysts in promoting SMME start-ups, reduce the failure rate of businesses in
their formative years, generate a multiplier effect in the SMME sector through outreach programmes
aimed at entrepreneurs beyond the confines of the incubator premises and to promote
entrepreneurship development and technological innovation, mainly at the grassroots level (Tseng,
2007).
Research suggests that:

Business incubators reduce the failure rate of small businesses. Statistics from the US indicate
that 87 per cent of businesses that have graduated from incubators are still in business
(Business Incubation Initiative, Georgia, No year).

Incubators contribute to an entrepreneurial culture and to the formation of networks amongst
businesses in the incubator as well as helping businesses to overcome market constraints and
improve access to finance, facilities and infrastructure for these businesses.
14

They contribute to socio-economic development by empowerment of individuals in poor areas,
by helping develop synergies between research institutions, governments, private businesses
and civil society and by assisting in technology commercialisation (Lalkaka, 2001).

When attached to strong learning and research centres, they can become a source of regional
competitive advantage (OECD and UNIDO).
A greater understanding of the role and significance of business incubators can be gained from
analyses of the impacts and benefits of business incubators. These impacts and benefits are
categorised according to the stakeholders involved in business incubator development, and are
briefly summarised in Table 1.
Table 1: Impacts of business incubators
Stakeholder
Impact of business incubators
Tenants/ small businesses
Enhances success rate;
Improves skills;
Facilitates access to facilities and finance;
Creates business networks; and
Promotes new business creation and retention.
Governments
Employment creation;
Promotes regional development;
Helps overcome market failures;
Assists in building or accelerating growth of local industry clusters; and
Poverty alleviation.
Universities and other
Accelerating technology development and transfer; and
research institutes
Research commercialisation
Corporate and private business Provide potential spin-in or spin-out business opportunities;
Helps companies meet their social responsibilities; and
Profit generation.
Focal communities
Community revitalisation;
Fostering an entrepreneurial climate in the community;
Encouraging women or minority entrepreneurship; and
Diversifying local economies.
International funders
Creates opportunities for trade and technology transfer.
Sources: Bii.ge; Lalkaka (2001).
2.6 PERFORMANCE DRIVERS
Having reviewed the different types of business incubators and their various stakeholder impacts,
we now examine the key factors that drive the performance of an incubator. Although these factors
are not absolute, they are reasonably comprehensive and to a large extent explain why some
incubators perform better than others. We first examine industry best practices and principles for
15
successful and sustainable business incubation. These factors are qualitative and of a general
nature, but they do contribute to the success of a business incubator.
2.6.1 Principles for successful and sustainable business incubation
The National Business Incubation Association (1996) which is the largest and best known of
international organisations serving business incubators around the world (InfoDev, 2009) provides
two guiding principles that characterise effective business incubation. These state that (1) the
incubator must be a dynamic model of a sustainable and efficient business operation and (2) it
must have a positive impact on the economic development of its community by maximising the
success of emerging businesses.
In their book, Growing new ventures, creating new jobs, Matthews and Rice (1995) identify three
basic principles and ten best practices of successful incubators. Their three core principles state
that (1) the business incubator should focus its resources on the development of companies. In
addition, (2) the business incubator should be managed as a business and (3) it should offer an
array of services and programmes that meet the needs of the targeted companies. Matthews and
Rice (1995) noted that while most incubators have the single goal of creating jobs, very few have
been able to achieve this. Therefore they recommend that incubators should concentrate on
developing companies rather the pursuing the goal of job creation, and as companies develop,
they in turn will grow and create jobs. Incubator management must also recognise that like a start–
up company, it too will undergo trials and tribulations and therefore needs to be managed like a
business. Lastly, incubators must develop differentiated programmes to meet the needs of its
various customers. Matthews and Rice (1995) maintain that these three principles are basic to the
development of successful incubators, regardless of what type of incubator it is.
2.6.2 Critical factors for successful and sustainable business incubation
In addition to the industry best practices and principles, a number of factors have been identified in
current literature as critical for successful and sustainable business incubation.
A study commissioned by the Information and Development Programme (infoDev) on a model for
sustainable and replicable ICT Incubators in Sub-Saharan Africa, noted that significant elements in
any well-run business incubation programme include the training of incubator personnel, the
provision of a training programme and employing management that are experienced and
technically competent (infoDev, 2009). In addition, management should be able to conduct
business planning, do market research, and be able to deal with investors, as well as have
experience in meeting the challenges of early stage business operations, and an understanding on
how to help entrepreneurs in seeking finance. The study further recommends that the management
and other key personnel are chosen from the local service area. This has the potential to benefit
the incubator significantly, as the management will bring with it existing networks in the local
business community that could be invaluable to the incubator’s clients (infoDev, 2009).
16
Another important feature to successful incubation is the development and use of graduation
facilities in the incubator programme. When a business graduates, it should have the opportunity to
locate near the incubator and remain part of that community. In this way, graduating businesses
will be strengthened and can become the nucleus of a potential business community that would
receive incubator graduates as new tenants (InfoDev, 2009).
According to Adkins (2007), a business incubator must be grounded in the real world of business.
That is, to be successful an incubator must be run like a business that adjusts and reacts to
changing market conditions. A key factor to achieving this is employing incubator management
from the business sector. Another important factor to the success of the incubator programme is
that it must have deep support from the local business community.
Sipos and Szabo (2006) list the following groups of criteria for the success of the incubation
process. These groups are summarised as follows:

Survival of the incubator: effective business incubation programmes are based on effective
business plans and feasibility studies. Incubators need to be proactive, have a focused
strategy and regularly evaluate and benchmark performances.

Incubator tenants: key factors determining incubator success depend on the number of firms
incubated, the number of businesses graduating from the incubator, the number of
employment opportunities created, the length of stay of businesses and the growth of
revenues/profits of the businesses in the incubator.

Political and regional effects: incubators need to stimulate local economic development,
contribute to the diversification of local economic activity, create markets, meet the needs of
the community, make the region more competitive and stimulate networking and interaction
among enterprises.

Management team: incubators require a competent and educated management team with an
entrepreneurial manager.

Services: Priority should be given to mentoring, networking and human resource
development. Incubator teams should develop a strong relationship with the community,
reduce the number of small business failures and attract and retain new businesses.

