1. PowerPoint slides by: R. Dennis Middlemist Colorado State University Copyright © 2004 South-Western All rights reserved. Chapter 13 Strategic Entrepreneurship

2. Copyright © 2004 South-Western. All rights reserved.12–2 Knowledge Objectives Studying this chapter should provide you with the strategic management knowledge needed to:  Define and explain strategic entrepreneurship.  Describe the importance of entrepreneurial opportunities, innovation, and entrepreneurial capabilities.  Discuss the importance of international entrepreneurship.  Describe autonomous and induced strategic behavior—the two forms of internal corporate venturing.  Discuss how cooperative strategies such as strategic alliances are used to develop innovation.

3. Copyright © 2004 South-Western. All rights reserved.12–3 Studying this chapter should provide you with the strategic management knowledge needed to: Knowledge Objectives (cont’d)  Explain how firms use acquisitions to increase their innovations and enrich their innovative capabilities.  Describe the importance of venture capital and initial public offerings to entrepreneurial activity.  Explain how strategic entrepreneurship creates value in all types of firms.

4. Copyright © 2004 South-Western. All rights reserved.12–4 Figure 1.1 Copyright © 2004 South-Western. All rights reserved. The Strategic Management Process

5. Copyright © 2004 South-Western. All rights reserved.12–5 Discussion Questions 1.What are the three basic approaches to corporate entrepreneurship or innovation strategy? 2.What are the two central processes associated with internal corporate venturing? 3.Is corporate entrepreneurship an oxymoron or a contradiction in terms? 4.Will horizontal organization in general and cross-functional teams in particular facilitate appropriation of value from innovation?

6. Copyright © 2004 South-Western. All rights reserved.12–6 Discussion Questions 5.Are strategic alliances a viable way to get innovations? What are the tradeoffs with corporate entrepreneurship through alliances? 6.How do acquisitions affect innovative inputs (R&D) and outputs (patents)? How does a firm prevent innovation problems associated with the acquisition process? 7.How can venture capital be used as an approach to corporate entrepreneurship?

7. Copyright © 2004 South-Western. All rights reserved.12–7 Strategic Entrepreneurship  Taking entrepreneurial actions using a strategic perspective  Engaging in simultaneous opportunity seeking and competitive advantage seeking behaviors  Designing and implementing entrepreneurial strategies to create wealth Strategic entrepreneurship actions can be taken by:  Individuals  Corporations

8. Copyright © 2004 South-Western. All rights reserved.12–8 Strategic Entrepreneurship and Innovation Entrepreneurship is concerned with:  The discovery of profitable opportunities  The exploitation of profitable opportunities Firms that encourage entrepreneurship are:  Risk takers  Committed to innovation  Proactive in creating opportunities rather than waiting to respond to opportunities created by others

9. Copyright © 2004 South-Western. All rights reserved.12–9 Entrepreneurial Opportunities  Conditions in which new products or services can satisfy a need in the market Entrepreneurs or entrepreneurial managers must be able to:  Identify opportunities not perceived by others  Take actions to exploit the opportunities  Establish a competitive advantage

10. Copyright © 2004 South-Western. All rights reserved.12–10 Innovation Process The act of creating or developing a new product or processThe act of creating or developing a new product or process Brings something new into beingBrings something new into being Technical criteria are used to determine the success of an inventionTechnical criteria are used to determine the success of an invention Invention

11. Copyright © 2004 South-Western. All rights reserved.12–11 Innovation Process The process of creating a commercial product from an inventionThe process of creating a commercial product from an invention Brings something new into useBrings something new into use Commercial criteria are used to determine the success of an innovationCommercial criteria are used to determine the success of an innovation Invention Innovation

12. Copyright © 2004 South-Western. All rights reserved.12–12 Innovation Process The adoption of an innovation by similar firmsThe adoption of an innovation by similar firms Usually leads to product or process standardizationUsually leads to product or process standardization Products based on imitation often are offered at lower prices but with fewer featuresProducts based on imitation often are offered at lower prices but with fewer features Invention Innovation Imitation

13. Copyright © 2004 South-Western. All rights reserved.12–13 The Importance of Innovation Innovation  Is a key outcome firms seek through entrepreneurship  Is often the source of competitive success Corporate Entrepreneurship  Innovations produced in large established firms

14. Copyright © 2004 South-Western. All rights reserved.12–14 Entrepreneurs  Individuals acting independently or as part of an organization who create a new venture or develop an innovation, take risks entering innovations into the marketplace  Can be any manager or employee in an organization

15. Copyright © 2004 South-Western. All rights reserved.12–15 Entrepreneurial Capabilities Entrepreneurial capabilities include:  Intellectual capital  Entrepreneurial mind-set  Transfer of entrepreneurial competence to others in the organization  Effective human capital

16. Copyright © 2004 South-Western. All rights reserved.12–16 International Entrepreneurship Entrepreneurship can:  Fuel economic growth  Create employment  Generate prosperity for citizens There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation

17. Copyright © 2004 South-Western. All rights reserved.12–17 International Entrepreneurship There must be a balance (in the culture) between  individual initiative and  the spirit of cooperation and group ownership of innovation Successful entrepreneurial firms  Provide appropriate autonomy  Offer incentives for individual initiative  Promote cooperation and group ownership of an innovation

18. Copyright © 2004 South-Western. All rights reserved.12–18 Incremental and Radical Innovation Incremental Innovation  Most innovations are incremental  Provides small increments in current product lines  Improves existing knowledge and processes  Can create value Radical Innovation  Are rare because of difficulty and risk  Provides significant technological breakthroughs  Creates new knowledge and processes  Can create value

19. Copyright © 2004 South-Western. All rights reserved.12–19 Internal Corporate Venturing: A Model SOURCE: Adapted from R. A. Burgelman, 1983, A model of the interactions of strategic behavior, corporate context, and the concept of strategy, Academy of Management Review, 8: 65.

