1. 14-1© 2006 by Nelson, a division of Thomson Canada Limited. Strategic Entrepreneurship Chapter 14

2. 14-2© 2006 by Nelson, a division of Thomson Canada Limited. The Strategic. Management. Process The Strategic Management Process Chapter 5 Bus. - Level Strategy Chapter 6 Competitive Dynamics Chapter 9 International Strategy Chapter 10 Cooperative Strategies Chapter 8 Acquisitions & Restructuring Strategic Inputs Strategic Actions Strategic Outcomes Chapter 4 Internal Environment Chapter 3 External Environment Strat. Intent Strat. Mission Strategy Formulation Strategic Competitiveness Chapter 1 Above Average Returns Chapter 2 Strategic Competitiveness Chapter 1 Chapter 7 Corp. - Level Strategy Chapter 5 Bus. - Level Strategy Chapter 13 Strategic Leadership Chapter 14 Entrepreneurship & Innovation Strategy Implementation Feedback Chapter 11 Corporate Governance Chapter 12 Structure & Control Chapter 12 Structure & Control Chapter 14 Entrepreneurship & Innovation

3. 14-3© 2006 by Nelson, a division of Thomson Canada Limited. Strategic Entrepreneurship Knowledge objectives 1.Define & explain strategy. 2.Describe the importance of entrepreneurship. 3.Discuss the importance of international entrepreneurship & describe why its practice is increasing. 4.Describe the two forms of internal corporate venturing: autonomous and induced strategic behaviour.

4. 14-4© 2006 by Nelson, a division of Thomson Canada Limited. Strategic Entrepreneurship Knowledge objectives (continued) 5. Discuss how cooperative strategies, such as strategic alliances are used to develop innovation. 6. Explain how firms use acquisitions to increase their innovations and enrich their innovative capabilities. 7. Describe the importance of venture capital & initial public offerings to entrepreneurial activity. 8. Explain how the practice of strategic entrepreneurship creates values for customers & shareholders of all types of firms, large and small, new & established.

5. 14-5© 2006 by Nelson, a division of Thomson Canada Limited. Strategic Entrepreneurship The use of entrepreneurial actions based on a strategic perspective.

6. 14-6© 2006 by Nelson, a division of Thomson Canada Limited. An individual or a group in an organization creates a new venture or develops an innovation. Corporate Entrepreneurship Creating or developing a new product or process. Invention Creating a commercial product from an invention. Innovation Defining Entrepreneurship Adoption of innovation by a population of similar firms. Imitation

7. 14-7© 2006 by Nelson, a division of Thomson Canada Limited. The key to success with entrepreneurship and innovation is moving from the invention of ideas to effective commercialization and acceptance in the marketplace. Successful Entrepreneurship

8. 14-8© 2006 by Nelson, a division of Thomson Canada Limited. Innovation Innovation is the process of creating a commercial product from an invention.Innovation is the process of creating a commercial product from an invention. invention brings something new into beinginvention brings something new into being innovation brings something new into useinnovation brings something new into use Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success.Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success. Innovations produced in large established firms are often referred to as corporate entrepreneurship.Innovations produced in large established firms are often referred to as corporate entrepreneurship.

9. 14-9© 2006 by Nelson, a division of Thomson Canada Limited. Entrepreneurs EntrepreneursEntrepreneurs –are individuals acting independently or as part of an organization –create a new venture or develop an innovation and take risks entering them into the marketplace EntrepreneursEntrepreneurs –can be independent individuals –can surface in an organization at any level

10. 14-10© 2006 by Nelson, a division of Thomson Canada Limited. International Entrepreneurship Entrepreneurship canEntrepreneurship 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.There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation.