Research potential and networks: incubators should have access to national and
international networks, which will assure necessary support for small businesses. They
should be involved in the transfer of technology and the commercialisation of research from
university labs.
Hannon (2005) emphasises that management capabilities, understanding and decision-making are
paramount in the effective application of specific incubation policies and processes. Hannon (2005)
maintains that little attention is paid to the development of management capabilities, which is a
critical component in achieving the desired incubator outcomes. Figure 3 illustrates the core
17
management profile and its various roles in the incubation process. Most incubator managers are
adept at managing the incubation development and the incubatee’s development. It is the ability of
management to manage the incubation process as an entrepreneurial business that mostly
differentiates one incubator from another in terms of success and sustainability.
Figure 3: Core capabilities of incubator management
Source: Hannon (2005).
The role of management in the success of an incubator programme cannot be overstated. Of the
NBIA’s (2002) ten keys to successful incubation, more than five relate to the ability, attitude and
skills of the incubator management. The ten keys to incubation success as determined by the NBIA
(2002) are as follows:
1.
Effective business incubation programmes must be based on legitimate feasibility studies
and business plans;
2.
Business incubators are service programmes and stakeholders need to be made aware
that they need to invest in people and knowledge more than physical infrastructure;
3.
Top incubators are well managed, which means they provide appropriate salaries and
benefits to individuals who have the skills to help companies grow and to transform their
communities;
4.
Flexibility and commitment to service are key factors to effective incubation. Incubator staffs
themselves must be entrepreneurial and non-bureaucratic and recognise that they operate
in a service industry;
5.
Effective business incubation managers have to be proactive in the provision of services;
18
6.
A good incubator programme knows its mission, and management, board and staff clearly
understand and work to support that mission;
7.
The best business incubation programmes are those that are well integrated into their
community networks, resources, and economic development plans and strategies;
8.
Top incubators adhere to the principles and best practices of business incubation as
recommended by the NBIA;
9.
Top incubator managers engage in continual learning; and
10.
Effective incubator managers are committed and idealistic but realistic at the same time
(NBIA, 2002).
Buys and Mbewana (2007) provide a South African perspective to the factors that influence
business incubation in that country. Buys et al. (2007) investigated the success factors for
business incubation in South Africa and found that the key factors for successful business
incubation were access to science and technology expertise and facilities, the availability of
funding, quality of entrepreneurs, stakeholder support, supportive government policies, competent
and motivated management, financial sustainability and networking.
We have previously stated that not all business incubators are successful. Business incubators
that lack the above-mentioned success characteristics often metamorphose into a multi-tenant
commercial property. These incubators fail because of the lack of comprehensive business support
and badly designed incubation premises (Meeder, 1997, as cited by Voisey, Gornall, Jones &
Thomas, 2006). In addition, there are several other factors that contribute to business incubator
failures. Lalkaka (2000) lists some of the factors that contribute to the failure of business incubators
which he has divided into planning and operating factors. These are briefly summarised in Figure
4.
Planning Factors
Operating Factors
Lack of business plan
Management lacking business skills and experience
Inadequate pool of entrepreneurs
Poor counselling, information and networking services
Poor governance and inactive board
Lack of access to finance for tenants
Poor location
infrastructure
and
inadequate
business
Building layout inappropriate with limited space
Under capitalisation or high operating costs
Insufficient professional linkages
Inadequate government support
Insufficient involvement of the business sector
Figure 4: Factors contributing to business incubator failures
Source: Lalkaka (2000).
19
2.7 SUMMARY
There is no standard definition for a business incubator. This is mainly because incubators vary by
type and by purpose, and cater to different regional specifications and needs. For instance,
incubators aimed at empowering or revitalising a community have different impacts on local
economies than profit based, technology incubators. This diversity of the business incubation
models makes the classification of an incubator according to a standard industry definition or
model difficult, and this in turn makes measuring the economic outcome of incubators challenging
(RESI Research & Consulting, 2001).
Although incubators have been classified into distinct categories, in reality there exists significant
overlap in the different categories that incubators fall into. To a large extent the traditional business
incubation model is no longer relevant as many incubators exist as mixed use or general purpose
incubators. In the USA for example, approximately forty seven per cent of incubators favour this
model and in Australia this figure is even higher at approximately eighty per cent (Idisc).
Furthermore, new convergent or hybrid incubation models continue to develop which take the
integration of services to a new level (Idisc) and makes classification of an incubator into a distinct
category impractical.
In addition, there are numerous key factors that contribute to the success and failure of business
incubators. From our assessment of these factors we have surmised that one of the most critical
factors is for incubators to have good management. The management of an incubator should be
experienced, technically competent and have entrepreneurial flair and skills. Management should
be committed and continuously endeavour to develop their core skills. In addition, the incubator
should be managed as a business and management should preferably be employed from the local
business sector. The incubator needs to be adequately resourced and offer a wide array of
services that meet the specific needs of its incubatees. It should have strong networks and
business linkages and receive strong support from its stakeholders, including government and the
local community. It is also essential that the incubator has exposure to an adequate pool of quality
entrepreneurs from which to draw from.
These factors are important because they drive the performance of a business incubator.
Research has revealed that business incubators that aspire to industry best practices and
principles are more likely to perform better than those that do not. It is therefore necessary that any
evaluation on the performance of a business incubator, take cognisance of the industry practices of
the incubator and its management. It must be noted though, that industry best practices and
principles are qualitative in nature and difficult to determine.
At present, there is no single framework to assess performances and sustainability of the business
incubators (Sipos et al., 2006). In the light of this, the next chapter will review current literature on
this area of research to determine the different measurement approaches and indicators that can
be used in evaluating business incubator performance. Out of this review, we intend to derive a
20
common international framework for evaluating the performance of business incubators. In the
chapters that follow, we will proceed to evaluate the performance of the STP business incubators
in South Africa using a suitable evaluation framework.
21
CHAPTER 3
PERFORMANCE MEASUREMENT
3.1 INTRODUCTION
The majority of business incubators in both developed and developing countries operate on a nonprofit basis with their primary goal being economic development. These incubators derive some of
their incomes from rentals and services but largely supplement this with subsidies (Lalkaka, 2001).
Since most incubators require public funding and, in addition, since they are not all successful, it is
important to know how to define the tasks of an incubator and assess its performance (Lojkowski &
Werner, 2007). Sipos and Szabo (2006) list performance evaluation as one of four critical factors
for the continuing existence and survival of a business incubator.
The aim of this chapter is to examine different performance assessment approaches and
determine key indicators or metrics that should be used in a framework for business incubator
performance evaluation. The chapter starts out by highlighting the importance of performance
evaluation and concludes with a theoretical framework of key performance indicators for
performance appraisal.
3.2 IMPORTANCE OF PERFORMANCE EVALUATION
Performance evaluation is important for several different stakeholders. For the incubator
management, performance evaluation identifies weaknesses in the incubation process which can
prevent possible losses to the programme, and deficiencies in the incubator process which can be
addressed and prompt action can be taken to prevent business incubator failures (Lalkaka,
2000).The implementation of an incubator performance evaluation system should therefore result
in increased effectiveness in decision making and better coordination by incubator management.
For non-government sponsors, performance evaluation can assist in evaluating the efficiency of
financial support provided to business incubators (Infodev), whilst for government sponsors,
performance evaluation assists in estimating the combined economic impacts of incubators in a
specific area. By assessing the economic impact of the firms that the incubators serve and that of
the firms that have already graduated, the direct, indirect and induced benefits of a business
incubator can be measured (RESI Research & Consulting, 2001).
3.3 PERFORMANCE APPROACHES
Most early research on performance measurement has been based upon the economic agenda of
incubator’s sponsors (Bhabra-Remedios & Cornelius, 2003). Studies now recognise the need for a
multidimensional evaluation of an incubator’s performance ((Eshun, 2004: 224), which incorporates
cultural, economic, social and technological performance within the incubator’s region of
operations (InfoDev).
22
Research on performance measurement have generally come from four fundamental approachesthe goal approach, the neoclassical approach, the systems approach and the stakeholder’s
approach which is also known as the constituency approach (Eshun, 2004: 227; Bhabra-Remedios
& Cornelius, 2003).
In a goal-based approach, performance is defined in terms of organisational effectiveness (Eshun,
2004: 227). With this method, organisations are evaluated by the goals they set and the degree to
which they achieve these goals. Cross-firm comparisons, however can be problematic as goals
vary from one organisation to another (Bhabra-Remedios & Cornelius, 2003). Despite this, the
evaluation of incubator performance has been dominated by the goal approach (Eshun, 2004:
230).
The systems approach evaluates incubator performance based on its simultaneous achievement
of multiple performance aspects. According to Murphy et al. (as cited by Bhabra-Remedios &
Cornelius, 2003), this compensates for the problems of the goal based approach, but still fails to
adequately provide an effective performance framework for incubators.
The neoclassical approach evaluates incubators based on their profitability. However, given that
most incubators are publicly funded, non-profit organisations whose primary objective is economic
development, this approach is inadequate for evaluating incubator performance (Eshun, 2004:
228).
The constituency (stakeholder) approach acknowledges the contributions of the multiple and
diverse stakeholders and examines to what extent the agenda of these stakeholders are met by
the incubators (Bhabra-Remedios & Cornelius, 2003). This approach considers the goals and
objectives of the various stakeholders involved, including that of the community, and
simultaneously integrates several criteria, the transformation process and outputs (Eshun, 2004:
229).
3.4 KEY INDICATORS/ METRICS FOR PERFORMANCE ASSESSMENT
In order to measure the performance of incubators it is necessary to develop structured evaluation
criteria and performance indicators that are easy to apply (Infodev). The Centre for Strategy
Evaluation Services (2002), recommends that the performance of business incubators should be
judged primarily in terms of their long-term impacts and not on short-term measures. That is,
incubators should be judged on the impact they have on businesses, wider economic
development, and other priorities, rather than criteria such as occupancy rates or failure rates.
The framework that the European Commission uses to assess the performance of business
incubators is based on inputs, processes and outcomes of the business incubator. These are then
measured by a framework of best practice indicators according to the criteria of efficiency,
effectiveness, utility and sustainability of the incubator. Figure 5 outlines the performance
evaluation framework as adopted by the Centre for Strategy Evaluation Services (2002: 28).
23
Table 2: Performance evaluation framework of the
Centre for Strategic and Evaluation Studies
Criteria
Inputs and Processes
Outcomes
Efficiency
Start up time-length of time required
establish incubator
Incubator investment cost – total
investment/ sq m of incubator space
Incubator operating cost –operating
costs/number of personnel
Financial leverage – ratio of public to
private sector funding
Income generation – proportion of
income from client charges
Cost of incubator units – total
investment/sq meter of space
Cost per start-up – total investment/number
start ups
Cost per graduate – total
investment/number of graduates
Cost per (gross/net) job – total
investment/ jobs in tenant and recent
graduate
Utility
Occupancy rate – percentage of
incubator space let to companies
Incubator service utilisation rate –
percentage of companies using
incubator support services
Response rate to client surveys –
percentage of tenants responding
to client satisfaction surveys
Incubator turnover – number of firms
entering/leaving incubator, average
time in incubator
Client satisfaction – percentage of
firms indicating that incubator
services meet their needs,
contribution of incubator to firms’
development (additionality)
Effectiveness
Start up rate – number/percentage
admissions leading to start-ups
Start up time – length of time required to
start up new businesses
Survival rate – number/percentage
of start-ups still trading after three years
Wealth creation – Average turnover
of tenant firms and average annual
growth rates, value added of business
activities
Job creation – number (and type) of
jobs per tenant firm and annual
growth rates, proportion of jobs filled
by local people, job quality
Sustainability
Financial breakeven – income less
operating costs
Market rates – level of discount/premium
for incubator space/services compared
with local market rates
Graduation rate – percentage of
tenants leaving incubator each year
Growth sectors – proportion of
graduates in growth sectors
Retention rate – percentage of
graduate companies remaining in local area
Source: Centre for Strategic and Evaluation Studies (2002: 28).
In the framework adopted by the Centre for Strategic and Evaluation Studies, the four standard
criteria by which incubators are evaluated are defined as follows:

efficiency refers to the relationship between financial inputs and outcomes;

effectiveness refers to the extent to which the incubator achieves key operational targets
set out in the business plan;

utility refers to the extent to which incubator services provided to client companies meets
their needs; and
24

sustainability refers to the sustainability of operations and durability of the outcomes being
achieved.
In this framework, a key measure for public sponsors and a proxy measure for a range of other
impacts is employment creation (Centre for Strategic and Evaluation Studies, 2002).
Lalkaka (2001) and Lalkaka and Shaffer (1999) have also proposed a framework for evaluating the
performance of incubators. As with the Centre for Strategic and Evaluation Studies, they agree that
the performance of incubator programmes should be validated against the medium term to long
term outcomes and benefits that accrue to the various stakeholders. These outcomes include the
success or failure of the small businesses coming out of an incubator programme and their role in
economic development, and of the facility itself.
In their framework, Lalkaka et al. (1999) recommend a benefit-cost approach in assessing
incubator performance. Their overall benefit-cost model analyses the flow of funds in and out of the
incubator programme to determine its ability to replace the resources that it utilises and to generate
a surplus. This model utilises the criteria of incubator impacts/outreach, effectiveness and
sustainability to develop a performance framework that contains twenty one performance indicators
as indicated in Table 3 below.
Table 3: Performance evaluation framework
IMPACT/OUTREACH
SUSTAINABILITY
EFFECTIVENESS
Enterprises created
Revenue surplus (6 years)
Employment per net dollar subsidy
Survival rate of enterprises
Service cost recovery
Taxes paid per net dollar subsidy
Jobs created in incubated
University-business relations
Income, sales and exports
firms, graduated firms and
generated
indirect jobs (6 years)
Entrepreneurs/enterprises
Stakeholder satisfaction
Research commercialised
Replication of ‘pilot’ model
Tenant/graduate satisfaction
Disadvantage groups addressed
Extra-curricular activities
Changes in culture
Incubator expansion
reached
Enhancement of skills
Leveraging state policies
Enhanced self esteem
Source: Lalkaka & Shaffer (1999).
In the Lalkaka & Shaffer (1999) framework, effectiveness of an incubator programme can be
explained in terms of the benefits from the incubator programme in relation to the use of all
25
resources, while outreach depends on the ability of the incubator programme to replicate the
embodied concept and to reach large numbers of enterprises. Sustainability refers to the ability to
continue generating positive cash flows and to the durability of the benefits achieved. This
measure is particularly important to the sponsors of the incubator programme as it indicates the
incubators’ ability to survive and perform after external support has been withdrawn (Lalkaka &
Shaffer, 1999).
The Infodev website recommends that a performance evaluation should include assessment of the
following four components:

Results or outputs of the enterprises and incubators;

Resources utilised by the incubator: financial, technological, material, human;

Organisational processes; and

Socio-economic, political and cultural context of institutions involved in the incubation
process.
Bhabra-Remedios & Cornelius (2003) propose that in order to develop a comprehensive
performance evaluation model of incubators, the performance of new ventures entering and
graduating from that incubator must be tracked. The incubator impacts on the emergence and
growth of a start-up business as well as the influence of sponsoring institutions, and the value
added by incubator management forms the model for a performance evaluation framework.
UNIDO’s recommended indicators for accessing performance evaluation in developing countries
(as cited by Scaramuzzi, 2002) include the following:

enterprises incubated in the incubation process and their survival rate;

jobs generated in the incubator;

jobs and sales created by graduate businesses after six years;

public investments per year;

research commercialised by incubated firms;

survey of tenant evaluation of incubator’s added value;

sustainability of the incubator, measured by revenues and costs generated;

taxes and other contributions by tenants and graduates;

social impact, measured by public opinion surveys and research contracts between industry
and university; and

changes in state policies and their financial commitments.
Erlewine (2007: 12) recommends ten basic metrics that should be tracked by an incubator in order
to evaluate its performance. These are as follows:

The number of current clients;

Total number of graduates since the inception of the programme;
26

Total number of graduate firms that are still in business;

The number of people employed full-time by the incubated and graduated firms;

The number of people employed part-time by the incubated and graduated firms;

Current monthly salaries paid by the incubated and graduated firms;

Gross revenues for the most recent full year for incubated and graduated firms;

Total amount of debt raised in most recent full year by incubated and graduated firms;

Total amount of equity capital raised in most recent full year by incubated and graduated
firms; and

