Transcript Strategic Management: Text and Cases
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Ch. 12. Managing Innovation and Fostering Corporate Entrepreneurship Learning Objectives
After reading this chapter, you should have a good understanding of:
The importance of implementing strategies and practices that foster innovation.
The challenges and pitfalls of managing corporate innovation processes.
The role of product champions and exit champions in internal corporate venturing.
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Learning Objectives
After reading this chapter, you should have a good understanding of: How independent venture teams and business incubators are used to develop corporate ventures.
How corporations create an internal environment and culture that promotes entrepreneurial development.
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Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Managing Innovation
Innovation: using new knowledge to transform organizational processes or create commercially viable products and services
Latest technology Results of experiments Creative insights Competitive information McGraw-Hill/Irwin Strategic Management, 3/e
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Types of Innovation
Degree of innovativeness Radical innovation Fundamental changes and breakthroughs Evoke major departures from existing practices Can be highly disruptive Can transform or revolutionize a whole industry Incremental innovation Enhance existing practices Small improvements in products and processes Evolutionary applications within existing paradigms McGraw-Hill/Irwin Strategic Management, 3/e
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Types of Innovation
Product and process innovations Product innovation Efforts to create product designs Applications of technology to develop new products for end users More radical and common during early stages of an industry’s life cycle Associated with differentiation strategies McGraw-Hill/Irwin Strategic Management, 3/e
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Types of Innovation
Product and process innovations Process innovations Improving efficiency of an organizational process Manufacturing systems and operations Can improve materials utilization Shorten cycle time Increase quality More likely to occur in later stages of an industry’s life cycle Associated with cost leader strategies McGraw-Hill/Irwin Strategic Management, 3/e
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Challenges of Innovation
Seeds versus weeds
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Deciding the merits of innovative ideas
Seeds – likely to bear fruit Weeds – should be cast aside
Dilemma
Some innovation projects require considerable level of investment before merit can be determined
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Challenges of Innovation
Experience versus initiative
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Deciding who will lead an innovation project
Senior managers
Have experience and credibility Tend to be more risk averse
Midlevel employees
May be the innovators themselves May have more enthusiasm
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Challenges of Innovation
Internal versus external staffing
McGraw-Hill/Irwin Strategic Management, 3/e Innovation projects need competent staffs to succeed People drawn from inside the firm May have greater social capital Know the organization’s culture and routines May not be able to think outside the box People drawn from outside the firm Are costly to recruit, hire, train May have difficulty building relationships
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Challenges of Innovation
Building capabilities versus collaborating
Innovation projects often require building new sets of skills Firms can seek help Other departments Partner with other companies that bring resources and experience Partnerships Create dependencies and inhibit internal skills development Sharing benefits of innovation may create conflict McGraw-Hill/Irwin Strategic Management, 3/e
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Challenges of Innovation
Incremental versus preemptive launch
McGraw-Hill/Irwin Strategic Management, 3/e Companies must manage the timing and scale of new innovation projects Incremental launch Less risky Requires few resources Serves as a market test Can undermine the project’s credibility if too tentative Large-scale launch Requires more resources Can effectively preempt a competitive response
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Defining the Scope of Innovation
Firms must define the “strategic envelope” (scope of the innovation efforts) In defining the strategic envelope, a firm should answer several questions How much will the innovation cost?
How likely is it to actually become commercially viable?
How much value will it add; that is, what will it be worth if it works?
What will be learned if it does not pan out?
