PowerPoint Presentation by Charlie Cook The University of West Alabama Strategic Management Competitiveness and Globalization: Concepts and Cases Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Seventh edition S TRATEGIC A CTIONS: S TRATEGY I MPLEMENTATION © 2007 Thomson/South-Western. All rights reserved. CHAPTER 13 Strategic Entrepreneurship BA 495 R. M. Zahrowski

© 2007 Thomson/South-Western. All rights reserved. 13–2 Strategic Entrepreneurship Strategic EntrepreneurshipStrategic Entrepreneurship  Taking entrepreneurial actions using a strategic perspective.  Engaging in simultaneous opportunity seeking and competitive advantage seeking behaviors.  Designing and implementing entrepreneurial strategies to create wealth. Strategic entrepreneurship actions can be taken by:Strategic entrepreneurship actions can be taken by:  Individuals  Corporations

© 2007 Thomson/South-Western. All rights reserved. 13–3 Strategic Entrepreneurship and Innovation Entrepreneurship is concerned with:Entrepreneurship is concerned with:  The discovery of profitable opportunities  The exploitation of profitable opportunities Firms that encourage entrepreneurship are:Firms that encourage entrepreneurship are:  Risk takers.  Committed to innovation.  Proactive in creating opportunities rather than waiting to respond to opportunities created by others.

© 2007 Thomson/South-Western. All rights reserved. 13–4 Entrepreneurial Opportunities Entrepreneurial OpportunitiesEntrepreneurial Opportunities  Conditions in which new products or services can satisfy a need in the market. Entrepreneurs or entrepreneurial managers must be able to:Entrepreneurs or entrepreneurial managers must be able to:  Identify opportunities not perceived by others.  Take actions to exploit the opportunities.  Establish a competitive advantage.

© 2007 Thomson/South-Western. All rights reserved. 13–5 Innovation Process The act of creating or developing a new product or processThe act of creating or developing a new product or process Brings something new into being.Brings something new into being. Technical criteria are used to determine the success of an invention.Technical criteria are used to determine the success of an invention. Invention

© 2007 Thomson/South-Western. All rights reserved. 13–6 Innovation Process (cont’d) The process of creating a commercial product from an invention.The process of creating a commercial product from an invention. Brings something new into use.Brings something new into use. Commercial criteria are used to determine the success of an innovation.Commercial criteria are used to determine the success of an innovation. Invention Innovation

© 2007 Thomson/South-Western. All rights reserved. 13–7 Innovation Process (cont’d) The adoption of an innovation by similar firmsThe adoption of an innovation by similar firms Usually leads to product or process standardization.Usually leads to product or process standardization. Products based on imitation often are offered at lower prices but with fewer features.Products based on imitation often are offered at lower prices but with fewer features. Invention Innovation Imitation

© 2007 Thomson/South-Western. All rights reserved. 13–8 Entrepreneurs EntrepreneursEntrepreneurs  Individuals acting independently or as part of an organization who create a new venture or develop an innovation, take risks entering innovations into the marketplace.  Can be any manager or employee in an organization. Entrepreneurial capabilities include:Entrepreneurial capabilities include:  Intellectual capital  Entrepreneurial mind-set  Transfer of entrepreneurial competence to others  Effective human capital

© 2007 Thomson/South-Western. All rights reserved. 13–9 International Entrepreneurship Entrepreneurship can:Entrepreneurship can:  Fuel economic growth  Create employment  Generate prosperity for citizens There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation.There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation.

© 2007 Thomson/South-Western. All rights reserved. 13–10 International Entrepreneurship (cont’d) There must be a balance (in the culture) betweenThere must be a balance (in the culture) between  Individual initiative and  The spirit of cooperation and group ownership of innovation. Successful entrepreneurial firms:Successful entrepreneurial firms:  Provide appropriate autonomy.  Offer incentives for individual initiative.  Promote cooperation and group ownership of an innovation.

© 2007 Thomson/South-Western. All rights reserved. 13–11 Incremental and Radical Innovation Incremental InnovationIncremental Innovation  Is the usual case for innovation in organizations.  Provides small increments in current product lines.  Improves existing knowledge and processes.  Can create value. Radical InnovationRadical Innovation  Is rare because of difficulty and risk.  Provides significant technological breakthroughs.  Creates new knowledge and processes.  Can create value.

© 2007 Thomson/South-Western. All rights reserved. 13–12 FIGURE 13.1 Model of Internal Corporate Venturing Source: Adapted from R. A. Burgelman, 1983, A model of the interactions of strategic behavior, corporate context, and the concept of strategy, Academy of Management Review, 8: 65.

© 2007 Thomson/South-Western. All rights reserved. 13–13 Internal Corporate Venturing The set of activities used to create inventions and innovations through internal means.The set of activities used to create inventions and innovations through internal means.  R&D spending is linked to success in internal corporate venturing. Product ChampionProduct Champion  An organizational member with an entrepreneurial vision of a new good or service who seeks to create support for the vision’s commercialization.

