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12-2 Managing Innovation and Fostering Corporate Entrepreneurship McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Chapter twelve Part 3: strategic implementation

12-3 Learning Objectives  After reading this chapter, you should have a good understanding of:  The importance of implementing strategies and practices that foster innovation.  The challenges and pitfalls of managing corporate innovation processes.  The role of product champions and exit champions in internal corporate venturing. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

12-4 Learning Objectives McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  After reading this chapter, you should have a good understanding of:  How independent venture teams and business incubators are used to develop corporate ventures.  How corporations create an internal environment and culture that promotes entrepreneurial development.

12-5 Learning Objectives  After reading this chapter, you should have a good understanding of:  How an entrepreneurial orientation can enhance a firm’s efforts to develop promising corporate venture initiatives. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

12-6 Managing Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Innovation: using new knowledge to transform organizational processes or create commercially viable products and services  Latest technology  Results of experiments  Creative insights  Competitive information

12-7 Types of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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

12-8 Continuum of Radical and Incremental Innovations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Radical Innovation Incremental Innovation Laparoscopic “keyhole” surgery Speech recognition software PolyesterEnterprise resource planning (ERP) Frozen yogurt Fiber-optic cable Internet browser Online auction exchanges Bubble wrap Exhibit 12.1 Continuum of Radical and Incremental Innovations

12-9 Types of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 industry’s life cycle  Associated with differentiation strategies

12-10 Types of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 industry’s life cycle  Associated with cost leader strategies

12-11 Challenges of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Seeds versus weeds

12-12 Challenges of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Experience versus initiative

12-13 Challenges of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Innovation projects need competent staffs to succeed  People drawn from inside the firm  May have greater social capital  Know the organization’s 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 Internal versus external staffing

12-14 Challenges of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Building capabilities versus collaborating

12-15 Challenges of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 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 project’s credibility if too tentative  Large-scale launch  Requires more resources  Can effectively preempt a competitive response

12-16 Defining the Scope of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Firms must define the “strategic envelope” (scope of the innovation efforts)  In defining the strategic envelope, a firm should answer 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 if it works?  What will be learned if it does not pan out?

12-17 Managing the Pace of Innovation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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

12-18 Collaborating with Innovation Partners McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 and the federal government

12-19 Corporate Entrepreneurship McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Determining how entrepreneurial projects will be pursued  Corporate culture  Leadership  Structural features that guide and constrain action  Organizational systems that foster learning and manage rewards  Use of teams in strategic decision making  Whether the company is product or service oriented  Whether the firm’s innovation efforts are aimed at product or process improvements  The extent to which it is high-tech or low-tech

12-20 McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Focused Approaches to Corporate Entrepreneurship Autonomous corporate venturing work group

12-21 New Venture Groups (NVGs) McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Goal is to identify, evaluate, and cultivate venture opportunities  Typically function as semi-autonomous units with little formal structure  Involvement includes  Innovation and experimentation  Coordinating with other corporate divisions  Identifying potential venture partners  Gathering resources  Launching the venture Focused approach New Venture Group

12-22 Business Incubators McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Business incubators are designed to “hatch” new businesses  Incubators provide some or all of the following functions  Funding  Physical space  Business services  Monitoring  Networking Focused approach Business Incubators

12-23 Dispersed Approaches to Corporate Entrepreneurship McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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

12-24 Entrepreneurial Culture McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Dispersed approach Entrepreneurial Culture

12-25 Product Champions McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Dispersed approach Product Champions

12-26 Measuring the Success of Corporate Entrepreneurship Activities McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 corporation’s internal competencies and experience valuable?  Is the venture able to sustain its basis of competitive advantage?

12-27 Measuring the Success of Corporate Entrepreneurship Activities McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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

12-28 Entrepreneurial Orientation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Autonomy Independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion. Innovativeness A willingness to introduce novelty through experimentation and creative processes aimed at developing new products and services as well as new processes. Proactiveness A forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand. DimensionDefinition 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 ; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp Adapted from Exhibit 12.2 Dimensions of Entrepreneurial Orientation

12-29 Entrepreneurial Orientation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. DimensionDefinition 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 ; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp CompetitiveAn 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 takingMaking 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. Adapted from Exhibit 12.2 Dimensions of Entrepreneurial Orientation

12-30 Entrepreneurial Orientation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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

12-31 Entrepreneurial Orientation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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  Copying the business practices or techniques of successful competitors

12-32 Entrepreneurial Orientation McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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