Baumol (2005) – Microtheory of Entrepreneurship: more
exists than is recognized.
The author mainly argues that the entrepreneur seems to be missing in existing theory, yet
that the existing models allow space for his/her role in the theory of the firm.
Entrepreneurial theory based on theory of Investment: Baumol sees similarities between
innovation and investment processes and suggests a modification to make a theory of
entrepreneurship
Entrepreneurship in this context is an innovative activity which is to be analyzed and studied
as a form of investment.
The entrepreneur is often missing in literature which stems from two sources:
1. The entrepreneur is virtually never mentioned in neoclassical writings such as
a. Production theory
b. Distribution theory
2. The misunderstanding that entrepreneurship does not relate to topics that are
associated with traditional theories of for e.g. land or labor
Why is the entrepreneur absent from literature Static Theory of the Firm and
Production?
In mainstream economics most constructs are generally equilibrium models in which
structurally nothing changes. The entrepreneur is the opposite and seeks to upset
equilibrium through alertness, seeing profitable opportunity, and provides pressures that
subsequently moves the economy back to a new state of equilibrium.
The Schumpeterian model - Supply and Earnings
Focuses on the entrepreneur as innovator, and that he is rewarded by temporary monopoly
profits that, if substantial, attract rivals who will try to imitate, thus eroding the super
competitive earnings. The motivated entrepreneur will continue to look for further
innovations.
Based on these insights Baumol suggests that a theory should include:
1. Supply behavior of the entrepreneurial input into the economy’s production
processes
2. The prices of its final products
3. Earnings of the input supplier
Allocation between Productive and Unproductive Entrepreneurship
Baumol states that the appearance and disappearance of entrepreneurs is often seen as a
sort of ‘spontaneous generation’, yet argues that entrepreneurs are always with us but that
1
the rewards structure offered in the economy makes them switch the locus of their activity.
Thus the allocate between arena’s where pay off prospects have become more attractive.
Allocation between Productive and Unproductive Entrepreneurship (vervolg)
The unproductive entrepreneur is rent-seeking and destructive entrepreneur. The
productive entrepreneur seeks opportunities and creates tension that attracts other
entrepreneurs.
Profits, Prices, Supply Behavior, Allocation and DEMAND for
Entrepreneurship
Profits, Prices, Supply Behavior (Schumpeter) and Allocation of Entrepreneurship (Baumol
himself) are found in existing literature and discussed here before, yet demand is missing.
This is because in regular models there is no demand for entrepreneurship; it is the
individual who takes on this role. Yet, it is still vague how this must be defined although it
may be described as the workings of mechanisms of the market that become an apparent
opportunity to the entrepreneur.
Innovative activity as a form of Investment
The features of innovation (an invention) and investment (capital) are similar:
1. The outlay and revenues over time
2. Unpredictability of their returns
3. Risks and uncertainties
! Knudsen & Swedberg (2009) – Capitalist Entrepreneurship:
Making Profit through the Unmaking of Economic Orders.
A multidisciplinary approach for the theory of Entrepreneurship in a capitalist environment
where the goal is to make a profit. The authors define Entrepreneurship solely on the
breaking of an economic order (sociological) through the use of new combinations of factors

Economic and Sociological theory of entrepreneurship Schumpeter’s New
Combination
o Making new combinations of the factors of production
o New combinations end an existing order and forms a new one
o ‘Making profit through the unmaking of existing economic orders’
Schumpeter on Combinations
Schumpeter states that combinations refer to technological but also economical
combinations. In short, everything that production in the widest sense. The distinction is
made as Schumpeter argues that not the technological but the economical logic prevails in a
2
capitalist society, which explains why we see so much imperfections in technology (written
in 1934)
Schumpeter distinguishes between new combinations in five different types of factors:
1.
2.
3.
4.
5.
