PART 3: STRATEGIC ACTIONS: STRATEGY IMPLEMENTATION CHAPTER 13 STRATEGIC ENTREPRENEURSHIP.

PART 3: STRATEGIC ACTIONS:STRATEGY IMPLEMENTATION

CHAPTER 13STRATEGIC ENTREPRENEURSHIP

THE STRATEGIC MANAGEMENT PROCESS

KNOWLEDGE

OBJECTIVES● Define strategic entrepreneurship and corporate entrepreneurship.

● Define entrepreneurship and entrepreneurial opportunities and explain their importance.

● Define invention, innovation, and imitation, and describe the relationship among them.

● Describe entrepreneurs and the entrepreneurial mind-set.

● Explain international entrepreneurship and its importance.

KNOWLEDGE

OBJECTIVES● Describe how firms internally develop innovations.

● Explain how firms use cooperative strategies to innovate.

● Describe how firms use acquisitions as a means of innovation.

● Explain how strategic entrepreneurship helps firms create value.

OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES

AND IDEAS WITH INTERNAL R&D CAPABILITIES

■ The world’s 10 most innovative firms in 2011: Apple GoogleTwitter Dawning Information IndustryFacebook NetFlixNissan Zynga,Groupon Epocrates

Source: Fast Company

■ Continuous innovation, the common denominator, is a potent competitive weapon, especially during tough economic times

OPENING CASE



■ Open innovation occurs when a firm finds that a good idea is not commercially viable, given a firm’s present strategy; rather than shelving the idea, commercialization can take place through licenses, spin-offs, and joint ventures

■ P&G launched the concept of open innovation in 2001, with its Connect & Develop program

OPENING CASE



■ Open innovation examples:

● P&G - Tide Total Care was developed through Sweden’s Lund University and two small chemical companies as partners

● P&G - Glad brand plastic bag joint venture with Clorox, a historical rival

● P&G - Food product joint ventures with ConAgra and General Mills

OPENING CASE



■ Open innovation examples:

● Nike and Apple developed a sensor that transmits data from inside a shoe to the runner’s iPod or iPhone

● GlaxoSmithKline and Oratech partnered to develop Aquafresh White Trays, a tooth-whitening strip

OPENING CASE



■ Open innovation examples:● Kimberly-Clark and SunHealth Solutions developed Little Swimmers Sun Care, an adhesive sticker that changes color to alert parents to the risk of sunburn

● Kraft and Hershey developed S’mores, a mixture of hot marshmallows that melt the chocolate between two graham crackers

OPENING CASE



■ Three paths for open innovation solutions:

● Customer-driven: tapping unmet customer needs ● Technology-driven: substantial R&D investments

● Competitor-driven: Fast follower of competitors’ successful strategies

■ Senior-level championing is critical for success

OPENING CASE

IMPORTANT

DEFINITIONS • Organizational culture: the complex set of

ideologies, symbols, and core values shared throughout the firm and that influence how the firm conducts business• The social energy that drives—or fails to

drive—the organization• Strategic entrepreneurship: entrepreneurial

actions (exploiting found opportunities in the external environment) through a strategic perspective (innovation efforts)• Entrepreneurship dimension: identifying

opportunities to exploit through innovations• Strategic dimension: determining the best

way to manage the firm’s innovation efforts

IMPORTANT

DEFINITIONS • Strategic entrepreneurship

actions can be taken by:• Individuals• Corporations

Corporate entrepreneurship: the use or application of entrepreneurship within an established firm

ENTREPRENEURSHIP AND

ENTREPRENEURIAL OPPORTUNITIES

• Entrepreneurship is concerned with:• The discovery of profitable

opportunities• The exploitation of profitable

opportunities

Entrepreneurship: the process by which individuals or groups identify and pursue entrepreneurial opportunities without the immediate constraint of the resources they currently control



Purpose of entrepreneurship: • To create wealth

Firms that foster entrepreneurship are:

• Risk takers• Committed to innovation• Proactive in creating

opportunities rather than waiting to respond to opportunities created by others


ENTREPRENEURIAL OPPORTUNITIES Entrepreneurial opportunities:

• Are opportunities others do not see or for which they do not recognize the commercial potential

• Are conditions in which new products or services can satisfy a need in the market

• Exist due to competitive market imperfections and unevenly distributed information

• Are studied at the level of the individual firm

• May be the economic engine driving many nations’ economies in the global competitive landscape



Creative Destruction (Schumpeter)

• Entrepreneurship, as a process, results in the ‘creative destruction’ of existing products (good or services) or methods of producing them, and replaces them with new products/production methods

