PART 3: STRATEGIC ACTIONS: STRATEGY IMPLEMENTATION CHAPTER 13 STRATEGIC ENTREPRENEURSHIP Authored by: Marta Szabo White, PhD. Georgia State University THE STRATEGIC MANAGEMENT PROCESS ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. KNOWLEDGE OBJECTIVES ● Define strategic entrepreneurship and corporate entrepreneurship. ● Define entrepreneurship and entrepreneurial opportunities and explain their importance. ● Define invention, innovation, and imitation, and describe the relationship among them. ● Describe entrepreneurs and the entrepreneurial mind-set. ● Explain international entrepreneurship and its importance. ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. KNOWLEDGE OBJECTIVES ● Describe how firms internally develop innovations. ● Explain how firms use cooperative strategies to innovate. ● Describe how firms use acquisitions as a means of innovation. ● Explain how strategic entrepreneurship helps firms create value. ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. OPENING CASE OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES ■ The world’s 10 most innovative firms in 2011: Apple Google Twitter Dawning Information Industry Facebook NetFlix Nissan Zynga, Groupon Epocrates Source: Fast Company ■ Continuous innovation, the common denominator, is a potent competitive weapon, especially during tough economic times ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. OPENING CASE OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES ■ Open innovation occurs when a firm finds that a good idea is not commercially viable, given a firm’s present strategy; rather than shelving the idea, commercialization can take place through licenses, spin-offs, and joint ventures ■ P&G launched the concept of open innovation in 2001, with its Connect & Develop program ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. OPENING CASE OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES ■ Open innovation examples: ● P&G - Tide Total Care was developed through Sweden’s Lund University and two small chemical companies as partners ● P&G - Glad brand plastic bag joint venture with Clorox, a historical rival ● P&G - Food product joint ventures with ConAgra and General Mills ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. OPENING CASE OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES ■ Open innovation examples: ● Nike and Apple developed a sensor that transmits data from inside a shoe to the runner’s iPod or iPhone ● GlaxoSmithKline and Oratech partnered to develop Aquafresh White Trays, a toothwhitening strip ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. OPENING CASE OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES ■ Open innovation examples: ● Kimberly-Clark and SunHealth Solutions developed Little Swimmers Sun Care, an adhesive sticker that changes color to alert parents to the risk of sunburn ● Kraft and Hershey developed S’mores, a mixture of hot marshmallows that melt the chocolate between two graham crackers ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. OPENING CASE OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES ■ Three paths for open innovation solutions: ● Customer-driven: tapping unmet customer needs ● Technology-driven: substantial R&D investments ● Competitor-driven: Fast follower of competitors’ successful strategies ■ Senior-level championing is critical for success ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. IMPORTANT DEFINITIONS • • Organizational culture: the complex set of ideologies, symbols, and core values shared throughout the firm and that influence how the firm conducts business • The social energy that drives—or fails to drive—the organization Strategic entrepreneurship: entrepreneurial actions (exploiting found opportunities in the external environment) through a strategic perspective (innovation efforts) • Entrepreneurship dimension: identifying opportunities to exploit through innovations • Strategic dimension: determining the best way to manage the firm’s innovation efforts ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. IMPORTANT DEFINITIONS • Strategic entrepreneurship actions can be taken by: • Individuals • Corporations Corporate entrepreneurship: the use or application of entrepreneurship within an established firm ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES • Entrepreneurship is concerned with: • • The discovery of profitable opportunities The exploitation of profitable opportunities Entrepreneurship: the process by which individuals or groups identify and pursue entrepreneurial opportunities without the immediate constraint of the resources they currently control ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES Purpose of entrepreneurship: • To create wealth Firms that foster entrepreneurship are: • • • Risk takers Committed to innovation Proactive in creating opportunities rather than waiting to respond to opportunities created by others ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES Entrepreneurial opportunities: • Are opportunities others do not see or for which they do not recognize the commercial potential • Are conditions in which new products or services can satisfy a need in the market • Exist due to competitive market imperfections and unevenly distributed information • Are studied at the level of the individual firm • May be the economic engine driving many nations’ economies in the global competitive landscape ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES Creative Destruction (Schumpeter) • Entrepreneurship, as a process, results in the ‘creative destruction’ of existing products (good or services) or methods of producing them, and replaces them with new products/production methods • Entrepreneurial firms value individual innovations and the ability to continuously innovate across time ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. KEY CHAPTER POINTS THREE ‘I’s Three types of innovation activities according to Schumpeter ● Invention ● Innovation ● Imitation THREE WAYS TO INNOVATE ● Internal - autonomous vs. induced ● Cooperative strategies (e.g., strategic alliances) ● Acquisitions ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INNOVATION • • • Innovation is the “specific function of entrepreneurship” (Drucker) It is “the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth” (Drucker) It is a source of competitive success, especially in turbulent and highly competitive environments For global markets, innovation is key for competitive parity at a minimum, much less for competitive advantage ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INNOVATION Invention • • • The act of creating or developing a new product or process Brings something new into being Technical criteria determine the success of an invention ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INNOVATION Invention • • Innovation • Process of creating a commercial product from an invention Brings something new into use Commercial criteria determine the success of an innovation ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INNOVATION Invention • • Innovation • • Imitation Adoption of an innovation by similar firms Usually leads to product or process standardization Products based on imitation often are offered at lower prices and without as many features Results of imitation • Product or process standardization • Products made with fewer features • Products offered at lower prices ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. THE IMPORTANCE OF INNOVATION • • • • Entrepreneurship is the linchpin between invention and innovation Inventions are easier than commercializing those inventions: roughly 80% of R&D occurs in large firms, but these same firms produce fewer than 50% of the patents Note: Google Labs was created to facilitate the transition from invention to innovation Especially in the U.S., innovation is the most critical of the three types of innovative activities ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ENTREPRENEURS • Entrepreneurs • • Individuals, acting independently or as part of an organization, who see an entrepreneurial opportunity and then take risks to develop an innovation to exploit it Entrepreneurial Mind-set • Values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. ENTREPRENEURS Entrepreneurial characteristics: • • • • • • • • • Highly motivated Willing to take responsibility for their projects Passionate Optimistic Emotional about the value and importance of their innovation-based ideas Entrepreneurial mind-set Able to deal with uncertainty More alert to opportunities than others Good social skills and plan exceptionally well ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNATIONAL ENTREPRENEURSHIP ● Firms creatively discover and exploit opportunities outside their domestic markets in order to develop a competitive advantage ● Entrepreneurship has become a global phenomenon as internationalization typically leads to improved firm performance ● EXAMPLE - Large multinational companies (MNCs) generate roughly 54% of their sales outside their domestic market, and more than 50% of their employees work outside of the home country ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNATIONAL ENTREPRENEURSHIP Risks include: • • • • Unstable foreign currencies Inefficient markets Insufficient infrastructures to support businesses Limitations on market size and growth ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNATIONAL ENTREPRENEURSHIP Rates of entrepreneurship differ across countries due to: ● Impact of national culture • Entrepreneurship declines as collectivism increases • Exceptionally high levels of individualism can be dysfunctional for entrepreneurship • Balance between individual initiative and cooperative spirit versus group ownership of innovation is required ● Level of investment outside of the home country made by new ventures ● Top executives with international experience • Internationally diversified firms are generally more innovative ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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. ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION • Firms take deliberate efforts to develop inventions and innovations within the organization, selecting from several types of innovation and the specific processes through which each type is produced. Most innovation is due to research and development (R&D): • Investments are uncertain • Often not achieved in the short term • Firms innovate internally in two ways 1. Autonomous strategic behavior 2. Induced strategic behavior ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION AUTONOMOUS STRATEGIC BEHAVIOR • Facilitates incremental and radical innovation • Primarily Radical Innovation INDUCED STRATEGIC BEHAVIOR •Facilitates incremental and radical innovation •Primarily Incremental Innovation ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION • Incremental Innovation Radical Innovation • • • Is evolutionary and linear Most innovations are incremental Builds on existing knowledge bases and provides small improvements in current product lines/processes • • • • Is revolutionary and nonlinear Is rare because of difficulty and risk Generates significant technological breakthroughs and creates new knowledge/processes Requires creativity ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION • Incremental Innovation • • • Results from deliberate efforts Primarily - induced strategic behavior Can create value Radical Innovation • • • • Results from deliberate efforts Strong potential to lead to significant growth in revenues and profits Primarily autonomous strategic behavior Can create value ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. MODEL OF INTERNAL CORPORATE VENTURING FIGURE 13.1 Model of Internal Corporate Venturing ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION Internal Corporate Venturing refers to the set of activities firms use to develop internal inventions and innovations: autonomous and induced AUTONOMOUS STRATEGIC •Bottom-up process BEHAVIOR INDUCED STRATEGIC BEHAVIOR •Top-down process ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION AUTONOMOUS STRATEGIC •Bottom-up process BEHAVIOR ■ Bottom-up process in which product champions pursue new ideas, often through a political process, to develop and coordinate the commercialization of a new good or service ■ Product champion: individual with an entrepreneurial vision of a new good or service who seeks to create support in the organization for its commercialization ■ Autonomous strategic behavior is focused on firm’s knowledge and resources ■ Knowledge must be continuously diffused throughout the firm ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INTERNAL INNOVATION INDUCED STRATEGIC BEHAVIOR •Top-down process Induced strategic behavior • Top-down process whereby the firm’s current strategy and structure foster product innovations that are closely associated with that strategy and structure ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. IMPLEMENTING INTERNAL INNOVATIONS Entrepreneurial mind-set: required for internal corporate ventures • Viewpoint that values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations Value creation through internal innovation processes: 1. Cross-functional product development teams 2. Facilitating integration and innovation 3. Creating value from internal innovation ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. CREATING VALUE THROUGH INTERNAL INNOVATION PROCESSES FIGURE 13.2 Creating Value Through Internal Innovation Processes ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. IMPLEMENTING INTERNAL INNOVATIONS Cross-Functional Product Development Teams • Efforts to integrate and coordinate • Cross-Functional Product Development Team • activities and apply knowledge from different functional activities associated with different functional areas to maximize innovation: • Design • Manufacturing • Marketing New product development processes can be completed more quickly Products can be more easily commercialized when cross-functional teams work effectively ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. IMPLEMENTING INTERNAL INNOVATIONS Cross-Functional Product Development Teams • • • • Cross-Functional Product Development Team Horizontal structures support use of cross-functional teams Two primary barriers to success: Independent frames of reference of members with distinct specializations Organizational politics that create competition for resources and inter-unit conflict ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. All are important to successfully innovate and facilitate cross-functional integration. IMPLEMENTING INTERNAL INNOVATIONS Facilitating Integration and Innovation • Shared Values • • • Effective Leadership • • • Are framed around the firm’s strategic intent and mission Become the glue that promotes integration between functional units Sets goals and allocates resources Goals include integrated development and commercialization of new goods and services Effective Communication ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. IMPLEMENTING INTERNAL INNOVATIONS Creating Value from Internal Innovation • • • • Entrepreneurial mind-set is necessary Manager support Cross-functional teams Effective leadership and shared values ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INNOVATION THROUGH COOPERATIVE STRATEGIES • To successfully commercialize inventions, firms may need to cooperate and integrate knowledge and resources • • • 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 via cooperative relationships, firms must share their knowledge and skills – strategic alliances and joint ventures allow this to occur ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. INNOVATION THROUGH ACQUISITIONS • • • • • • Rapidly extend the product line Increase the firm’s revenues KEY RISK: a firm may substitute its ability to buy innovations for its ability to produce innovations internally A firm may: • Lose its intensity in R&D efforts • Lose its ability to produce patents Research demonstrates that subsequent to acquisitions, firms introduce fewer new products into the market This is because firms focus on the financial controls at the expense of strategic control ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. CREATING VALUE THROUGH STRATEGIC ENTREPRENEURSHIP Entrepreneurial ventures: • • • • Produce more radical innovations Possess strategic flexibility and willingness to take risks Do more opportunity seeking Must learn how to gain a competitive advantage (advantage-seeking behaviors) Larger, well-established firms: • • • Produce more incremental innovations Possess more resources and capabilities to exploit identified opportunities Must relearn how to identify entrepreneurial opportunities (opportunity-seeking skills) ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. CREATING VALUE THROUGH STRATEGIC ENTREPRENEURSHIP Objective is to help firms develop successful incremental and radical innovations • Be flexible and willing to take risks. • Identify and exploit opportunities with sufficient resources and capabilities to launch strategic actions. • Sustain a competitive advantage while identifying and exploiting opportunities. • Foster an entrepreneurial mind-set among managers and employees. • Emphasize resource management, particularly human capital and social capital. • Seek to enter and compete in international markets. ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.