Introduction to Entrepreneurship

Lecture 11
Cultural Barriers: Graduate
Education
 Policy Context

• UK Government’s Dearing Committee Report recommended

that higher education institutions (HEIs) should “… consider the
scope for encouraging entrepreneurship through innovative
approaches to programme design and specialist postgraduate
programmes” (NCIHE, 1997)
• Lambert Review in the UK highlighted the importance of
entrepreneurial skills especially for science and technology
students
• Numerous initiatives in the UK have supported enterprise
education (Hannon, 2007)
• “Fostering entrepreneurial mindsets” is promoted by several
European Commission initiatives (EU, 2004)
Growth in the Supply of Entrepreneurs

• 30 years ago between 5 and 10% of school leavers went to

university
• ‘Graduate job’ provided by large private or public sector
organization
• ‘Traditional ‘graduate career model’ ignored by SMEs
• Government is now encouraging a ‘learning society’
• Highly skilled and competitive workforce
• Almost a third of young people enter universities or HEIs
 Demand for Graduates

• Large organizations are downsizing (OECD, 1995)

• Graduate career is now in decline for majority of students
• 99% of all firms are SMEs (‹250 people) (DfEE, 1998)
• 60% of workforce employed in SMEs
• SMEs do not look to new graduates as a natural source for
recruitment
• 4% of micro and small firms employ graduates (Williams and
Owen, 1997)
• Policy-makers believe that SMEs can increase skills /
competitiveness by employing graduates
 SME Demand: Ignorance Barriers

• Contribution of graduate to competitive position and performance of

the employer questioned
• Firm may not be of a sufficient size to justify the employment of a
graduate
• Work is unsuitable
• Graduates are too expensive
• Graduates are not work ready
• Graduates are too theoretical and lack practical skills
• Doubts about whether a graduate would fit in
• Graduates are not flexible
 Attributes of Graduates Perceived by
Owners of SMEs

• Achievement motivation
• Ability to work with others
• Imagination and creativity - source of ideas and ability to provide
alternative solutions to problems
• Technical knowledge
• Computer literacy
• Business sense
• Decisiveness
• Time management
• Negotiation skills
 SME Demand: Market Forces

• Graduate recruitment can be expensive and risky

• SMEs lack structures and resources to plan to make the best
use of graduate skills
• SMEs lack time for building links with HEIs - direct cost and
opportunity cost
• SMEs are firefighters - less time to analyze skill problems and
whether addressed by recruitment, placement student or
upskilling existing staff
• Owners of SMEs require evidence that graduate recruitment
leads to enhanced productivity and other economic benefits
 Graduate Perceptions of SMEs:
Ignorance Barrier

• Not prestigious employers

• Pay less
• No induction training
• Majority do not provide diversified job-related training
• Most new and small firms cease to trade over a short time period
• SMEs regarded as sweat shops
• Two-thirds of SMEs are family firms with ‘outsiders’ unable to obtain key
managerial positions
• Limited idea of the range of opportunities
• No visible models of success relating to gaining jobs in SMEs
 Bridging the Culture Gap

• “...not all graduates will be suited to working in SMEs, and not

all SMEs can make effective use of graduate skills”
• “The most improbable firms can suddenly find a new direction,
and flourish with a new input of expertise…” (DfEE, 1998, p.7)
• “Bridging the gap between HE and SMEs is not easy. The
cultures of small firms and higher education could hardly be
more different: they work to different timescales and priorities,
they have different objectives and motivations, and little
tradition of working together on recruiting and developing
skilled staff” (DfEE, 1998, p.1)
 What Stimulates SMEs to Recruit
Graduates? (DfEE, 1998, pp.9-10)
• Step change
• Succession planning
• Growth orientation
• Specific problems
• ‘Ideas centred’ managers
• Graduate managers / already employ graduates
• Word of mouth
• Competition
• Changing markets and technology
• Region
• Professional requirements
 Schemes to Encourage Take-Up of
Graduates Skills by SMEs
• Pre-university placement
• Short-placements and work experience
• Vocation placements (i.e., STEP)
• Long placements / sandwich course
• Part-time work
• Recruitment at graduation
• Recruitment at masters degree level / placement
• Teaching company programmes
• Schemes for unemployed graduates
 Shell Technology Enterprise
Programme (STEP)
• National programme with over 1,000 placements
• Breakdown ‘ignorance’ barriers and address ‘market force’ barriers
• Student resource for 8 weeks during summer vacation
• Co-ordinated by a project team
• Delivered by over 70 agencies
• Up to 50% of the direct cost of the placement subsidized by
government funding or private sector sponsorship
• Agencies received payment
• Training allowance £100 per week
 ‘Host’ STEP Employers

