Corporate Entrepreneurship & Innovation Week 12 Copyright Guy Harley 2004

Impact of Innovation on Firm Outcomes Key source of competitive success Enhances a firm’s strategic competitiveness and financial performance. Firms competing in global industries that invest more in innovation also achieve the highest returns. Copyright Guy Harley 2004

Corporate Innovation Some firms nurture innovation and corporate entrepreneurship This can be a source of strategic competitiveness Copyright Guy Harley 2004

Innovative Activity Three stages: Invention Creating or developing a new product or process idea Innovation Creating a commercial product from invention Imitation Adoption of innovation by a group of similar firms Copyright Guy Harley 2004

Successful Entrepreneurship The key to success with entrepreneurship and innovation is moving from invention of an idea to its effective commercialisation and acceptance in the marketplace Copyright Guy Harley 2004

Innovation and Competitive Advantage Commercially Exploitable with Present Capabilities Difficult for Competitors to Imitate Characteristics of innovations that lead to: Competitive Advantage Provides Significant Value to Customers Timely Copyright Guy Harley 2004 12

Entrepreneurship Schumpeter called entrepreneurship ‘creative destruction’ The focus is on discovery and exploitation of opportunities that may prove profitable. Copyright Guy Harley 2004

Entrepreneurial Firms Firms involved with entrepreneurship are: Risk takers Committed to innovation Proactive (i.e., they try create their own opportunities) Copyright Guy Harley 2004

Corporate Entrepreneurship A firm’s ability to develop new goods or services and to manage the innovation process The key to success with entrepreneurship and innovation is moving from invention of an idea to its effective commercialisation and acceptance in the marketplace Copyright Guy Harley 2004

Corporate Entrepreneurship A situation where an individual or group within an organisation creates a new venture or develops innovation The sum of a firms innovation, renewal and venturing efforts Copyright Guy Harley 2004

Entrepreneurs Agents of economic growth that introduce new products, new production methods, and other innovations that stimulate economic activity. Can surface at any level in the firm Form innovative production processes or service delivery mechanisms. Copyright Guy Harley 2004

Organisational Entrepreneurs Organisational entrepreneurs engage in entrepreneurship by: taking risks acting aggressively acting proactively in their firms Copyright Guy Harley 2004

International Entrepreneurship Top priority in many countries (eg Ireland, France, Finland) China has tension between collectivism and individualism When collectivism emphasised, entrepreneurship declines Need to have a balance Copyright Guy Harley 2004

Internal Corporate Venturing Innovation is necessary but not sufficient condition to competitive success Need processes and structures in place so that the firm can successfully implement the outcomes of internal corporate ventures is as crucial as the actual innovations themselves Two types Autonomous Strategic Behavior Induced Strategic Behavior Copyright Guy Harley 2004

Autonomous Strategic Behavior Autonomous strategic behaviour is a bottom-up process through which product champions pursue new product ideas through to commercialisation Product champions are individuals who have an entrepreneurial vision for a new product and who seek support for its commercialisation Copyright Guy Harley 2004

Induced Strategic Behavior A top-down process in which the current strategy and structure foster closely associated product innovations Copyright Guy Harley 2004

Concept of Corporate Strategy Model of Internal Corporate Venturing Concept of Corporate Strategy Strategic Context Structural Context Autonomous Strategic Behaviour Induced Strategic Behaviour Copyright Guy Harley 2004 19

Using Product Development Teams Emphasises horizontal organisation rather than vertical Processes to support innovation can be: Formal Defined & documented as procedures & practices Informal Routines or ways of working that evolve over time Copyright Guy Harley 2004

Barriers to horizontal integration Specialization has encouraged development of divergent functions, different roles, and functional differentiation based on four factors. Time orientation, as some functions are short-term oriented while others are long-term oriented Interpersonal orientation Goal orientation, with some goals focused on efficiency and others on effectiveness Formality of structure (informal v’s formal) Copyright Guy Harley 2004

Barriers to Horizontal Integration Functional specialisation may hinder cross-functional integration Organisational politics, especially those centered around protecting historical resource allocation processes, may inhibit integration Copyright Guy Harley 2004

4 Methods for Facilitating Integration Shared values or corporate culture Leadership Goals and budgets Effective communication systems Copyright Guy Harley 2004

Shared Values Are expressed through the firm’s corporate culture (as discussed in Chapter 12) Should be clearly linked with the firm’s strategic intent and strategic mission Can reduce political conflict and promote coupling between and among functional specialties Copyright Guy Harley 2004

Leadership Enforces the importance to the firm of the value-creating potential of innovation Emphasizes the value-creating potential of innovation and, in turn, encourages the integration of functional activities Copyright Guy Harley 2004

