1. Introduction
Since the global financial crisis of 2008, a new economic order has been taking shape and is characterized by low-level growth equilibrium, affecting the business climate that firms operate in. This has brought about not only fundamental changes in the governance and structure of many organizations, but also significant shifts in the policies of many governments in the 21st century. A phenomenon that has emerged, particularly in innovation-driven economies, is the rising popularity of coworking spaces and their increasing association with innovation and inclusive growth. We observe that the new economic conditions contribute to the growing significance of coworking and innovation in several ways.
First, the reduction in foreign direct investment and capital flows between countries after the 2008 crisis has increased the cost of capital for the business community. This has precipitated the expansion of the role of governments in finding alternative engines of economic growth, such as innovation and entrepreneurship [
1]. We have seen the introduction of new public policies that encourage coworking as low-cost alternatives to office spaces in support of the formation of new ventures and the sustenance of existing businesses. The deliberate co-location of coworking spaces with key innovation ecosystem stakeholders such as public research institutes and institutes of higher learning underscores the importance the governments have accorded to their roles in fuelling innovation-driven economic development.
Second, the decline in trade in goods and services in the new economic conditions would spell increasing burden of regulation and taxation [
2]. The increasing rigidity of labour markets in response to populist opposition in many countries have led to a shortfall in the global supply of engineers and technical professionals [
3]. As firms find it more challenging to deploy fund and shift activities across borders in the traditional way, they look towards coworking as alternative channels to acquire resources such as space, professional talent, and value chain partners [
1].
Third, in the face of economic volatility pursuant to the worldwide financial crisis, companies have become more wary of making investment in capital assets such as land, buildings and equipment. As these capital assets take a longer time than current assets to recover the cash investment used to acquire the assets, the investing firms are exposed to monetary policy risks (e.g., interest rate and exchange rate changes) that may devalue their assets. To minimize such risks, firms prefer to rent coworking spaces that come with a range of facilities and services to support their operations, an expense that can recorded immediately for computation of their net profits [
4].
Fourth, before the crisis, multi-national enterprises (MNEs) were welcome as benefactors that could provide opportunities for the local communities to get employment and upgrade skills. However, after the crisis, the political sentiments have shifted to support local businesses and community. To respond to this change, MNEs take their cue from the local communities for their stakeholder engagement strategy. MNEs begin to tie up with coworking space operators to gain visibility in supporting local innovation and startup ecosystem stakeholders. For example, Procter and Gamble and JP Morgan have collaborated with coworking space operator, Impact Hub Singapore, to introduce innovation and impact laboratory programs to grow the local startup landscape [
5]. Other MNEs such as L’Oréal have partnered coworking space operator, Block71 Singapore, to launch startup challenge to invite collaboration with early-stage startups and small enterprises in the Asia Pacific region [
6].
All these developments emphasize the increasing significance of coworking space and innovation in new economic conditions, especially for innovation-driven economies that are characterized by intense rivalry among firms in wages as well as the development of new products, production processes and business models [
7]. However, there is limited research on the link between coworking and innovation. Is this just about locating firms in the coworking space where they will flourish automatically? Are there specific characteristics about the coworking space that encourage certain types of innovation among tenant firms? Do tenant firms need to have certain processes in place to optimize their innovation outcome for sustainable performance at the coworking space?
The purpose of our study is to examine and explain the relationship between coworking space and innovation, particularly business model innovation (BMI) in innovation-driven economies. We also examine the key process that enables tenant firms to enhance and sustain their BMI outcome at the coworking space.
Empirically, we conducted a survey on 258 tenant firms operating in 13 coworking spaces in 2016. Our analysis of the survey results establish that the space creativity of coworking spaces is positively related to the BMI outcome of tenant firms. Tenant firms’ opportunity recognition and exploitation (ORE) process positively mediates the relationship between the space creativity of coworking spaces and the BMI outcome of tenant firms. While the social climate of the coworking space is found to have no direct effect on the BMI outcome of tenant firms, tenant firms’ ORE process positively mediates the relationship between the social climate of coworking spaces, and the sustainable BMI outcome of tenant firms.