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Managing the Pace of Innovation
Firms need to regulate the pace of innovation Incremental innovation May be six months to two years May use a milestone approach driven by goals and deadlines Radical innovation Typically long term – 10 years or more Often involves open-ended experimentation and time-consuming mistakes Strict timelines unrealistic McGraw-Hill/Irwin Strategic Management, 3/e
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Collaborating with Innovation Partners
Innovation often requires collaborating with others who possess complementary knowledge and skills Partners can come from several sources Other personnel within the department Personnel within the firm but from another department Partners outside the firm Non-business sources, including research universities and the federal government McGraw-Hill/Irwin Strategic Management, 3/e
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Corporate Entrepreneurship
Determining how entrepreneurial projects will be pursued
Corporate culture Leadership Structural features that guide and constrain action Organizational systems that foster learning and manage rewards Use of teams in strategic decision making Whether the company is product or service oriented Whether the firm’s innovation efforts are aimed at product or process improvements The extent to which it is high-tech or low-tech McGraw-Hill/Irwin Strategic Management, 3/e
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Focused Approaches to Corporate Entrepreneurship
Autonomous corporate venturing work group Autonomous corporate venturing (work) group Frees entrepreneurial team members from constraints imposed by existing norms and routines Facilitates open-minded creativity But, does isolate the group from the corporate mainstream New venture groups (NVGs) Business incubators McGraw-Hill/Irwin Strategic Management, 3/e
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New Venture Groups (NVGs)
Focused approach New Venture Group
Goal is to identify, evaluate, and cultivate venture opportunities Typically function as semi-autonomous units with little formal structure Involvement includes Innovation and experimentation Coordinating with other corporate divisions Identifying potential venture partners Gathering resources Launching the venture McGraw-Hill/Irwin Strategic Management, 3/e
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Business Incubators
Focused approach Business Incubators
Business incubators are designed to “hatch” new businesses Incubators provide some or all of the following functions Funding Physical space Business services Monitoring Networking McGraw-Hill/Irwin Strategic Management, 3/e
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Dispersed Approaches to Corporate Entrepreneurship
Dedication to principles and practices of entrepreneurship is spread throughout the firm Ability to change is a core capability Stakeholders can bring new ideas or venture opportunities to anyone in the organization Two related aspects of dispersed entrepreneurship Entrepreneurial culture Product champions McGraw-Hill/Irwin Strategic Management, 3/e
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Entrepreneurial Culture
Dispersed approach Entrepreneurial Culture
Culture of entrepreneurship Search for venture opportunities permeates every part of the organization Effect is strongest when it animates all parts of the organization Strategic leaders and the culture generate a strong impetus To innovate Take risks Seek out new venture opportunities McGraw-Hill/Irwin Strategic Management, 3/e
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Product Champions
Dispersed approach Product Champions
Product (or project) champions Bring entrepreneurial ideas forward Identify what kind of market exists for the product or service Find resources to support the venture Promote the venture concept to upper management New project must pass two critical stages Project definition Project impetus McGraw-Hill/Irwin Strategic Management, 3/e
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Measuring the Success of Corporate Entrepreneurship Activities
Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed Comparing strategic and financial CE goals Are the products or services offered by the venture accepted in the marketplace?
Are the contributions of the venture to the corporation’s internal competencies and experience valuable?
Is the venture able to sustain its basis of competitive advantage?
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Measuring the Success of Corporate Entrepreneurship Activities
Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed Exit champions Willing to question the viability of a venture project Demand hard evidence and challenge the belief system that is carrying an idea forward Hold the line on ventures that appear shaky Real options Managing the uncertainty associated with launching new ventures McGraw-Hill/Irwin Strategic Management, 3/e
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Entrepreneurial Orientation
Autonomy Two techniques often used to promote autonomy Using skunkworks to foster entrepreneurial thinking Designing organization structures that support independent action Innovativeness Two methods used to enhance competitive position through innovativeness Fostering creativity and experimentation Investing in new technology, R&D, and continuous improvement McGraw-Hill/Irwin Strategic Management, 3/e
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Entrepreneurial Orientation
Proactiveness Two methods to promote acting proactively Introducing new products or technological capabilities ahead of the competition Continuously seeking out new product or service offerings Competitive aggressiveness Two ways competitively aggressive firms enhance their entrepreneurial position Entering markets with drastically lower prices Copying the business practices or techniques of successful competitors McGraw-Hill/Irwin Strategic Management, 3/e
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Entrepreneurial Orientation
Risk taking Three types of risks faced by organizations and their executives Business risk taking Financial risk taking Personal risk taking Two methods to strengthen competitive position through risk taking Researching and assessing risk factors to minimize uncertainty Using techniques that have worked in other domains McGraw-Hill/Irwin Strategic Management, 3/e
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