11. 14-11© 2006 by Nelson, a division of Thomson Canada Limited. International Entrepreneurship There must be a balance (in the culture) betweenThere must be a balance (in the culture) between –individual initiative and –the spirit of cooperation and group ownership of innovation Successful entrepreneurial firmsSuccessful entrepreneurial firms –provide appropriate autonomy –incentives for individual initiative –promote cooperation and group ownership of an innovation

12. 14-12© 2006 by Nelson, a division of Thomson Canada Limited. Innovation Types: most innovations are incrementalmost innovations are incremental builds on existing knowledge basesbuilds on existing knowledge bases provides small improvements in the current product linesprovides small improvements in the current product lines Incrementalinnovation Incremental Innovation

13. 14-13© 2006 by Nelson, a division of Thomson Canada Limited. Radicalinnovation Innovation Types provides significant technological breakthroughsprovides significant technological breakthroughs creates new knowledgecreates new knowledge is rare because of difficulty and riskis rare because of difficulty and risk requires substantial creativityrequires substantial creativity radical innovations are often best developed in separate units that start internal venturesradical innovations are often best developed in separate units that start internal ventures Incrementalinnovation Radical Innovation

14. 14-14© 2006 by Nelson, a division of Thomson Canada Limited. Internal Corporate Venturing Autonomous strategic behaviour is a bottom-up process through which Product Champions pursue new product ideas to commercialization. Product Champions are individuals who have an entrepreneurial vision for a new product & seek support for its commercialization. Corporate Entrepreneurship can occur as either a bottom-up process or as a top- down process.

15. 14-15© 2006 by Nelson, a division of Thomson Canada Limited. Structural Context Induced Strategic Behaviour Autonomous Strategic Behaviour Strategic Context Model of Internal Corporate Venturing Concept of Corporate Strategy

16. 14-16© 2006 by Nelson, a division of Thomson Canada Limited. Internal Corporate Venturing: Autonomous strategic behaviour is a bottom- up process in which product champions:Autonomous strategic behaviour is 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 Autonomous Strategic behaviour

17. 14-17© 2006 by Nelson, a division of Thomson Canada Limited. A product champion is an organizational member with an entrepreneurial vision of a new good or service who seeks to create support for its commercialization.A product champion is an organizational member with an entrepreneurial vision of a new good or service who seeks to create support for its commercialization. Autonomous strategic behaviour isAutonomous strategic behaviour is –based on a firm’s wellsprings of knowledge and resources that are the sources of the firm’s innovation –a firm’s technological capabilities and competencies are the basis for new products and processes Internal Corporate Venturing Autonomous Strategic behaviour

18. 14-18© 2006 by Nelson, a division of Thomson Canada Limited. Induced strategic behaviour is a top-down process wherebyInduced strategic behaviour is a top-down process whereby –the firm’s current strategy and structure foster product innovations –innovations are associated closely with that strategy and structure Internal Corporate Venturing Induced Strategic Behaviour

19. 14-19© 2006 by Nelson, a division of Thomson Canada Limited. To be innovative and develop internal ventures requiresTo be innovative and develop internal ventures requires –an entrepreneurial mindset –risk propensity –an emphasis on execution Individuals with an entrepreneurial mindsetIndividuals with an entrepreneurial mindset –engage the energies of everyone in their domain –both inside and outside the organization Internal Corporate Venturing Induced Strategic Behaviour

20. 14-20© 2006 by Nelson, a division of Thomson Canada Limited. Cross-Functional Product Development Teams Facilitate efforts to integrate activities associated with different organizational functions.Facilitate efforts to integrate activities associated with different organizational functions. Design, manufacturing, marketing, etc.Design, manufacturing, marketing, etc. New product development processes can be completed more quickly.New product development processes can be completed more quickly. Products can be more easily commercialized when cross- functional teams work effectively.Products can be more easily commercialized when cross- functional teams work effectively. Cross-functionalproduct development team

21. 14-21© 2006 by Nelson, a division of Thomson Canada Limited. Cross-Functional Product Development Teams Product development stages are grouped into parallel or overlapping processes.Product development stages are grouped into parallel or overlapping processes. This approach allows the firm to tailor its product development efforts.This approach allows the firm to tailor its product development efforts. –unique core competencies –needs of the market Cross functional product development team

