Organization Renewal & Innovation © 2 0 0 9 Chapter Fourteen: Organization Renewal & Innovation Chapter Three: The External Environment Chapter Three: The External Environment Hitt, Ireland, Hoskission, Rowe & Sheppard Strategic Management N o t e s Competitiveness & Globalization

The Strategic Management Process Ch. 1: Strat. Mgmt. & Com-petitiveness Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Chapter 14: Org. Renewal & Innovation Strategic Actions Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation

Organizational Renewal & Innovation Knowledge objectives Note the importance of entrepreneurship in strategy & international entrepreneurship is increasing. Describe the 2 forms of internal corp. venturing: autonomous and induced strategic behaviour. Discuss how cooperative strategies, such as strategic alliances are used to develop innovation. Explain how firms use acquisitions to increase their innovations and enrich their innovative capabilities. Describe the importance of venture capital & initial public offerings to entrepreneurial activity. See how the practice of strategic entrepreneurship creates value for customers & shareholders.

Entrepreneurship Definitions Entrepreneurial actions based on a strategic perspective. Strategic Entrepreneurship An individual or a group in an organization creates a new venture or develops an innovation. Corporate Entrepreneurship Exploiting a new market segment unexplored by other potential competitors. Blue Ocean Strategy Entrepreneurs & Entrepreneurship Definitions 6

Innovation Definitions Creating or developing a new product or process. Invention Creating a commercial product from an invention. Innovation Adoption of innovation by a population of similar firms. Imitation BONUS Firms doing basic & applied (commercializable) research. Ambidextrous Organizations Geographic clustering of firms in associated industries. Incubators Inventions radically changing industry competitive balance. Disruptive Technologies (creative destruction) Definitions 6

Entrepreneurs & Entrepreneurship Are individuals acting independently or as part of an organization. Create a new venture or develop an innovation & take risks entering them into the marketplace. Can be independent individuals. Can surface in an organization at any level. Successful entrepreneurship and innovation involves moving from: the invention of ideas, to effective commercialization, & acceptance in the marketplace. Entrepreneurs & Entrepreneurship Entrepreneurs & Entrepreneurship Innovation 7

International Entrepreneurship Entrepreneurship can: Fuel economic growth, Create employment, Generate prosperity for citizens. There’s a + link between rates of entrepreneurial activity & economic development in a nation. There must be a balance (in the culture) between: The individual initiative and, The spirit of cooperation & group ownership of innovation. Successful entrepreneurial firms Provide appropriate autonomy, Incentives for individual initiative, Promote cooperation & group ownership of an innovation. Entrepreneurs & Entrepreneurship

Innovation Innovation is the process of creating a commercial product from an invention: Invention brings something new into being, Innovation brings something new into use. Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success Innovations produced in large established firms are often referred to as corporate entrepreneurship Innovation

Innovation Types: Incremental innovation Radical innovation Most innovations are Incremental. Builds on existing knowledge bases. Provides small improvements in the current product lines. Incremental innovation Radical innovation Provides significant technological breakthroughs. Creates new knowledge. Is rare because of difficulty and risk. Requires substantial creativity. Radical innovations are often best developed in separate units that start internal ventures. Innovation

Internal Corp. Venturing Model Corp. Entrepreneurship can occur as either a Corporate Headquarters Structural Context Induced Strategic Behaviour Autonomous Strategic Behaviour Strategic Context a bottom-up process or as a top-down process Internal Corp. Venture Model 19

Internal Corp. Venturing Model Autonomous Strategic Behaviour Strategic Context Autonomous Strategic behaviour: A bottom-up process in which product champions: Pursue new ideas, often through a political process. Develop & coordinate commercialization of a new good or service until it achieves success in the marketplace. Based on a firm’s wellsprings of knowledge & resources that are the sources of the firm’s innovation. A firm’s technological capabilities & competencies are the basis for new products and processes. A product champion is: An organizational member with entrepreneurial vision who seeks support for commercialization of a new good / service. Internal Corp. Venture Model

Internal Corp. Venturing Model Structural Context Induced Strategic Behaviour Corporate Headquarters Induced Strategic Behaviour A top-down process whereby: The firm’s current strategy & structure foster product innovations, Innovations are associated closely with that strategy and structure. To be innovative & develop internal ventures entails: An entrepreneurial mindset, A risk propensity, An emphasis on execution. Individuals with an entrepreneurial mindset Engage the energies of everyone in their domain; Both inside and outside the organization. Internal Corp. Venture Model

Appropriating Value from Innovation Barriers to Integration Different Time Orientation Interpersonal Orientation Different Goal Orientation Formality of Structure Facilitators of Integration Shared Values Vision & Leadership Budget Allocation Effective Communication Cross-Functional Integration / Design Teams Cross-functional design teams may break down barriers to entrepreneurship. Helps Product Quality Customer Value Time to Market Value Appropriation from Innovation Facilitators of Integration increase effectiveness of Cross-functional integration or design teams. Appropriating / Creating Value 27

Appropriating Value from Innovation Barriers to Integration Long time line: R&D Short time line: Production Different functional time orientation Qualitative: HRM Quantitative: Accounting Different functional language and interpersonal orientation Customer satisfaction: Sales Cost reduction: Production Different goal orientation Informal: R&D Formal: Manufacturing Formality of structure Appropriating / Creating Value 27

Appropriating Value from Innovation Cross-Functional Product Development Teams Facilitate efforts to integrate activities related to different firm functions. Design, mfg., marketing, etc. Development can be completed more quickly. Allow for easier commercialization. Development stages are grouped into parallel or overlapping processes. Allows a firm to tailor its product development efforts: Unique core competencies, Needs of the market. The Firm Cross-functional product development team Appropriating / Creating Value

Innovation from the Outside Cooperative strategies for entrepreneurship & innovation Firms may need to cooperate & integrate knowledge & resources to successfully commercialize inventions: Entrepreneurial new venture firms may need investment capital and distribution capabilities. More established firms may need new technological knowledge possessed by newer entrepreneurial firms. To innovate through a cooperative relationship, firms must share their knowledge and skills. Innovation from the Outside

Innovation from the Outside Acquisitions to Buy Innovation Acquisitions Rapidly extend the product line, Increase the firm’s revenues. A key risk of acquisitions is that a firm may substitute the ability to buy innovations for an ability to produce innovations internally: Firm may lose intensity in R&D efforts, Firm may lose ability to produce patents. Innovation from the Outside

Capital for Entrepreneurial Ventures Venture capital firms: Seek high returns on their investment. Value 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 degree of instability in the market addressed. Initial public offerings (IPOs): New stock; Firm needs high potential sell new stock. Larger than amounts obtained from venture capitalists. Investment bankers frequently play major role. Firms that have also received venture capital backing usually receive greater returns from IPOs. Capital Sources

Entrepreneurial Value Creation Creating Value via Strategic Entrepreneurship: New entrepreneurial firms are often more effective than large firms in identifying opportunities. Firms must develop an entrepreneurial mindset among their managers & employees. Managers must emphasize the development of their resources, particularly human & social capital. Firms should seek to enter & compete in International markets. Firms seeking to establish their technology as a standard engage in strategic entrepreneurship. Being standard = a sustainable competitive advantage. Entrepreneurial Value Creation

The Strategic Management Process Ch. 1: Strat. Mgmt. & Com-petitiveness Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Chapter 14: Org. Renewal & Innovation Strategic Actions Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation

That’s the Whole Enchilada Hitt, Ireland, Hoskisson, Rowe & Sheppard Strategic Management: Competitiveness & Globalization