Our findings contribute to the management literature in several ways. First, our research has shed light on an emerging topic in the study of firm-level innovation, namely BMI by demonstrating that the coworking space creativity can have important effects on the BMI of tenant firms. Prior research tends to examine the activities and outcome of BMI in general, rather than investigating the antecedents of BMI in the context of firms located in coworking spaces. Second, our empirical study of 258 tenant firms across 13 coworking space operators will extend and add generalizability to the extant coworking studies. Extant studies have largely focused on conceptual models and qualitative studies of the coworking spaces, rather than quantitative research of their tenant firms. Third, we complement current research on entrepreneurship by considering the tenant firms’ ORE process within the coworking space under the conditions of the new economic conditions that are characterized by volatility, uncertainty, complexity and ambiguity, rather than in a general environment.
5. Discussion
Prior studies on BMI have largely focused on the activities and outcome of BMI in general [
24,
25]. In contrast, our research considers the relatively understudied antecedents of BMI in the context of firms located in coworking spaces in the innovation-driven economy Singapore. We begin to examine the link between coworking space and BMI. Our research illuminates not just the relationship between coworking space characteristics and BMI outcome, but also the key process that enables tenant firms to enhance and sustain their BMI outcome at the coworking space.
In this study, it is evident that the mere provision of coworking space is not enough to foster BMI. The empirical results support our view that a coworking space design that encourages creativity can drive BMI outcome. Our survey results support our hypothesized relationship between the space creativity of coworking spaces and the BMI outcome of tenant firms (H1a). The physical design of the space plays a role in not only encouraging creative thinking and playfulness, but also generating ideas of higher quality, thereby helping tenant firms achieve greater levels of BMI.
We then proceed to address the key mechanisms that firms employ at the coworking space to optimize and sustain their BMI outcome. Our empirical results support our arguments that tenant firms’ ORE process positively mediates the relationship between the space creativity of coworking spaces and the sustainable BMI outcome of tenant firms (H1b). As creativity is one of the key factors in opportunity development [
74], tenant firms that have internal ORE process in place are in a better position than those that have not, to identify, evaluate and commercialize the higher-quality ideas generated in a coworking space that is well-designed for creativity.
The internal ORE process of tenant firms is also instrumental in enabling them to harness the power of a favorable social climate provided by the coworking space. Our findings lend support to our postulations that tenant firms’ ORE process positively mediates the relationship between the social climate of coworking spaces and the sustainable BMI outcome of tenant firms (H2b). A conducive social climate in a coworking space enables tenant firms to interact with extensive network of other tenants to provide useful social ties and knowledge, which are the key factors of opportunity development process [
74]. To maximize the benefits of a conducive social climate, tenant firms should have established ORE process to leverage the social ties and market and technology knowledge that are pivotal for enhancing and sustaining their BMI outcome.
We had anticipated that the social climate of the coworking space would be important to allow tenant firms to freely exchange ideas for opportunity identification and evaluation, as well as facilitate discussion for collaboration on idea exploitation, thereby positively impacting their innovation performance [
59,
60]. Contrary to the expectations we formulated in Hypothesis 2a, the social climate is found to have no direct effect on the sustainable BMI outcome of tenant firms. This finding could reflect the challenges that coworking space operators face in configuring their social climate to meaningfully support the ORE process of their tenant firms. To address this challenge, the operators should develop greater familiarity and empathy with their tenant firms’ profiles and processes, before working closely with their event partners to ensure their activities, such as hackathons, idea pitching sessions and investor presentations, seamlessly address the needs, goals and opportunity development processes of their tenant firms [
91].
5.1. Policy Implications
This study has important policy implications, particularly for innovation-driven economies. First, to improve the social climate of coworking space in support of ORE and BMI of tenant firms, the public policymakers can play a more active role to enhance the quantity and diversity of tenant firms. Applying the principles of co-location, collaboration and shared resources [
32,
33], the government may formulate policies or programs to encourage the inshoring of foreign ventures in local coworking space. In Singapore, for example, the government has funded the operation of several coworking spaces (e.g., Block71 Singapore) to attract foreign ventures to use these sites as a launch pad to enter the Southeast Asian market.
Second, in a similar way, the government can support offshoring of domestic ventures into overseas coworking space. By supporting the construction of overseas coworking space facilities (e.g., Block71 San Francisco, US), the public policymakers can enable domestic ventures to use the overseas site to make foray into foreign markets.