New goods
New production methods
New market
New source of raw materials
The carrying out of an new organization of any industry
Schumpeter on Resistance to Innovations
Resistance to innovation comes in three types according to Schumpeter:
1. Resistance to the Task –
the economic actor has to do something he or she has never done before, therefore
intuition is important
2. The Psyche of the Businessman
The way the person thinks about doing something new, breaking away from routines
is difficult
3. The Social Environment
Legal and political impediments, hostility be people who behave in a different way
Using the Concept of Combination as Theoretical Building Block
Schumpeter argues that innovation can be either in an element of the production or a
product itself
Innovation can be defined as a new version of a whole economic process that is needed to
conceive, produce, market and sell some goo.
An entrepreneur cannot innovate just one element but must complete all elements in the
innovation process and in a capitalist society also must make a profit:
3
Using the Concept of Resistance as a Theoretical Building Block
Resistance is the Sociological element in the theory of Entrepreneurship suggested by the
authors
Schumpeter has kept his model strictly economical, while the authors state that sociological
aspects should definitely be part of a theory of Entrepreneurship:
The authors suggest that sociological influences affect innovation as social forces, social
pressures etc. exist in economic life. The authors review norms and routines, but state that
they are either focused on proscribed behaviors and repetition respectively. The authors
suggest:
Order
A general prescription for how to realize a combination of economic activities so that profit
will result. – variation of behavior can take place within the natural boundaries of the
framework: making profit cannot be achieved beyond these boundaries, whereas rules
(norms) are arbitrary.
The Crucial Step: The Analytical Bringing Together of the Concepts of
Combination and Order
Combination/Innovation and Order/Resistance
The theory here predicts that profit will be highest when a new combination successfully
breaks with the old order and that profit will fall as the new order gradually establishes
itself.
4
Figure 3: An entrepreneur emerges and suggests a different way of doing things which lead
to higher profit. Others imitate the innovator and switch to the same new way of doing
things. This is called competing down and also leads to profit, although not as much as the
original innovator. A new order for how to do things has emerged in the economy.
Figure 4 shows that as competitors see that experimentation is rewarded, an increase of
experimentation is seen (competing up), in which different combinations will be tried in
order to raise profits. After the temporary monopoly of the innovator at the top of the profit
curve, competitors will come in again and make profits decline again (competing down).
Authors state that competition is typically not possible without forceful action by the state
in the form of anti-monopoly legislation.
5
Crossan & Apaydin (2010) – A Multi-Dimensional Framework
of Organizational Innovation: A Systematic Review of the
Literature
By means of a systematic review of literature over 27 years, a multi-dimensional framework
of organizational (firm level) innovation is posited including three elements:
1. Innovation Leadership
2. Innovation as a process
3. Innovation as an outcome
Measures for determinants of organizational innovation are suggested.
The authors define innovation as: production or adoption, assimilation and exploitation of a
value-added novelty in economic and social spheres; renewal and enlargement of products,
services and markets; development of new methods of production; establishment of new
management systems. It is both a process and an outcome.
From their literature review comes to notice that more than half of all articles are at the
organizational level (52%)
Dimensions of innovation
1. Innovation as a process
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Innovation as a process should answer the question ‘how’. Under developed in literature.
1. Level – (level/group/firm)
2. Driver – Internal driver (knowledge/resources from within the firm that allow
innovation) vs. external (a market opportunity or imposed regulations)
3. Direction – top down (ordered from management) or bottom-up (from
workfloor)
4. Source – internal, ideation or external adoption from invention elsewhere.
5. Locus – the extent of the innovation: firm only vs. network (open process)
2. Innovation as an outcome
1.
2.
3.
4.
Form – Product service/process/business model
Magnitude – Incremental/radical
Referent - Firm/Market/Industry
Type - Administrative/technical – Organizational structures, organ. processes,
admin. processes, HR vs. products production processes related to basic work
activities of the company
5. Nature – Tacit vs. Explicit. Can be applied to both ‘Innovation as process and
outcome’
Form and magnitude are closely related: incremental innovation is often associated
with product and process innovation, while radical innovation is more often
associated with business model innovation.
Innovation as an outcome is more important than innovation as a process:
The role of innovation as an outcome is necessary and sufficient for a successful
exploitation of an idea, whereas that of innovation as a process is only necessary but
not sufficient. This makes innovation as an outcome the key dependent variable in
empirical studies related to innovation.
