Managing Innovation and Fostering Corporate Entrepreneurship Chapter Twelve McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc.
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Transcript Managing Innovation and Fostering Corporate Entrepreneurship Chapter Twelve McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc.
Managing Innovation
and Fostering Corporate
Entrepreneurship
Chapter Twelve
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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
12-2
Example: Getting to ‘Aha’
• There are “five disciplines” for creating what customers
want
Identify important customer needs
Create solutions that fill those needs
Build innovation teams
Empower "innovation champions" who keep the
effort on track
Align the entire enterprise around creating value for
customers
Source: “Getting to ‘Aha!’,” Business Week. September 4, 2006.
12-3
Types of Innovation
• 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
12-4
Types of Innovation
• Process innovations
Improving efficiency of an organizational
process
Manufacturing systems and operations
More likely to occur in later stages of an
industry’s life cycle
Associated with cost leader strategies
12-5
Types of Innovation
• Radical innovation
Fundamental changes and breakthroughs
Evoke major departures from existing
practices
Can be highly disruptive
Can transform or revolutionize a whole
industry
12-6
Types of Innovation
• Incremental innovation
Enhance existing practices
Small improvements in products and
processes
Evolutionary applications within existing
paradigms
12-7
Continuum of Radical and
Incremental Innovations
12-8
Types of Innovation
• Sustaining
innovations
extend sales in an
existing market,
usually by enabling
new products or
services to be sold at
higher margins.
• Disruptive
innovations
overturn markets by
providing an
altogether new
approach to meeting
customer needs.
12-9
Challenges of Innovation
•
•
•
•
•
Seeds versus Weeds
Experience versus Initiative
Internal versus External staffing
Building capabilities versus Collaborating
Incremental versus Preemptive launch
12-10
Seeds versus Weeds
• 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
12-11
Experience versus Initiative
• Deciding who will lead an innovation
project
Senior managers have experience and
credibility and tend to be more risk averse
Midlevel employees may be the innovators
themselves and have more enthusiasm
12-12
Internal versus External Staffing
• 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
12-13
Building Capabilities versus
Collaborating
• 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
12-14
Incremental versus Preemptive Launch
• Incremental launch
Less risky
Requires few resources
Can undermine the project’s credibility if too
tentative
• Large-scale launch
Requires more resources
Can effectively preempt a competitive
response
12-15
Defining the Scope of Innovation
• 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?
12-16
Managing 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 openended
experimentation and
time-consuming
mistakes
12-17
Corporate Entrepreneurship
• Corporate entrepreneurship
the creation of new value for a corporation,
through investments that create either new
sources of competitive advantage or renewal
of the value proposition.
12-18
Factors affecting Entrepreneurial
Ventures
• The use of teams in strategic decision making
• Whether the company is product or service
oriented
• Whether its innovation efforts are aimed at
product or process improvements
• The extent to which it is high-tech or low-tech
12-19
Focused Approaches to Corporate
Entrepreneurship
• New venture group
a group of individuals, or a division within a
corporation, that identifies, evaluates, and
cultivates venture opportunities.
12-20
New Venture Groups
• Involvement includes
Innovation and experimentation
Coordinating with other corporate divisions
Identifying potential venture partners
Gathering resources
Launching the venture
12-21
Focused Approaches to Corporate
Entrepreneurship
• Business incubator
supports and nurtures
fledgling
entrepreneurial
ventures until they
can thrive on their
own as stand-alone
businesses.
12-22
Business Incubators
• Incubators provide some or all of the
following functions
Funding
Physical space
Business services
Monitoring
Networking
12-23
Entrepreneurial Culture
• Culture of entrepreneurship
Search for venture opportunities permeates
every part of the organization
Strategic leaders and the culture generate a
strong impetus to innovate, take risks and
seek out new venture opportunities
12-24
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
12-25
Measuring the Success of Corporate
Entrepreneurship Activities
Comparing strategic and financial CE goals
1. Are the products or services offered by the
venture accepted in the marketplace?
2. Are the contributions of the venture to the
corporation’s internal competencies and
experience valuable?
3. Is the venture able to sustain its basis of
competitive advantage?
12-26
Measuring the Success of Corporate
Entrepreneurship Activities
• Exit champions
individual working within a corporation who is
willing to question the viability of a venture
project by demanding hard evidence of
venture success and challenging the belief
system that carries a venture forward.
12-27
Real Options Analysis
• Real options analysis
for each investment step the investor has the
option of (a) investing additional funds to
grow or accelerate, (b) delaying, (c) shrinking
the scale of, or (d) abandoning the activity.
12-28
Potential Pitfalls of Real Options
Analysis
• Agency Theory and the Back-Solver
Dilemma
• Managerial Conceit: Overconfidence and
the Illusion of Control
• Managerial Conceit: Irrational Escalation
of Commitment
12-29