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Corporate Entrepreneurship

I.

Foundations of Corporate Entrepreneurship

Corporate entrepreneurship is a term used to describe entrepreneurial behaviour inside established


mid-sized and large organizations.
Intrapreneurship is entrepreneurship within the boundaries of existing organizations.
Zahra, Dess and Lumpkin stated that corporate entrepreneurship is beneficial or positively related
to:

Survival
Revitalisation
Performance
Innovation
Competitive advantage

Aaltio (2004) advocates the benefits of intrapreneurship for the individual employee:

Work satisfaction
Meaning of work

Entrepreneurship can occur in:

Start-up ventures
Small firms
Mid-sized companies
Large conglomerates
Non-profit organizations
Public sector agencies

Similarities between start-up and corporate entrepreneurship:

Both involve opportunity recognition and definition.


Both require a unique business concept that takes the form of a product, service or process.
Both are driven by an individual champion who works with a team to bring the concept to
fruition.
Both require that the entrepreneur is able to balance vision with managerial skill, passion
with pragmatism, and proactiveness with patience.
Both involve concepts that are most vulnerable in the formative stage, and that require
adaptation over time.
Both entail a window of opportunity within which the concept can be successfully
capitalized upon.
Both are based on value creation and accountability to a customer.
Both find the entrepreneur encountering resistance and obstacles, necessitating both
perseverance and an ability to formulate innovative solutions.
Both entail risk / ambiguity and require risk management strategies.
Both find the entrepreneur needing to develop creative strategies for leveraging resources.
Both require harvesting strategies

Corporate entrepreneurs face three major challenges linked to the need for inter-organizational
political skills:

Achieving credibility or legitimacy for the concept and the entrepreneurial team.
Obtaining resources.
Overcoming inertia and resistance.

Corporate entrepreneurs remain in the corporate environment rather than starting their own
ventures for three main reasons:

The size of the resource base that they can tap into.
The potential to operate on a fairly significant scope and scale fairly quickly.
The security they enjoy when operating in an existing company.

To cultivate an environment of entrepreneurship within an organization, managers must:

Create environments where employees have a sense that resources can be accessed if an
idea is sound.
Find ways to reinforce the ability of anyone in the firm to champion an idea and get it
implemented.
Invest in the development of people.

Management vs. Entrepreneurship:


Management is the process of setting objectives and coordinating resources, including people, in
order to attain them.

Managers focus more on the current situation and how to improve efficiency and
effectiveness.
Entrepreneurs focus less on the current situation and more on what can be.

II.

Forms and Dimensions of Corporate Entrepreneurship

Three dimensions characterize an entrepreneurial organization:

Innovativeness
Risk-Taking
Proactiveness

3 Frontiers of Innovation:

Services new or improved services


Products unique or improved
Processes new or better ways to accomplish a task or function (faster, cheaper, better
quality, etc.)

Innovativeness: Processes

4 types of innovation:

Discontinuous innovation: breakthrough innovation


Dynamically continuous innovation: dramatic improvement
Continuous innovation: incremental step by step
Imitation: copying or adapting innovations of other firms

3 categories of firms:

Stars high performing companies that had successfully integrated innovation and creativity
into their daily business practices.
Seekers display a number of appropriate innovation practices, but came up short in terms
of innovation performance and company-wide commitment to innovation.
Spectators acknowledge the importance of innovation but provide little support for it.

Characteristics of Stars:

Having CEOs that were heavily involved in fostering innovation.


Defining innovation as critical to long-term company success.
Attaching great importance to the concept of managing change.
Having the words innovation and creativity in their mission statements.
Demonstrating an openness to outside ideas.
Having formal programs for idea generation and problem-solving.
Placing strong emphasis on cross-function communications.
Implementing programs to encourage employees to talk to customers.
Increasing levels of investment in R&D and a strong focus on product development.
Creating budgets allocated exclusively to innovation.
Providing rewards for individual creativity and innovation.
Spending time in meetings that were highly productive.

Entrepreneurial firms acting on, rather than reacting to their environments. (Miller, 1987)

3 items to measure proactiveness:

Following versus leading competitors in innovation.


Favouring the tried and true versus emphasizing growth, innovation, and development.
Trying to cooperate with competitors versus trying to undo them.

Proactiveness is manifested in three key ways:

Seeking new opportunities that may or may not be related to the present line of operations.
Introducing new products and brands ahead of competition.
Strategically eliminating operations that are in the mature or declining stages of the life
cycle.