• Entrepreneurial firms value individual innovations and the ability to continuously innovate across time

KEY CHAPTER POINTS

THREE ‘I’sThree types of innovation activities according to Schumpeter

● Invention● Innovation● Imitation

THREE WAYS TO INNOVATE● Internal - autonomous vs.

induced● Cooperative strategies (e.g.,

strategic alliances)● Acquisitions

INNOVATION

• Innovation is the “specific function of entrepreneurship” (Drucker) It is “the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth” (Drucker)

• It is a source of competitive success, especially in turbulent and highly competitive environments

• For global markets, innovation is key for competitive parity at a minimum, much less for competitive advantage

INNOVATION

Invention • The act of creating or developing a new product or process

• Brings something new into being

• Technical criteria determine the success of an invention

INNOVATION

Invention

Innovation

• Process of creating a commercial product from an invention

• Brings something new into use

• Commercial criteria determine the success of an innovation

INNOVATION

Invention

Innovation

Imitation

• Adoption of an innovation by similar firms

• Usually leads to product or process standardization

• Products based on imitation often are offered at lower prices and without as many features

• Results of imitation• Product or process

standardization• Products made with fewer

features• Products offered at lower

prices

THE IMPORTANCE OF

INNOVATION • Entrepreneurship is the linchpin

between invention and innovation• Inventions are easier than

commercializing those inventions: roughly 80% of R&D occurs in large firms, but these same firms produce fewer than 50% of the patents

• Note: Google Labs was created to facilitate the transition from invention to innovation

• Especially in the U.S., innovation is the most critical of the three types of innovative activities

ENTREPRENEURS

• Entrepreneurs • Individuals, acting independently

or as part of an organization, who see an entrepreneurial opportunity and then take risks to develop an innovation to exploit it

• Entrepreneurial Mind-set• Values uncertainty in the

marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations

ENTREPRENEURS

Entrepreneurial characteristics:• Highly motivated• Willing to take responsibility for

their projects• Passionate• Optimistic• Emotional about the value and

importance of their innovation-based ideas

• Entrepreneurial mind-set• Able to deal with uncertainty • More alert to opportunities than

others• Good social skills and plan

exceptionally well

INTERNATIONAL

ENTREPRENEURSHIP ● Firms creatively discover and

exploit opportunities outside their domestic markets in order to develop a competitive advantage

● Entrepreneurship has become a global phenomenon as internationalization typically leads to improved firm performance

● EXAMPLE - Large multinational companies (MNCs) generate roughly 54% of their sales outside their domestic market, and more than 50% of their employees work outside of the home country

INTERNATIONAL

ENTREPRENEURSHIP

Risks include:• Unstable foreign

currencies• Inefficient markets• Insufficient infrastructures

to support businesses• Limitations on market size

and growth

INTERNATIONAL

ENTREPRENEURSHIP Rates of entrepreneurship differ across countries

due to:

● Impact of national culture• Entrepreneurship declines as collectivism

increases• Exceptionally high levels of individualism can

be dysfunctional for entrepreneurship• Balance between individual initiative and

cooperative spirit versus group ownership of innovation is required

● Level of investment outside of the home country made by new ventures

● Top executives with international experience • Internationally diversified firms are generally

more innovative

INTERNATIONAL

ENTREPRENEURSHIP

Entrepreneurship can:• Fuel economic growth• Create employment• Generate prosperity for

citizensThere is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation.

INTERNAL INNOVATION

Firms take deliberate efforts to develop inventions and innovations within the organization, selecting from several types of innovation and the specific processes through which each type is produced.

• Most innovation is due to research and development (R&D):• Investments are uncertain • Often not achieved in the short term

• Firms innovate internally in two ways 1. Autonomous strategic behavior 2. Induced strategic behavior

INTERNAL INNOVATION:

INCREMENTAL AND RADICAL INNOVATION

• Facilitates incremental and radical innovation

• Primarily - Radical Innovation

• Facilitates incremental and radical innovation

• Primarily - Incremental Innovation



• Incremental Innovation• Is

evolutionary and linear

• Most innovations are incremental

• Builds on existing knowledge bases and provides small improvements in current product lines/processes

Radical Innovation• Is revolutionary

and nonlinear • Is rare because

of difficulty and risk

• Generates significant technological breakthroughs and creates new knowledge/processes