Total amount of grants raised in most recent full year by incubated and graduated firms. In addition to these so-called ‘hard measures’ for incubator performance appraisal, business
incubators create other outputs which Voisey et al. (2006) classify as “soft measures”. Soft
measures include benefits such as increased business knowledge and skills, more business
awareness and increased client networking. These benefits are subjective measures which are
more difficult to determine and measure, but nonetheless exist.
Figure 5: Hard and soft performance measures
Source: Voisey et al. (2006).
27
3.5 A FRAMEWORK FOR PERFORMANCE EVALUATION
The framework for evaluating performance has several steps that are outlined in Figure 6. In this
sub-section, we discuss the overall evaluation process and then list the key performance indicators
that we have used to create a common performance evaluation framework.
3.5.1 The performance evaluation process
The diversity of models and types of business incubators makes their comparisons difficult. The
National Business Incubator Association recommends that incubators should be classified
according to the different types and models and the survey results should then be stratified into
their particular incubator classification before analysis takes place. The first step of the evaluation
process therefore requires the classification of the different business incubators that are being
evaluated. We recommend that incubators should be classified by the stakeholder model
discussed in this study as it is simple and a commonly used method of classification. The next step
of the evaluation process requires the use of different methodologies to identify the full range of
business incubator goals and programme outcomes (NBIA). We have preferred to use the goal
based performance approach in our framework. The benefits of this approach are that it enables
the evaluation process to be closely aligned to the goals and objectives of the business incubator
stakeholders, and it evaluates the incubator on the achievements of those goals. As recommended
by Lalkaka & Shaffer (1999), the mission and purpose of the incubator must be understood as
these form the bases for mobilising resources and developing overall strategy, guiding the
incubator management, operational tactics and, importantly, measuring the performance of the
incubator.
In addition to classifying the incubator and determining the stakeholders’ goals and objectives, it is
necessary to understand impacts of incubators. An overview of incubator impacts was given in
Table 1. It is evident from this table that the impacts of the incubator and the goals and objectives
of the stakeholders are closely related. Finally, the key performance indicators as listed in Table 4
should be used to evaluate the performance of the business incubator. As mentioned earlier, it is
necessary that the results of the analysis be stratified into their particular incubator classification
before evaluating the various incubators (NBIA). This is important as it enables comparisons to be
made amongst incubators that are similar with respect to type and model.
28
Figure 6: Framework for performance evaluation
Source: Author.
3.5.2 Recommended key performance indicators
From the literature review of performance drivers, approaches and metrics for successful and
sustainable business incubation, we have derived a set of key performance indicators (KPIs) that
we have used in our common international framework for evaluating the performance of business
incubators. The different performance evaluation categories and the various KPIs were selected
from those most commonly cited in the literature review and this in turn forms the basis for the
common framework for incubator performance assessment. Due to the complexities of evaluating
‘soft’ measures, we have only used ‘hard’ measures in this framework.
We have identified thirty KPIs that comprehensively evaluate the performance of an incubator.
These are summarised in Table 4 below. The KPIs have been divided into three categories that
measure efficiency, effectiveness and the sustainability of the incubator. These categories are
merely guidelines as some of the KPIs are common to one or more categories.
In this framework, efficiency of an incubator is a measure of the relationship between inputs and
outputs. It measures how efficiently an incubator utilises its resources to meet its goals and
objectives. Effectiveness is a measure of the goals and impacts of an incubator and sustainability
is a measure of the incubators ability to become self-sufficient and the durability of its impacts
(CSES, 2002; Lalkaka et al., 1999).
29
Table 4: KPIs for a performance evaluation framework
Effectiveness
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Number of enterprises created;
Survival rate: number of firms still trading after three years and six years;
Job creation: number of direct and indirect jobs per tenant firm;
Annual growth rates of enterprises;
Number of graduates/ Graduation rate-percentage of tenants leaving incubator each year;
Revenues (income and sales) generated by incubated and graduated firms;
Exports generated;
Number of enterprises incubated;
Disadvantaged groups addressed;
Research commercialised by incubated firms;
Public investments per year;
Proportion of income from client charges;
Wealth creation/ Average annual turnovers.
Efficiency
1.
2.
3.
4.
5.
6.
7.
8.
Number of admissions leading to start-ups;
Cost per start-up enterprise;
Length of time required to establish an incubator;
Start up time, that is the length of time required to start up a new business;
Occupancy rate: percentage of incubator’s space let to firms;
Percentage of enterprises using incubator services;
Employment created per net dollar of subsidy;
Incubator turnover: average time of firms in the incubator and the number of firms entering and
leaving the incubator;
9. Financial leverage: ratio of public to private sector funding;
10. Taxes and other contributions by tenants and graduates per net dollar of subsidy;
Sustainability
1.
2.
3.
4.
5.
6.
7.
Growth sectors: proportion of graduate firms in growth sectors;
Retention rate: percentage of graduate companies remaining in local area;
Enhancement of skills;
Tenant/graduate satisfaction: incubator value add;
Financial breakeven/revenue surplus after six years;
Service cost recovery;
Changes in state policies and their financial commitments.
Adapted from: CSES (2002); Lalkaka & Shaffer (1999);
Voisey et al. (2006) and Scaramuzzi (2002).
3.6 SUMMARY
As reiterated in this study, incubators vary in type, purpose, goals and outcomes. As a result,
developing a framework for assessing the performance of a business incubator is a challenging
task, mainly because of the wide array of recommended performance criteria, methods, indicators
and measures. Different stakeholders and interest groups selectively emphasise particular
30
combinations of criteria, measures and indicators for performance evaluation and this diversity of
client and stakeholder needs makes comparability between incubators difficult (Eshun, 2004).
In the previous chapter, we have discussed the different methods for classifying business
incubators. We then reviewed the performance drivers, i.e. principles, best practices and factors
that contribute to the success and sustainability of an incubator.
In this chapter, we have examined the different performance approaches for an evaluation
framework. The four main categories are the goal based approach, the neoclassical approach, the
systems approach and the stakeholder’s or constituency approach (Eshun, 2004: 227; BhabraRemedios & Cornelius, 2003). Each approach has its merits, although we prefer to use the goal
based approach in our performance evaluation framework. This is a simple approach as it
measures an incubator on the achievements of its goals. Furthermore, this approach aligns the
evaluation process to the goals and objectives of its stakeholders which to a large extent
influences the impacts of the incubator.
From the review of the key metrics or performance indicators, we have produced a set of thirty
KPIs that can be used in a performance appraisal of a business incubator. These thirty KPIs
measure specific impacts of an incubator and in the process provide an overall evaluation of the
performance of the incubator. The framework has been separated into three categories that
evaluate an incubator on efficiency, effectiveness and sustainability. Each of these categories have
a set of KPIs that evaluate the incubator on how efficiently it utilises its resources or inputs, how
effectively it meets its goals and targets and its ability to become self-sustainable, and the
durability of its impacts.
Our performance evaluation framework has been created so as to be adequately comprehensive
to measure the wide ranging impacts of an incubator and meet the performance evaluation
requirements of its various stakeholders. Although it is intended to be utilised as a common
international framework that is suitable for evaluating the performance of business incubators in
any country, the specific goals and objectives of a country may require that additional key
performance indicators be introduce into the framework.
In the next chapter, we discuss the SEDA Technology Programme business incubators in South
Africa and assess the suitability of this framework for evaluating their performance.
31
CHAPTER 4
THE SEDA TECHNOLOGY PROGRAMME IN PERSPECTIVE
4.1 INTRODUCTION
Business incubation in South Africa is still in its infancy. The majority of business incubators in
South Africa receive funding from the STP and operate as non-profit organisations. In addition to
the STP business incubators, other public incubators operate as public-private partnerships,
receiving funding from local governments as well as the private sectors. The goals of these
incubators are to promote regional entrepreneurship and SMME growth, usually in a specific
sector. Over and above these are the private business incubators that operate on sound business
processes. Their goals differ from that of the public incubators in that they are established primarily
to derive profits or to meet specific corporate social responsibilities of their funders. Although it is
not the focus of this paper to evaluate the performance of these incubators, we will briefly discuss
their key characteristics later in section 4.4 of this chapter.
4.2 EVOLUTION OF BUSINESS INCUBATION IN SOUTH AFRICA
According to a recent World Bank Report (2010: 15), business incubators and other business
enterprise centres in South Africa evolved from business hives that were first established during
the mid-1980s by the Small Business Development Corporation (SBDC). Hives, which can be
described as clusters of small, cheap factory units of varying sizes (Harrison, Todes & Watson,
1997: 54) were essentially re-used factories that were subdivided to provide multiple premises for
SMMEs, although some hives were newly built factory units (Thomas, 2009: 10). Hives provided
small businesses with essential services such as telecommunications, electricity and storage
facilities and they enabled possible business networks between small and large businesses.
Similar to business incubators of today, hives were established as public-private partnerships with
government holding 50 per cent interest in the hives (Thomas, 2009:10). But, unlike business
incubators, business hives didn’t require graduation of firms from the hive into mainstream
business and as a result many of the tenants have tended to remain in the business hives (World
Bank, 2010: 15).
During the period 1988 to 1994 there were 50 active business hives established across South
Africa - ranging from a low eight to ten units per hive to upwards of more than 200 units. But, when
government decided to reduce its shareholding from 50 per cent to 20 per cent in 1994/5, public
sector support for the business hives fell away and many established hives struggled to continue
operating (Thomas, 2009: 11) whilst others were privatised or sold-off as individual premises.
Today the surviving hives are nothing more than business units housing businesses in diverse
industries.
32
4.3 OVERVIEW OF THE SEDA TECHNOLOGY PROGRAMME
The SEDA Technology Programme (STP) was created in 2006 from the merger of the Godisa
Trust, the National Technology Transfer Centre (NTTC), the DTI’s Technology Advisory Centre
(TAC) and the South African Quality Institute, which was incorporated into the STP structure at a
later stage. The Godisa Trust was established in 2000 as a joint initiative of the Department of
Science and Technology (DST), the DTI and the European Union, to develop a national incubation
framework for the South African environment. Its aim was to enhance the capacity of SMMEs
through technological innovation by providing high growth SMMEs with technology support
services at its technology centres. In parallel to the Godisa initiative, the DTI also established
several other incubators and training centres, which were later incorporated into the STP together
with the Godisa Trust (World Bank, 2010: 16).
The STP was created for the sole purpose of consolidating small business support interventions
across the different government departments and agencies (STP, 2009), thereby creating a single
programme that would be responsible for a broad array of business support services. STP’s core
mandate is to manage the various business incubators or Technology Business Centres (TBCs)
that receive financial support from the national government, and to provide small businesses with
technology transfer services and technology business incubation services through the TBCs. In
this way, the STP intends to complement other SEDA branches that provide pre-incubation and
general business development support services to small enterprises during their early
establishment and conceptualisation phase (SEDA, 2008; SEDA, 2009).
All the STP incubators are fully funded by the DTI and are registered as section 21 or non-profit
companies or trusts (World Bank, 2010: 20). The main objectives of the STP incubators in terms of
government policy are to enable technology transfer and innovation, create and develop globally
competitive SMMEs that contribute towards accelerated growth of the economy and to support
disadvantaged and marginalised groups (World Bank, 2010: 16).
4.4 THE STP BUSINESS INCUBATORS
The STP has twenty nine technology business centres or business incubators spread across
various sectors throughout the country. According to the STP website, these technology business
centres/ incubators utilise three different organisational models to incubate small businesses:

Technology Demonstration Centres (TDCs): These refer to incubators that focus primarily on
demonstrating, exhibiting and providing training in the use of available technologies;

Technology Incubators (TIS): These incubators provide a sheltered and protected
environment within which to support and nurture technology-based start-ups; and

