Chapter Twelve Effective Strategic Management: Fostering Corporate Entrepreneurship and New Venture Creation

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin After studying this chapter, you should have a good understanding of: The importance of opportunity recognition in the venture development process How strategic concepts contribute to the competitive advantages of new ventures and small businesses The role of product champions and autonomous strategic behaviors in internal corporate venturing How corporations develop an internal environment that promotes entrepreneurial development How an entrepreneurial orientation can enhance a firm’s efforts to develop promising new venture initiatives The pitfalls associated with new venture strategies and corporate entrepreneurship Learning Objectives TRANSPARENCY-99

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin CompanyCreative Technique Dupont Teaches creativity at its in-housing training center. Classes include how to brainstorm and avoid creativity inhibitors. To create fresh perspectives, a mix of employees – high tech and low tech, management and staff– meet together to create new product proposals. Airco Industrial Gases Teaches the nominal group procedure (NGP) through its total quality management program. The technique allows participants to prepare secret lists of problems and potential solutions. Because the NGP provides anonymity, sensitive issues are brought into the open without fear of personal reprisals. DoubleClick Actively encourages fun at work. Its New York City office includes a miniature version of Central Park, complete with picnic tables and trees, and a rooftop basketball court where employees and their bosses compete. Its prize for the employee who brings in the most referrals each year? A motorcycle. Ford Motor Co. Developed its own method for examining processes and identifying improvement ideas: RAPID, which stands for Rapid Actions for Process Improvement Deployment. RAPID workshops are used to generate ideas, recommend creative solutions, and develop action plans for implementing improvements. Sources: Gundry, L.K., Kickul, J.R., & Prather, C.W Building the creative organization. Organization Dynamics: 22-37; Mackie, K Ford RAPIDS helping UT departments streamline work processes. On Campus, April 14. Yaqub, R.M The play’s the thing. Worth, November: Exhibit 12.1 Techniques to Stimulate Creativity TRANSPARENCY-100

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin All Small Companies*, By Industry Services (40%) 2,215,000 Agricultural Services (2%) 115,000 Retail Trade (20%) 1,094,000 Construction (12%) 662,000 Mining (0.4%) 20,000 Manufacturing (6.%) 329,000 Finance, Insurance, and Real Estate (8%) 457,000 Transportation, Communications, and Public Utilities (4%) 217,000 Wholesale Trade (7.4%) 410,000 Source: SBA’s Office of Advocacy, based on Data Provided by the U.S. Census Bureau, statistics of U.S. Businesses. (Percentages don’t add to 100% because of rounding.) * Businesses with 500 or fewer employees in 1997 (rounded) Exhibit 12.2 TRANSPARENCY-101

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Alternatives to Traditional Financing Source: Fraser, J. A A hitchhiker’s guide to capital resources. Inc. Magazine, February: ; Owens, T Getting financing in Small Business Reports, June: Exhibit 12.3 A traditional non-cash means of exchanging products or services. Bartering has enjoyed a resurgence in popularity because exchange services that are now available on the Internet are facilitating more barter transactions. Barter Allows a start-up to hold on to its cash and minimize commitments to equipment or real estate that might need updating as the company grows (or shrinks). Leasing costs are deductible as a business expense. Leasing DESCRIPTIONMETHOD Suppliers that let you pay for goods or services in 60 or 90 days rather than after only 10 to 30 days are, in effect, financing your purchase. Some suppliers will agree to this because they need your business as badly as you need their credit. Supplier Financing One of the fastest-growing techniques for financing start-ups; number one among women entrepreneurs. It’s like a bank loan without the lengthy approval process. But the high interest rates that some cards charge could make it risky. Credit Cards Factoring Factoring is a method of raising cash by selling accounts receivables to a third party or financing against the value of receivables. It’s generally only used for short term cash needs and often comes with a hefty interest charge. TRANSPARENCY-102

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin 3M’s Rules for Successful Innovation Exhibit 12.4 Sources: Collins, J. C., & Porras, J. I Built to Last. NewYork: HarperBusiness; Graham, A. B The Learning Organization: Managing Knowledge for Business Success; Mitchell, R Masters of innovation. Business Week, April 10: 58-63; Osborn, T The new product champions: How 3M manages for innovation. Marketing communications, 13(11): IMPLICATIONSRULE If at first you don’t succeed, 3M believes that you should be able to try and try again. Thus, it encourages experimentation and risk taking on projects, even when the outcome is unclear. This strategy has helped 3M achieve one of its key objectives: obtain percent of sales from products introduced in the past 5 years. Tolerate failure Managers exhibit patience in nurturing projects. Ideas can be kept alive by individual staffers who believe in a project, even if it can’t find a home in one of 3M’s divisions. Don’t kill a project Product champions are challenged to be innovative. When successful, they are rewarded with salaries and promotions. If a product takes off, a champion forms an action team and may get to run his or her own product group. Motivate the champions Divisions are split up if they get too big, say, over $250 million in sales. 3M believes its divisions should be granted autonomy and that division managers should know staffers by their first names. Keep divisions small Divisions and product groups do not have an exclusive claim on the technologies they develop. An atmosphere of open communication helps everyone benefit from the technological insights and breakthroughs that others at 3M discover. Share the wealth Product development is not conducted in isolation. Customers are often invited to join 3M researchers and marketers to brainstorm about uses for a technology and new product concepts. Stay close to customers TRANSPARENCY-103

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Dimensions of Entrepreneurial Orientation Source: Covin, J. G., & Slevin, D. P A conceptual model of entrepreneurship as firm behavior. Entrepreneurship Theory & Practice, Fall: 7-25; Lumpkin, G. G., & Dess, G. G Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, 21(1): ; Miller, D The correlates of entrepreneurship in three types of firms. Management Science, 29: Exhibit 12.5 A forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand. Proactiveness A willingness to introduce novelty through experimentation and creative processes aimed at developing new products and services as well as new processes. Innovativeness Independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion. Autonomy DEFINITION DIMENSION 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. Risk taking 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. Competitive Aggressiveness TRANSPARENCY-104

CHAPTER 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Continuum of Radical and Incremental Innovations RADICAL INNOVATION INCREMENTAL INNOVATION Laparoscopic “Keyhole” Surgery Bubble Wrap Fiber- optic Cable Speech Recognition Software Frozen Yogurt Enterprise Resource Planning (ERP) Online Auction Exchanges Polyester Internet Browser Exhibit 12.6 TRANSPARENCY-105