McGraw-Hill/Irwin
Managing Innovation and Fostering Corporate
Entrepreneurship
Chapter Twelve
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

• 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

• 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

• 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

• 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

• 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

• Incremental innovation

Enhance existing practices
 Small improvements in products and processes

Evolutionary applications within existing paradigms
12-7

12-8

• 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

• Seeds versus Weeds
• Experience versus Initiative
• Internal versus External staffing
• Building capabilities versus Collaborating
• Incremental versus Preemptive launch
12-10

• 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

• 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

• 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

• 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

• 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
 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

• 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

• Incubators provide some or all of the following functions
 Funding

Physical space
 Business services

Monitoring
 Networking
12-23

• 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 (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
 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