Hybrid Centres: These refer to incubators that combine elements of the TDC and TIS models
whilst at the same time incorporating elements or features of the local environment within
33
which these centres are located, to address specific needs of the small enterprises within that
environment (STP, no yeara).
Based on a memorandum of understanding between the DTI and SEDA, the STP business
incubators are expected to address the seven strategic focus areas with respect to its mandate
(SEDA, 2007). This applies to all STP incubators, irrespective of the model an incubator may
follow.
These seven focus areas require that the STP incubators:
 increase management support for small enterprises;
 facilitate the acquisition and transfer of technology to small enterprises;
 promote the use of quality standards by small enterprises;
 improve the performance and productivity of small enterprises;
 improve the competitiveness of small enterprises;
 promote entrepreneurial activity and the success of identified target groups- women and the
youth; and
 most importantly, reduce the failure rates of small enterprises.
These seven focus areas are essential components of a small business support strategy and have
been identified by SEDA as the main reasons why technology-based small enterprises fail during
the first three years of their existence.
Any framework to evaluate the performance of the STP incubators must therefore take cognisance
of these focus areas and utilise KPIs that are able to measure the performance of the business
incubators with respect to these focus areas.
In the remainder of this section, we briefly discuss the main characteristics of each STP incubator.
1.
Chemical Technology Incubator (Chemin)
Chemin is a technology business incubator that is based in Port Elizabeth. It specialises in
supporting start-up SMMEs in the downstream chemical industry through collaborative linkages
with organisations and stakeholders in the chemical industry who act as service providers to the
incubatees (STP, 2010a). Chemin was established in 2002 as a non-profit organisation. Its
target population is the rural poor and women-owned SMMEs. Chemin has 580 square meters in
floor space of which 160 sq/m is used for admin and incubator services. It provides four levels of
projects for incubates with level 1 involving the transferring of readily available technology and
level 4 involving the commercialisation of patents (Idisc, 2010a).
34
2.
Furniture Technology Centre (Furntech)
The Furniture Technology Centre (Furntech) is a wholly owned subsidiary of the Furniture
Technology Centre Trust. Furntech operates as a section 21 company and is registered as a
non-profit organisation. It has its head office in Cape Town and it has branches in George, White
River, Durban, Umzimkhulu, Johannesburg and Mthatha, which gives it coverage of
approximately 90 per cent of the emerging and established furniture producers in South Africa
(Furntech, 2010). Established in 2000, its primary objective is to provide business technology
incubator services to start-up small businesses in the furniture and wood products industries.
The Furntech incubation model is based on a combination of business technology incubation
and skills development as significant drivers of international competitiveness and organisational
development. The business incubator is accredited to provide training and assessment services
by the Forest Industries Education and Training Authority (FIETA) and the Department of
Education (Furntech, 2010) and is recognised as a leading developer of a sustainable incubator
model (STP, 2010b). Furntech also has partnerships with the Tibro Training Centre (TTC) in
Sweden and it has developed a furniture design training programme that will run in conjunction
with the University of British Columbia (UBC) and the University of Stellenbosch (Furntech,
2010).
The Furntech head office in Cape Town has four incubatees that have four employees amongst
them. The six Furntech branches vary in size and the number of incubatees. The Furntech
branch in Johannesburg currently has seven incubatees that employ a total of fifteen employees
amongst them, while the one in Mthatha has ten incubatees that employ a total of forty seven
employees. The Umzimkulu branch has eight incubatees and employs a total of nine employees
and the White River centre has five incubatees that employ ten employees. The remaining two
branches are the Durban branch which is the biggest and has thirteen incubatees that employs a
total of forty one employees and the George branch which is the smallest with two incubatees
employing a total of four employees (Furntech, 2010).
3.
Mpumalanga Stainless Steel Initiative (MSI)
The Mpumalanga stainless steel initiative is situated in Middelburg and provides incubator
services to SMMEs that want to enter the stainless steel industry. The MSI provides a range of
infrastructure and other facilities to SMMEs, including skills training, technical expertise,
machinery, and equipment to enable new SMMEs to grow and become sustainable in the long
term (STP, 2010c).
MSI was established in 2002 and is operated as a non-profit organisation. It has 1880 sq/m in
floor space of which 1080sq/m is used for admin and incubator services and 800sq/m is rented
out to clients (Idisc, 2010b).
35
4.
Soshanguve Manufacturing Technology Demonstration Centre (SMTDC)
Established in 2008, the SMTDC is a non-profit organisation that supports newly formed SMMEs
in the manufacturing sector. The SMTDC trains entrepreneurs to operate and maintain
machinery and equipment and to establish new small-scale manufacturing and services
maintenance ventures. Its target population is the rural and urban poor, women and the youth.
Of its building floor space of 15000sq/m, 6000sq/m is used for admin and incubator services and
9000sq/m is rented out to clients (Idisc, 2010c).
5.
Softstart Business Technology Incubator (SBTI)
The SBTI was established in 2002 out of a merger between the Softstart Trust and the Bodibeng
Technology Incubator. The SBTI is based in Gauteng and provides high potential ICT
businesses with incubator services- its primary focus being on the concept and development
phases of ventures (STP, 2010d).The SBTI has embarked on a satellite incubation programme
with tertiary institutions, through which entrepreneurs are able to gain access to a diverse range
of specialists throughout the world. The SBTI is a section 21, non-profit organisation with
1300sq/m floor space (Idisc, 2010d). SBTI has three satellite incubators that are based at the
University of Pretoria, the Tshwane University of Technology (TUT) and the Durban University of
Technology (TUT) (Janse van Rensburg, 2010).
6.
The SEDA Construction Incubator (SCI)
The SCI is a non-profit organisation that has branches in Durban, Mthatha, Dundee and Port
Elizabeth (Idisc, 2010e). The SCI was launched in 2007 and was established out of a
partnership between STP and the Ethekwini Municipality (SEDA, 2007). It has 18000sq/m of
incubator floor space, of which 7000sq/m is used for admin and incubator services and
11000sq/m is rented out to clients. Its primary focus is the development of small businesses that
are classified under the Construction Industries Development Board as grade 3 and provides
them with the necessary support to grow their businesses to grade 4 and 5 within a designated
period of time (Idisc, 2010e). The SCI does this by providing business support to emerging
contractors throughout the project life-cycle and by targeting work opportunities for contractors
by identifying appropriate procurement contracts on offer by departments within municipalities
where its incubators are based (STP, 2010e). During the course of 2009, the SCI was awarded
accreditation as a training provider in the construction industry by the Construction Education
and Training Authority (CETA) and the centre also secured a collaborative partnership with the
Umzimyathi District Municipality to establish and expand its operations in KZN (SEDA, 2009).
36
Of the four SCI branches, the Durban branch is the biggest in terms of incubatees with sixty
eight, the Dundee branch has thirty incubatees, Port Elizabeth has twelve incubatees and
Mthatha is the smallest with five incubatees (Mlaba, 2010).
7.
The Egoli Biotechnology Incubator (eGoli BIO)
The eGoli BIO is a non-profit organisation based in Gauteng that serves as a development
conduit for the commercialisation of research, products, services and technology platforms within
the life sciences industry. The incubator provides a technology-intensive, collaborative
environment with infrastructural support and strategic, commercial and legal assistance, within
which entrepreneurs have an opportunity to commercialise their products and/or services and
develop new biotechnologies into viable business enterprises (STP, 2010f).
8.
The Zenzele Technology Demonstration Centre
The Zenzele incubator was established in 2002 and is based in Randburg. It provides technical
and research support to small scale mining and mining related enterprises. It also provides
enterprises with the necessary technical support to set up minerals beneficiation enterprises that
manufacture jewellery products, household articles and decorative items (STP, 2010g).
9.
The Mapfura-Makhura Incubator (MMI)
The MMI is based in at the Tompi Seleka Farmers Training College in the Limpopo Province and
provides business support to emerging small-scale farmers within the bio-fuels industry. The
incubator started in 2006 out of an initiative between the Department of Science and Technology
(DST) and the Sustainable Rural Livelihoods (SRL) division of the Agricultural Research Council
(ARC) when a proposal was made to use available technologies to assist black small-scale
farmers as the primary producers of the crops for biodiesel production in South Africa (STP,
2010h).
10. The SEDA Nelson Mandela Bay ICT Incubator (SNMBICT)
The SNMBICT is a non-profit organisation that provides IT incubators with shared facilities
across the Eastern Cape to house established IT enabled SMMEs and start-ups in the same
building. It is an independent body that works closely with both the public and private sectors
and focuses on four core areas which are ICT cluster development, business development, skills
37
development and job creation. In addition to its business support services, the SNMBICT has
established an Entrepreneurial Support Programme (ESP), which addresses the needs of the
companies and evaluates their development processes (STP, 2010i).
11. The Timbali Technology Incubator
The Timbali incubator is situated in the lowveld region of Mpumalanga and provides support to
emerging farmers in the cut flower industry. The incubator has five clusters consisting of 30
state-of-the-art greenhouses and an eight-hectare open-land development through which it
provides novice farmers with the necessary skills and knowledge to competitively enter the
mainstream economy (STP, 2010j).
12. The SEDA Automotive Technology Centre (SATec)
The SATec incubator is located in the Rosslyn industrial area of Gauteng. It is a section 21, nonprofit organisation that provides business services to technologically driven SMMEs and
emerging suppliers in the automotive sector. Its primary objective is to enhance the marketability
and quality of the technologies developed and to enable technology transfer within this sector.
SATec was formed through collaboration between the Automotive Industry Development Centre,
(AIDC), the CSIR Enterprise Development Centre and the Tshwane University of Technology
(TUT) together with the STP (STP, 2010k).
13. The SEDA Ekhuruleni Base Metals Incubator (Lepharo)
The SEDA Ehhuruleni base metals incubator trades as Lepharo. It is based in Gauteng and
operates as a section 21 company. The incubator is a joint venture between SEDA and Kumba
Resources (Impala Platinum), Ekurhuleni Municipality and the Gauteng Enterprise Propeller
(Seda, 2007). Lepharo provides incubator services to entrepreneurs that want to establish new
businesses in the Base Metals sector. More specifically, it incubates entrepreneurs in the
fabrication of copper and zinc metal products through the application of spin casting and metal
sheet forming technology (STP, 2010l).
14. The SEDA Platinum Incubator (SPI)
Legislative changes requiring mining houses to invest in beneficiation activities together with
research conducted by the Platinum Trust of South Africa on how to increase South Africa’s
production and sales of its platinum jewellery provided the incentive for forming the SPI (STP,
38
2010m). The SPI was officially launched in December 2006 and was established out of a
partnership with SEDA, the Platinum Jewellery Trust, Northam platinum and the Amplats
Platinum Group. It is located at Orbit College in Rustenburg, North West Province and provides
assistance to SMMEs in the platinum jewellery manufacturing sector (SEDA, 2007). The
Incubator offers access to facilities that assist in increasing the production capacity and quality of
the SMME products as well as a platinum loan scheme which assists SMMEs to reduce their
cost of operation as platinum is the single largest cost for manufacturing jewellers (STP, 2010m).
It also assists SMMEs with the marketing of their products through its collaboration with Ndjadji
Platinum, which does international marketing of platinum jewellery products (SEDA, 2007).
15. The SEDA Essential Oils Incubation Centre (SEOBI)
SEOBI is located in Gauteng and operates as a section 21 business incubator. The incubator’s
primary focus is on transferring appropriate technologies to emerging black farmers in order to
facilitate starting or increasing commercially viable essential oil production. This will be achieved
through the development of 12 nationwide clusters of small, independent, emerging essential oil
farmers, each cultivating 25 hectares of essential oil crop plantations (STP, 2010n).
16. The Downstream Aluminium Centre of Technology (DACT)
The DACT is located in Richards Bay and forms part of the Zululand Chamber of Business
Foundation initiative to provide a profitable business environment where practical and theoretical
training can be undertaken. The DACT focuses on supporting businesses in the aluminiumrelated industry and it has established a R8 million facility to train students from the local
Downstream Aluminium Pilot Project to set-up their own aluminium-related business ventures
with the support of the centre (STP, 2010o).
17. The SEDA Sugar Cane Incubator (SESUCI)
The SESUCI was established through the incorporation of the STP within the Walda Sugar Cane
initiative. The Walda Sugar Cane initiative was started by a private company-Agriwiz. It includes
30 farmers with approximately 10 hectares each. The incubator is based in Eastern Mpumalanga
and provides incubator services to emerging agricultural SMMEs. One of the challenges in
agriculture is the lack of expertise or the resources available to pay for them in SMME
agriculture. The SESUCI has overcome this challenge by developing a prototype software and
technology package that utilises cellular and (in the near future satellite) technology to interface,
monitor and manage all aspects of the SMME agri-business (STP, 2010p).
39
18. The Mpumalanga Agri-Skill and Development and Training (MASD&T)
The MASD&T is located in Mpumalanga and operates as a section 21 company. It was
established in 2005 as a private initiative which later combined with the STP in 2007 to become