Entrepreneurship manifests in companies in two ways:

Corporate Venturing addition of new businesses to the corporation.


Strategic Entrepreneurship highly consequential innovations that are adopted in the firms
pursuit of competitive advantage.

Forms of Corporate Venturing:

Internal corporate venturing: new businesses created and owned by the corporation.
Cooperative corporate venturing: new businesses are created and owned by the
corporation together with one or more external development partners.
External corporate venturing: new businesses are created by parties outside the
corporation and subsequently invested in or acquired by the corporation.
Corporate venture capital

Reasons for Corporate Venturing:

Leveraging to exploit existing competencies in new product or market arenas.


o To exploit under-utilized resource.
o To extract further value from existing resources.
o To introduce competitive pressure onto internal suppliers.
o To spread the risk and cost of product development.
o To divest non-core activities.
Learning to acquire new knowledge and skills that may be useful in existing product or
market arenas.
o To learn about the process of venturing.
o To develop new competencies.
o To develop managers.

Corporate Venture Capital: directly investing corporate funds into external business start-ups
4 types of Corporate Venture Capital:

Driving investments
Enabling investments
Emergent investments
Passive investments

Forms of Strategic Entrepreneurship:

Strategic renewal
Sustained regeneration
Domain redefinition
Organizational rejuvenation
Business model reconstruction

A firms business model is a concise representation of how an interrelated set of decision variables
in the areas of venture strategy, architecture, and economics will be addressed to create sustainable
competitive advantage in defined markets.
A business model should address six basic questions (Morris et al., 2005):
1. How does the firm create value?
2. For whom does the firm create value?
3. What is our source of internal advantage or core competency?
4. How does the firm externally differentiate itself in the marketplace?
5. What is the firms model for making money?
6. What is the managements growth ambition and over what time period?

Open Innovation means that a firm is not solely reliant upon its own innovative resources for new
technology, product, or business development purposes. Rather, the firm acquires critical inputs to
innovation from outside sources.
4 reasons why the companies are increasingly choosing to pursue open innovation models:
1. Importing new ideas is a good way to multiply the building blocks of innovation.
2. Exporting ideas is a good way to raise cash and keep talent.
3. Exporting ideas gives companies a way to measure an innovations real value and to
ascertain whether further investment is warranted.
4. Exporting and importing ideas helps companies clarify what they do best.

III.

Strategy and Structure

Strategic management
McKinseys 7 S model:

Strategy
Structure
Systems
Style
Staff
Skills
Shared values

Roles of strategic management and corporate strategy:

a way of thinking, not only planning


continuous search for new sources of competitive advantage.
looking beyond immediate crises and day-to-day demands.
envisioning the market and the firms position three, five, and ten years from now.
discipline in identifying a path or position and in ensuring that fellow employees stay
focused on the target.
flexible in the tactical approaches.

Michael Porters view:

Integrating Entrepreneurship with Strategy:

Developing a Strategy for Entrepreneurship:


1. Where does the firm want to be in the entrepreneurial grid?
2. To what extent is the entrepreneurial emphasis in the company that of growing new
business and starting new ventures outside the mainstream of the firm vs. transforming
the existing enterprise and its internal operations into a more entrepreneurial
environment?
3. In what areas does the firm want to be an innovation leader vs. an innovation follower
vis-a-vis the industry?
4. In what areas of the firm is management looking for higher vs. lower levels of
entrepreneurial activity?
5. What is the relative importance over the next three years of product vs. service vs.
process innovation?
6. To what extent is innovation expected to come from senior management, middle
management, or first-level management?

Key ingredients for Entrepreneurial Strategy:

Developing an entrepreneurial vision.


Increasing the perception of opportunity.
Institutionalizing change.
Instilling the desire to be innovative.
Investing in peoples ideas.
Sharing risks and rewards with employees.
Recognizing the critical importance of failure.

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Factors that contribute to building strategic leadership:

A unique set of dynamic core competencies.


Creative approaches to human capital.
Effective incorporation of new and emerging technologies.
Strategic alliances and a global market presence.
Company structures that are flattened and cultures that stress learning and accountability
for innovation.

5 fatal mistakes in strategy implementation:

Failure to communicate strategy internally


Compromising strategy for growth
Pursuing an unsustainable competitive position
No real competitive advantage
Misunderstanding industry attractiveness

Organization Structure
-

Structure refers to the formal pattern of how people and jobs are grouped and how the
activities of different people or functions are connected.
Structures are created to bring order and logic to company operations.
Once formalized, the structure is not static. It is continuously changed as management
struggles with the need to balance differentiation of activities and people against integration
of activities and people.