Third, the government can provide incentives to encourage coworking service providers to offer a range of complementary services to meet the needs of young tenant firms to foster innovation. Operators granting access to physical resources and office support are found to enhance the survival rate of the tenant firms, while those offering programs to gain access to venture capital and supply chain network are more likely to increase investment in new ventures [
1,
54,
92].
5.2. Managerial Implications
Our research has identified implications for management practice. First, coworking space operators should understand that the physical design and social climate of their space can play a bigger role than merely providing colocation for economic reasons [
8]. While the tenant firms value a conducive environment for generating and bouncing off ideas, they also demand some form of idea protection. Further thoughts should therefore be put into the design, policies and practices of coworking spaces, which are expected to balance between the collaboration and privacy needs of the firms. Coworking space operators should also be mindful of increasing cost pressures as they face the need to differentiate themselves from the growing population of coworking spaces fueled in part by the new economic conditions [
4].
Second, as MNEs partner local coworking spaces to engage innovators and entrepreneurs, it is inevitable that differences in their culture and approaches to innovation may give rise to tension and conflicts, thereby adversely affecting the quality of new knowledge shared and new ideas generated [
57]. To effectively leverage the partnership to achieve their objectives, the MNEs should define and implement appropriate internal processes to guide their interactions with their coworking space partners and the tenant firms.
Finally, even the best coworking space boasting creativity-enhancing design and favorable social climate can be lost on a firm that has under-developed process for opportunity development. It is therefore imperative for tenant firms to establish efficient and effective ORE process internally to optimize the benefits of operating in a coworking space.
5.3. Limitations and Future Research
Although this research offers illuminating insights into the relationships among coworking space characteristics, tenant firms’ ORE process and their BMI under the new economic conditions, it has several limitations, which open up opportunities for future research.
First, we used cross-sectional data, where the results represent only a snapshot perspective of dynamic processes. Although this limitation does not invalidate the basic logic of our argument, we recommend future research to employ a longitudinal study design, where the dynamic phenomena may be observed and causal relationships investigated.
Second, survey-based studies traditionally suffer from common method bias. Due to systematic measurement error, the estimates of self-reported data could be biased [
93]. To ascertain such bias, this study adopted the guidelines of Radicic and Pugh [
94], where Harmon’s one-factor test was used to check the validity of our data with exploratory factor analysis on all the independent variables. From our unrotated principle component factor analysis, the first unrotated factor was found to account for only 47.4 per cent of the total variation in the other independent variables of our conceptual model, suggesting that the common method bias is unlikely to take place.
Future studies could use more objective data (e.g., percent of sales from new products also known as innovative sales) to measure the innovation performance of the tenant firms, as a proxy for commercial success of innovation. Third, this study focuses on tenant firms that are already operating in coworking spaces. Further research should find matched sample of companies that are not located in coworking spaces so as to control for possible factors that contribute to variances in their BMI performance.
6. Conclusions
We make at least three significant contributions to the literature on management. First, we investigate the relatively understudied antecedents of BMI in the new economic order prevailing for innovation-driven economies. Prior research tends to examine the activities and outcome of BMI in general, rather than investigating the antecedents of BMI in the context of firms located in coworking spaces. We establish empirically that the coworking space creativity can have important effects on the BMI of tenant firms. The physical design of the space is found to play a role in not only encouraging creative thinking and playfulness, but also generating ideas of higher quality, thereby helping tenant firms achieve greater levels of BMI. Our empirical results support our arguments that tenant firms’ ORE process positively mediates the relationship between the space creativity of coworking spaces and the sustainable BMI outcome of tenant firms. This process is also found to positively mediate the relationship between the social climate of coworking spaces and the sustainable BMI outcome of tenant firms. Tenant firms that have internal ORE process in place are in a better position than those that have not, to identify, evaluate and commercialize the higher-quality ideas generated in a coworking space that is designed for creativity. To benefit from a conducive social climate, tenant firms should have well-defined ORE process to leverage the social ties and market and technology knowledge that are pivotal for enhancing their sustainable BMI outcome. Second, our empirical study of 258 tenant firms across 13 coworking space operators will extend and add generalizability to the extant coworking research. Current studies have largely focused on conceptual models and qualitative studies of the coworking spaces, rather than quantitative research of their tenant firms. Third, we complement prior studies on entrepreneurship by considering the tenant firms’ ORE process within the coworking space under the conditions of the new economic order, rather than in a general environment.