a public-private partnership. MASD&T’s mandate is to promote sustainable SMMEs in the
agricultural sector which it does through the development of people and skills, funding of viable
agricultural enterprises and providing business services such as advice, counselling, training and
access to markets (STP, 2010q). MASD&T operates as a virtual incubator with an incubation
period of three years, which is in the process of being extended to five years. Its managing
director, Lynette Bezuidenhout has twelve years training experience and is passionate about
training. MASD&T takes emerging farmers and develops their farms with them. They train the
farmers and assist them with managing the farm, access to markets and financial record keeping
(Bezuidenhout, 2010).
19. The Seda Agriculture , Mining and Tooling Incubator (SAMI)
SAMI is based in Bloemfontein in the Free State and it was only recently established in 2009. Its
focus is to provide tooling for the agriculture and mining sectors (SEDA, 2009).
20. The Seda Limpopo Jewellery Incubator (SLJI)
The Seda Limpopo Jewellery Incubator (SLJI) is an initiative to create a group of newlyestablished, interdependent jewellery entrepreneurs and businesses in the Limpopo province.
The incubator is based in Polokwane and was officially launched in July 2009. The SLJI
operates as a non-profit organisation that receives funding from the STP and the European
Union. The SLJI forms part of the Limpopo Jewellery Cluster which is the largest empowerment
project in the jewellery sector in South Africa. The core focus of this cluster is the production of
jewellery for the South African and international markets, training learners in jewellery design
and manufacture, and assisting black jewellers in establishing their own business.
The SLJI was established out of the need to develop local manufacturers involved in the design
and manufacture of precious metal jewellery. A study conducted by the Jewellery Council of
South Africa in 2007 found that most local manufacturers do not have access to the metalfinancing structures enjoyed by their overseas competitors and as a result, these manufacturers
are unable to compete in the global jewellery market against countries such as China, India, and
Turkey, who enjoy ever-growing market-share. The centre offers both physical incubation
services for incubatees as well as virtual incubation services to enterprises not housed at the
centre. The SLJI incubator provides incubatees with accredited short courses and state-of-the-
40
art manufacturing facilities that include design, waxing, casting, plating and polishing divisions.
(Limpopo Jewellery).
4.5 OTHER PUBLIC AND PRIVATE SECTOR BUSINESS INCUBATORS
In addition to these STP incubators, there are six other public and private sector incubators that
have very diverse goals and objectives. Three of the business incubators have been established
as PPPs between provincial governments and the private sector, to promote regional development
of SMMEs, mostly in the ICT sector. Two incubators have been established to pursue the
corporate social responsibilities of its funders and one incubator has been established purely to
make a profit for its investors. Table 5 below provides a more detailed overview of these
incubators.
Table 5: Public and private sector business incubators
INCUBATOR
Bandwidth
(BWB)
Barn
SECTOR
OVERVIEW
ICT
The Bandwidth Barn (BWB) is located in Cape Town. Its focus is
to assist enterprises establish themselves and to commercialise
new products and services. The BWB incubation model offers
narrow incubation with intensive services for a limited number of
clients and deep incubation with less intensive services for many
clients (Bandwidth Barn, 2010).
Branson School
The Branson School of Entrepreneurship is a collaboration
between Richard Branson’s Virgin Group and the CIDA
Foundation. It was established in 2005 and is housed at the CIDA
city campus in Johannesburg. Its focus is on encouraging and
developing entrepreneurs (CIDA Foundation, 2010).
of Entrepreneurship
Chem City
Chemical
Chem City is a wholly owned initiative of Sasol Chemical
Industries, located in the industrial hub of the Free State province.
Its core focus is to facilitate the establishment of independent
downstream SMMEs in the chemical sector and to assist Sasol in
aligning itself to the national strategies of job creation and broad
based BEE (Chemcity, 2010).
SmartXchange
ICT
SmartXchange is a non-profit ICT cluster that operates as a PPP
initiative within the Kwazulu-Natal province. Its core mandate is to
develop quality ICT SMMEs through incubation and SMME
support and to promote the region as an ICT hub of Africa
(SmartXchange, 2010).
Maxum
Incubator
ICT;
Biosciences;
The Maxum business incubator is located in the Innovation Hub
which is an initiative of the Gauteng provincial government and is
operated by the University of Pretoria. Maxum offers preincubation as well as incubation services. The Maxim revenue
model works on a royal model whereby incubates only pay for
services after graduating at a royalty of two per cent of annual
turnover for a period equivalent to that of the incubate stay in the
incubator (Maxum, 2010).
Business
Electronics;
Advanced
manufacturing.
Raizcorp
Raizcorp was established in 2002. Raizcorp offers resident
incubator services as well as virtual incubator services to its
clients (Raizcorp, 2010).
41
4.6 SUMMARY
The STP has twenty nine business incubators spread throughout the country that provide services
for small, emerging enterprises across several different industry sectors. These incubators exist in
three different organisational forms- as technology demonstration centres, technology incubators
and hybrid centre. Although each organisational form has a different focus, the STP incubators
have clear and specific objectives as defined by the STP mandate. These objectives include
increasing management support for small enterprises, facilitating the acquisition and transfer of
technology to small enterprises, promoting the use of quality and standards by small enterprises,
improving the performance, productivity and competitiveness of small enterprises, promoting
entrepreneurial activity and the success of identified target groups and reducing the failure rates of
small enterprises.
In this chapter, we have discussed some of the main characteristics of each of the STP incubators.
These incubators operate as non-profit organisations and have been established to provide
support to start-up enterprises in sectors where most SMMEs lack the necessary skills and
exposure. Most of these incubators are still in their infancy, having only been established within the
last five years. As a result many of the STP incubators have yet to reach their full potential. This is
a significant factor in the performance evaluation of the STP incubators as the more established
incubators are likely to perform better than incubators that are at the beginning of their business
lifecycle. In addition, some incubators have been established from the merger of existing private
companies with that of the STP and now operate as PPPs. These incubators have an advantage
over other green-fields STP incubators as they come with pre-existing networks, resources and
personnel in place. In addition, they have management that already have extensive commercial
experience in that particular industry. With additional public sector funding, these incubators can
combine the efficiency of the private sector with the financial patronage of the public sector to
optimise their performances. We therefore expect these incubators to perform better as a whole
than that of the newly established STP incubators that operate as public models and have yet to
establish strong networks and business linkages.
In our discussion, we have also reviewed other public and private funded incubators in South
Africa. Some of these incubators operate as public-private partnerships and others as private
incubators whose goals are closely aligned to that of their funders. Although it is not the purpose of
this paper to evaluate the performance of these incubators we believe that the industry practices of
these incubators and the STP incubators have many commonalities and the lessons learned from
the STP incubators could also be utilised to benefit these incubators in the future.
We have stated in earlier chapters that it is important that any performance evaluation take into
consideration the goals and objectives of its stakeholders as these are closely related to the
impacts of the incubator. In the following chapter, we evaluate the STP incubators based on their
42
specific goals and objectives. In addition, we will examine the suitability of our common
international framework for evaluating the STP incubators.
43
CHAPTER 5
EVALUATING THE OVERALL PERFORMANCE OF THE STP
INCUBATORS
5.1 INTRODUCTION
In the previous chapter we established an evaluation framework that has been intended to serve
as common international framework for evaluating business incubators. However, as discussed in
this paper, the socio-economic goals and objectives of countries vary. Therefore we expect that the
thirty KPIs recommended in our framework may not always adequately evaluate the specific
performance criteria of some countries. In these circumstances it may be necessary to add other
KPIs to the common framework that evaluate the specific needs of that country.
The STP business incubators were established to meet specific goals and objectives, and to
deliver on seven key focus areas. In addition to their traditional role of promoting SMME start-ups
and reducing the failure rate of businesses, the STP incubators have certain goals and objectives
that are relevant only in the South African context. These goals stem from the past practice of
apartheid in South Africa which left the country with significant disparity between white-owned and
black-owned businesses. Apartheid promoted the growth of white-owned businesses while
inhibiting that of black-owned businesses. As a result this one-sided promotion of business
interests, most of the medium to large companies in South Africa are white owned while most black
owned businesses are confined to the small business sector. A recent Finscope survey on small
businesses in South Africa, found that black business owners made up 84 per cent of the small
business sector, and that 58 per cent of the owners were female. Women business owners
however, dominated the lower end of the entrepreneurial field and mainly engaged in product
reselling (Prinsloo, 2010). In an attempt to redress these imbalances, one of the specific objectives
of the STP is the promotion of black and women-owned SMMEs.
In addition to this, the STP incubators are required to facilitate the acquisition, development and
transfer of technology to small enterprises, particularly those operating in the second economy
(STP, 2010). In this context, the second economy broadly refers to the marginalised informal
economy of South Africa, which has become an important source of income for unskilled to semiskilled labour, as well as to those individuals that cannot find employment in the formal economy
(STP, 2010). It was found in the Finscope survey that over 40 per cent of individuals that started up
their own businesses did so because they could not find a job in the formal sector or were
unemployed (Prinsloo, 2010).
Against this backdrop, we examine the appropriateness of our framework for evaluating the
performance of the STP incubators.
44
5.2 SAMPLE DATA
The sample for the study has been drawn from the 29 STP funded business incubators in South
Africa. It must be noted that the Furntech business incubator has seven branches and the Seda
Construction Incubator (SCI) has four branches. These incubator branches have been listed as
separate incubators when we examined the sector and location spread of the STP incubators.
However, in our performance evaluation of the STP incubators, the outputs and KPIs of the seven
Furntech branches and the four SCI branches have been consolidated and are presented as one
business incubator respectively. As a result of the consolidation, the number of STP incubators
evaluated in this paper reduces to a total of twenty. In addition, due to insufficient or missing data
for some of the STP incubators, analysis was only possible on thirteen STP business incubators
over a three year period. The 13 incubators that we evaluated are Chemin, Egolibio, SBTI,
Zenzele, Timbali, MSI, Furntech, SPI, MMI, SEOBI, SESUCI, MASDT and SECI.
The data used in this study consists of secondary empirical data that has been supplied by the
STP for the years 2006 to 2010. In terms of the STP funding model, the business incubators
receive funding based on their performance relative to predetermined yearly KPI targets (Ariefdien,
2010). Incubators compile a report on their KPIs every quarter. These quarterly reports are
consolidated at the end of the year to form an annual performance report. The performance of the
incubator is then compared to that of its targeted KPI to determine whether these were met.
In addition to the secondary STP data, telephonic interviews were conducted with selected
incubator managers who were asked a selection of open ended questions. Additional secondary
data was also obtained from SEDA’s annual reports.
5.3 PERFORMANCE EVALUATION
In our analysis of the STP incubators, we have decided to use the performance evaluation
framework as provided by the STP. Although this framework differs from that derived from the
literature review, the criteria for performance evaluation are similar and most of the KPIs used in
this framework are common to both the common international framework and the STP framework.
We choose the STP framework over that of our common international framework because the STP
framework also evaluates incubators on the specific goals and the objectives of the incubator
stakeholders such as the number of black owned and women owned SMMEs created, which are
very relevant to South Africa and the STP.
The STP performance framework consists of 43 key performance indicators (Annexure A) that are
utilised to evaluate incubators based on the promotion of their macro-economic goals (cost-benefit
analysis), optimisation of centre deliverables and their sustainability. Under the promotion of
macro-economic goals, incubators are evaluated in terms of improvements in SMMEs
performance, profitability and survival rate, the promotion of black economic empowerment (BEE),
the promotion of economic growth and employment creation and the promotion of exports. Under
45
optimisation of centre deliverables incubators are assessed in terms of the promotion of technology
transfer and diffusion within the SMME sector and the promotion of technological innovation. And
lastly in terms of sustainability, incubator performance is measured by their dependency on grant
funding (STP).
Due to the lack of data for all forty three KPIs over our assessment period, we have limited this
framework to 24 KPIs that adequately evaluates the STP incubators in all three of the discussed
categories.
5.3.1 Spread of STP incubators
The sector and location spread of the STP incubators is supplied in Table 6.
Table 6: STP business incubators
Sector
Chemicals Industry
ICT
Business Incubator
Chemical Technology Incubator (CHEMIN)
 SEDA Nelson Mandela Bay ICT Incubator (SNMBICTI)
 Softstart Business Technology Incubator
(SBTI)
Biotechnology/ Biofuels
 Egoli Biotechnology Incubator (Egolibio)
 Makhura Maphura Incubator (MMI)
Manufacturing