Goals and Budgets Relate to the formulation of goals and allocation of budgeted resources necessary to achieve them Represent specific targets for the integrated design and production of new goods and services Can serve as self-reinforcing strategies to encourage and support cross-functional integration Copyright Guy Harley 2004

Effective Communication Leads to: Increased motivation More and better information Sharing of knowledge across cross-functional team members Copyright Guy Harley 2004

Appropriating Value from Innovation Barriers to Integration Different Time Orientation Interpersonal Orientation Different Goal Orientation Formality of Structure Time to Market X-Functional Integration/ Design Teams Value Appropriation from Innovation Product Quality Facilitators of Integration Shared Values Leaders’ Vision Budget Allocation Effective Communication Creation of Customer Value Copyright Guy Harley 2004 27

Appropriating Value from Innovation Decrease or reduce time-to-market Improve product quality Create value for customers Copyright Guy Harley 2004

Cooperating to Produce Innovation Strategic Alliances Can help foster innovation by combining the knowledge and resources of two or more partners Firms must focus on building knowledge, identifying core competencies and developing strong human resources to manage such projects Firms can also give away core competencies by outsourcing to alliance partners rather than developing their own capabilities over time Copyright Guy Harley 2004

Strategic Alliances Few firms possess all the Knowledge, Resources, Capabilities & Core competencies to pursue internal innovation Copyright Guy Harley 2004

Risks of Strategic Alliances Gain competitive parity or competitive advantage relative to rivals Produce and manage innovative goods or services Copyright Guy Harley 2004

Strategic Alliances Success depends upon: Focusing on knowledge Identifying core competencies Developing human resource policies to manage and retain core competencies Choosing partners with complimentary skills and compatible goals and strategic orientations Copyright Guy Harley 2004

Acquiring Innovative Capability Many firms now acquire other firms as a substitute for developing innovations internally Acquiring innovative capability can reduce risk and lower costly R&D investments A major drawback is that firms can eventually lose their ability to generate innovations internally May result in reductions in expenditure on R&D and number of patents as a % of sales Copyright Guy Harley 2004

Buying Innovation Copyright Guy Harley 2004

Venture Capital New enterprises backed by venture capital Provide important sources of innovation and new technology Are a major source of new wealth creation in the domestic economy (shown from financial figures to be particularly relevant in the U.S.) Create new jobs and expenditure on R&D Copyright Guy Harley 2004

Venture Capital Strategic benefits of investing in venture capital Ability to invest early and observe what happens to the new venture Movement toward subsequent acquisitions, technology licensing, product marketing rights, and possibly the development of international opportunities Gaining a ‘window’ on future technological development Copyright Guy Harley 2004

Venture Capital & Australian Innovation In the USA, available venture capital is about A$40 billion, whereas in Australia it is about A$400 million Many of Australia’s leading innovations (for example the Sarich engine) are relocated to the USA in order to gain funding for the commercialisation process Copyright Guy Harley 2004

Entrepreneurship in Small Business Small business and individual entrepreneurs account for significant portion of innovation measured by comparing R&D input with R&D output Small firms created most new jobs in the USA in the 1990s While large firms account for over 80% of the world’s R&D spending, individuals or small firms are granted more than half of new US patents Copyright Guy Harley 2004

Small Firms and Innovation Many small firms are created when employees leave large firms to start their own businesses Ex-employees frequently continue to interact with their former firms to develop innovations and new products Copyright Guy Harley 2004

Large Firms Innovative Capacity To improve large firm innovative capacity: ‘Act small’ Greater levels of individual autonomy can be created through the restructuring of a firm into smaller and more manageable units (see Chapter 7). The additional amounts of creativity and innovation that tend to be witnessed among those granted more autonomy stimulates autonomous strategic behaviour when a firm purses innovation through internal corporate ventures. Copyright Guy Harley 2004

Large Firms Innovative Capacity A firm can reengineer its operations to develop more efficient work-related processes and to form channels through which customers’ interests can be expressed with greater clarity and intensity. Cross-functional work teams can provide opportunities for personnel to think and act creatively. When handled effectively, downsizing can create arrangements through which a firm is able to focus efforts more on key tasks, such as those required to produce innovations. Allocating significant levels of resources to research and development can stimulate innovation. Cooperative arrangements can help to spawn innovations in the firm. Copyright Guy Harley 2004

Exam Revision Competitive advantage & above average returns Vicarious liability Tangible & intangible resources International strategy Trust Restructuring strategies Changes in management from eCommerce Essay Topic Copyright Guy Harley 2004

Essay Topic Describe 2 organisational designs that have emerged as a result of technological advancement Not Vertical (around before technology) M-Form (results from diversification) Global (around before technology) Examples Virtual Network Horizontal Copyright Guy Harley 2004

Role of technology in organisational design Essay Topic Role of technology in organisational design Not organisational structure All organisations use technology but it doesn’t always have a role in design Copyright Guy Harley 2004