20. Copyright © 2004 South-Western. All rights reserved.12–20 Internal Corporate Venturing The set of activities used to create inventions and innovations through internal means  R&D spending is linked to success in internal corporate venturing Product champion  Organizational member with an entrepreneurial vision of a new good or service who seeks to create support for the vision’s commercialization

21. Copyright © 2004 South-Western. All rights reserved.12–21 Internal Corporate Venturing A bottom-up process in which product champions:  Pursue new ideas, often through a political process  Develop and coordinate the commercialization of a new good or service until it achieves success in the marketplace Forms of internal corporate venturing  Autonomous strategic behavior  Induced strategic behavior

22. Copyright © 2004 South-Western. All rights reserved.12–22 Venturing: Strategic Behaviors Autonomous Strategic Behavior  Based on a firm’s knowledge and resources that are the sources of the firm’s innovation  A firm’s technological capabilities and competencies are its basis for new products and processes

23. Copyright © 2004 South-Western. All rights reserved.12–23 Venturing: Strategic Behaviors Induced Strategic Behavior  A top-down process whereby the firm’s current strategy and structure foster product innovations  The strategy in place is filtered through a matching structural hierarchy  Innovations are associated closely with that strategy and structure

24. Copyright © 2004 South-Western. All rights reserved.12–24 Implementing New Product Development and Internal Ventures To be innovative and develop internal ventures requires:  An entrepreneurial mindset  Risk propensity  An emphasis on execution Individuals with an entrepreneurial mindset  Engage the energies of everyone in their domain both inside and outside the organization

25. Copyright © 2004 South-Western. All rights reserved.12–25 Cross–Functional Product Development Teams Facilitate integration of activities associated with different organizational functionsFacilitate integration of activities associated with different organizational functions  Design, manufacturing, marketing, etc. New product development processes can be completed more quicklyNew product development processes can be completed more quickly  Products can be more easily commercialized when cross- functional teams work effectively Cross-functional Product Development Team

26. Copyright © 2004 South-Western. All rights reserved.12–26 Cross–Functional Product Development Teams Product development stages are grouped into parallel or overlapping processes, allowing the firm to tailor its product development effortsProduct development stages are grouped into parallel or overlapping processes, allowing the firm to tailor its product development efforts  Unique core competencies  Needs of the market Cross-functional Product Development Team

27. Copyright © 2004 South-Western. All rights reserved.12–27 Barriers to Cross-Functional Teams Effectiveness Different orientations and perceptions  Individuals from separate functions have different orientations on issues  Perceive product development activities in different ways Organizational politics  Aggressive competition for resources among different organizational functions  Must achieve cross-functional integration with minimal political conflict

28. Copyright © 2004 South-Western. All rights reserved.12–28 Facilitating Integration and Innovation Shared values  Framed around the firm’s strategic intent and mission  Become the glue that promotes integration between functional units Effective leadership  Sets goals and allocates resources  Goals include integrated development and commercialization of new goods and services Effective communication

29. Copyright © 2004 South-Western. All rights reserved.12–29 Creating Value from Innovation

30. Copyright © 2004 South-Western. All rights reserved.12–30 Cooperative Strategies for Entrepreneurship and Innovation Cooperation and integration of knowledge and resources is required to successfully commercialize inventions  Entrepreneurial firms need investment capital and distribution capabilities  Established companies need the technological knowledge possessed by entrepreneurial firms Firms innovate through the sharing their knowledge and skills in a cooperative relationship

31. Copyright © 2004 South-Western. All rights reserved.12–31 Acquisitions to Buy Innovation Acquisitions  Rapidly extend the product line  Increase the firm’s revenues Key risks of acquisitions  The firm may substitute the ability to buy innovations for an ability to produce innovations internally  The firm may lose intensity in R&D efforts  The firm may lose its ability to produce patents

32. Copyright © 2004 South-Western. All rights reserved.12–32 Capital for Entrepreneurial Ventures Venture capital firms  Seek high returns on their investment  Value the competence of the entrepreneur or the human capital in the firm  Place weight on the expected scope of competitive rivalry the firm is likely to experience  Evaluate the degree of instability in the market addressed

33. Copyright © 2004 South-Western. All rights reserved.12–33 Capital for Entrepreneurial Ventures Initial public offerings (IPOs)  Are new stock priced to reflect the firm’s high potential  Often yield much larger equity investments than can be obtained from venture capitalists  Investment bankers frequently play major roles in the development and offering of IPOs  Firms that have previously received venture capital backing usually receive greater returns from IPOs

34. Copyright © 2004 South-Western. All rights reserved.12–34 Creating Value through Strategic Entrepreneurship Be effective in identifying opportunities Be flexible and willing to take risks Have sufficient resources and capabilities to exploit identified opportunities Sustain a competitive advantage while identifying and exploiting opportunities Develop an entrepreneurial mind-set among managers and employees Seek to enter and compete in international markets