Agriculture
Automotive Industry
Mining and Minerals
Beneficiation
Construction
Furntech Cape Town (Head Office)
Furntech George
Furntech White River
Umzimkhulu
Furntech Durban
Furntech Mthatha
Furntech Johannesburg
Mpumalanga Stainless Initiative
Downstream Aluminium Centre of
Technology
(DACT)
Shoshanguve Manufacturing Technology
Demonstration Centre (SMTDC)
Seda Limpopo Jewellery Incubator (SLJI)

Mpumalanga Agri-skills Development & Training
(MASD&T)
 SEDA Essential Oils Business Incubator (SEOBI)
 SEDA Sugar Cane Incubator (SeSuCI)
 Agricultural and Mining Tooling Incubator
 Timbali Incubator SEDA Automotive Technology Centre (SATeC)
 SEDA Ekurhuleni Base Metals Incubator T/A
Lepharo
 SEDA Platinum Incubator (SPI)
 Zenzele Technology Demonstration Centre
SEDA Construction Incubator (SCI)
 Durban
 Mthatha
 Dundee
 Port Elizabeth
Source: SABTIA (2010).
Location
Eastern Cape
Eastern Cape
Gauteng
Gauteng
Limpopo
Western Cape
Eastern Cape
Mpumalanga
Kwazulu-Natal
Kwazulu-Natal
Eastern Cape
Gauteng
Mpumalanga
Kwazulu–Natal
Gauteng
Limpopo
Mpumalanga
Gauteng
Mpumalanga
Free State
Mpumalanga
Gauteng
Gauteng
North West
Gauteng
Kwazulu-Natal
Eastern Cape
Kwazulu-Natal
Eastern Cape
46
From Table 6, it is noticeable that the twenty nine STP incubators are spread across eight of the
nine provinces in South Africa. The majority are located in Gauteng which has eight incubators,
followed by the Eastern Cape with six STP incubators. Mpumalanga and Kwazulu-Natal both have
five STP incubators and the Limpopo province has two incubators. The Free State, Western Cape
and North West province have one incubator each, while the Northern Cape is the only province
that does not have a STP incubator. One possible explanation for this is that the STP incubators
are highly sector specific as observed from Table 7. As a result the location of an STP incubator is
determined by the sector it caters for and not on the province in which it is housed.
Table 7: Spread of incubated and graduated firms by sector (2007-2010)
Sector Focus
Incubated firms
Graduated firms
Number & Percentage
Number & Percentage
Agriculture and Agri-processing
4
14%
1
2%
Bio and Life Sciences
2
7%
16
29%
Chemicals
1
3%
9
16%
Construction
4
14%
ICT
2
7%
19
34%
Manufacturing
11
38%
8
14%
Mining and Minerals Beneficiation
4
14%
3
5%
Automotive
1
3%
Source: STP.
As illustrated in Table 7, the majority of the STP incubators are located in the manufacturing sector
with 38 per cent of all STP incubators located in this sector. One reason why this sector is so
dominant is because of the Furntech manufacturing incubator which has seven branches
throughout the country. This sector however has produced only 14 per cent of graduated firms in
the period 2007 to 2010.
The second largest sectors in terms of incubated firms are the construction, agriculture and mining
and minerals beneficiation with 14 per cent of the incubators located in these sectors respectively.
The manufacturing, agriculture, mining and construction industries are important sectors in any
developing country and it is therefore expected that many incubators will be located in these
sectors.
Off the remainder of the STP incubators, 14 per cent are located in the ICT and bio and life
sciences sectors and only three per cent can be found in the chemicals and automotive sectors.
It is noteworthy though that the majority of graduated firms have not come from the large sectors
but from the smaller ICT sector which has two STP incubators but has produced 34 per cent of the
47
graduating SMMEs. Following this is the bio and life sciences sector which also has two STP
incubators but has produced 29 per cent of the graduations. Finally, the chemical sector which has
only one STP incubator has produced 16 per cent of the graduating firms.
5.3.2 The STP performance evaluation framework
The STP performance evaluation framework used in this case study is illustrated in Table 8. This
framework consists of 44 KPIs which we have reduced to 24 KPIs that are encompassed within
three categories as indicated below.
Table 8: STP Performance Evaluation Framework (2007-2010)
Macro-economic goals
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Optimisation of centre deliverables
Sustainability
The number of new SMMEs created;
The number of new jobs created;
The number of new projects initiated;
The number of graduating SMMEs;
The number of clients supported;
The number of SMMEs supported;
Total SMME turnover at the end of the financial year;
Foreign exchange earned;
Growth in SMME income;
The number of black-owned SMMEs created;
The number of woman-owned SMMEs created;
Percentage of SMMEs still in business after year 1
and 2 (analysis conducted on 2010 KPI only);
Percentage Black owned SMME’s established;
Percentage Black owned Projects established;
Percentage Woman owned SMME’s established;
Percentage Woman owned projects/ SMME’s in
portfolio
1.
Patents registered;
2.
3.
Technology transfer interactions completed;
1.
2.
3.
4.
Percentage dependency on STP funding;
Percentage of funding that goes to clients;
Total grants received as a percentage of costs;
Total fees received as a percentage of income; and
Clustering activities.
5.
Percentage of clients paying for services.
Source: STP.
In the next section we analyse the STP incubators using the KPIs discussed in Table 8. In most of
our analysis we have used Box and Whisker graphs to graphically illustrate the KPI used in the
framework. As its name implies, the box and whisker graph consists of a box which represents the
concentration of 25 per cent to 75 per cent range of the data, while the whiskers represent the
minimum and maximum ranges of the data. The box also contains within it the average or mean
value of the data being analysed. In addition, within the box and whisker graphs we have
positioned a data trend line that indicates the trend pattern of the KPI for the three year period.
48
It must be noted that although the y-axis on all the box and whisker graphs contains both positive
and negative values, the negative values are only applicable to those KPIs that have been
analysed in the percentage form.
According to the STP framework, the STP incubators have been evaluated in terms of their
achievement of macro-economic goals, optimisation of centre deliverables and their sustainability.
For each of the KPI, we provide an explanation of the KPI and where necessary the formula that
has been used to calculate that KPI. It should be noted that the explanation refers to quarterly KPI
values. This is because incubators are required to record their performance every quarter. This
figure is then consolidated into the yearly values that we have used for our evaluations.
5.3.2.1 Macro-economic goals
We have evaluated the STP incubators on their achievement of macro-economic goals for the
period 2007 to 2010 using 17 KPIs as listed in Table 8.
Figure 7: The number of new SMMEs created (2007-2010)
The number of new SMMEs established applies to new SMMEs established during the quarter.
This value includes only SMMEs established during the quarter or SMMEs that were non-trading
until the quarter. The year total is cumulative (STP, 2006).
In the period from 2007 to 2010, the STP incubators created a total of 438 new SMMEs. On
average each incubator produced approximately 11 new SMMEs, and as indicated by the trend
line, the number of SMMEs created has been increasing incrementally each year.
49
Figure 8: New jobs created (2007-2010)
The number of (direct) new jobs created refers to the number of new staff members at existing or
newly established SMMEs and projects (taken on during the quarter). This value does not include
casual positions of less than six months (STP, 2006).
As with new SMMEs created, the trend line for new jobs created indicates an incremental and
increasing trend each year. From a low base in 2008 in which the range of new jobs created was
from 0 to 46, this value has progressively increased. In 2009, from 9 to 620 new jobs were created
and in the 2010 from 8 to 1048 new job were created. Each STP incubator produced an average of
77 (direct) new jobs with a total of 2996 over a three year period.
Figure 9: New projects initiated (2007-2010)
The number of new projects entering the pipeline refers to the number of new projects that have
gone through the initial screening stage and are being considered for incubation. This only includes
projects that have gone through initial screening and information gathering sessions and where the
centre has made a firm commitment to take them into the incubator (STP, 2006).
50
Entrepreneurs that walk into the business incubator seeking assistance with starting up a business
are first screened through interviews and assessments. If they are successful, these entrepreneurs
receive a three month pre-incubation contract with the business incubator. During this period preincubatees are required to register their businesses and draw up business plans and proposals.
Approximately 90 per cent of new projects initiated are converted into pre-incubation, of which 70–
80 per cent are converted into fully fledged incubates (Ariefdien, 2010).
From figure 9, it can be observed that each incubator initiated between 0 to 70 new projects with
an average of 19 new projects initiated per incubator. Although the 2009 period experienced a dip
in the number of projects initiated, over the three year period, a total of 751 new projects were
initiated by the STP incubators.
Figure 10: Number of SMMEs supported (2007-2010)
The number of SMMEs supported applies to the SMMEs that have been supported during each
quarter. This value is computed from all the SMMEs that are actually in the incubator at the end of
the quarter, or evidence is provided by the SMME supporting the assistance they received from the
incubator during the quarter (STP, 2006).
Figure 10 illustrates a progressive increase in the number of SMMEs supported each year by the
STP incubators, both in terms of the average number supported as well as the minimum and
maximum numbers supported.
51
Figure 11: Number of clients supported (2007-2010)
Number of clients/projects/tenants supported refers to the total number of clients, tenants and
projects receiving support during the quarter (STP, 2006).
As with most of the other macro-economic KPIs, the trend line in figure 14 indicates a positive and
incremental increase in the number of clients supported by the STP incubators each year.
Figure 12: Number of graduates produced (2007-2010)
The number of graduating SMMEs refers to those SMMEs that have met the exit criteria of the
centre and have been deemed by the centre management to be fully self-sufficient and financially
viable to stand on their own.
The trend line indicates a sharp drop in the number of SMMEs created in the 2009 period. This is
an indication of the effects of the global financial crisis. Many of the SMMEs housed in the STP
incubators are export dependent and their exports dropped significantly at the peak of the financial
crisis. The trend line also indicates that the financial crisis impacts were short term though as
indicated by the significant increase in the number of graduates in 2010.
52
In 2008, the STP incubators produced up to 24 graduate SMMEs, which reduced to up to seven
graduates in the 2009 period, and then increased sharply again to up to 19 graduates in the 2010
period. Each incubator produced an average of approximately three graduate SMMEs each year,
with a total of 121 graduates produced by the 13 incubators.
Figure 13: Total SMME turnover at the end of the financial year (2007-2010)
The total SMME turnover at end of financial year is an estimate provided by the STP incubates.
This figure may change during the course of the year depending on the incubatee’s performance
throughout the year. Year total is average (STP, 2006).
SMMEs generated over R418 million in turnovers from 2007 to 2010. Each incubator had an
average turnover of over R10 million per year.
Figure 14: Foreign exchange earned (2007-2010)
The foreign exchange value earned by SMME (per cent of total income) is provided by incubates
and is measured as foreign exchange income/ Total Income. Year total is average of quarters
(STP, 2006).
53
From 2007 to 2010, SMMEs in the STP incubators generated over R19 million in foreign
exchanges, with each incubator generating an average of approximately R0.5 million in foreign
exchange for each period.
Figure 15: Percentage growth in SMME income (2007-2010)
Percentage growth in SMME income is a measure of the turnover at end of financial year less the
turnover at the start of financial year, over the turnover at the start of the Financial Year. Year total
is average (STP, 2006).
Growth in SMME income fluctuated from between –24 per cent to +120 per cent in the 2008
period, –68 per cent to +95 per cent in the 2009 period and –74 per cent to +113 per cent in the
2010 period. Overall there was positive growth in SMME income in all three time periods with an
average of approximately 18 per cent, but as indicated by the trend line, the growth in SMME
income is declining.
Figure 16: The number of woman-owned SMMEs created (2007-2010)
54
This indicator is a measure of the number of woman owned SMME’s established during the
quarter. It includes only SMME’s established during the quarter or SMME’s that were non-trading
until the quarter. Woman owned SMMEs refers to a minimum 25 per cent shareholding (STP).
The STP incubators created 166 women-owned SMMEs for the three time periods. On average,
each STP incubators produced just over four women-owned SMMEs.
In addition to the number of woman owned SMMEs we have analysed the percentage of woman
owned SMMEs established and the percentage of woman owned projects and SMMEs in the STP
portfolio. The percentage of woman owned SMMEs established measures the number of woman
owned SMME’s established over total SMMEs established during the quarter. This includes only
SMME’s established during the quarter or SMME’s that were non-trading until the quarter (STP,
2006). Only 29 per cent of the SMMEs established in 2007 were woman owned. This value
dropped to under 26 per cent in 2008 and then increased to 36 per cent in 2010.
The percentage woman owned projects and SMMEs in portfolio is a measure of the number of
woman owned SMMEs and projects over the total SMMEs and projects in portfolio during the
quarter (STP, 2006). Approximately 29 per cent of the total SMMEs and projects in the STP
portfolio were woman owned in 2007, 37 per cent in 2008 and just over 35 per cent in 2010.
Figure 17: The number of black-owned SMMEs created (2007-2010)
This indicator refers to the number of black owned SMME’s established during the quarter, and it
includes only SMME’s established during the quarter or SMME’s that were non-trading until the
quarter. Black owned refers to a minimum 25 per cent shareholding in the SMME (STP, 2006).