Determinants of Innovation
1. Innovation leadership
Upper echelon theory poses that leaders’ behaviors are a function of their values,
experiences and personalities:
1. Technical and professional expertise
2. Creative skills
3. Ability to process complex information
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A distinction is made between the skills of the individual (e.g. CEO) and the group or top
management team TMT
Upper echelon based distinction in characteristics:
Individual
Group
characteristics
Composition + characteristics
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Tolerance of ambiguity
Self confidence
Openness to experience
Unconventionality
Originality
Rule governess
Authoritarianism
Independence
Intrinsic attribution bias
Determination to succeed
Personal initiative
Managerial
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Age
Education
Personal background and
experience
Extra-industry ties
Occupational background
Institutional shareholding
2. Managerial levers
a meta-construct that regards the firm level variables supporting innovation.
Dynamic capabilities theory is used to describe the five sets of managerial levers:
1.
2.
3.
4.
Missions/goals/strategies – established direction
Structures and systems – provides necessary support for innovation practices
Resource allocation- provides necessary support for innovation practices
Organizational learning and knowledge management tools – maintain innovation
process
5. Culture - maintain innovation process
An explicit innovation strategy is the primary managerial lever to enhance motivation
Structures and systems - organizational complexity, administrative intensity, specialization
and centralization, formalization, stratification, fit between organizational design and type
of innovation, number of employees
Resource allocation – absolute and relative R&D intensity, commitment to differentiated
funding, annual turn-over of resources, slack resources
Organizational learning and knowledge – through experimentation, being tolerant of failed
ideas, adopting risk-taking norms, fostering acceptance of diversity within the group.
Culture – creating an innovative culture through a clearly stated, attainable, valuable shared
vision, promoting autonomy, calculated risk taking and motivation.
4. Business Processes
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Meta construct consolidating process-level variables. Is typically referred to as (Van de Ven
en Poole, 1995): Category of concepts or organizational actions, such as decision making
techniques, work flows or methods for strategy creation
Core processes include:
1.
2.
3.
4.
5.
6.
Initiation
Portfolio management
Development
Implementation
Project management
Commercialization
Kuratko, Covin & Hornsby (2014) – Why implementing
corporate innovation is so difficult
Successful implementation of corporate innovation seems elusive for many companies
The establishment of a successful
corporate innovation depends on
employee engagement and thus needs
the successful implementation of the
following four major elements
presented:
The authors demonstrate that there are four issues regarding innovation implementation:
1.
2.
3.
4.
Understanding what type of innovation is being sought
Coordinating managerial roles
Effectively using operating controls
Properly training and preparing individuals
67% of companies in Accenture research indicate they depend strongly on innovation, yet
50% they have a poor innovation process. 93% think innovation is essential for long-term,
while 18% believe that their innovation process is poor.
The 4 issues discussed
1. Type of innovation sought
A company can choose various definitions of innovation
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Basic type of Innovation
Product innovation
Process innovation
Trajectory
Incremental innovation
Radical innovation
Disruptive innovation
(Such as internet or 3d printing)
There are two aspects to knowing what innovation is being sought:
1. Understanding the exact form of innovation
2. Understanding the strategic focus that the organization is taking for its process of
corporate entrepreneurship/innovation
Strategic focus can be manifested through:
1. Corporate Venturing
The creation, adding or investing in new businesses. Internal venturing:
businesses that are created and owned by the parent company and may operate
semi-autonomously outside the firm. External venturing refers to
entrepreneurial activity in which new businesses are created by parties outside
the corporation and is invested in by the corporation through equity. A venture
may also be started by two parent companies combining resources.
2. Strategic Entrepreneurship
Corresponds to broader entrepreneurial activities that represent internal changes
from:
1.
2.
3.
4.
5.
6.
7.
Past strategies
Products
Markets
Organization structures
Processes
Capabilities
Business models
Two reference points for strategic entrepreneurship:
1. How much is the firm transforming relative to its former self?
2. How much is the firm transforming itself compared to industry convention
standards?