• Use the energy and skills of the local student population

• Gain valuable technical or commercial assistance
• Explore the opportunities for graduate recruitment
• Link owners with HEI and local enterprise support networks
• Identify the scope for introducing new skills required to
enhance the competitive position of the business
• Contribute to the development and training of a future labour
force for the business
 STEP Students
• Gain experience in industry through a task-orientated
assignment in an SME
• Apply classroom-based learning to the solution of problems in
the world of work
• Develop relevant enterprise and interpersonal competencies
• Contribute to business development
• Improve employment prospects on graduation
• Earn income during the vacation
• Contribute to C.V. and record of achievement
 Business Outcomes Monitored

• Favourable attitude to the programme

• Contribution to the advancement of
technological application
• Employed graduates after completing the
programme
 Business Data Collected

• 909 ‘host’ employers (independent and subsidiary

organisations) participated in the 1994 programme
• 527 STEP employers completed a questionnaire prior
to the programme (58% response rate)
• 353 STEP employers completed a questionnaire at the
end of their placements
• 244 (out of the 353) STEP employers completed a
questionnaire twelve months later (69% response
rate)
 Matched Non-STEP Businesses

• 160 non-STEP businesses that had never participated in

STEP were contacted in 1994
• STEP businesses were ‘matched’ with non-STEP
businesses with regard to business age, employment size,
ownership status and location
• Not matched in terms of ‘motivations’; graduate
employed in 1994: STEP (73%) and ‘matched (57%)
• 84 ‘matched’ non-STEP businesses responded 12
months later to a structured questionnaire (53% response
rate)
 Business Outcomes
(Westhead, 1997, 1998; Westhead and Storey, 1998)

• Programme ‘satisfied’ or ‘exceeded’ their expectations:

92% of ‘host’ STEP managers
• Placements were associated with beneficial impacts: 75%
• Information technology, computer databases or systems
introduced, increased information led to more focused
decision-making and a new or updated marketing plan
was developed
• STEP had contributed to the advancement of technological
application (e.g., use of computers in design, computer-
aided production, etc.): 37%
 Skills and Graduates

• Nearly a third identified skill shortages in their businesses after the

programme (i.e., computer systems expertise)
• 12 months later, STEP respondents less likely than non-STEP
respondents to have identified skill shortages (participation in
STEP?)
• 12 months later, no statistically significant difference was recorded
between the two groups of businesses with regard to graduate
recruitment
• STEP businesses already employing graduates prior to STEP were
significantly more likely to have employed graduates after their
placements than STEP businesses that did not employ graduates
prior to the placements
 Graduate Employment
12 Months Later
• Multivariate logistic regression analysis of STEP and
non-STEP businesses
• Graduate recruitment more likely:
– Employed a graduate prior to the assessment
– Perceived skill shortages
– Firm provided formal or structured training
– Growing sales revenues over the last 12 months

• STEP less likely but not significant

 Graduate Employment:
No Graduates Prior to 1994
• Multivariate logistic regression analysis of STEP and non-STEP businesses
• Graduate recruitment more likely:
– Young businesses, particularly those less than 11 years of age (i.e., 2 to 5 years of age
as well as 6 to 10 years of age)
– Manufacturing and services businesses
– Providing formal or structured training
– Perceiving skills shortages
– Sales revenue growth

• Graduate recruitment less likely:

– Construction businesses
– Mature businesses over 50 years of age
• STEP less likely but not significant
 Student Outcomes Monitored

• Data from students who participated in 1994 STEP

• Data from a control group of non-STEP students in 1994
• Employment status of STEP and non-STEP students ascertained in 1997
(i.e., two years after graduation)
• Personal qualities reported by STEP and non-STEP students associated
with ability to obtain full-time jobs
• Propensity of STEP and non-STEP students to obtain full-time jobs in
small private firms
• Whether STEP students reported more favourable attitudes to self-
employment / business ownership than non-STEP students
• Whether ability to obtain full-time jobs varied by gender
 Student Data Collection

