14-1 © 2006 by Nelson, a division of Thomson Canada Limited. Strategic Entrepreneurship Chapter 14
Jan 21, 2016
14-1 © 2006 by Nelson, a division of Thomson Canada Limited.
Strategic Entrepreneurship
Chapter 14
14-2 © 2006 by Nelson, a division of Thomson Canada Limited.
The Strategic .
Management .
Process
The Strategic Management Process
Chapter 5Bus. - Level
Strategy
Chapter 6Competitive
Dynamics
Chapter 9International
Strategy
Chapter 10CooperativeStrategies
Chapter 8Acquisitions &Restructuring
Str
ateg
icIn
pu
ts
Str
ateg
icA
ctio
ns
Str
ateg
ic O
utc
om
esChapter 4Internal
Environment
Chapter 3External
Environment Strat. Intent
Strat. Mission
Strategy Formulation
Strategic Competitiveness
Chapter 1
Above Average Returns
Chapter 2Strategic
Competitiveness
Chapter 1
Chapter 7Corp. - Level
Strategy
Chapter 5Bus. - Level
Strategy
Chapter 13Strategic
Leadership
Chapter 14Entrepreneurship & Innovation
Strategy Implementation
Feedback
Chapter 11Corporate
Governance
Chapter 12Structure& Control
Chapter 12Structure& Control
Chapter 14Entrepreneurship & Innovation
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.
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.
14-5 © 2006 by Nelson, a division of Thomson Canada Limited.
Strategic Entrepreneurship
The use of entrepreneurial actions based on a strategic perspective.
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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
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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
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Innovation
• Innovation is the process of creating a Innovation is the process of creating a commercial product from an invention.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 Innovation is a key outcome firms seek through entrepreneurship and is often the source of entrepreneurship and is often the source of competitive success.competitive success.
• Innovations produced in large established firms Innovations produced in large established firms are often referred to as corporate are often referred to as corporate entrepreneurship.entrepreneurship.
14-9 © 2006 by Nelson, a division of Thomson Canada Limited.
Entrepreneurs
• Entrepreneurs Entrepreneurs – are individuals acting independently or as part of an are individuals acting independently or as part of an
organizationorganization– create a new venture or develop an innovation and create a new venture or develop an innovation and
take risks entering them into the marketplacetake risks entering them into the marketplace
• Entrepreneurs Entrepreneurs – can be independent individuals can be independent individuals – can surface in an organization at any levelcan surface in an organization at any level
14-10 © 2006 by Nelson, a division of Thomson Canada Limited.
International Entrepreneurship
• Entrepreneurship canEntrepreneurship can– fuel economic growthfuel economic growth– create employmentcreate employment– generate prosperity for citizensgenerate prosperity for citizens
• There is a strong positive relationship between the rate There is a strong positive relationship between the rate of entrepreneurial activity and economic development in of entrepreneurial activity and economic development in a nation.a nation.
14-11 © 2006 by Nelson, a division of Thomson Canada Limited.
International Entrepreneurship
• There must be a balance (in the culture) There must be a balance (in the culture) betweenbetween– individual initiative andindividual initiative and– the spirit of cooperation and group ownership of the spirit of cooperation and group ownership of
innovationinnovation
• Successful entrepreneurial firmsSuccessful entrepreneurial firms– provide appropriate autonomyprovide appropriate autonomy– incentives for individual initiative incentives for individual initiative – promote cooperation and group ownership of an promote cooperation and group ownership of an
innovationinnovation
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Innovation Types:
• most innovations are incrementalmost innovations are incremental
• builds on existing knowledge basesbuilds on existing knowledge bases
• provides small improvements in the provides small improvements in the current product linescurrent product lines
IncrementalIncrementalinnovationinnovation
Incremental InnovationIncremental Innovation
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RadicalRadicalinnovationinnovation
Innovation Types
• provides significant technological provides significant technological breakthroughsbreakthroughs
• 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 radical innovations are often best developed in separate units that start developed in separate units that start internal venturesinternal ventures
IncrementalIncrementalinnovationinnovation
Radical InnovationRadical Innovation
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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.
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Structural Context
InducedStrategic Behaviour
AutonomousStrategic Behaviour
Strategic Context
Model of Internal Corporate Venturing
Concept of Corporate Strategy
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Internal Corporate Venturing:
• Autonomous strategic behaviour is a bottom-Autonomous strategic behaviour is a bottom-up process in which product champions:up process in which product champions:
– pursue new ideas, often through a political pursue new ideas, often through a political processprocess
– develop and coordinate the commercialization of a develop and coordinate the commercialization of a new good or service until it achieves success in new good or service until it achieves success in the marketplacethe marketplace
Autonomous Strategic behaviourAutonomous Strategic behaviour
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• A product champion is an organizational A product champion is an organizational member with an entrepreneurial vision of a member with an entrepreneurial vision of a new good or service who seeks to create new good or service who seeks to create support for its commercialization.support for its commercialization.
