Chapter 13
Strategic Entrepreneurship
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
©2003 Southwestern Publishing Company
1
Strategic Inputs
The Strategic
Management
Process
Chapter 2
The External
Environment
Strategic Intent
Strategic Mission
Chapter 3
The Internal
Environment
Strategy Implementation
Strategic Outcomes
Strategic Actions
Strategy Formulation
Chapter 5
Chapter 4
Competitive Rivalry
Business-Level
and Competitive
Strategy
Dynamics
Chapter 7
Acquisition and
Restructuring
Strategies
Chapter 8
International
Strategy
Chapter 6
CorporateLevel Strategy
Chapter 10
Corporate
Governance
Chapter 11
Organizational
Structure and
Controls
Chapter 9
Cooperative
Strategy
Chapter 12
Strategic
Leadership
Chapter 13
Strategic
Entrepreneurship
Strategic
Competitiveness
Above-Average
Returns
Feedback
2
Strategic Entrepreneurship

Strategic entrepreneurship: taking
entrepreneurial actions using a strategic
perspective
– engaging in simultaneous opportunity seeking
and competitive advantage seeking behaviors
– designing and implementing entrepreneurial
strategies to create wealth

These actions can be taken by individuals
or by corporations
3
Entrepreneurial Opportunities

Entrepreneurial opportunities are
conditions in which new products or
services can satisfy a need in the market
 Entrepreneurs or entrepreneurial
managers must be able to:
– identify opportunities not perceived by others
– take actions to exploit the opportunities
– establish a competitive advantage
4
Innovation

Innovation is the process of creating a
commercial product from an invention
– invention brings something new into being
– innovation brings something new into use

Innovation is a key outcome firms seek
through entrepreneurship and is often the
source of competitive success
 Innovations produced in large established
firms are often referred to as corporate
entrepreneurship
5
Entrepreneurs

Entrepreneurs are:
– individuals acting independently or as part of
an organization
– who create a new venture or develop an
innovation and take risks entering them into
the marketplace

Entrepreneurs
– can be independent individuals
– can surface in an organization at any level
6
International Entrepreneurship

Entrepreneurship can
– fuel economic growth
– create employment
– generate prosperity for citizens

There is a strong positive relationship
between the rate of entrepreneurial
activity and economic development in a
nation
7
International Entrepreneurship

There must be a balance
(in the culture) between
– individual initiative and
– the spirit of cooperation and
group ownership of innovation

Successful entrepreneurial firms
– provide appropriate autonomy
– incentives for individual initiative
– promote cooperation and group ownership of
an innovation
8
Innovation Types:
Incremental Innovation
Incremental
innovation



most innovations are incremental
builds on existing knowledge bases
provides small improvements in the
current product lines
9
Innovation Types
Radical Innovation
Incremental
innovation
Radical
innovation

provides significant technological
breakthroughs
 creates new knowledge
 is rare because of difficulty and risk
 requires substantial creativity
 radical innovations are often best
developed in separate units that start
internal ventures
10
Internal Corporate Venturing
Concept of corporate strategy
Strategic context
Autonomous
strategic
behavior
Structural context
Induced
strategic
behavior
11
Internal Corporate Venturing:
Autonomous Strategic Behavior

Autonomous strategic behavior is a
bottom-up process in which product
champions:
– pursue new ideas, often through a political
process
– develop and coordinate the commercialization
of a new good or service until it achieves
success in the marketplace
12
Internal Corporate Venturing:
Autonomous Strategic Behavior

A product champion is an organizational
member with an entrepreneurial vision of
a new good or service who seeks to create
support for its commercialization
 Autonomous strategic behavior
– based on a firm’s wellsprings of knowledge
and resources that are the sources of the
firm’s innovation
– a firm’s technological capabilities and
competencies are the basis for new products
and processes
13
Internal Corporate Venturing:
Induced Strategic Behavior

Induced strategic behavior is a top-down
process whereby
– the firm’s current strategy and structure foster
product innovations
– innovations are associated closely with that
strategy and structure
14
Internal Corporate Venturing:
Induced Strategic Behavior

To be innovative and develop internal
ventures requires
– an entrepreneurial mindset
– risk propensity
– an emphasis on execution

Individuals with an entrepreneurial
mindset
– engage the energies of everyone in their
domain
– both inside and outside the organization
15
Cross-Functional Product
Development Teams

Cross functional
product
development team
facilitate efforts to integrate
activities associated with different
organizational functions
 design, manufacturing, marketing,
etc.
 new product development
processes can be completed more
quickly
 products can be more easily
commercialized when crossfunctional teams work effectively
16
Cross-Functional Product
Development Teams


Cross functional
product
development team
product development stages are
grouped into parallel or
overlapping processes
this approach allows the firm to
tailor its product development
efforts
– unique core competencies
– needs of the market
17
Barriers to Cross-Functional
Team Effectiveness

Different orientations and perceptions
– individuals from separate functions have
different orientations on issues
– perceive product development activities in
different ways

Organizational politics
– aggressive competition for resources among
different organizational functions
– must achieve cross-functional integration with
minimal political conflict
18
Creating Value Through Internal
Innovation Processes
Cross functional
product development
teams
Entrepreneurial
mindset
Creating value
through innovation
Facilitating integration
and innovation
• Shared Values
• Entrepreneurial
Leadership
19
Cooperative Strategies for
Entrepreneurship and Innovation

Firms may need to cooperate and integrate
knowledge and resources to successfully
commercialize inventions
– entrepreneurial new venture firms may need
investment capital and distribution capabilities
– more established companies may need new
technological knowledge possessed by newer
entrepreneurial firms

To innovate through a cooperative
relationship, firms must share their knowledge
and skills
20
Acquisitions to Buy Innovation

Acquisitions
– rapidly extend the product line
– increase the firm’s revenues

A key risk of acquisitions is that a firm
may substitute the ability to buy
innovations for an ability to produce
innovations internally
– firm may lose intensity in R&D efforts
– firm may lose ability to produce patents
21
Loss of Innovative Capability
Following Large Acquisitions
Firm Minus Industry
R&D Intensity
-.000
-.002
-.004
-.006
-.008
-.010
-.012
-4
Before
-2
0
2
After
4
Years Before and After Acquisitions
22
Loss of Innovative Capability
Following Large Acquisitions
.032
Patent Intensity
.030
.028
.026
.024
.022
.020
.018
-4
Before
-2
0
2
After
4
Years Before and After Acquisitions
23
Capital for
Entrepreneurial Ventures

Venture capital firms
– seek high returns on their investment
– value competence of the entrepreneur or the
human capital in the firm
– place weight on the expected scope of
competitive rivalry the firm is likely to
experience
– evaluate degree of instability in the market
addressed
24
Capital for
Entrepreneurial Ventures

Initial public offerings (IPOs)
– new stock
– firm needs high potential in order to sell new
stock
– often quite larger than the amounts obtained
from venture capitalists
– investment bankers frequently play major roles
in the development and offering of IPOs
– firms that have also received venture capital
backing usually receive greater returns from
IPOs
25