• In 1994, population of 1,025 STEP students were sent a

questionnaire prior to attending the programme - 691 STEP students
(67%)
• In 1994, control group of ‘matched’ non-STEP students (i.e., age,
gender, degree course and location of home address) sent a
questionnaire in 1994 - 200 non-STEP students
• In 1997, 444 out of the 691 STEP students responded 36-months
after the programme (64%)
• In 1997, 129 out of the 200 non-STEP students responded (65%)
• No response bias with regard to ‘matching’ variables
• 442 STEP students and 129 non-STEP students - UK address
 Student Outcomes
(Westhead, 1997, 1998)

• ‘Satisfied’ or ‘exceeded’ their expectations 12 months

after STEP: STEP (93%)
• Self-employment (SE) / starting own business (SOB)
prior to the programme: STEP (48%), ‘matched’ (46%)
• SE / SOB 12 months after the programme: STEP (55%),
’matched’ (46%)
• Offered full-time jobs by placement employers 12
months after STEP: STEP (11%)
 Student Outcomes (II)

• STEP students (46%) significantly more likely than

‘matched’ students (40%) to have been offered a full-time
job, particularly clear for females
• Less than 18% of STEP students offered f-t jobs in small
private enterprises that employed 101 or fewer employees
• No ‘wage premium’ for STEP students compared to
‘matched’ students with f-t jobs
• Location and size of employer as well as occupation linked
to earnings and not participation in STEP
 Conclusions (I)

• Favourable attitudes reported by STEP businesses and students

• Participation weakly associated with sales growth
• STEP businesses were not significantly more likely to recruit
graduates
• Participation in STEP did not significantly increase the probability
that a student would join a small private firm (SPF)
• Cannot judge whether the programme adds to the overall skills
base of the graduate population
• Benefits more clear for the trainees and the economy as a whole
• STEP students were more likely to have obtained full-time jobs
 Conclusions (II)

• Personal qualities honed by STEP are factors reported by

students enabling them to obtain jobs
• Programme needs to hone the skills sought by owners of SPFs:
project management skills, business sense, practical business
skills and /or computer literacy
• Students prepared to trade lower wages for an executive position
in SPFs, irrespective of their skill portfolio
• ‘Market forces’ rather than ‘ignorance’ shapes the lower
probability of SPF employment
• ‘Ignorance barrier’ is a simplistic interpretation of the low take-up
of graduates by SMEs
 Conclusions (III)

• Shared interests of SMEs and graduates are small

• Graduates seek well-paid jobs in large enterprises that are
associated with security, training prospects and career
development opportunities
• Attractions are not characteristic of private SMEs
• Owing to the conflicting interests of SMEs and graduates,
in the short-term, it is difficult for policy-makers to
increase the take-up of graduates by SMEs
 Conclusions (IV)

• Graduate initiatives need to convince students that SME

employers can provide different (non-financial) attractions
• Graduates may have to modify their expectations of what
constitutes a ‘graduate job’
• Policy challenge is to construct an incentive system to increase
the number of SMEs participating in graduate skill initiatives that
are in the national interest
• Not always in the short-term interest of SMEs to provide support
for students
• Graduate skill initiative (i.e., STEP) is unlikely to change the
attitudes of students or owners of SMEs
 Conclusions (V)

• STEP AIMS: (1) more graduates in SMEs and (2) more

graduates self-employed (SE) and / or start own business (SOB)
• General programmes may not hit broad aims
• Skills required for employment in SMEs are not the same as
those required to become SE / SOB (Westhead and Matlay,
2006)
• SME employment = project management skills, business sense,
practical business skills, computer literacy (‘science of
enterprise’)
• SE / SOB = imagination and creativity (‘art’ of enterprise)
 Conclusions (VI)

• SMEs seeking skills relating to: teamwork, project management,

presentation, communication and problem solving
• Need to change the HEI curriculum
• Entrepreneurship courses are encouraging ‘learning-by-doing’ (or ‘action
learning’)
• Entrepreneurship courses are encouraging ‘double-loop’ learning (i.e., the
reformulation of an individual’s original visions associated with individual
ventures)
• Projects in SMEs as part of their curriculum, thus enabling students to
acquire relevant experience and expand their social and business networks
• Highlight the skills and resources needed to become a business owner
 STEP Student Outcomes

• See: Westhead, P., Storey, D. J., and Martin, F. (2001).

