Chapter 12: Managing Innovation
and Fostering Corporate
Entrepreneurship
I. Importance of Innovation
Challenges of Innovation
II. Unique role of corporate entrepreneurship
Focused verses Dispersed
III. Entrepreneurial orientation benefits
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 v. Process
• Radical v. Incremental
• Exploration v. Exploitation
12-4
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
12-5
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
12-6
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
12-7
Types of Innovation
• Incremental innovation
 Enhance existing practices
 Small improvements in products and
processes
 Evolutionary applications within existing
paradigms
12-8
Continuum of Radical and
Incremental Innovations
12-9
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.
12-10
Challenges of Innovation
Seeds versus
Weeds
Experience
versus Initiative
Internal versus
External staffing
Building
capabilities
versus
Collaborating
Incremental
versus
Preemptive
launch
12-11
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
12-12
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
12-13
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
12-14
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
12-15
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
12-16
Innovator’s DNA (Exhibit 12.2, p. 439)
• Associating
 connecting the unrelated
• Questioning
 challenge common wisdom
• Observing
 regular behavior of people
• Experimenting
 trying and testing ideas
• Networking
 social capital
 find and test radical ideas
12-17
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 firm’s domain
of interest.
12-18
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?
12-19
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
time-consuming
mistakes
12-20
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
• 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.
12-21
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
12-22
Collaborating with Innovation Partners
• To choose partners, firms need to ask:
 what competencies are we looking for?
 what will the innovation partner contribute?
• Knowledge of markets
• Technology expertise
• Contacts with key players in an industry
12-23
II. Corporate Entrepreneurship
New value for a corporation
“Intrapreneurship”
24
II. 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.
12-25
Factors affecting Entrepreneurial Ventures
•
•
•
•
Culture
Leadership
Structural features that guide/constrain action
Organizational systems that foster learning and
manage rewards
• The use of teams in strategic decision making
• Whether the company
 is product or service oriented
 innovation efforts are aimed at product or process
improvements
 it is high-tech or low-tech
12-26
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
12-27
Rules for
Fostering
Innovation
(p. 444)
12-28
Focused versus Dispersed
• Focused
 New Venture
Groups
 Business Incubators
 Funding
 Physical space
 Business services
 Mentoring
 Networking
• Dispersed
 Entrepreneurial
culture
 Product
Champions
12-29
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?
12-30
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.
12-31
Real Options Analysis
• Looks at investment
or activity as a series
of sequential steps
a)Investing additional
funds
b)Delaying
c) Shrinking the scale
d)Abandoning the
activity
• Potential Pitfalls
 Agency theory and
the back-solver
dilemma
 Managerial Conceit
 Overconfidence and
illusion of control
 Irrational escalation
of commitment
12-32
III. Entrepreneurial Orientation
…Spirit…
…Culture…
…Muchness…
33
III. Entrepreneurial Orientation
• For successful corporate entrepreneurship
 firms need to have an entrepreneurial
orientation (EO)
• EO = the strategy-making
practices that businesses use
in identifying and launching
new ventures, consisting of …
12-34
Dimensions of Entrepreneurial Orientation
Keeps innovation,
entrepreneurship,
creativity, …
Going within the
organization
12-35
12-36
Strategic
Management
Analysis
Implementation
Formulation
12-37