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12
Managing Innovation andFostering Corporate
Entrepreneurship
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Learning Objectives
After reading this chapter, you should have a good
understanding of:
- The importance of implementing strategies and practicesthat foster innovation.
- The challenges and pitfalls of managing corporate
innovation processes.
- The role of product champions and exit champions in
internal corporate venturing.
- How independent venture teams and business incubators
are used to develop corporate ventures.
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Learning Objectives
After reading this chapter, you should have a good
understanding of:
- How corporations create an internal environment andculture that promotes entrepreneurial development.
- The benefits and potential drawbacks of real options
analysis in making resource deployment decisions in
corporate entrepreneurship contexts.
- How an entrepreneurial orientation can enhance a firms
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 technology
- Results of experiments
- Creative insights
- Competitive information
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Example
Some Companies, such as Apple, are alwaysinnovating popular products, while others areconstantly struggling for their one great idea.
There are five disciplines for creating whatcustomers want
- Identify important customer needs
- Create solutions that fill those needs
- Build innovation teams- Empower "innovation champions" who keep the effort on
track
- Align the entire enterprise around creating value forcustomers
Source: Getting to Aha!,Business Week. September 4, 2006.
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Types of Innovation
Degree of innovativeness
- Radical innovation
- Fundamental changes and breakthroughs- Evoke major departures from existing practices
- Can be highly disruptive
- Can transform or revolutionize a whole industry
- Incremental innovation
- Enhance existing practices
- Small improvements in products and processes
- Evolutionary applications within existing paradigms
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Continuum of Radical and
Incremental Innovations
Exhibit 12.1 Continuum of Radical and Incremental Innovations
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Types of Innovation
Product and process innovations
- Product innovation
Efforts to create product designs
Applications of technology to develop new products for end
users
More radical and common during early stages of an
industrys life cycle
Associated with differentiation strategies
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Types of Innovation
Product and process innovations
- Process innovations
Improving efficiency of an organizational process
- Manufacturing systems and operations
Can improve materials utilization
Shorten cycle time
Increase quality
More likely to occur in later stages of an industrys life cycle
Associated with cost leader strategies
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Challenges of Innovation
Seeds versus Weeds
- Deciding the merits of innovative ideas
Seeds likely to bear fruit
Weeds should be cast aside
- Dilemma
Some innovation projects require considerable level of
investment before merit can be determined
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Challenges of Innovation
Experience versus initiative
- Deciding who will lead an innovation project
Senior managers
- Have experience and credibility
- Tend to be more risk averse
Midlevel employees
- May be the innovators themselves
- May have more enthusiasm
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Challenges of Innovation
Internal versus external staffing
- Innovation projects need competent staffs to succeed
People drawn from inside the firm
- May have greater social capital
- Know the organizations culture and routines
- May not be able to think outside the box
People drawn from outside the firm
- Are costly to recruit, hire, train- May have difficulty building relationships
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Challenges of Innovation
Building capabilities versus collaborating
- Innovation projects often require building new sets of skills
Firms can seek help
- Other departments
- Partner with other companies that bring resources and
experience
Partnerships
- Create dependencies and inhibit internal skills development- Sharing benefits of innovation may create conflict
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Challenges of Innovation
Incremental versus preemptive launch
- Companies must manage the timing and scale of new
innovation projects
Incremental launch
- Less risky
- Requires few resources
- Serves as a market test
- Can undermine the projects credibility if too tentative Large-scale launch
- Requires more resources
- Can 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 shouldanswer 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 ifit 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 innovation
May be six months to two years
May use a milestone approach driven by goals and deadlines
- Radical innovation
Typically long term 10 years or more
Often involves open-ended experimentation and time-
consuming mistakes
Strict timelines unrealistic
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Collaborating with Innovation Partners
Innovation often requires collaborating with others
who possess complementary knowledge and skills
Partners can come from several sources- Other personnel within the department
- Personnel within the firm but from another department
- Partners outside the firm
- Non-business sources, including research universities andthe federal government
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Corporate Entrepreneurship
Determining
how
entrepreneurialprojects will be
pursued
Corporate culture
Leadership
Structural features that guide and constrainaction