Outcomes Reported by Students Who Participated in the 1994
Shell Technology Enterprise Programme. Entrepreneurship and
Regional Development, 13 (2), pp.163-185
• The following slides summarize key points from the article
published by:
Westhead, P., and Matlay, H. (2006). Skills Associated with
Employment Positions in SMEs and Favourable Attitudes toward
Self-Employment: Longitudinal Evidence from Students who
Participated in the Shell Technology Enterprise Programme.
Technology Analysis & Strategic Management, 18 (1), pp.93-
124
 Human Capital Theory
• Broader HK resources / achieved attributes / cognitive characteristics /
habits associated with increased levels of productivity (Becker, 1975, 1993)
• General HK: education, age and gender
• Specific HK: experience, skills and attitudes shaped by work and business
ownership experience
• Construct of opportunity for skill use (Warr, 1987): work experience - utilize
existing skills and develop new skills
• Supply variables -a students HK profile
• Demand variables - employer and external environment
• Studies relating to the supply of entrepreneurs (see Keeble and Walker,
1994) and the self-employed (see Storey, 1994 and Westhead et al., 2001)
 Activities of Respondents in 1997

• Full-time job in 1997 (82%: STEP compared with

76%: non-STEP)

• Not seeking full-time job / further study (15%: STEP

compared with 7%: non-STEP)

• Unemployed (8%: STEP compared with 9%: non-

STEP)
 Factors that Helped Students to
Obtain a Full-Time Job

• Over 82% of STEP students - communication skills,

ability to work with others, achievement motivation
and / or increased self-confidence
• Over 60% of STEP students - time management,
computer literacy, project management skills, business
sense and / or decisiveness
• Over 50% of STEP students - practical business skills,
technical knowledge and / or imagination & creativity
• 47% of STEP students - negotiation skills
 Skills Full-Time Job: Univariate

• 359 STEP and 97 non-STEP students

• 13 specified skills - communication skills, ability to work with
others, achievement motivation, increased self-confidence, time
management, computer literacy, project management skills,
business sense, decisiveness, practical business skills, technical
knowledge, imagination & creativity, negotiation skills, other
• Significantly larger proportion of STEP than non-STEP:
– computer literacy
– project management skills
– business sense
– practical business skills
 Skills Full-Time Job: Multivariate (I)

• Confirmatory forced entry logistic regression analysis

• ‘0’ no to the skill and ‘1’ yes for the skill
• Human capital variables:
– gender; ethnic background; age; parent professional or manager
– business / administration; social sciences; humanities / languages / law;
science degree / engineering / technology degree (reference category)
– first class degree
– work experience programme other than STEP
– participated in the 1994 STEP programme
• Model for each of the 14 skill outcomes
• General HK - gender, age and degree subject significant relationships
 Skills Full-Time Job: Multivariate (II)

• Specific HK - work experience other than STEP:

– business sense
– computer literacy
– imagination & creativity
– project management skills

• Specific HK - STEP students:

– business sense
– computer literacy
– practical business skills
– project management skills
 Full-Time Job in Small Private Firms
(SPFs) ‹101 employees
• Confirmatory forced entry logistic regression analysis
• ‘0’ no job in SPF and ‘1’ a job in SPF
• ‘Supply’ (i.e., general and specific HK) variables
– gender; ethnic background; age; parent professional or manager
– business / administration; social sciences; humanities / languages / law; science
degree / engineering / technology degree (reference category)
– first class degree
– work experience; STEP
– 13 skills
• ‘Demand’ (i.e., employer profiles) variables
– gross pay per week (log); training provided by employer for new graduates; managerial
or professional position
– agriculture, forestry or fishing; energy / water; manufacturing; construction
 Full-Time Job in SPF

• 410 total female and male students; significant at the

0.0001 level
• Managerial or professional position (+)
• Higher wages (-); employer training (-); manufacturing
firms (-)
• Older students (+); technical knowledge skills (+)
• Parent professional or managerial (-); first class (-);
increased self-confidence (-); social science degree (-)
• STEP positive but not significant
 Females Full-Time Job in SPF

• 176 female students; SIGNIFICANT 0.0001 level

• Managerial or professional position (+)
• Higher wages (-), employer training (-)
• Manufacturing firms (-)
• Social science degree (-)
• Business sense (+), computer literacy (+), achievement
motivation (+)
• Self-confidence (-), decisiveness (-), practical business skills (-)
• STEP negative but not significant
 Males Full-Time Job in SPF

