Should the government have a portfolio strategy when awarding subsidies?
Economic recovery, transformation to a digital and more sustainable economy, the government as a helping hand to give direction to the working of our economy through subsidies. These are all subjects that cause the necessary discussion in parliaments, in columns and on social media. But apart from the question of whether the government should do something and in which direction it should go, there is a crucial element missing in the debate: The question of whether the scarce resources are also used optimally. Optimal in the sense that the chance of success of the total effort is optimized.
So the question is not so much whether we as a country invest in the right things through subsidies, but whether that invested money will be put to good use. This brings us to the old contradiction of “doing the right things” versus “doing things right.” We all know that you cannot be successful at everything we do, especially when it comes to choosing which innovations to support and which not. Innovation and transformation by definition entail a risk. Today, the granting of subsidies for innovation is based too much on the subject of the innovation: it must be digital or it must contribute to sustainability. These criteria are important, but without asking the question what strategy these innovative companies adopt, there is a good chance that a large part of the funds will disappear into a bottomless pit.
“The government should just like large companies develop a portfolio strategy ”
Just like large companies, the government must develop a portfolio strategy that gives direction to the types of initiatives in which investments are made. As a community you could choose to only go for the so-called moonshots, extremely ambitious and risky projects like the big tech companies have a few. But even with the hundreds of millions that a country like Belgium invests in the post-corona recovery policy, you can still only support a handful of projects. Or you could invest everything in supporting top experts who are now developing the technology of the future. Then you can easily finance a few hundred experts, but the return will only become clear in the years to come. Then choose sensible entrepreneurs who make incremental improvements to their products and processes? That’s probably a good idea in the short term, but in the long run would lead us to the tail end of the pack in this fast-moving, technology-driven world.
“… like when putting together an investment portfolio, lesson one is: diversification ”
How such a subsidy portfolio should be composed is again a choice that lies with policymakers. Like any good family man, they will have to choose between defensive or dynamic investing. But similar to defining an investment portfolio, lesson one is: diversification. You put together a mix that optimizes the chances of achieving the government’s objectives.
The risk profile of the innovation will certainly be a criterion in this respect, but also the profile of the entrepreneurs behind the company itself. As a country you can dream of an entrepreneurial landscape with only Elon Musk types, but in the short term it is the Willy Naessens of this country who ensure that money is also made. We will therefore also have to find a balanced mix in the entrepreneurial profiles.
Finally, the composition of the portfolio also takes into account the talents and the competitive position of our entrepreneurs and companies. For example, we see in practice that Belgium is a strong “business to business” country. We also prefer to focus on what we can do, rather than how good we can explain it. The policy choice can be to build on this and therefore focus more on business to business models, or the policy makers can choose to initiate a transformation and to support innovation that goes directly to consumers with a strong marketing focus.
As part of our work in corporation innovation and with startups, we at THINK with people developed a model with five types of innovative companies:
- The Hero: Builds a strong company in a well-defined sector with a focused offering and relies above all on its own know-how and talent.
- The Typical Entrepreneur: Work from their own strengths and gradually expand a wide offering in their own market. Growth happens step by step.
- The Partner: Has an enormously strong offering and brings it to different markets by working with partners who manage the relationship with the end customer.
- The Helper: Starts from a clear vision and brings it itself to the business market, is ambitious in developing a wide range and goes for a large (international) market.
- The Conqueror: Has a boundless ambition to reach customers (consumers) worldwide and to become market leader based on an unambiguous vision.
Based on the strategic objectives of our government, a mix can be composed of the types of organizations who should get priority in investment. The heroes will play an important role in developing long-term know-how, the Conquerors and the Helpers in turn have the potential to become the stars (as in BCG’s product portfolio matrix) and the Typical Entrepreneurs are the perfect partners for delivering the stable and profitable companies (the ‘cash cows’).
With the THINK with people team, we have all the talent and tools in house to work out such a portfolio strategy together with our policymakers and put it into practice.
Wondering what type of strategy fits you best? Go do our test at https://www.thinkwithpeople.be/bouwmodel-en-business-plan