Organizational systems that foster learningand manage rewards
Use of teams in strategic decision making Whether the company is product or service oriented
Whether the firms innovation efforts are aimed at
product or process improvements
The extent to which it is high-tech or low-tech
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Focused Approaches to Corporate
Entrepreneurship
Autonomous corporate
venturing work group
Autonomous corporate venturing (work) group
- Frees entrepreneurial team members from constraints
imposed by existing norms and routines
- Facilitates open-minded creativity
- But, does isolate the group from the corporate mainstream
New venture groups (NVGs)
Business incubators
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New Venture Groups (NVGs)
Goal is to identify, evaluate, and cultivate venture
opportunities
Typically function as semi-autonomous units withlittle formal structure
Involvement includes
- Innovation and experimentation
- Coordinating with other corporate divisions- Identifying potential venture partners
- Gathering resources
- Launching the venture
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Business Incubators
Business incubators are designed to hatch new
businesses
Incubators provide some or all of the followingfunctions
- Funding
- Physical space
- Business services- Monitoring
- Networking
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Dispersed Approaches to
Corporate Entrepreneurship
Dedication to principles and practices of
entrepreneurship is spread throughout the firm
- Ability to change is a core capability- Stakeholders can bring new ideas or venture opportunities
to anyone in the organization
Two related aspects of dispersed entrepreneurship
- Entrepreneurial culture- Product champions
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Entrepreneurial Culture
Culture of entrepreneurship
- Search for venture opportunities permeates every part of the
organization
- Effect is strongest when it animates all parts of the
organization
- Strategic leaders and the culture generate a strong impetus
To innovate
Take risks
Seek out new venture opportunities
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Product Champions
Product (or project) champions
- Bring entrepreneurial ideas forward
- Identify what kind of market exists for the product or
service
- Find resources to support the venture
- Promote the venture concept to upper management
New project must pass two critical stages- Project definition
- Project impetus
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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 corporations
internal competencies and experience valuable?
Is the venture able to sustain its basis of competitive
advantage?
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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- Exit champions Willing to question the viability of a venture project
Demand hard evidence and challenge the belief system that is
carrying an idea forward
Hold the line on ventures that appear shaky
- Real options
Managing the uncertainty associated with launching new
ventures
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Entrepreneurial Orientation
Dimension Definition
Autonomy Independent action by an individual or team aimed atbringing forth a business concept or vision and carrying
it through to completion.Innovativeness A willingness to introduce novelty through
experimentation and creative processes aimed atdeveloping new products and services as well as newprocesses.
Proactiveness A forward-looking perspective characteristic of amarketplace leader that has the foresight to seizeopportunities in anticipation of future demand.
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 12.3 Dimensions of Entrepreneurial Orientation
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Entrepreneurial Orientation
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 12.3 Dimensions of Entrepreneurial Orientation
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.
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Entrepreneurial Orientation
Autonomy
- Two techniques often used to promote autonomy
Using skunkworks to foster entrepreneurial thinking
Designing organization structures that support independent
action
Innovativeness
- Two methods used to enhance competitive position through
innovativeness
Fostering creativity and experimentation
Investing in new technology, R&D, and continuous
improvement
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Entrepreneurial Orientation
Proactiveness
- Two methods to promote acting proactively
Introducing new products or technological capabilities ahead
of the competition
Continuously seeking out new product or service offerings
Competitive aggressiveness
- Two ways competitively aggressive firms enhance their
entrepreneurial position
Entering markets with drastically lower prices
Finding successful business models and copying them.
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Entrepreneurial Orientation
Risk taking
- Three types of risks faced by organizations and their
executives
Business risk taking
Financial risk taking
Personal risk taking
- Two methods to strengthen competitive position through
risk taking Researching and assessing risk factors to minimize
uncertainty
Using techniques that have worked in other domains
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Example
A design thinking approach can help you deal withrisk.
Here are seven ways to get started:- Cultivate an unreasonable obsession with desirability
- Become more comfortable acting on your informedintuition
- Prototype, prototype, prototype
- Think big, but start small(er)- Treat money as a positive constraint
- Make a list of the best things that could happen
- Seek challenges
Source: Rodriguea, Diego and Jacoby, Ryan. Embracing Risk to Grow Innovation, Business Week. May 16, 2007