• 186 male students; SIGNIFICANT 0.0001 level

• Higher wages (-); employer training (-);
• Manufacturing firms (-)
• Managerial or professional position (+)
• Older (+), technical skills (+)
• Parent professional or managerial (-)
• STEP positive but not significant
 Likelihood of Self-Employment (SE) /
Starting Own Business (SOB)
• In 1997, 54% of STEP students reported a favourable attitude
compared with 41% of non-STEP students
• Confirmatory forced entry logistic regression analysis
• ‘0’ SE / SOB unlikely and ‘1’ SE / SOB likely
• ‘Supply’ (i.e., general and specific HK) variables
– gender; ethnic background; age; parent professional or manager
– favourable attitude to SE / SOB reported in 1994; home in the south-
east of England
– business / administration; social sciences; humanities / languages / law;
science degree / engineering / technology degree (reference category)
– first class degree; work experience; STEP; 13 skills
 Likelihood of SE / SOB

• 447 total female and male students

• Significant at the 0.0001 level
• SE / SOB was possible in 1994 (+)
• Male (+)
• Imagination & creativity (+)
• Business sense (+)
• STEP positive but not significant
 Females Likelihood of SE / SOB

• 216 female students

• Significant at the 0.0589 level
• SE / SOB was possible in 1994 (+)
• Home in the south-east of England (+)
• Humanities / languages / law (-)
• STEP negative but not significant
 Males Likelihood of SE / SOB

• 231 male students

• Significant at the 0.0114 level

• SE / SOB was possible in 1994 (+)

• STEP positive but not significant

 References
• Becker, G. S. (1975). Human Capital. New York, National Bureau of Economic
Research.
• Becker, G. S. (1993). Nobel Lecture: The Economic Way of Looking at Behavior, The
Journal of Political Economy, 101, pp.385-409.
• Department for Education and Employment. (1998). Graduate Skills and Small
Businesses: A DfEE Briefing Paper. Sheffield: The Department for Education and
Employment.
• European Union (EU). (2004). Education for Entrepreneurship, final report of the
expert group, November.
• Hanon, P. (2007). Enterprise for All? The Fragility of Enterprise Provision Across
England’s HEIs. Journal of Small Business and Enterprise Development, 14, pp.183-210
• Keeble, D., and Walker, S. (1994). New Firms, Small Firms, and Dead Firms: Spatial
Patterns and Determinants in the United Kingdom, Regional Studies, 28, pp.411-427.
• Lambert, R. (2003). Lambert Review of Business – University Collaboration. London:
HM Treasury.
 References (II)
• National Committee of Inquiry into Higher Education (NCIHE). (1997). Higher
Education in the Learning Society: Report of the National Committee. London:
HMSO.
• OECD. (1995). Education at a Glance: OECD Indicators. Paris: Organisation for
Economic Co-Operation and Development.
• Storey, D. J. (1994). Understanding the Small Business Sector. London, Thomson
Learning.
• Warr, P. (1987). Work, Unemployment, and Mental Health. Oxford: Clarendon
Press.
• Westhead, P. (1997). Students in Small Businesses: An Assessment of the 1994
STEP Student Placement Scheme. Milton Keynes: Small Business Research Trust.
• Westhead, P. (1998). Benefits Associated with the 1994 Shell Technology
Enterprise Programme. Journal of Small Business and Enterprise Development, 5,
pp.60-78.
 References (II)

• Westhead, P., and Matlay, H. (2006). Skills Associated with Employment Positions
in SMEs and Favourable Attitudes toward Self-Employment: Longitudinal Evidence
from Students who Participated in the Shell Technology Enterprise Programme.
Technology Analysis & Strategic Management, 18 (1), pp.93-124.
• Westhead, P., and Storey, D. J. (1998). Assessing the Contribution of the Shell
Technology Enterprise Programme (STEP) to SMEs in the UK. Journal of Applied
Management Studies, 7, pp.239-266.
• Westhead, P., Storey, D. J., and Martin, F. (2001). Outcomes Reported by Students
Who Participated in the 1994 Shell Technology Enterprise Programme.
Entrepreneurship and Regional Development, 13 (2), pp.163-185.
• Williams, H., and Owen, G. (1997). Recruitment and Utilisation of Graduates by
Small and Medium Sized Enterprises. Norwich: HMSO, Department for Education
and Employment Research Report RR29.