2. Coordination of managerial roles
A strong integration of senior, middle and first-level managers must facilitate coordination
of the innovation process through alignment. Senior levels instigate the innovation strategy
but cannot dictate it and therefore are very dependent on the latter two management levels
Senior-level managers should first recognize ideas from team members and directing them
to proper channels. More importantly they should clearly state the innovative strategic
vision and must aim to create an environment that is conducive to innovation.
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Middle-level managers must behave innovative themselves and nurture others doing the
same. Through their central position, middle level managers act as agents and promoters of
innovation and endorse the innovation strategy that comes from senior manager to the first
level manages. They are most aware of the resources that are needed to carry out the
innovation strategy.
First-level managers have three basic roles that correspond to their competence:
1. Experimenting (initiating innovative projects)
2. Adjusting (response to recognized and unplanned innovative challenges)
3. Conforming (adapting operating policies and procedures instructed from higher
management levels)
3. Effective use of operating controls
Innovation may in some cases not align with the organization’s interests and thus should not
be pursued blindly.
Operation control systems (OCS) may seem the opposite of corporate innovation as they
aim to control and restrict actions, whereas innovation aims to change actions.
What is needed in organizations to productively support a corporate innovation strategy is
not the absence of OC processes and mechanisms, but rather the alignment of such factors
with a strategy of corporate innovation.
OCS should be used to select, guide and possibly terminate innovative actions and initiations
for the sake a coherent movement towards a desirable future.
OCS:
1. Culture
2. Structure
3. Systems
4. Policies
5. Procedures
Determinants of successful corporate innovation:
1. Management support
2. Work discretion/autonomy
3. Rewards/reinforcements
4. Time availability
5. Organizational boundaries
These determinants interact with the OCS
4. Individual training and preparation
Entrepreneurial behavior that is linked to corporate innovation should be:
1. Made aware among employees
2. Encouraged
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3. Nurtured
As employees make an opportunity cost evaluation of entrepreneurial behavior,
commitment will come from lower opportunity costs in comparison to other
behaviors.
Creating Understanding for the desired Innovation
Executive leaders must create an understanding of the innovation process for their
employees and all parties that will be affected by the corporate innovation
To accomplish this sense of understanding, corporate entrepreneurship/innovation
training programs are often employed:
1. The Corporate Innovative Experience
Entrepreneurial revolution that took place over the last 30 years is presented and
participants are challenged to think innovatively and recognize the need for
breaking out of old paradigms in today’s organizations.
2. Innovative Thinking
Misconceptions about thinking innovatively are reviewed and discussed after
completing an innovation inventory managers engage in exercises designed to
facilitate their own innovative thinking
3. The Idea Acceleration Process
Participants generate a set of specific ideas which they would like to work on.
Organizational structural barriers and facilitators for the idea are examined and
resources needed to accomplish the project are determined
4. Barriers and Facilitators to Innovative Thinking
The most common barriers to innovative behavior are discussed and are dealt
with in exercises regarding the barriers that exist in the organizations workplace.
5. Failure Recognition
Personal failure that occurs with failing projects and negative feelings associated
with failure should be discussed and support given through a social support
system. This will likely increase learning and motivational outcomes
6. Innovation Teams (I-Teams)
I-teams focus and examine specific innovations. Participants work together in
teams formed based on the ideas that have been circulated among the entire
group, where team dynamics are reviewed.
7. The Innovation Action Plan
After examining the aspects of facilitators and barriers to behave innovatively,
teams are instructed to complete an action plan that comprises:
1. Goal setting
2. Establishment of an I-team
3. Assessment of current conditions
4. Development of a step-by-step timetable for project completion
5. Evaluation of the project
These types of programs should be ongoing in nature: efforts to successfully engage in
corporate innovation must themselves be innovative and adaptable to the ever-changing
conditions in the internal and external environment
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Drucker (1985) – Entrepreneurial Strategies
The entrepreneur always searches for change, responds to it, and exploits it as an
opportunity”
“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as
an opportunity for a different business or a different service”
There are four entrepreneurial strategies.