22. 14-22© 2006 by Nelson, a division of Thomson Canada Limited. Different functional time orientation Different functional language and interpersonal orientation Different goal orientation Formality of structure Barriers to Integration Long time line: R&D Different functional time orientation Short time line: Production Qualitative: HRM Different functional language and interpersonal orientation Quantitative: Accounting Customer satisfaction: Sales Different goal orientation Cost reduction: Production Informal: R&D Formality of structure Formal: Manufacturing

23. 14-23© 2006 by Nelson, a division of Thomson Canada Limited. Cross- Functional Integration/ Design Teams Cross-functional design teams can help to break down barriers to entrepreneurship within firms Barriers to Integration Different Time Interpersonal Different Goal Formality of Orientation Structure Appropriating Value From Innovation Facilitators of Integration Facilitators of Integration tend to increase the effectiveness of Cross-functional integration or design teams Value Appropriation from Innovation Shared Values Leaders’ Vision Effective Budget Allocation Communication

24. 14-24© 2006 by Nelson, a division of Thomson Canada Limited. Creating Value through Internal Innovation Process

25. 14-25© 2006 by Nelson, a division of Thomson Canada Limited. Appropriating Value from Innovation Product Quality Customer Value Time to Market Value Appropriation from Innovation Barriers to Integration Different Time Interpersonal Different Goal Formality of Orientation Structure Facilitators of Integration Shared Values Leaders’ Vision Effective Budget Allocation Communication Cross- Functional Integration/ Design Teams Facilitators & Teams help the firm improve

26. 14-26© 2006 by Nelson, a division of Thomson Canada Limited. Cooperative Strategies for Entrepreneurship and Innovation Firms may need to cooperate and integrate knowledge and resources to successfully commercialize inventions.Firms may need to cooperate and integrate knowledge and resources to successfully commercialize inventions. –entrepreneurial new venture firms may need investment capital and distribution capabilities –more established companies may need new technological knowledge possessed by newer entrepreneurial firms To innovate through a cooperative relationship, firms must share their knowledge and skills.To innovate through a cooperative relationship, firms must share their knowledge and skills.

27. 14-27© 2006 by Nelson, a division of Thomson Canada Limited. Acquisitions to Buy Innovation AcquisitionsAcquisitions –rapidly extend the product line –increase the firm’s revenues A key risk of acquisitions is that a firm may substitute the ability to buy innovations for an ability to produce innovations internally.A key risk of acquisitions is that a firm may substitute the ability to buy innovations for an ability to produce innovations internally. –firm may lose intensity in R&D efforts –firm may lose ability to produce patents

28. 14-28© 2006 by Nelson, a division of Thomson Canada Limited. Capital for Entrepreneurial Ventures Venture capital firmsVenture capital firms –seek high returns on their investment –value 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 degree of instability in the market addressed

29. 14-29© 2006 by Nelson, a division of Thomson Canada Limited. Capital for Entrepreneurial Ventures Initial public offerings (IPOs) –new stock –firm needs high potential in order to sell new stock –often quite larger than the amounts obtained from venture capitalists –investment bankers frequently play major roles in the development and offering of IPOs –firms that have also received venture capital backing usually receive greater returns from IPOs

30. 14-30© 2006 by Nelson, a division of Thomson Canada Limited. Creating Value through Strategic Entrepreneurship Newer entrepreneurial firms are often more effective than larger firms in identifying opportunities. Firms must develop an entrepreneurial mindset among their managers & employees. Managers must emphasize the development of their resources, particularly human capital & social capital. Firms should seek to enter & compete in International markets. Firm that seek to establish their technology as a standard are engaging in strategic entrepreneurship as creating a standard produces a sustainable competitive advantage for the firm.