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Managing Innovation and Fostering Corporate Entrepreneurship

Chapter Twelve

McGraw-Hill/Irwin

Copyright 2012 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

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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
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Types of Innovation
Product innovation
Efforts to create product designs Applications of technology to develop new products for end users More common during early stages of an industrys life cycle Associated with differentiation strategies

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Types of Innovation
Process innovations
Improving efficiency of an organizational process Manufacturing systems and operations More likely to occur in later stages of an industrys life cycle Associated with cost leader strategies

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QUESTION
Radical innovations

A. Often result in quick profits B. Often represent technological breakthroughs C. Usually apply to products and processes simultaneously D. Usually cannot be patented
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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

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Types of Innovation
Incremental innovation
Enhance existing practices Small improvements in products and processes Evolutionary applications within existing paradigms

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Continuum of Radical and Incremental Innovations


Exhibit 12.1

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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.

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Challenges of Innovation
Seeds versus Weeds Experience versus Initiative Internal versus External staffing

Building capabilities versus Collaborating


Incremental versus Preemptive launch
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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

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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

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Internal versus External Staffing


People drawn from inside the firm
May have greater social capital Know the organizations 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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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
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Incremental versus Preemptive Launch


Incremental launch
Less risky Requires few resources Can undermine the projects 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) Firms ensure that their innovation efforts are not wasted on projects that are outside the firms domain of interest.

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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?

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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 open-ended experimentation and timeconsuming mistakes

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Staffing to Capture Value from Innovation


Create innovation teams with experienced
players Require that employees seeking to advance their career serve in the new venture group

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Staffing to Capture Value from Innovation (cont.)


Once people have experience with the
new venture group, transfer them to mainstream management positions Separate the performance of individuals from the performance of the innovation.

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Collaborating with Innovation Partners


To choose partners, Knowledge of
firms need to ask what competencies they are looking for and what the innovation partner will contribute. markets Technology expertise Contacts with key players in an industry

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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.

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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

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Rules for Fostering Innovation


Exhibit 12.3

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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.

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New Venture Groups


Involvement includes
Innovation and experimentation Coordinating with other corporate divisions Identifying potential venture partners Gathering resources Launching the venture

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Focused Approaches to Corporate Entrepreneurship


Business incubator
supports and nurtures fledgling entrepreneurial ventures until they can thrive on their own as stand-alone businesses.

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Business Incubators
Incubators provide some or all of the
following functions
Funding Physical space Business services Mentoring Networking

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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 Entrepreneurial culture, Product champions
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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

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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

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Measuring the Success of Corporate Entrepreneurship Activities


Comparing strategic and financial CE goals

1.
2. 3.

Are the products or services offered by the venture accepted in the marketplace? Are the contributions of the venture to the corporations 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

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.

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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.

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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

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QUESTION
On average, approximately what percentage of corporate ventures reaches profitability after six years?

A. 80 percent B. 65 percent C. 50 percent D. 35 percent


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Dimensions of Entrepreneurial Orientation


Exhibit 12.4

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