1. "Being fustest with the mostest’’
‘First mover‘ market leadership, dominance (new market or industry)
In this strategy there is only utter success or utter failure: high risks with potentially high
rewards. Hit or miss of the bulls eye.
This strategy is done by creating something truly new and different. Non-experts seem to do
as well as experts because they are not aware or constrained by ideas of what can and
cannot be done.
This strategy requires a research budget even larger after the successful implementation of
the innovation to keep the leadership position. In addition, a leader should aim to cut prices
systematically to keep the market less attractive for competition.
2. "Hitting them where they ain't’’–
1. Creative Imitation
Here the entrepreneur does something that somebody else has already done. The
entrepreneur has in a sense a better understanding of the innovation and uses this
for their personal objective (the creative part of imitating).
The Creative Imitator aims at markets rather than products.
This strategy is also aimed at market leadership and domination. The risk is lower
than with ‘fustest with the mostest’ as the original innovator has proven the use of
the innovation.
Though there must be a successful initiator for the innovation, it is where the
initiators fail to understand their success that the Creative Imitator takes part. The
creative imitator does not invent a product or a service but perfects it.
This strategy is most likely to work in High Tech industries as High Tech companies
focus (too) much on their technology while failing the potential uses for different
markets
Dangers: Creatively Imitating an Innovation that is not going to be dominant and
using this as a constant business model makes that separate divisions are based on
incompatible innovations, making incoherent products/services
2. Entrepreneurial Judo
13
Entrepreneurial Judo implicates a strategy where companies make us of the (bad)
habits of other companies. Other companies can make us of these habits as they
persist over time and are like criminals traces: they hardly change.
It aims at weak points of companies which they hardly defend. Once they defeat
those companies on those points and move further up their territory and taking the
market with dominance.
Bad habits are:
1. NIH – Not Invented Here
Companies believe Innovations that are not invented by their own to be useless
2. Creaming the market
Looking for the high-profit part of the market and therefore seeing new comers on
the lower profit part of the market as no danger
3. The belief in Quality
Overly focused on quality, up to a point the customer does not care anymore,
making costs to high for the quality perceived by the customer  Quality is only
what a customer can get out of the product and gives them value
4. Premium pricing
Premium pricing does not work as it invites competition. Profit margins should only
be enhanced through the cutting of costs
5. Maximize rather than optimize
Companies try to satisfy every single user and thereby focusing on many different
desires, making the end product a compromise of many wishes, leaving an
unsatisfying product for the customer.
Trying to satisfy everybody always ends up satisfying nobody
When market or industry structures undergo rapid change, Entrepreneurial Judo works
It is market focused and market driven
3. Finding and occupying a specialized "Ecological Niche’’
1. Niche market strategy  (new product new market)
4. Changing the economic characteristics of a product, a market, or an industry
‘Schumpeterian’ strategy – ‘new combination’
(changing pricingmodel; xerox did this by asking money per print and not per printer)
These four strategies are not mutually exclusive. One and the same entrepreneur often
combines elements of two, sometimes even three, in one strategy. Each strategy has
associated risks and rewards.
14
Sarasvathy (2001) – Causation and Effectuation: Toward a
Theoretical Shift from Economic Inevitability to
Entrepreneurial Contingency
In economics and management theories, scholars have traditionally assumed the existence
of artifacts such as firms/organizations and markets. Sarasvathy argues that an explanation
for the creation of such artifacts requires the notion of effectuation

Causation rests on a logic of prediction, effectuation on the logic of control.
Effectuation describes the cognitive decision making heuristics, principles entrepreneurs use
under uncertainty conditions.
Effectuation may explain why opportunities can emerge during the entrepreneurial process
through interaction with key stakeholders.
Decisions may be discussed at several levels:
1.
2.
3.
4.
Individual
Firm
Industry/market
Economy
Yet the existence of central artifacts and business context where these decisions take place
are assumed to exist. The creation of such artifacts are rarely examined. For instance: How
does a company make a pricing decision when the market does not exist yet?