• Requires creativity



• Incremental Innovation• Results from

deliberate efforts

• Primarily - induced strategic behavior

• Can create value

Radical Innovation• Results from

deliberate efforts

• Strong potential to lead to significant growth in revenues and profits

• Primarily - autonomous strategic behavior

• Can create value

MODEL OF INTERNAL

CORPORATE VENTURING

FIGURE 13.1

Model of Internal

Corporate Venturing

INTERNAL INNOVATION

• Bottom-up process

•Top-down process

Internal Corporate Venturing refers to the set of activities firms use to develop internal inventions and innovations: autonomous and induced

INTERNAL INNOVATION

• Bottom-up process

■ Bottom-up process in which product champions pursue new ideas, often through a political process, to develop and coordinate the commercialization of a new good or service ■ Product champion: individual with an entrepreneurial vision of a new good or service who seeks to create support in the organization for its commercialization■ Autonomous strategic behavior is focused on firm’s knowledge and resources ■ Knowledge must be continuously diffused throughout the firm

INTERNAL INNOVATION

•Top-down process

Induced strategic behavior• Top-down process whereby the

firm’s current strategy and structure foster product innovations that are closely associated with that strategy and structure

IMPLEMENTING INTERNAL

INNOVATIONS Entrepreneurial mind-set: required for internal corporate ventures• Viewpoint that values uncertainty in

the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations

Value creation through internal innovation processes:1. Cross-functional product development teams2. Facilitating integration and innovation3. Creating value from internal innovation

CREATING VALUE THROUGH

INTERNAL INNOVATION PROCESSES

FIGURE 13.2

Creating Value

Through Internal

Innovation Processes


INNOVATIONSCross-Functional Product Development Teams• Efforts to integrate and

coordinate activities and apply knowledge from different functional activities associated with different functional areas to maximize innovation:• Design • Manufacturing• Marketing

• New product development processes can be completed more quickly

• Products can be more easily commercialized when cross-functional teams work effectively

Cross-FunctionalProduct Development

Team

IMPLEMENTING INTERNAL INNOVATIONS

Cross-Functional Product Development Teams

Cross-FunctionalProduct Development

Team

• Horizontal structures support use of cross-functional teams

• Two primary barriers to success:

• Independent frames of reference of members with distinct specializations

• Organizational politics that create competition for resources and inter-unit conflict

IMPLEMENTING INTERNAL INNOVATIONS Facilitating Integration and

Innovation• Shared Values

• Are framed around the firm’s strategic intent and mission

• Become the glue that promotes integration between functional units

• Effective Leadership• Sets goals and allocates resources• Goals include integrated development and

commercialization of new goods and services• Effective Communication A

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INNOVATIONSCreating Value from Internal

Innovation• Entrepreneurial mind-set is necessary

• Manager support• Cross-functional teams• Effective leadership and shared values

INNOVATION THROUGH

COOPERATIVE STRATEGIES• To successfully commercialize

inventions, firms may need to cooperate and integrate knowledge and resources• Entrepreneurial new venture firms may need

investment capital and distribution capabilities• More established companies may need new

technological knowledge possessed by newer entrepreneurial firms

• To innovate via cooperative relationships, firms must share their knowledge and skills – strategic alliances and joint ventures allow this to occur

INNOVATION THROUGH

ACQUISITIONS• Rapidly extend the product line• Increase the firm’s revenues• KEY RISK: a firm may substitute its ability

to buy innovations for its ability to produce innovations internally

• A firm may:• Lose its intensity in R&D efforts• Lose its ability to produce patents

• Research demonstrates that subsequent to acquisitions, firms introduce fewer new products into the market

• This is because firms focus on the financial controls at the expense of strategic control

CREATING VALUE

THROUGH STRATEGIC ENTREPRENEURSHIPEntrepreneurial ventures:

• Produce more radical innovations• Possess strategic flexibility and

willingness to take risks• Do more opportunity seeking• Must learn how to gain a competitive

advantage (advantage-seeking behaviors)

Larger, well-established firms:• Produce more incremental innovations• Possess more resources and capabilities

to exploit identified opportunities• Must relearn how to identify

entrepreneurial opportunities (opportunity-seeking skills)

CREATING VALUE

THROUGH STRATEGIC ENTREPRENEURSHIPObjective is to help firms develop successful incremental and radical innovations

• Be flexible and willing to take risks.• Identify and exploit opportunities with

sufficient resources and capabilities to launch strategic actions.

• Sustain a competitive advantage while identifying and exploiting opportunities.

• Foster an entrepreneurial mind-set among managers and employees.

• Emphasize resource management, particularly human capital and social capital.

• Seek to enter and compete in international markets.

PART 3: STRATEGIC ACTIONS: STRATEGY IMPLEMENTATION CHAPTER 13 STRATEGIC ENTREPRENEURSHIP.

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