12-1. 12-2 Managing Innovation and Fostering Corporate Entrepreneurship McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies,

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Managing Innovation and Fostering Corporate

Entrepreneurship

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter twelve

Part 3: strategic implementation

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Learning Objectives

After reading this chapter, you should have a good understanding of:

The importance of implementing strategies and practices that foster innovation.

The challenges and pitfalls of managing corporate innovation processes.

The role of product champions and exit champions in internal corporate venturing.


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Learning Objectives



How independent venture teams and business incubators are used to develop corporate ventures.How corporations create an internal environment and culture that promotes entrepreneurial development.

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Learning Objectives


How an entrepreneurial orientation can enhance a firm’s efforts to develop promising corporate venture initiatives.


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Managing Innovation


Innovation: using new knowledge to transform organizational processes or create commercially viable products and services

Latest technologyResults of experimentsCreative insightsCompetitive information

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Types of Innovation


Degree of innovativenessRadical innovation

Fundamental changes and breakthroughsEvoke major departures from existing practicesCan be highly disruptiveCan transform or revolutionize a whole industry

Incremental innovationEnhance existing practicesSmall improvements in products and processesEvolutionary applications within existing paradigms

12-8 Continuum of Radical and Incremental Innovations


Radical Innovation

Incremental Innovation

Laparoscopic “keyhole” surgery

Speech recognition software

Polyester Enterprise resource planning (ERP)

Frozen yogurt

Fiber-optic cable

Internet browser

Online auction exchanges

Bubble wrap

Exhibit 12.1 Continuum of Radical and Incremental Innovations

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Types of Innovation


Product and process innovationsProduct innovation

Efforts to create product designsApplications of technology to develop new products for end usersMore radical and common during early stages of an industry’s life cycleAssociated with differentiation strategies

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Types of Innovation


Product and process innovationsProcess innovations

Improving efficiency of an organizational process

Manufacturing systems and operations

Can improve materials utilizationShorten cycle timeIncrease qualityMore likely to occur in later stages of an industry’s life cycleAssociated with cost leader strategies

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Challenges of Innovation


Deciding the merits of innovative ideas

Seeds – likely to bear fruitWeeds – should be cast aside

Dilemma Some innovation projects require considerable level of investment before merit can be determined

Seeds versus Seeds versus weedsweeds

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Deciding who will lead an innovation project

Senior managersHave experience and credibilityTend to be more risk averse

Midlevel employeesMay be the innovators themselvesMay have more enthusiasm

Experience versus Experience versus initiativeinitiative

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Innovation projects need competent staffs to succeed

People drawn from inside the firmMay have greater social capitalKnow the organization’s culture and routines May not be able to think outside the box

People drawn from outside the firmAre costly to recruit, hire, trainMay have difficulty building relationships

Internal versus Internal versus external staffingexternal staffing

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Innovation projects often require building new sets of skills

Firms can seek helpOther departmentsPartner with other companies that bring resources and experience

PartnershipsCreate dependencies and inhibit internal skills developmentSharing benefits of innovation may create conflict

Building Building capabilities versus capabilities versus

collaboratingcollaborating

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Incremental versus Incremental versus preemptive launchpreemptive launch

Companies must manage the timing and scale of new innovation projects

Incremental launchLess riskyRequires few resourcesServes as a market testCan undermine the project’s credibility if too tentative

Large-scale launchRequires more resourcesCan effectively preempt a competitive response

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Defining the Scope of Innovation


Firms must define the “strategic envelope” (scope of the innovation efforts)In defining the strategic envelope, a firm should answer several questions

How much will the innovation cost?How likely is it to actually become commercially viable?How much value will it add; that is, what will it be worth if it works?What will be learned if it does not pan out?

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Managing the Pace of Innovation


Firms need to regulate the pace of innovation

Incremental innovationMay be six months to two yearsMay use a milestone approach driven by goals and deadlines

Radical innovationTypically long term – 10 years or moreOften involves open-ended experimentation and time-consuming mistakesStrict timelines unrealistic

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Collaborating with Innovation Partners


Innovation often requires collaborating with others who possess complementary knowledge and skillsPartners can come from several sources

Other personnel within the departmentPersonnel within the firm but from another departmentPartners outside the firmNon-business sources, including research universities and the federal government