PROCESSES OF CAUSATION AND EFFECTUATION
15
Definition: Causation processes take a particular effect as given and focus on selecting
between means to create that effect. Effectuation processes take a set of means as given
and focus on selecting between possible effects that can be created with that set of means.
The effectuator merely pursues an aspiration and visualizes a set of actions for transforming
the original idea into a firm-not into the particular predetermined or optimal firm, but a very
generalized aspiration of a firm.
Causation decision-making. Summarizing from the literature on decision-making, the
anatomy of a causation decision involves:
1. A given goal to be achieved or a decision to be made (usually well structured and
specific),
2. A set of alternative means or causes (that can be generated through the decision
process),
3. Constraints on possible means (usually imposed by the environment), and
4. Criteria for selecting between the means (usually maximization of expected return in
terms of the predetermined goal).
A decision involving effectuation, however, consists of:
1. A given set of means (that usually consists of relatively unalterable
characteristics/circumstances of the decision maker
2. A set of effects or possible operationalizations of generalized aspirations (mostly
generated through the decision process),
3. Constraints on (and opportunities for) possible effects (usually imposed by the
limited means as well as by the environment and its contingencies)
4. Criteria for selecting between the effects (usually a predetermined level of
affordable loss or acceptable risk related to the given means).
Entrepreneurs begin with three categories of "means":
1. they know who they are,
2. what they know, and
3. whom they knowTheir own traits, tastes, and abilities; the knowledge corridors they are in; and the social
networks they are a part of. At the level of the firm, the corresponding means are its
physical resources, human resources, and organizational resources, a la the resource-based
theory of the firm (Barney, 1991).
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The Four Principles forming the core of Effectuation:
1. Affordable Loss rather than Expected Returns
Effectuation predetermines how much loss is affordable and focuses on
experimenting with as many strategies as possible with the given limited means.
2. Strategic Alliances rather than Competitive Analyses
Effectuation emphasizes strategic alliances and pre-commitments from stakeholders
as a way to reduce and/or eliminate uncertainty and to erect entry barriers.
3. Exploitation of Contingencies rather than Exploitation of Preexisting Knowledge
Effectuation, however, would be better for exploiting contingencies that arose
unexpectedly over time.
4. Controlling an Unpredictable Future rather than Predicting an Uncertain One
The logic for using causation processes is: To the extent that we can predict the future, we
can control it. Effectuation, however, focuses on the controllable aspects of an
unpredictable future. The logic for using effectuation processes is: To the extent that we can
control the future, we do not need to predict it.
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Sawhney, Wolcott, Arroniz (2006) – The 12 different ways for
companies to innovate
Business innovation is far broader in scope than product or technological innovation.
Accordingly, we define business innovation as the creation of substantial new value for
customers and the firm by creatively changing one or more dimensions of the business
system. This definition leads to the following three important characterizations:
1. Business Innovation is about new VALUE, not new things
It are the customers who decide what is valuable to them. A technological advancement
may in fact not be valued by customers.
2. Business Innovation may come in Many Flavours
Innovations may take place in many different aspects of a business system.
3. Business Innovation is Systemic
Successful Business innovation requires consideration of all aspects of a business: a
lousy distribution channel will hinder a great product from success
A 360-degree view
The innovation radar, a tool through which companies can look for the different dimensions
of innovation. Between the four anchors are the 8 dimensions of innovation the company
can pursuit
1.
2.
3.
4.
The offerings a company creates
The customers it serves
The processes it employs
The points of presence it uses to take its offerings to the
market
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The 12 Dimensions
1. Offerings
Offerings are a firm’s products and services. Innovation along this dimension requires
the creation of new product and services that are valued by customers.
2. Platform
A platform is a set of common components, assembly methods or technologies that
serve as building blocks for a portfolio of products or services. Platform innovation
involves exploiting the “power of commonality” (Volkswagen using same car parts for
several of its models/Brands)— using modularity to create a diverse set of derivative
offerings more quickly and cheaply than if they were stand-alone items.
