Intrapreneurship

Intrapreneurship

Professor - Jack Raiton

What is Intrapreneurship?

“Integration of entrepreneurial skills into a large corporation’s strategic vision that nurtures a climate of radical or incremental innovation.”

More on Intrapreneurship

Entrepreneurship within an existing businessInternal business units within which produce innovative products, services or processesAn opportunity for corporate managers to take initiative and try new ideas.An internal corporate venture

Nature of Intrapreneurship

Intrapreneurship is allowing an atmosphere of INNOVATION to prosper.

Successful Innovators Have..

Atmosphere and visionOrientation to the market Small, flat organizationsMultiple approachesInteractive learningSkunkworks

Innovation activities of a company should be managed as a mixture of internally embedded innovation and externally managed innovation

Innovation Management

“Innovation management within the processes of the core business.”

“Innovation management taken outside of the processes of the core business.”

Internal Innovation Management External Innovation Management

Idea ManagementIdea Management

Resource Management

Innovation Management Framework

Partnering

Monitoring & Controlling

IntrapreneurshipFramework

Kanter’s “Rules for stifling innovation”

Regard new ideas with suspicionEnforce cumbersome approval mechanisms, rules, regulationsPit departments and individuals against one anotherExpress criticism, withhold praiseTreat problem identification as signs of failureControl everything carefullyPlan reorganizations in secretKeep tight control of informationDelegate unpleasant duties to inferiorsAssume that you, the higher-ups, know everything important about the business

Internal innovation often has several limitations regarding strategic direction, time-frame, budget, corporate culture and incentive scenarios

Traditional Innovation Management:

Strengths

•Creates only operative costs, does not include equity participation

•Is generally low on risk

•Direct control over approach, process, progress, results and intellectual capital created

Weaknesses

When to use?

•Is limited by company culture, bureaucracy and rules

•Financial risk of large innovation projects is difficult to diversify

•Does not generally include idea flows from external sources

•Potentially limits motivation due to low attractiveness for the individual

•When corporate strategy is based on cost leadership

•When the stream of internal ideas is sufficient for reaching organic growth targets

•In stabile, relatively mature industries

Externalized innovation activities exhibit “freedom of innovation” and they provide the possibility of rapidly limiting or diversifying the investment risk

Corporate Venturing:

Strengths

•Enables innovation and intelligence from external sources

•External sources of financing are more easily accessible

•Enable creation of individual innovation units with own culture,incentive scenarios and business models

•Often highly motivating for involved individuals

Weaknesses

When to use?

•Requires investments in form of equity participation, which can be high on risk if not diversified

•Requires management overheads such as the set-up of venture management and network for deal-flow

•Mother company is not in complete control over the innovation

•When corporate strategy is based on innovation leadership and/ordiversification

•When company’s base market and/or technologies are dynamic in their nature

Intrapreneurship can be seen as structured management of innovation and as a portfolio of ventures with defined innovation targets and resources

Business Model of Intrapreneurship

Screening Criteria

Incubation in a venture pool

Internal ideas/ ventures

External ideas/ ventures

Strategically incompatible ideas / ventures

Exit from strategically incompatible ventures

Established company

(Re)integration or knowledge transfer

Comparing Entrepreneurial and Intrapreneurial Contexts

Entrepreneurial Characteristics

FreedomGoal oriented

self-reliant

FreedomAccess to resources

self-motivated

5-10 year horizon

Seek incremental achievements

Knows business well and can amass

resources

Much like entrepreneur -can also work

within hierarchy

Focus on macro and micro

environment

Much like entrepreneur -must also deal with corporate environment

EnvironmentMotives Skills and experiencesTime

orientation

3-15 year horizon Urgency in

meeting deadline

Intrapreneurial Characteristics

Comparing Entrepreneurial and Intrapreneurial Contexts (cont.)

Entrepreneurial Characteristics

Assembled and acquired from outside firm

Derived primarily from internal slack

Learn and pay for mistakes - public

and visible

Intrapreneurial Characteristics

Seeks shared vision and consensus

Sensitive to corporate

attitude May try to hide errors

Decisions

Follows visionDecisive

Uncompromising

Failure and mistakesResources

Comparing Entrepreneurial and Intrapreneurial Contexts (cont.)

