Subsidizing Regional Innovation

WHU paper finds need for strict selection, ambitious projects and trust-based governance

With the help of European subsidies, provinces and local authorities around Europe are investing massively in projects that have to contribute to innovation and impact within SMEs. New research shows that applying a strict selection process with independent expert committees is a fruitful approach that maximizes the probability of successful execution of projects. This research was coordinated by Prof. Dr. Dries Faems, who currently holds the Chair Entrepreneurship, Innovation and Technological Transformation at the WHU Otto Beisheim School of Management. Together with his former colleagues of the University of Groningen, he examined hundreds of projects that receive subsidies from four Dutch regional innovation programs within the scope of the European Regional Development Fund (ERDF). 

Results indicate that the Dutch ERDF programs select projects that potentially contribute to more innovative SMEs. In most projects, SMEs and/or knowledge institutions work together on knowledge sharing and innovation. The research shows that projects would not have been implemented without this support. A large majority of respondents expect that independent funding or alternative financing would have been difficult.

The results of the research also show that the majority of the funded projects successfully realize the anticipated objectives. However, the researchers argue for more ambitious project objectives. Professor Dries Faems stresses that: "The vast majority of current projects aim at creating a healthy business activity that will have regional impact. However, there is a need for projects that aim to become leading at an international level as they can really make a difference in the long term for the structural development of regions."

With the introduction of the Dutch ERDF programs, it was decided to work with expert committees in which independent experts assess project applications. The quality of the applications has increased significantly over the years. The independent expert committee played an important role according to the researchers. "The report emphasizes the importance of the expert committee as a strict gatekeeper that guarantees the selection of high-quality projects. We therefore argue for maintaining a strict selection policy in which the independence of the expert committees is central. This is certainly not self-evident and requires constant attention, "says Professor Faems.

Respondents indicate that the administrative pressure that the implementation of an ERDF project entails can hamper or delay the realization of results. The researchers recommend that the program managers and controlling bodies try to realize a cultural change. They propose building a lean and trust-based project control structure in combination with the well-functioning strict selection at the gate. The focus of inspections should, according to them, lie in the project selection phase. In the subsequent execution phase, the administrative burden should be reduced to the minimum necessary.