3. Solutions
A solution is a customized, integrated combination of products, services and information
that solves a customer problem. Solution innovation creates value for customers
through the breadth of assortment and the depth of integration of the different
elements.
4. Customers
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Customers are the individuals or organizations that use or consume a company’s
offerings to satisfy certain needs. To innovate along this dimension, the company can
discover new customer segments or uncover unmet (and sometimes unarticulated)
needs.
5. Customer experience
This dimension considers everything a customer sees, hears, feels and otherwise
experiences while interacting with a company at all moments. To innovate here, the
company needs to rethink the interface between the organization and its customers.
6. Value Capture
refers to the mechanism that a company uses to recapture the value it creates. To
innovate along this dimension, the company can discover untapped revenue streams,
develop novel pricing systems and otherwise expand its ability to capture value from
interactions with customers and partners
7. Processes
Processes are the configurations of business activities used to conduct internal
operations. To innovate along this dimension, a company can redesign its processes for
greater efficiency, higher quality or faster cycle time. Such changes might involve
relocating a process or decoupling its front-end from its backend.
8. Organization
Organization is the way in which a company structures itself, its partnerships and its
employee roles and responsibilities. Organizational innovation often involves rethinking
the scope of the firm’s activities as well as redefining the roles, responsibilities and
incentives of different business units and individuals.
9. Supply Chain
A supply chain is the sequence of activities and agents that moves goods, services and
information from source to delivery of products and services. To innovate in this
dimension, a company can streamline the flow of information through the supply chain,
change its structure or enhance the collaboration of its participants.
10.
Presence
Points of presence are the channels of distribution that a company employs to take
offerings to market and the places where its offerings can be bought or used by
customers. Innovation in this dimension involves creating new points of presence or
using existing ones in creative ways.
11.
Networking
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A company and its products and services are connected to customers through a network
that can sometimes become part of the firm’s competitive advantage (a network of a
fleet of delivery trucks for FedEx for example). Innovations in this dimension consist of
enhancements to the network that increase the value of the company’s offerings.
12.
Brand
Brands are the symbols, words or marks through which a company communicates a
promise to customers. To innovate in this dimension, the company leverages or extends
its brand in creative ways.
Traditionally, most firms’ innovation strategies are the result of simple inertia (“this is
what we’ve always innovated on”) or industry convention (“this is how everyone
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innovates”). But when a company identifies and pursues neglected innovation
dimensions, it can change the basis of competition and leave other firms at a distinct
disadvantage because each dimension requires a different set of capabilities that cannot
be developed or acquired overnight. And innovating along one dimension often
influences choices with respect to other dimensions. Brand innovation, for example,
might require concurrent innovations along the dimensions of customer experience,
offerings and presence.
Zott, Amit, Massa (2011) – The Business Model: Recent
Developments and Future Research (niet in 2016-7)
The review reveals that scholars do not agree on what a business model is an that the
literature is developing largely in silos, according to the phenomena of interest of the
respective researchers. However, the authors also found emerging common themes among
scholars of business models. Specifically,
(1) the business model is emerging as a new unit of analysis;
(2) business models emphasize a system-level, holistic approach to explaining
how firms “do business”;
(3) firm activities play an important role in the various conceptualizations of
business models that have been proposed; and
(4) business models seek to explain how value is created, not just how it is
captured.
Slides Lecture
Business model (s) + competitive analysis and positioning + execution / implementation /
business integration = strategy
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
Overview + meta-analysis of a stream of publications
BM = New unit of analysis – rising after 1995 (e-business)
Business model concept often used without giving a definition
System level, holistic perspective
Focus on value creation and value capturing
Insights revealed through review:
1. Scholars disagree what a business model is
We observe that researchers frequently adopt idiosyncratic definitions that fit the
purposes of their studies but that are difficult to reconcile with each other. As a
result, cumulative progress is hampered.
2. The literature is developing largely in silos.
The main interest areas identified are:
a) e-business and the use of information technology in organizations;
22
b) strategic issues, such as value creation, competitive advantage, and firm
performance; and
c) innovation and technology management.