Entrepreneurial CharacteristicsImpatience led to venture start-up

Learns to manage system

Moderate- money and reputation at stake

Intrapreneurial Characteristics

Places low value on corporate symbols

Moderate- career and job at stake

View of status

Accepts low status until

venture succeeds

Attitude to bureaucracy Risk

preference

Ventures are usually as independent units under either a venturing unit, venture capital subsidiary or a venture capital fund

Basic models of venturing organization:Model 1: Intrapreneurial Unit

Corporate Center

Intrapreneurial Unit

Bus

ines

s Uni

t

Venture

•Intrapreneurial Unit

Model 2: VC Subsidiary

Venture

Corporate Center

Venture Capital Subsidiary

Venture

•Venture Capital Subsidiary

Model 3: VC Fund

Venture

Corporate Center

Venture Capital Fund

Venture•Participation in Venture Capital Fund

Main challenges related to establishing Intrapreneurialunits are lack of resources and commitment, cultural clashes and lack of a venturing strategy

Challenges related to Intrapreneurial Units:

Intrapreneurial activities are often initiated without proper resources and proper sponsorship from the top management

Cultural clashes related to co-operation and strategic exchange of knowledge between the ventures and the established company are issues, which may occur if venture management is not prepared for coping with it

Often Intrapreneurship is done with an unclear mixture of financial and strategic goals, but without a true venturing strategy nor a strategic venture selection process

Corporate Investing in VC

Corporate Investing in VC

0

20

40

60

80

100

120

1996 1997 1998 1999 2000 2001 2002 2003YTD

Corporate Total Venture

12%

15%

8%

14%

3%4%

5%7% $14Β Ann

Combining Forces

CorporationsBrand

Installed baseRelationships

Domain expertise

Venture CapitalistsNeutrality

Financial disciplineDeep networks

Structured for early stage

Start-UpsEntrepreneurial

NimblenessRisk/reward incentive

High growth

Leading Corporations Use VC

Companies that are active Companies that are active in VC investing

““8/10 5yr EPS 8/10 5yr EPS growth leaders growth leaders have VC arms ”have VC arms ”

–– ForbesForbes

in VC investing

IntelDupontJohnson and Johnson3MUPSP&GCargillDellCiscoNokia

Leveraging VC for InnovationLeveraging VC for Innovation

Corporate Venture Capital is an efficient Corporate Venture Capital is an efficient source of corporate innovationsource of corporate innovation

Technology is increasingly being Technology is increasingly being sourced from outside corporationssourced from outside corporations

0%

3%

6%

9%

12%

15%

VC as % of R&DExpense

0%

3%

6%

9%

12%

15%

VC generatedCorporate Innovations

Source: Monitor Group Source: Harvard

100 %

24%

1990 s

52%

2000 s

64%

InternalR&D

External sourcing

0%

1980 s

50 %

% of Total

CREATING A CLIMATE FOR INTRAPRENEURSHIP

Finding resources for ideas An effective reward system -short term pay benefitsAn effective reward system -long term pay benefitsAn effective reward system –education & health benefitsAn effective reward system -promotion

BARRIERS TO INTRAPRENEURSHIP

Independence in decision-making is a primary motivation in entrepreneurshipThe mobility of managers within large organizations may lead to a lack of commitment to specific projectsIn many large organiZations, there are often inappropriate methods to compensate creative employees Many managers in a large organiZationsare not capable of being successful intrapreneurs

INTRAPRENEURSHIP

Entrepreneurial organisation•accepts (even a need for) change•exploits opportunity

Established organisation•ability to consolidate around success•manages risk•control of resource flows

The intrapreneur achieves the synthesis between “established-entrepreneurial”.

