2. Fostering Corporate Entrepreneurship and New Venture Creation
Chapter 12
Fostering Corporate Entrepreneurship and New Venture Creation
McGraw-Hill/Irwin
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. After studying this chapter, you should have a good understanding of:
Learning Objectives
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 can develop an internal environment that promotes entrepreneurial development
How an entrepreneurial orientation can enhance a firm’s efforts
The pitfalls associated with new venture strategies and corporate entrepreneurship

4. Entrepreneurship Includes:
Start-ups and new businesses
Small businesses (< 500 employees)
Characteristics that distinguish entrepreneurs from others
New venture creation and development in large businesses (Intrapreneurship)

5. Techniques to Stimulate Creativity
Exhibit 12.1
(adapted)
Company
Creative Technique
Dupont
In-housing training include brainstorming and avoiding creativity inhibitors. To create fresh perspectives, a mix of employees – high tech and low tech, management and staff– meet to create new product proposals.
DoubleClick
Encourages fun at work. Its New York City office includes a miniature version of Central Park and a rooftop basketball court where employees and bosses compete. The annual prize for the employee who brings in the most referrals is a motorcycle.
Sources: Gundry, L.K., Kickul, J.R., & Prather, C.W Buildingthe 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:

6. All Small Companies*, By Industry
Exhibit 12.2
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)

7. Characteristics of Viable Opportunities
Attractive
Potential market demand.
Achievable
Practical and possible.
Durable
A sufficiently long window of opportunity exists.
Value Creating
There will be profit to justify the risk.

8. Traditional Sources of Financing
Self/family/friends/associates
Bank loans (Debt)
Bonds (Debt)
Venture capitalists (Equity)
I.P.O.s – Initial Public Offerings (Equity)

9. Alternatives to Traditional Financing
Exhibit 12.3
A non-cash means of exchanging products or services.
Barter
Reduces cash outflow, minimizes commitments to assets that might need updating as the company grows (or shrinks).
Leasing
DESCRIPTION
METHOD
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.
Supplier Financing
While a fast-growing technique for financing, high interest rates could make it risky.
Credit Cards
Factoring
A method of raising cash by selling accounts receivables to a third party or financing against the value of receivables.
Source: Fraser, J. A A hitchhiker’s guide to capital resources. Inc. Magazine, February: 74-82; Owens, T Getting financing in Small Business Reports, June:

10. Exemplars of Corporate Entrepreneurial Success and Failure
Motorola
Initially failed to recognize the migration from analog to digital technology.
Hewlett Packard
Uses know-how to improve people’s lives. Values employees while encouraging them to do better.
Virgin Group
Created over 200 businesses through a fun-loving, eclectic culture.

11. 3M’s Rules for Successful Innovation
Exhibit 12.4
IMPLICATIONS
RULE
Try and try again.. Encourage experimentation and risk taking, even when the outcome is unclear.
Tolerate failure
Ideas can be kept alive by individuals who believe in a project, even if it can’t find a home in one division.
Don’t kill a project
Product champions are challenged and rewarded. If a product takes off, its champion may run the product group.
Motivate product champions
Divisions have autonomy but are split up if too large. Division managers know staffers by their first names.
Keep divisions small
Open communication helps everyone benefit from the technological insights and breakthroughs of others.
Share the wealth
Customers are invited to brainstorm with researchers and marketers.
Stay close to customers
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):

12. Dimensions of Entrepreneurial Orientation
Exhibit 12.5
Dimensions of Entrepreneurial Orientation
A forward-looking perspective characteristic of a market leader who has foresight.
Proactive-ness
Through experimentation and creativity, develop new and novel products, services, processes.
Innovative-ness
Independent action by an individual or team to bring forth and implement a business concept.
Autonomy
DEFINITION
DIMENSION
Making decisions and taking action without certain knowledge of probable outcomes.
Risk taking
An intense effort to outperform rivals, characterized by a combative posture or aggressive response.
Competitive Aggressive-ness
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:

13. Types of Entrepreneurial Risk
Business
Venturing without knowing the probability of success, often due to untested markets and technologies.
Financial
The risk/return trade-off. Includes heavy borrowing and large resource commitments.
Personal
Risks to personal reputation, career, and the company that occur by taking stands in favor of some actions.

14. Continuum of Radical and Incremental Innovations
Exhibit 12.6
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