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Corporate Entrepreneurship


Determining how

entrepreneurial projects will be

pursued

Corporate culture Leadership Structural features that guide and

constrain action Organizational systems that foster

learning and manage rewards

Use of teams in strategic decision makingWhether the company is product or service orientedWhether the firm’s innovation efforts are aimed at product or process improvementsThe extent to which it is high-tech or low-tech

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Autonomous corporate venturing (work) groupFrees entrepreneurial team members from constraints imposed by existing norms and routinesFacilitates open-minded creativityBut, does isolate the group from the corporate mainstreamNew venture groups (NVGs)Business incubators

Focused Approaches to Corporate Entrepreneurship

Autonomous corporate venturing

work group

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New Venture Groups (NVGs)


Goal is to identify, evaluate, and cultivate venture opportunitiesTypically function as semi-autonomous units with little formal structureInvolvement includes

Innovation and experimentationCoordinating with other corporate divisionsIdentifying potential venture partnersGathering resourcesLaunching the venture

Focused approachFocused approachNew VentureNew Venture

GroupGroup

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Business Incubators


Business incubators are designed to “hatch” new businessesIncubators provide some or all of the following functions

FundingPhysical spaceBusiness servicesMonitoringNetworking

Focused approachFocused approachBusiness Business

IncubatorsIncubators

12-23Dispersed Approaches to Corporate Entrepreneurship


Dedication to principles and practices of entrepreneurship is spread throughout the firm

Ability to change is a core capabilityStakeholders can bring new ideas or venture opportunities to anyone in the organization

Two related aspects of dispersed entrepreneurship

Entrepreneurial cultureProduct champions

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Entrepreneurial Culture


Culture of entrepreneurshipSearch for venture opportunities permeates every part of the organizationEffect is strongest when it animates all parts of the organizationStrategic leaders and the culture generate a strong impetus

To innovateTake risksSeek out new venture opportunities

Dispersed approach Dispersed approach Entrepreneurial Entrepreneurial

CultureCulture

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Product Champions


Product (or project) championsBring entrepreneurial ideas forwardIdentify what kind of market exists for the product or serviceFind resources to support the venturePromote the venture concept to upper management

New project must pass two critical stagesProject definitionProject impetus

Dispersed approach Dispersed approach ProductProduct

ChampionsChampions

12-26 Measuring the Success of Corporate Entrepreneurship Activities


Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed

Comparing strategic and financial CE goals

Are the products or services offered by the venture accepted in the marketplace?

Are the contributions of the venture to the corporation’s internal competencies and experience valuable?

Is the venture able to sustain its basis of competitive advantage?

12-27Measuring the Success of Corporate Entrepreneurship Activities


Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed

Exit championsWilling to question the viability of a venture projectDemand hard evidence and challenge the belief system that is carrying an idea forwardHold the line on ventures that appear shaky

Real optionsManaging the uncertainty associated with launching new ventures

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Entrepreneurial Orientation


Autonomy Independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion.

Innovativeness A willingness to introduce novelty through experimentation and creative processes aimed at developing new products and services as well as new processes.

Proactiveness A forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand.

Dimension Definition

Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91.

Adapted from Exhibit 12.2 Dimensions of Entrepreneurial Orientation

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Dimension Definition

Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91.

Competitive An intense effort to outperform industry rivals. It is characterized by a combative posture or an aggressive response aimed at improving position or overcoming a threat in a competitive marketplace.

aggressiveness

Risk taking Making decisions and taking action without certain knowledge of probable outcomes; some undertakings may also involve making substantial resource commitments in the process of venturing forward.

Adapted from Exhibit 12.2 Dimensions of Entrepreneurial Orientation

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AutonomyTwo techniques often used to promote autonomy

Using skunkworks to foster entrepreneurial thinkingDesigning organization structures that support independent action

InnovativenessTwo methods used to enhance competitive position through innovativeness

Fostering creativity and experimentationInvesting in new technology, R&D, and continuous improvement

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ProactivenessTwo methods to promote acting proactively

Introducing new products or technological capabilities ahead of the competitionContinuously seeking out new product or service offerings

Competitive aggressivenessTwo ways competitively aggressive firms enhance their entrepreneurial position

Entering markets with drastically lower pricesCopying the business practices or techniques of successful competitors

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Risk takingThree types of risks faced by organizations and their executives

Business risk takingFinancial risk takingPersonal risk taking

Two methods to strengthen competitive position through risk taking

Researching and assessing risk factors to minimize uncertaintyUsing techniques that have worked in other domains

Documents

12-1. 12-2 Managing Innovation and Fostering Corporate Entrepreneurship McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies,