1. Corporate Entrepreneurship 26 March, 2014 Guest Lecture TU/e Drs. S.H.J. van den Hoogen Importance and facilitators 1

2. Agenda 1.Corporate Entrepreneurship –Defining it –Importance 2.Strategic issues 3.Structural issues 4.Human Resources Management 5.Cultural issues 2

3. “Wealth in the new regime flows directly from innovation, not optimization; that is, wealth is not gained by perfecting the known, but by imperfectly seizing the unknown.” ~Kevin Kelly, “New Rules for the New Economy,” Wired

4. What is Entrepreneurship? The most common keywords found in the definition of entrepreneurship –Starting / Founding / Creating –New Business / New Venture –Innovation / New Products / New Market –Pursuit of Opportunity –Risk-taking / Risk Management / Uncertainty –Profit-seeking / Personal Benefit

5. What is Entrepreneurship? An encompassing definition of entrepreneurship “Entrepreneurship is the process of creating value by bringing together a unique combination of resources to exploit an opportunity.”exploit an opportunity

6. What is EntrepreneurshipWhat is Entrepreneurship? Entrepreneurship involves a process Entrepreneurs create value where there was none before Entrepreneurs put resources together in a unique way Entrepreneurship is opportunity-driven behavior

7. What is Corporate Entrepreneurship? “Corporate entrepreneurship is a term used to describe entrepreneurial behavior inside established mid-sized and large organizations.” Other popular related terms Organizational entrepreneurship Intrapreneurship Corporate venturing

8. Management Versus Entrepreneurship “Management is the process of setting objectives and coordinating resources, including people, in order to attain them.”

9. Management Versus Entrepreneurship Managers focus more on the current situation and how to improve efficiency and effectiveness Entrepreneurs focus less on the current situation and more on what can be

10. Management Versus Entrepreneurship The Manager Planner Strategist Organizer Staffer Motivator Budgeter Evaluator Coordinator Supervisor The Entrepreneur Visionary Opportunity-seeker Creator Innovator Calculated Risk-taker Resource Leverager Change Agent Active and Adaptive Concept Implementer The Entrepreneurial Manager

11. Turbulent Environments and the Embattled Corporation The changing domain of the external environment Technological Economic Competitive Labor Resource Customer Legal Regulatory Global Customer Social Supplier “Managers face shortened decision windows and diminishing opportunity streams, meaning they must act quickly or find themselves missing out on opportunities”

12. Turbulent Environments and the Embattled Corporation Customers Fragmented markets and rapidly rising customer expectations are forcing firms to customize their products, cultivate longer-term customer relationships and learn new skills in serving global markets Technology Firms have to change the ways they operate internally and how they compete externally based on: -New information management technologies -New production and service delivery technologies -New customer management technologies Competitors Lead customers to entirely new market spaces Quickly mimic which makes it harder to differentiate Attack firms’ most profitable areas of business by specializing in narrow, profitable niches Legal, Regulatory and Ethical Standards Firms are increasingly accountable to multiple forcing management to make difficult choices and deliver results while behaving responsibly Increasingly litigious environment Increasing regulatory restrictions The Embattled Corporation

13. The New Path to Sustainable Competitive Advantage Achieving a sustainable competitive advantage derives from five key company capabilities –Adaptability –Flexibility –Speed –Aggressiveness –Innovativeness “Entrepreneurship is the core source of sustainable advantage”

14. Exploring the Dimensions of Entrepreneurship TR=f (SBR, MBR) Missing the boat risk curve Total Risk Planning Time Source: Dickson and Giglierano (1986). “Missing-the-Boat” and “Sinking-the-Boat” Risk Sinking the boat risk curve

15. The Entrepreneurial Imperative: A Persistent Sense of Urgency (1) Managers within an organization tend to become reactive by responding to the changes brought about by the external environment but let entrepreneurial fires within the company dwindle and diminish

16. The Entrepreneurial Imperative: A Persistent Sense of Urgency (2) 1.How much more cost savings can the company wring out of its current business? Are managers within the firm working harder and harder for smaller and small efficiency gains? 2.How much more revenue growth can the company squeeze out of its current business? Is the company paying more and more for customer acquisition and market share gains? Managers must ask themselves the following questions to avoid inevitable diminishing returns and refocus on new directives and entrepreneurial avenues:

17. The Entrepreneurial Imperative: A Persistent Sense of Urgency (3) 3.How much longer can the company keep propping up its share price through share buybacks, spin-offs, and other forms of financial engineering? Is top management reaching the limits of its ability to push up the share price without actually creating new wealth? 4.How many more scale economies can the company gain from mergers and acquisitions? Are the costs of integration beginning to overwhelm the savings obtained from slashing shared overhead costs? 5.How different are the strategies of the four or five largest competitors in the industry from the company’s strategy? Is it getting harder and harder to differentiate the company from its competitors?

18. Dispelling the Myths (1): “Entrepreneurs are born, not made” “Entrepreneurs must be inventors” “There is a standard profile or prototype of the entrepreneur” “All you need is luck to be an entrepreneur” “Entrepreneurs are extreme risk takers (gamblers)”

19. Dispelling the Myths (2): “Entrepreneurial people are academic and social misfits” “All entrepreneurs need is money” “Ignorance is bliss for entrepreneurs” “Most entrepreneurial initiatives fail”Most entrepreneurial initiatives fail “Entrepreneurship is unstructured and chaotic”

20. Entrepreneurial Realities: Understanding the Process This process consists of six stages: 1.Identifying the opportunity 2.Defining the business concept 3.Assessing the resource requirements 4.Acquiring the necessary resources 5.Implementing and managing the concept 6.Harvesting the venture

21. Corporate Entrepreneurship “Entrepreneurship is the process of creating value by bringing together a unique combination of resources to exploit an opportunity.” The context in which entrepreneurship takes place is not defined. Entrepreneurship can occur in: Start-up ventures Small firms Mid-sized companies Large conglomerates Non-profit organizations Public sector agencies

22. Corporate Entrepreneurship (2) Similarities between start-up and corporate entrepreneurship Both involve opportunity recognition and definition Both require a unique business concept that takes the form of a product, service or process Both are driven by an individual champion who works with a team to bring the concept to fruition Both require that the entrepreneur be able to balance vision with managerial skill, passion with pragmatism, and pro-activeness with patience Both involve concepts that are most vulnerable in the formative stage, and that require adaptation over time

23. Similarities (continued): Both entail a window of opportunity within which the concept can be successfully capitalized upon Both are predicated on value creation and accountability to a customer Both find the entrepreneur encountering resistance and obstacles, necessitating both perseverance and an ability to formulate innovative solutions Both entail risk and require risk management strategies Both find the entrepreneur needing to develop creative strategies for leveraging resources Both involve significant ambiguity Both require harvesting strategies Corporate Entrepreneurship

24. How Corporate Entrepreneurship Differs Start-up EntrepreneurshipCorporate Entrepreneurship  Entrepreneur takes the risk  Company assumes the risks, other than career-related risk  Entrepreneur “owns” the concept or innovative idea  Company owns the concept, and typically the intellectual rights surrounding the concept  Entrepreneur owns all or much of the business  Entrepreneur may have no equity in the company, or a very small percentage  Potential rewards for the entrepreneur are theoretically unlimited  Clear limits are placed on the financial rewards entrepreneurs can receive  One mis-step can mean failure  Vulnerable to outside influence  More room for errors, company can absorb failure  More insulated from outside influence  Independence of the entrepreneur; although the successful entrepreneur is typically backed by a strong team  Interdependence of the champion with many others; may also have to share credit with any number of people Major differences

25. Start-up EntrepreneurshipCorporate Entrepreneurship  Flexibility in changing course, experimenting or trying new directions  Rules, procedures and bureaucracy hinder the entrepreneur’s ability to maneuver  Speed of decision-making  Longer approval cycles  Little security  Job security  No safety net  Dependable benefit package  Few people to talk to  Extensive network for bouncing around ideas  Limited scale and scope initially  Potential for sizeable scale and scope fairly quickly  Severe resource limitations  Access to finances, R&D, production facilities for trial runs, an established sales force, an existing brand, distribution channels that are in place, existing databases and market research resources, and an established customer base How Corporate Entrepreneurship Differs Major differences continued

26. How Corporate Entrepreneurship Differs Corporate entrepreneurs face three major challenges linked to the need for inter- organizational political skills: Achieving credibility or legitimacy for the concept and the entrepreneurial team Obtaining resources Overcoming inertia and resistance

27. How Corporate Entrepreneurship Differs Corporate entrepreneurs remain in the corporate environment rather than starting their own ventures for three main reasons: The size of the resource base that they can tap into The potential to operate on a fairly significant scope and scale fairly quickly The security they enjoy when operating in an existing company Organizational politics is one of the main reasons corporate entrepreneurs leave the company

28. How Corporate Entrepreneurship Differs To cultivate an environment of entrepreneurship within an organization, managers must: Create environments where employees have a sense that resources can be accessed if an idea is sound Find ways to reinforce the ability of anyone in the firm to champion an idea and get it implemented Invest in the development of people

29. How Corporate Entrepreneurship Differs Rules for Fostering an Innovative Organization Rule #1 - Unreasonable Expectations Rule #2 - Elastic Business Definition Rule #3 - A Cause, Not a Business Rule #4 - New Voices Rule #5 - An Open Market for Ideas Rule #6 - Create an Open Market for Capital Rule #7 - Open a Market for Talent Rule #8 - Low-Risk Experimentation

30. Innovativeness Little to no Innovative Activity Home-run Strategy Lots of trials and experiments/ balanced portfolio of projects Risk High Low High Low Stimulating CE can diminish risk

31. The Open Innovation Revolution Open innovation – “a firm is not solely reliant upon its own innovative resources for new technology, product, or business development purposes. Rather, the firm acquires critical inputs to innovation from outside sources.”

32. The Open Innovation Revolution Four reasons companies are increasingly choosing to pursue open innovation models: 1.) Importing new ideas is a good way to multiply the building blocks of innovation 2.) Exporting ideas is a good way to raise cash and keep talent 3.) Exporting ideas gives companies a way to measure an innovation’s real value and to ascertain whether further investment is warranted 4.) Exporting and importing ideas helps companies clarify what they do best

34. Exploring the Dimensions of Entrepreneurship Three dimensions characterize an entrepreneurial organization Innovativeness Risk-Taking Pro-activeness

35. Pro-activeness: Technology-push vs market-pull Technology push: employees see possibility and capitalize on it –But: perfection syndrome!  Market-pull: start with customer, driven by marketing people –But: customers don’t always know their needs or cannot describe them accurately  Solution: use both approaches simultaneously!

36. Exploring the Dimensions of Entrepreneurship Three Frontiers of Innovation Services – new or improved services Products – unique or improved Processes – new or better ways to accomplish a task or function

37. Strategic issues How can strategy help in organizing/stimulating CE? Strategy should: Stimulate creativity Take away “creative blocks”“creative blocks” Protect critical roles in the CE-processcritical roles Motivate entrepreneurial behavior

38. Creative blocks “The right answer…” “That’s not logical…” “Be practical…” “Follow the rules…” “Avoid ambiguity…” “To err is wrong…” “Play is frivolous…” “That’s not my area…” “Don’t be foolish…” “I’m not creative…”

39. Critical roles of CE Initiator Sponsor/facilitator Champion Innovation midwife Supporter Reactor

40. Managing Innovation Strategically: A Portfolio Approach Moderate Innovation Success Probability High Innovation Success Probability Highest Innovation Success Probability Low Innovation Success Probability Moderate Innovation Success Probability High Innovation Success Probability Lowest Innovation Success Probability Low Innovation Success Probability Moderate Innovation Success Probability High Medium Low MediumHigh Firm’s Knowledge Pertaining to the New Products’/Service’s Targeted Market Firm’s Knowledge Pertaining to the New Products’/Service’s Core Technology

41. Strategic implementation flaws 1.Misunderstanding industry attractiveness 2.No real competitive advantage 3.Pursuing an unsustainable competitive position 4.Compromising strategy for growth 5.Failure to explicitly communicate strategy internally

42. On structure… How many levels in organization? Centralized or decentralized? Formal or informal? Functional specialization or cross-functional interaction? Control or autonomy? Rigid or flexible? Top-down or bottom-up decision making?

43. Organizational designs for CE Very important UncertainNot important UnrelatedSpecial business units Independent business units Complete Spin-off Partly related New Product/Busi ness department New Venture Division Contracting Strongly related Direct integration Micro New Ventures Department Nurturing and contracting Strategic importance Operational relatedness

44. HRM-structure-issues Creating an Entrepreneurial Work Environment Job planning & design Recruitment & selection Compensation & rewards Training & development Performance appraisals

45. Elements of an entrepreneurial culture Focus on people and empowerment Value creation through innovation and change Rewards for innovations Learning from failure Collaboration and teamwork Freedom to grow and to fail Commitment and personal responsibility Emphasis on the future and sense of urgency

46. Timmons’ Chain of Greatness Vision Leadership Big picture Think/act like owners Best we can be Perpetual learning culture Train and educate High performance goals/standards Shared learning/teach each other Grow, improve, change, innovate Entrepreneurial mindset and values Take responsibility Get results Value and wealth creation Share the wealth with those who create it Customer and quality driven Widespread responsibility/accountability Understand and interpret the numbers Reward short-term with bonuses Reward long-term with equity Results in Achievement of personal and performance goals Shared pride and leadership Mutual respect Thirst for new challenges and goals FostersLeads to Andwhich

47. Thanks for your attention!