The number of black-owned SMMEs created increased from a total of 75 in the 2008 period to 183
in the 2010 period, with each incubator creating an average of approximately 11 black-owned
SMMEs in this period.
The three additional KPIs in this category are not illustrated graphically but are briefly discussed as
follows:
55
The percentage of black owned SMMEs established refers to the number of black owned SMME’s
established over total SMME’s established during the quarter. This value includes only SMME’s
established during the quarter or SMME’s that were non-trading until the quarter (STP, 2006). Of
the total number of SMMEs created in 2008, approximately 55 per cent were black owned. This
KPI declined to 0 per cent in 2009 and increased sharply to 94 per cent in 2010.
The percentage of black owned projects initiated refers to the number of black owned projects
established over total projects established during the quarter. This only includes the projects
actually entered into the incubation programme within the quarter (STP, 2006). In 2007, more than
79 per cent of the total projects initiated were for black owned SMMEs. This value increased to 84
per cent in 2009 and then to 85 per cent in 2010.
The percentage black owned SMMEs / projects in portfolio is a measure of the number of black
owned SMMEs and projects over the total SMMEs & projects in portfolio during the quarter. This
includes all projects and clients that are actually in the incubator at the end of the quarter (STP,
2006). Approximately 83 per cent of the total number of SMMEs and projects in the STP portfolio
were black owned in 2007. This value increased to 87 per cent in 2009 and to almost 92 per cent
in 2010.
Figure 18: Percentage of clients still in business after 1 and 2 years (2009-2010)
The percentage of SMMEs that survived the first year is a measure of the SMMEs that have had,
or would have had, their first anniversary (trading as an entity) in the previous quarter. It is the
number of successful SMMEs (one year) from that quarter over total SMMEs created in that
quarter (STP, 2006).
In the 2010 period, the percentage of SMMEs still in business after one and two years ranged from
between 0 to 100 per cent, with an average of 76 per cent SMMEs still in business after year 1 and
57 per cent of SMMEs still in business after year 2.
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5.3.2.2 Optimisation of centre deliverables
We have evaluated the optimisation of centre deliverables utilising the number of patents
registered, the number of clustering activities and the number of technology interactions
completed.
The number of patents registered is a measure of the registered patents during the quarter that
cumulate to produce a year total. A copy of the patent is essential for verification purposes (STP,
2006).
STP incubators registered no patents in the 2008 and 2009 period. In 2010 period, two patents
were registered with each incubator producing an average of 0 (with rounding) patents per
incubator.
Figure 19: Number of clustering activities (2007-2010)
Clustering activities refers to activities facilitated by the centre during the quarter that are sectorspecific. That is, bringing together people with sector-specific interests of the centre (STP, 2006).
As illustrated in Figure 19, the STP incubators recorded a sharp increase in the number of
clustering activities in the 2010 period.
Figure 20: Technology transfer interactions completed (2007-2010)
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The number of new/upgraded technology transfer interactions completed applies to conditions
where the centre has facilitated / initiated technology transfer interactions (STP, 2006).
The number of technology transfer interactions completed in the 2010 equalled 45, which was
slightly lower than the 2009 period in which 54 interactions were completed. On average, each
incubator produced more than three technology transfer interactions per year from 2007 to 2010.
5.3.2.3 Sustainability
Sustainability of the STP incubators is accessed with five KPIs.
Figure 21: Percentage dependency on STP funding (2007- 2010)
The percentage dependency on STP funding is a measure of the STP grant as a percentage of
total income received by the centre during the quarter. Total income includes interest received and
all funding. Year total is average (STP, 2006).
The dependency of the incubator on public funding is an important indication of the sustainability of
an incubator (Figure 21). Whereas incubators where heavily dependent on STP funding in 2008
and 2009, this has reduced significantly in the 2010 period. Incubator dependency on STP funding
varied from approximately 50 per cent to 100 per cent in the 2008 and 2009 periods. During the
2010 period, the range of incubator dependency widened to between 0 per cent and 100 per cent.
During the three year period, incubators were dependent on the STP for approximately 76 per cent
of their funding requirements.
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Figure 22: Percentage of funding that goes to clients (2007-2010)
The percentage of funding that goes to clients is a measure of the percentage of total costs that
goes directly to clients – resources (including human), equipment, training, conferences, etc. that
clients benefit from. Year total is average (STP, 2006).
The percentage of STP funding that went to clients of the incubators ranged between 0 and 100
per cent. On average approximately 58 per cent of the STP funding went to the clients of the
incubator in each period from 2007 to 2010.
Figure 23: Total grants received as a percentage of costs (2007-2010)
This indicator measures the STP grant for the quarter as a percentage of total costs for the quarter.
Year total is average (STP, 2006).
During the 2007 to 2010 period, grants received as a percentage of incubator costs were wideranging from 48 to 199 per cent (2008 period), 67 to 311 per cent (2009 period), and between 0
and 148 per cent (2010 period). On average in each period, approximately 97 per cent of the costs
of the incubator were covered from grants received from government.
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Figure 24: Total fees received as a percentage of income (2007-2010)
This indicator is a measure of the total fees, rentals, levies and royalties as per cent of total income
measured. It is computed as the total fees, rentals, levies and royalties received by the centre
during the quarter over total income for the quarter. Year total is average (STP, 2006).
The fees that an incubator receives from incubates is an important source of revenue generation.
The higher the fees received as a per cent of income, the less dependent will the incubator be on
external sources of income such as government grants and private sector funding. Total fees
received as a percentage of income for the STP incubators ranged from 0 to 37 per cent, with an
average of 12 per cent.
Figure 25: Percentage of clients paying for services (2007-2010)
Figure 25 illustrates the percentage of clients paying for services. This indicator is measured by the
number of clients paying for services over total number of clients. Year total is average (STP,
2006).
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The percentage of clients paying for services ranged from between 0 and 100 per cent in all three
periods. On average approximately 34 per cent of the incubator clients paid for services. Not only
is this an important factor in the self sustainability of an incubator, but it also means that incubators
that have a high per cent of incubates paying for services, can then utilise this additional financial
resource for improvements of the incubator and its facilities.
5.4 SUMMARY
The STP business incubators were established to meet specific goals and objectives of the South
African government. In addition to promoting SMME start-ups and reducing the failure rate of
businesses, the STP incubators aim to promote black and woman owned businesses.
We deemed the common international framework established in this study to be inadequate to
evaluate the STP incubators on these goals and therefore utilised the 24 KPIs of the STP
performance evaluation framework to evaluate the STP incubators.
The results of the analysis on the performance of the STP incubators are mixed. Overall, in the
macro-economic performance category, the STP incubators have performed well. Most of the KPIs
indicate an upward trend which equates to positive macro-economic performance. However, the
indicators for growth in SMMEs income and the number of businesses still in business after one
and two years indicate a declining trend.
In terms of the optimisation of centre deliverables, the results are poor, with only one incubator
producing two patents in the three year period while the other 12 have produced no patents at all.
The number of technology transfer interactions completed, which refers to new skills acquired by
incubatees through technology demonstrations, has also been low. The number of clustering
activities does however indicate a strong upward trend in the 2010 year.
In the sustainability category, the STP incubator show positive sustainability performance. The
indicator for dependency on STP funding reveals that incubators are becoming less dependent on
STP funding which indicates that they are becoming more self-sufficient and are operating more as
a business. In addition, the total fees received as a percentage of income and the percentage of
clients paying for services show an upward trend, which indicates that more clients are paying for
services and this has increased the income of the incubators.
However, in all three categories, there has been significant divergence between the minimum and
maximum values of the 24 KPIs assessed. For most of the KPIs, minimum values started at zero
which indicates that although the overall KPI may indicate growth/increase in the value assessed,
at least one of the 13 incubators has produced no growth or increase. Furthermore, as with the
minimum and maximum values, the box and whisker graph indicates that in most of the KPIs
assessed, the 25 to 75 per cent box, that is, 50 per cent of the incubators are located closer to the
minimum value rather than the maximum values. This reiterates the observation that although
some incubators have performed extremely well and as a result propped up the average and
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maximum values for each incubator, other incubators have performed poorly. An individual
evaluation of each incubator, which is beyond the scope of this study, is likely to confirm this.
In an attempt to understand the below par performance of some incubators and the above average
performance of others, telephonic interviews were conducted with some of the STP incubator
managers. The findings of these interviews and the lessons learned are discussed in the chapter
that follows.
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CHAPTER 6
LESSONS LEARNED AND CONCLUSION
6.1 PERFORMANCE REVISITED
All the STP incubators or technology business centres are public funded incubators. Their goals
and objectives are clearly defined and they have been evaluated with a standard framework and
KPIs. This standardised approach has enabled us to evaluate performance on an even keel.
From our performance evaluation in the previous chapter we have noted that although most of the
STP incubators demonstrate overall positive growth trends, there are specific areas in which the
incubators have performed poorly. In addition, while some of the incubators have performed
exceptionally well, others have performed disappointingly.
In this section, we examine the reasons for this. We have conducted interviews with various
incubator managers to understand the critical factors that differentiate incubator performances. We
have found that although incubators can be standardised by model and type, there are incubator
specific factors as well as industry specific factors that set some incubators apart from others.
According to Chotoo (2010) of the Zenzele incubator, it takes approximately one to six years for
small businesses in the mining sector to obtain a mining license and prospecting permit. As a
result, it generally takes enterprises in this sector a lot longer to graduate. Whereas most STP
incubators require enterprises to graduate after two to three years, Zenzele has increased its
incubation period to five years. One of the critical factors for clients in the Zenzele incubator is
access to finance. Small scale mining requires significant capital for drilling and earth moving
equipment and many of the enterprises struggle to obtain finance from banks. At present, none of
the STP funding is made available to Zenzele’s clients and it does not assist enterprises with
raising finance for their projects. It is a combination of these factors that contribute to Zenzele’s
below average performance.
The Mapfura-Makhura Incubator (MMI) is another incubator that is only just starting to improve its
performance. One of the reasons for its poor performance in early years is that MMI is relatively
new, having only been established in 2006. MMI provides incubates with incubator services for
three years and thereafter provides post-incubation services in the form of mentoring and coaching
for the next two years. This service is managed onsite approximately once a month. One factor
cited for MMI’s below par performance is that it receives insufficient support and resources from all
of its stakeholders. MMI has eight stakeholders of which only two provide active support and
resources- these are the STP and the Limpopo Department of Agriculture. Even then, MMI
receives direct funding only from the STP while the Department of Agriculture provides funding
directly to the clients of the incubator (Siphutu, 2010).
63
The SEDA construction incubator (SCI) works on a three year incubation period and currently has
115 incubates in its four branches. This incubator was found to be one of the poorest performing
incubators. One of the factors for this is the relative infancy of the incubator which was also only
established in late 2006. An additional problem stems from the reduced time that incubates spend
at the incubator; while some incubates spend between three to four days at the incubator, others
only come in for the seminars and counseling. Part of the problem is that the SCI only provides
technical and business support to its incubates. With the exception of the Dundee branch, SCI
does not help incubates in acquiring projects and as a result, incubates have to take time out and
go into the market place in an attempt to obtain projects for their enterprises. (Mlaba, 2010).
Timbali was found to be one of the best performing incubators. Mauritz Lombard (2010), project
manager and mentor of the Timbali cutflower incubator attributes the success of the incubator to
three distinct factors:

Timbali follows a franchise model, that is it has set business processes that provide a clear
picture to all involved of what they are required to do. The incubator requires full time
commitment from the incubates.

Timbali provides incremental training to its incubates and assesses them on a regular basis.
Incubates that lack commitment are removed from the programme.

The incubates receive a great deal of support from the Timbali, whose staff are passionate
about the industry.
In addition, Timbali’s incubation period runs for three to five years and its post incubation support is
provided daily/weekly depending on needs of the graduates. This support is off-site and includes
technical support, audit processes and accounting services, for which graduates are required to
pay a levy on turnover. Timbali also assists incubates with access to markets and it markets
finished products through the ‘AmaBlom’ banner.
Furntech is another incubator that has performed well in terms of meeting the goals and objectives
of the STP. According to its centre manager, Mr Ariefdien (2010) Furntech’s differentiation from
other incubators and the cornerstone of the Furntech model, lies in the level of training that it offers
to its incubatees. Furntech is one of the few STP incubators that are an accredited training service
provider for the Furniture Industry, providing training to over 600 people each year (SEDA, 2009).
There are three defining features that have contributed to the success and superior performance of
the Furntech incubator:
64
(1)
The centre’s combination of training services and technical skills. Whereas most other
incubators have outsourced their technical skills, Furntech has trained personnel that can
offer this service in-house.
(2)
Furntech has a cost-recovery system in which it charges incubatees a percentage of their
turnover for services rendered by the centre. This enables Furntech to generate a significant
amount of its income from the services it offers to its’ incubates, which in turn reduces its
dependency on STP funding. Whereas the overall three-year average for clients paying for
incubator services is approximately 34 per cent, Furntech has had a 100 per cent payment
rate for the last three year.
(3)
Ariefdien (2010) views management culture as an important factor in determining superior
performance. Management should have a passion for the business incubator and the
industry that they are in.
Furntech also offers post-incubation support in the form of off-site technical support approximately
once a month for three years. In addition, it offers a paying ‘machine time-share’ facility in which
graduates can access specialised machinery in the incubator on an hourly basis for their own
production purposes (Ariefdien, 2010).
The MASD&T provides incubation facilities for small-scale farmers, but farmers are required to
arrange their own funding, as MASD&T does not assist farmers with this service. The biggest
constraint cited by Lynette is the lack of resources. Farmers do not have the necessary
infrastructure to operate efficiently – they lack vehicles to transport their produce, irrigation
equipment and farming machinery. In addition, although there is some support for emerging
farmers, there is a big gap in funding when farmers move from emerging farmer status to a
commercial farmer (Lynette, 2010).
In the 2009-2010 periods, the SBTI produced the highest number of graduates of all the STP
business incubators. One of the reasons cited for this is that SBTI has a large base to work from as
the SBTI has forged strong links with academic and corporate institutions. As part of the corporate
social responsibility and BEE requirements, institutions are required to assists in enterprise
development and procurement of services from black-owned business. Many corporates achieve
this process through the SBTI, which works on behalf of the corporate to train SMMEs, and assist
them in skills development. According to Janse van Rensburg (2010), the factors that distinguish
SBTI from other incubators include the following three:

Excellent coaching and mentorship programmes. SBTI utilises the services of a network of
external consultants that work off the SBTI framework. SBTI then uses a ‘Dashboard Report’
process to identify problem areas with incubates and intervenes where necessary;

dedicated management; and, thirdly,
65

continuous involvement with clients.
In addition, SBTI offers post-incubation services to graduated SMMEs in the form of virtual
incubator services, i.e. clients do not have access to rented premises but have access to coaching
and mentorship services. Clients pay a fee for these services, but those that cannot pay, are
required to mentor other incubates as payment.
The Chemin incubator in Port Elizabeth is the only STP incubator in the chemical sector. According
to Mkhonta (2010), it is difficult to incubate firms in this sector because skills are scarce and the
sector has been monopolised by the large conglomerates. Moreover, this sector is high-tech and
as a result, it takes a long time to get the technology out into the marketplace. Mkhonota (2010)
cites the switch from high-tech to low-tech businesses as one reason for the recent success of
Chemin. At the Chemin incubator, SMMEs produce hair products, paint and cosmetics as well as
other low technology products, which are easier to take to the marketplace. In addition, Chemin
has had stable management for several years, which assisted the incubator, as management fully
understands the sector that it is in (Mkhonta, 2010).
The acting manager of the SNMBICT incubator, Mkosana (2010), believes that an important factor
in their success is the fact that the SNMBICT is the only incubator in the greater Eastern Cape
area that specialises in the ICT sector. In addition, most of their incubatees are recent university
graduates who have the necessary technical knowledge and only require assistance with their
business skills. However, this is a double-edged sword, as many incubatees are also very young
and lack the focus for business. As a result, the incubator management often have to deal with
incubatees that are non-compliant with respect to submitting their annual and quarterly financial
reports.
6.2 LESSONS LEARNED
From the discussions about the interviews, we note that there are two distinct sets of factors that
differentiate incubator performances. These are either industry specific or incubator specific.
Industry specific factors refer to the benefits and challenges that incubators experience that are
specific to a particular industry only. These factors have been discussed in the previous section.
Under industry specific factors, it should be noted that incubators can be divided into technical and
non-technical incubators. Technical incubators include those in the chemical, biotechnology,
mining and ICT sectors. With the exception of the ICT sector, these sectors tend to be more
difficult to incubate because it takes longer for incubatees to get the technology out to the
marketplace (Mkhonta, 2010). The incubation period in the high-tech sectors should therefore be
long enough for incubatees to acquire the necessary skills and get their technologies
commercialised.
66
Although the ICT sector is high-tech, it has the added benefit that most incubatees come directly
from university and have some formal education in the ICT sector before they are accepted into the
incubator. This is of assistance to the incubator management and as a result, management
experience is not as important in the ICT sector as it is in some of the other sectors (Mkosana,
2010).
Incubator specific factors are those factors that are specific to the incubator itself, determining its
success or failure. Some of the reasons why some incubators perform better than others can be
attributed to the following factors:
1.
Incubators should provide good support during and after incubation.
2.
They should have dedicated management that are experienced and passionate about the
industry and the incubator.
3.
Management should be continuously involved with incubates.
4.
Management should be proactive in training and skills transfer.
5.
Incubators should be managed on successful business models.
6.
Incubators should be adequately resourced at all times.
In the light of this, it is worth pondering the following:

Should the incubation period be extended to a mandatory five years? Currently most
incubates are only allowed two to three years of incubator services before they are required
to graduate (Ariefdien, 2010; Chotoo, 2010).

Is the level of post-incubation support sufficient?

Should the business processes and models of successful incubators be adopted as a
benchmark to be replicated by all the other incubators?

Shouldn’t enterprises be retained within the incubator after graduating? Enterprises could be
retained within the incubator at market related rentals. This has benefits in that graduated
firms still have exposure to the networks and services of the incubator. An added benefit
would be to increase the incubator’s revenues, leading to a clustering of firms within the
incubator that can leverage off each other.
6.3 CONCLUSION
Evaluating the performance of business incubators is not a straight forward process. As evident
from the discussion in this paper, the diversity of incubator models makes evaluation difficult.
When deciding on a performance framework, assessors should classify incubators into different
categories. Based on stakeholder goals and objectives, the assessor must then decide on a
performance approach as well as the relevant key performance indicators to use in the
67
performance appraisal. The choice of approach and the key indicators depend to a large extent on
the impacts of the incubator the assessor wishes to consider. This in turn is dependent on the
goals and objectives of the incubator’s stakeholders.
The STP business incubators had similar goals, objectives and measurement criteria, which made
performance appraisal reasonably clear-cut. Even then, in the absence of clear benchmarks and
targets, analyses on the results of the STP incubators can be fairly meaningless. It is important,
therefore, that results are compared against benchmarks or targets to determine relative
performance of the business incubators. It is also important to assess performance over a period of
time so as to determine the performance of a business incubator against itself. In addition, there
are industry and incubator specific factors that influence the performance of an incubator and
explain why some incubators perform better than others. To a large degree, comparing the
performance of incubators in different industries may seem unfair, as it is easier to incubate firms
in some industries than others. Furthermore, incubators go through in different stages of their
business lifecycle which also influences their performance.
Over and above these factors, the overall small business strategy of the country needs to be
considered. As recommended in a recent report by the World Bank (2010: 16), there is a need to
have a strong consistency between a country’s incubator programmes and its overall economic
development strategy. In situations where business incubator programmes have been developed
and conceived for stand-alone goals, incubators have generally turned to be of limited use with few
sustainable results.
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APPENDIX A
STP KEY PERFORMANCE INDICATORS
Promotion of macro-economic goals (Cost-Benefit Analysis Positive)
Improving the
business
performance,
profitability
and survival
rate of newly
established
technology
based SMMEs
Promotion of
Black
Economic
Empowerment
Promotion of
economic
growth and
employment
creation
Promoting
Exports
Optimisation of centre
deliverables
Enterprise Creation
Incubator Annual Impact Summary
Key Performance Area Measureables
Goals
Objectives
Activities
Promoting
Technology
Transfer and
diffusion within
the SMME
sector and to
potential
entrepreneurs
Promoting
Technological
Innovation
Outputs
Quantitative
# new SMMEs established
# new projects initiated
# Clients Supported
# SMMEs supported
% SMMEs that survived 1st year
% SMMEs that survived 2nd year
No Of Graduations
# black owned SMMEs established
% black owned SMMEs established
# black empowered SMMEs established
% black empowered SMMEs established
# black owned projects initiated
% black owned projects initiated
# black owned projects/SMME's in portfolio
% black owned projects/SMMEs in portfolio
# woman owned SMMEs established
% woman owned SMMEs established
# woman empowered SMMEs established
% women empowered SMMEs established
# woman owned projects initiated
% women owned projects initiated
# woman owned projects/SMMEs in portfolio
% woman owned projects/SMMEs in portfolio
# Jobs (Direct) created
Funds Raised (Rm's)
# Jobs (Indirect) created
# Casual / Seasonal jobs created
# new prospects entering pipeline
Total SMME T/O at start of FY
Total SMME T/O at end of FY
% growth in SMME income
Forex earned by SMME (Rand value)
# New foreign clients with whom business has
been secured
# Patents registered
# new/upgraded technology transfer
interactions completed
# technology focused consortia
# Clustering activities
Targets
Qualitative
Sustainability
76
Dependency
of centre on
grant funding
% dependency on STP funding
Level of Income generated from other SA
sources(%)
Level of Income generated from international
sources(%)
Level of Private sector income generated (%)
% of clients paying for services
Total fees, rentals, levies & royalties as % of
Total Income
Total gov grants received as a% of total costs
% funding that goes to clients