Components of structure:
1. Differentiation is about the ways decision-making authority is distributed, tasks are
grouped and people are assigned to tasks
2. Integration refers to the ways in which people and functions are coordinated
Key questions and decisions to be made:

How many levels should there be in the organization?


What should be the targeted span of control?
How centralized or decentralized should operations be?
How formal or informal should structural relations be?
Should the interaction emphasize functional specialization or cross-functional interaction?
How much of a sense of bigness vs. smallness should the structure convey?
To what extent should the structure emphasize control vs. autonomy?
How rigid vs. how flexible should the structure be?
To what extent should decision making and communication be more top down vs. bottom
up?

Types of structure:

Simple structure
Mechanistic structure
Organic structure
Divisional structure

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Entrepreneurial Structures - entrepreneurship flourishes where there are:

Fewer layers or levels in the structure;


Broader spans of control;
More horizontal and less vertical design;
Decentralization and empowerment;
Clear vision and strategic direction from the top;
Flow of ideas bottom up

Additional elements of Entrepreneurial Structures:


1.
2.
3.
4.
5.
6.

Managers allowed to freely vary their operating styles.


Authority that is assigned based on the expertise of the individual.
Free adaptation of the organization to changing circumstances.
An emphasis on results rather than processes or procedures.
Loose, informal controls with an emphasis on a norm of cooperation.
Flexible on-the-job behaviour, shaped by requirements of the situation and personality of
the employee.
7. Frequent use of group participation and group consensus.
8. Open channels of communication with free flow of information.
9. But no blend will guarantee entrepreneurship will occur

Concept of Cycling:

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Structures to Support New Product/Service Development Projects


When deciding which type of organizational structure will be most effective, management must
decide to what extent the structure is more:

Simple versus Complex.


Centralized versus Decentralized.
Formal versus Informal.
Autonomous versus Integrated.
Highly Specialized versus More Generalist.
Full-time versus Part-time employment.

Organization Designs for Corporate Entrepreneurship (Burgelman):

Assessing strategic importance

Is the initiative consistent with the corporations existing scope of business operations?
Can the initiative be employed to transition the corporation to new and more attractive
business domains?
Does the initiative create options for the corporation to move in new strategic directions
where the attractiveness of these new directions is currently unknown?
Will the initiative potentially enhance the corporations competitiveness in its chosen
product-market domains or favourably reposition the corporation within those domains?

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IV.

Organizational Roles

About functions, roles, and types of employees

Function: job, a set of tasks, responsibilities with a specific title and goal. Positioned in a
context and connected with other functions;
Role: what and how a person should act;
Type: specific characteristics of a person based on a psychological or sociological model.

Different types of employees

Eagles have vision, ideas; do not fit in a tight job description; want to become an
intrapreneur;
Dead wood employees who are not productive; keep their seat warm;
Committed, Indifferent, Dissident regarding companies goals.

Compare manager, entrepreneur, intrapreneur (Pinchot, pag. 163-165)

Primary motives
o Managers higher salary; corporate rewards
o Entrepreneurs believe in own ideas; self-motivators; freedom;
Risk attitude
o Managers confident of taking risks; calculated risk
o Entrepreneur moderate risk taker; invest heavily; not afraid for losing the job
Status
o Managers - status symbols of his management position (private parking place, bigger
office, private secretary
o Entrepreneur not interested in status; very simple office; freedom;

Intrapreneurial tasks and activities

Career Development Styles of Intrapreneurs

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Most entrepreneurial in order:


1. Shapers very strong focus and goal; self-determined; self-directed;
2. Opportunity takers very concrete, detailed focus on their career future; more looking at
the context: what comes up, what are the opportunities; context influences my career
3. Surveyor recognize an opportunity when it appears
4. Floaters open minded; very depending on the context; easy-going; go with the flow

Competence test of entrepreneurial activity (Driesen):

Achievement want to compete; be better than others; create results;


Autonomy autonomous thinkers; need freedom, creativity and autonomy;
Creativity creative, innovative
Endurance long way to success; long years of sweat, tears and blood
Flexibility need ability to change, move, ideas of successful products; lemonade principle
Market know about the market
Power need for power; influence and inspire other people;
Risk-taking moderate risk taker
Self-belief believe in yourself
Social network well in order to find the right resources; financial support

(scale from 1 to 10; no one scores 10 out of 10 in all)

Critical roles in Corporate Entrepreneurship


Individuals within a corporate entrepreneurship environment must take on one or more of these
roles on a regular basis:

Initiator - come up with an idea; makes the start; also serves as the Champion;
Sponsor top management that protects the intrapreneurial team; facilitate the resources
including financial;
Champion the intrapreneur; goes over all the stages; developing the project; putting on
the market; loner; jack of all trades
Innovation Midwife kind of a diplomat; connecting the sponsor and the professional who
comes up with an opportunity, idea or initiative; translating cultures
Supporter colleague that believe and invest in your idea;
Reactor come up with critical questions to test the viability of the idea or initiative;

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15 key roles that must be filled by the champion

Researcher/analyser
Interpreter/strategist
Visionary/inventory
Catalyst or leader
Endorser
Team player
Resource provider
Problem solver
Coordinator
Negotiator
Politician
Change manager
Missionary
Opportunist
Critic/judge

A personal approach to the entrepreneurial process


There are certain principles to which the individual entrepreneur or champion may always want to
adhere:
1.
2.
3.
4.
5.
6.
7.
8.

Solidify a relationship with a sponsor.


Build a flexible team structure.
Insulate the project and keep it quiet as long as possible.
Become a guerrilla.
Promise less but deliver more.
Experiment and produce early wins.
Manage project momentum.
Attempt to set the parameters.

The Importance of Sponsors


Some questions to ask when attempting to identify a sponsor:

Has this person been challenged and yet proceeded anyway? Is the person willing to handle
controversy?
Does the person have a deep personal commitment to innovation and innovate people?
Can you gain the respect of this person?
How important is another step up the corporate ladder to this person?
Does this person know when to fight, when to give up gracefully, and when it really does not
matter?
Does the person understand clearly the corporate decision making structure?
Does this person have the respect of other key corporate decision makers and have access
to them?

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Beware of the Dark Side of Entrepreneurship


A potentially destructive element resides within the energetic drive of successful entrepreneurs
1. The confrontation with risk
o Financial risk
o Career risk
o Family and social risk
o Psychic risk
2. Entrepreneurial stress
o Stress - discrepancy between a persons expectations and ability to meet demands
o Role overload
3. The entrepreneurial ego
o An overbearing need for control
o A sense of distrust
o An overriding desire for success
o Unrealistic Optimism

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Questions
1. Q: Which of the following key company capabilities does NOT generate sustainable
competitive advantage?
A: Dependability.
2. Q: Consider the following statements about the key roles of managers and entrepreneurs:
I. Managers are planners, staffers, evaluators, and change agents.
II. Entrepreneurs are strategists, visionaries, creators, and
budgeters.
A: Both statements are false.
3. Q: What is a similarity between independent and corporate entrepreneurship?
A: Entrepreneur and intrapreneur must have a unique business concept.
4. Q: What is a difference between independent and corporate entrepreneurship?
A: ?
5. Q: What is NOT one of the three types of Corporate Entrepreneurship discussed in Sharma
and Chrisman (1999), ET&P article?
A: Innovation
6. Q: Which degree of innovation describes the implementation of a new administrative
system, e.g., SAP?
A: Major new process.
7. Q: Which of the following dimensions characterize an entrepreneurial organization?
A: Risk-taking, innovativeness, proactiveness
8. Q: A firm seeks growth in new markets with current products. Which strategy is the firm
pursuing?
A: Market development strategy
9. Q: Consider the following statements about the modes of corporate venturing:
I. Internal corporate venturing describes new businesses that are created and owned
by the corporation.
II. External corporate venturing describes investing corporate funds into external
business start-ups.
A: Both statements are true.
10. Q: What type of corporate investment is an enabling investment (Chesborough, 2002, HBR)?
A: Strategic objective, loosely linked to operations.
11. Q: How many principles does the concept of corporate effectuation contain?
A: 5

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12. Q: Which concept is described?


the formulation of long-range plans for the effective management of external
opportunities and threats in light of a companys internal strengths and weaknesses.
A: Strategic Management
13. Q: Consider the following statements regarding entrepreneurial structure:
I. An organic structure is needed to facilitate entrepreneurship.
II. A mechanistic structure is effective in a more hostile external environment.
(mechanistic structure is effective in a predictive environment)
A: Statement I is true, statement II is false.
14. Q: How can a company be described, if it has an entrepreneurial management and a
mechanistic organization structure?
A: Pseudo-entrepreneurial firm
15. Q: Which statement from Michael Porters article (1996) is correct?
A: Most Japanese companies compete in operational effectiveness rather than strategic
positioning.

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