© 2007 Thomson/South-Western. All rights reserved. 13–14 Internal Corporate Venturing (cont’d) A bottom-up process in which product champions:A bottom-up process in which product champions:  Pursue new ideas, often through a political process.  Develop and coordinate the commercialization of a new good or service until it achieves success in the marketplace. Forms of internal corporate venturing:Forms of internal corporate venturing:  Autonomous strategic behavior  Induced strategic behavior

© 2007 Thomson/South-Western. All rights reserved. 13–15 Venturing: Strategic Behaviors Autonomous Strategic BehaviorAutonomous Strategic Behavior  Based on a firm’s knowledge and resources that are the sources of the firm’s innovation.  A firm’s technological capabilities and competencies are its basis for new products and processes. Induced Strategic BehaviorInduced Strategic Behavior  A top-down process whereby the firm’s current strategy and structure foster product innovations.  The strategy in place is filtered through a matching structural hierarchy.

© 2007 Thomson/South-Western. All rights reserved. 13–16 Implementing New Product Development and Internal Ventures To be innovative and develop internal ventures requires:To be innovative and develop internal ventures requires:  An entrepreneurial mindset  Risk propensity  An emphasis on execution Individuals with an entrepreneurial mindsetIndividuals with an entrepreneurial mindset  Engage the energies of everyone in their domain both inside and outside the organization.

© 2007 Thomson/South-Western. All rights reserved. 13–17 Cross–Functional Product Development Teams Facilitate integration of activities associated with different organizational functions.Facilitate integration of activities associated with different organizational functions.  Design, manufacturing, marketing, etc. New product development processes can be completed more quickly.New product development processes can be completed more quickly.  Products can be more easily commercialized when cross- functional teams work effectively. Cross-functional Product Development Team

© 2007 Thomson/South-Western. All rights reserved. 13–18 Cross–Functional Product Development Teams Product development stages are grouped into parallel or overlapping processes, allowing the firm to tailor its product development effortsProduct development stages are grouped into parallel or overlapping processes, allowing the firm to tailor its product development efforts  Unique core competencies  Needs of the market Cross-functional Product Development Team

© 2007 Thomson/South-Western. All rights reserved. 13–19 Barriers to Cross-Functional Teams Effectiveness Different orientations and perceptionsDifferent orientations and perceptions  Individuals from separate functions have different orientations on issues. Create differing approaches to product development activities.Create differing approaches to product development activities. Organizational PoliticsOrganizational Politics  Cause aggressive competition for resources among different organizational functions. Organizations must achieve cross-functional integration with minimal political conflict.Organizations must achieve cross-functional integration with minimal political conflict.

© 2007 Thomson/South-Western. All rights reserved. 13–20 Facilitating Integration and Innovation Shared ValuesShared Values  Are framed around the firm’s strategic intent and mission.  Become the glue that promotes integration between functional units. Effective LeadershipEffective Leadership  Sets goals and allocates resources Goals include integrated development and commercialization of new goods and servicesGoals include integrated development and commercialization of new goods and services Effective CommunicationEffective Communication

© 2007 Thomson/South-Western. All rights reserved. 13–21 Cooperative Strategies for Entrepreneurship and Innovation Cooperation and integration of knowledge and resources is required to successfully commercialize inventions.Cooperation and integration of knowledge and resources is required to successfully commercialize inventions.  Entrepreneurial firms need investment capital and distribution capabilities.  Established companies need the technological knowledge possessed by entrepreneurial firms. Firms innovate through the sharing their knowledge and skills in a cooperative relationship.Firms innovate through the sharing their knowledge and skills in a cooperative relationship.

© 2007 Thomson/South-Western. All rights reserved. 13–22 Acquisitions to Buy Innovation AcquisitionsAcquisitions  Can rapidly extend the product line.  Can quickly increase the firm’s revenues. Key risks of acquisitionsKey risks of acquisitions  The firm may substitute the ability to buy innovations for an ability to produce innovations internally.  The firm may lose intensity in R&D efforts.  The firm may lose its ability to produce patents.

© 2007 Thomson/South-Western. All rights reserved. 13–23 Capital for Entrepreneurial Ventures Venture Capital FirmsVenture Capital Firms  Seek high returns on their investment.  Value the competence of the entrepreneur or the human capital in the firm.  Place weight on the expected scope of competitive rivalry the firm is likely to experience.  Evaluate the degree of instability in the market addressed.

© 2007 Thomson/South-Western. All rights reserved. 13–24 Capital for Entrepreneurial Ventures Initial Public Offerings (IPOs)Initial Public Offerings (IPOs)  Are new stock priced to reflect the firm’s high potential.  Often yield much larger equity investments than can be obtained from venture capitalists.  Investment bankers frequently play major roles in the development and offering of IPOs.  Firms that have previously received venture capital backing usually receive greater returns from IPOs.

© 2007 Thomson/South-Western. All rights reserved. 13–25 Creating Value through Strategic Entrepreneurship Be effective in identifying opportunities.Be effective in identifying opportunities. Be flexible and willing to take risks.Be flexible and willing to take risks. Have sufficient resources and capabilities to exploit identified opportunities.Have sufficient resources and capabilities to exploit identified opportunities. Sustain a competitive advantage while identifying and exploiting opportunities.Sustain a competitive advantage while identifying and exploiting opportunities. Develop an entrepreneurial mind-set among managers and employees.Develop an entrepreneurial mind-set among managers and employees. Seek to enter and compete in international markets.Seek to enter and compete in international markets.