During the boom of the new economy in the 1990’s Intrapreneurial activities were financially motivated

Corporate Venturing in the 1990’s

Strategic Innovation

Short-term financial prospects

Intrapreneurship suffered serious setbacks as the bubble of the new economy burst and the prospects for short-term wins disappeared

Many enterprises’ Intrapreneurial activities resulted in significant lossesA significant number of enterprises reduced their Intrapreneurial activities and/or terminated them completely

Strategic objectives now dominate in Intrapreneurship

Almost half of all companies active in Intrapreneurship or planning to initiate it in the near future pursue mainly strategic objectives with itOnly about one tenth pursue mainly financial objectivesPursuing purely financial objectives would have to be considered as being a form of corporate venture capitalism and not Intrepreurship

New competencies, new technologies and innovation capabilities, high-potential employees are the main strategic objectives when pursuing Intrapreneurial activities

Objectives:

Develop new competenciesAccess to new technologies Strengthen your ability to innovateRetain or gain high potential employeesAccess to new marketsIdentify market trendsImprove utilization of existing resourcesSupport sales of your products Improvement of product quality/processes

Company should pursue Intrapreneurship with a strategic, innovation-oriented approach to boost growth and internal value creation

Innovation• Goal is to strengthen own ability to innovate

• Intrapreneurship as powerful supplement to own research/development

• Special significance in technology-intensive industries (e.g. telecommunications, biotechnology )

Growth

• Goal is the realization of growth outside the own core business

•Development of new core competencies

Internal value creation

• Goal is the enhanced utilization of existing but insufficiently used assets

•Especially immaterial assets hold high potential (e.g. unused patents and employee knowledge)

Most common ways of supporting ventures are financial support, provision of a business network, availability of human resources and know-how

Types of support

Financial supportBusiness network/contractsAvailability of people Industrial know howFacilities/ infrastructureUtilization of R&D resourcesAvailability of manufacturing facilities

Membership on the board, financial controls and membership on the executive management are seen as the most effective control instruments

Membership in the venture’s Board of DirectorsFinancial controlling by the established companyMembership in the venture’s Executive ManagementRegular meeting between venture and the appropriate business unitsInformal contacts between venture and established company

Several potential obstacles can hinder successful Intrapreneurship – these need to be eliminated before starting an Intrapreneurial initiative

By far the greatest obstacle is the lack of critical resources for venturing activityOther significant obstacles are-- Lack of top management commitment -- There is no clear venturing strategy-- Cultural clashes, exchange and cooperation between

the established company and venturesIn summary, lack know-how is often a factor preventing successful Intrapreneruship-- Lack of a venturing strategy -- No systematic screening process-- Insufficient exchange of knowledge-- Lack of venture capital know-how

Limitations to intrapreneurship

Entrepreneurs comfort: Entrepreneurs who have created the company must let go so that intrapreneurs can operate.

(It is about breaking rules which entrepreneurs have created (Young, 1999)

Decision-making control:Balance needed between freedom for the intrapreneur and maintaining the business on a constant strategic path.

Limitations to intrapreneurship

Internal politics: Intrapreneurs must be able to predict and understand internal resistance to change. “Thrive on chaos” (Tom Peters, 1989)

Rewards: Can the organisation offer the same rewards as those expected by entrepreneurs? (economic, social and developmental). Moves to start own venture?

The most common reasons for exiting a venture investment are either not achieved milestones or insufficient return on investment

Agreed upon milestones not achieved Insufficient return on investmentLack of strategic fitGood exit opportunity Objectives have been achievedTechnological breakthrough cannot be achieved

Critical Success Factors

Senior management commitmentInvestment roadmap consistent with corporate and business strategyFlexibility for reactive and opportunistic option creationInstitutionalized tool for growth and innovationTalent retention and continuityCapital to execute

Intrapreneurship is a significant strategic tool for boosting innovation – setting it up requires experience and commitment

Conclusion:Intrapreneurship is an attractive strategic tool for established corporationsThe emphasis within Intrapreneurship is shifting back to strategic objectives – financial opportunities should currently be neglectedEspecially in economically difficult times, Intrapreneurship can be an excellent tool for breaking out of the trend through innovation, while minimizing the risks associated with itIntrapreneruship should be used as a strategic instrument for …-- creating innovations,-- accessing new technologies and markets, and -- creating new competencies.When setting up Intrapreneurial units one should …-- use a holistic framework,-- ensure existence of sufficient commitment and

resources,-- start internally and only later extend to external, and -- ensure effective knowledge management between

the established company and the ventures.

Summary:

Venture matures (consolidation)Changes to : financial, strategic, structural and organisational dynamics

Chance to create a defendable competitive position

Intrapreneurism offers the venture a way of combining theflexibility and responsiveness of the entrepreneurial with themarket power and reduced risk of the established organisation