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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