• Autonomous strategic behaviour is Autonomous strategic behaviour is – based on a firm’s wellsprings of knowledge and based on a firm’s wellsprings of knowledge and
resources that are the sources of the firm’s resources that are the sources of the firm’s innovationinnovation
– a firm’s technological capabilities and a firm’s technological capabilities and competencies are the basis for new products and competencies are the basis for new products and processesprocesses
Internal Corporate Venturing
Autonomous Strategic Autonomous Strategic behaviourbehaviour
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• Induced strategic behaviour is a top-down Induced strategic behaviour is a top-down process wherebyprocess whereby
– the firm’s current strategy and structure foster product the firm’s current strategy and structure foster product innovationsinnovations
– innovations are associated closely with that strategy innovations are associated closely with that strategy and structureand structure
Internal Corporate Venturing
Induced Strategic BehaviourInduced Strategic Behaviour
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• To be innovative and develop internal ventures To be innovative and develop internal ventures requiresrequires– an entrepreneurial mindsetan entrepreneurial mindset
– risk propensityrisk propensity
– an emphasis on executionan emphasis on execution
• Individuals with an entrepreneurial mindset Individuals with an entrepreneurial mindset – engage the energies of everyone in their domainengage the energies of everyone in their domain
– both inside and outside the organizationboth inside and outside the organization
Internal Corporate Venturing
Induced Strategic BehaviourInduced Strategic Behaviour
14-20 © 2006 by Nelson, a division of Thomson Canada Limited.
Cross-Functional Product Development Teams
• Facilitate efforts to integrate activities Facilitate efforts to integrate activities associated with different associated with different organizational functions.organizational functions.
• Design, manufacturing, marketing, Design, manufacturing, marketing, etc.etc.
• New product development processes New product development processes can be completed more quickly.can be completed more quickly.
• Products can be more easily Products can be more easily commercialized when cross-commercialized when cross-functional teams work effectively.functional teams work effectively.
Cross-functionalCross-functionalproductproductdevelopment teamdevelopment team
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Cross-Functional Product Development Teams
• Product development stages are Product development stages are grouped into parallel or overlapping grouped into parallel or overlapping processes.processes.
• This approach allows the firm to This approach allows the firm to tailor its product development efforts.tailor its product development efforts.– unique core competenciesunique core competencies– needs of the marketneeds of the market
Cross functionalCross functionalproductproductdevelopment teamdevelopment team
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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
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
Orientation
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
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Creating Value through Internal Innovation Process
14-25 © 2006 by Nelson, a division of Thomson Canada Limited.
Appropriating Value from Innovation
Product Quality
Customer Value
Customer Value
Time to Market
Value Appropriation
from Innovation
Barriers to Integration
Different Time
Interpersonal
Different Goal
Formality of
Orientation
Orientation
Orientation
Structure
Facilitators of Integration
Shared Values
Leaders’ Vision
Effective
Budget Allocation
Communication
Cross-Functional Integration/
Design Teams
Facilitators & Teams help the firm improve
14-26 © 2006 by Nelson, a division of Thomson Canada Limited.
Cooperative Strategies for Entrepreneurship and Innovation
• Firms may need to cooperate and integrate Firms may need to cooperate and integrate knowledge and resources to successfully knowledge and resources to successfully commercialize inventions.commercialize inventions.– entrepreneurial new venture firms may need entrepreneurial new venture firms may need
investment capital and distribution capabilitiesinvestment capital and distribution capabilities– more established companies may need new more established companies may need new
technological knowledge possessed by newer technological knowledge possessed by newer entrepreneurial firmsentrepreneurial firms
• To innovate through a cooperative relationship, To innovate through a cooperative relationship, firms must share their knowledge and skills.firms must share their knowledge and skills.
14-27 © 2006 by Nelson, a division of Thomson Canada Limited.
Acquisitions to Buy Innovation
• AcquisitionsAcquisitions– rapidly extend the product linerapidly extend the product line– increase the firm’s revenuesincrease the firm’s revenues
• A key risk of acquisitions is that a firm may A key risk of acquisitions is that a firm may substitute the ability to buy innovations for an substitute the ability to buy innovations for an ability to produce innovations internally.ability to produce innovations internally.– firm may lose intensity in R&D effortsfirm may lose intensity in R&D efforts– firm may lose ability to produce patentsfirm may lose ability to produce patents
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 investmentseek high returns on their investment
– value competence of the entrepreneur or the human value competence of the entrepreneur or the human capital in the firmcapital in the firm
– place weight on the expected scope of competitive place weight on the expected scope of competitive rivalry the firm is likely to experiencerivalry the firm is likely to experience
– evaluate degree of instability in the market addressedevaluate degree of instability in the market addressed
14-29 © 2006 by Nelson, a division of Thomson Canada Limited.
Capital for Entrepreneurial Ventures
• Initial public offerings (IPOs)– new stock new stock
– firm needs high potential in order to sell new stock firm needs high potential in order to sell new stock
– often quite larger than the amounts obtained from often quite larger than the amounts obtained from venture capitalistsventure capitalists
– investment bankers frequently play major roles in the investment bankers frequently play major roles in the development and offering of IPOsdevelopment and offering of IPOs
– firms that have also received venture capital backing firms that have also received venture capital backing usually receive greater returns from IPOsusually receive greater returns from IPOs
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.