3. Emerging themes in literature
(1) The business model is a separate unit of analysis
there is widespread acknowledgement—implicit and explicit—that the business model is
a new unit of analysis that is distinct from the product, firm, industry, or network; it is
centered on a focal firm, but its boundaries are wider than those of the firm;
(2) A System Level Holistic Approach
business models emphasize a system-level, holistic approach to explaining how firms
“do business”;
(3) The role of a Focal Firms Activities and Partners in Business models
the activities of a focal firm and its partners play an important role in the various
conceptualizations of business models that have been proposed
(4) Value capturing and Value Creating in Business Models
business models seek to explain both value creation and value capture. These emerging
themes could serve as important catalysts for a more unified study of business models.
WEEK 3 – 1. OPPORTUNITY RECOGNITION
Eckhardt & Shane (2003) – Opportunities and Entrepreneurship
This article explains the importance of examining entrepreneurship through a disequilibrium
framework that focuses on the characteristics and existence of entrepreneurial
opportunities and further describes typologies of opportunities.
Researchers have tended to take a person-centric perspective, in which entrepreneurship
depends on stable, enduring differences among people rather than differences in the
information they possess about the presence of opportunities.
It is possession the idiosyncratic information that leads to the existence and identification of
entrepreneurial opportunities
Existing theories of Entrepreneurship
Equilibrium
23
1. - theories conclude that current prices convey all of the relevant information
necessary to direct resources.
Unfortunately, prices do not perfectly convey all of the information
necessary to make decisions about resource allocation. For example, prices do not
convey information regarding how a new technology would change future demand
or future production costs for a good. Nor do current prices transmit information
about failed entrepreneurial
ventures.
2. -theories assume that all information and expectations of market participants
about the future can be reduced to current price bids for resources
However, for future information to be reducible to current price information, futures
markets must exist for all goods and services. Futures markets do not exist for
creative activities because these activities are plagued by information problems.
3. -theories assume that all decisions are optimizing decisions.
However, many important decisions about how to allocate resources are not made
by optimizing within given constraints. Rather these decisions involve creative
processes, in which the constraints themselves are determined by the entrepreneur.
4. -theories ignore temporary disruptions in the price system
by assuming that prices always accurately direct productive resources, equilibrium
theories ignore temporary disruptions in the price system that would allow one to
buy or sell resources in response to beliefs about the profit potential of new
combinations or in response to conjectures regarding errors in judgment by other
economic actors.
Moving away from existing theories of Entrepreneurship
Following Venkataraman (1997), we define entrepreneurship as the discovery, evaluation,
and exploitation of future goods and services.
Entrepreneurial Opportunities Defined
Following Casson (1982) and Shane and Venkataraman (2000), we define entrepreneurial
opportunities as situations in which new goods, services, raw materials, markets and
organizing methods can be introduced through the formation of new means, ends, or
means-ends relationships.
Why Prices are Incomplete Indicators of Opportunity
As valuable as the price system is to the coordination of economic activity, it has one major
weakness: prices do not accurately convey all information necessary to coordinate
economic decisions. As a result, prices do not accurately guide the discovery and
exploitation of entrepreneurial opportunities.
Reasons fail to provide all of the necessary information to make all decisions about
resources:
1. Prices convey only part of the information necessary to direct opportunities to
serve existing markets
2. They convey even less information about market that do not yet exist
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Discovery defined
In the process of the exploitation of opportunities, individuals acquire resources and engage
in activities that change prices and provide information to others. The process of exchange
and interaction provides information that increases the mutual awareness among market
participants about the characteristics of the opportunity (Arrow, 1974; Jovanovic, 1982;
Venkataraman, 1997). This information may either encourage or discourage the individual
pursuing the opportunity from continuing.
The Life Cycle of Opportunities
If an entrepreneur does discover a valuable opportunity, and that opportunity generates
entrepreneurial profit, that profit is likely to be transient due to external and internal
factors.
1. First, the disequilibrating shocks that initially generated the opportunity are often
replaced by other shocks that open up new opportunities and close up the existing
ones (Schumpteter, 1934).
2. Second, even when new shocks are not triggered, the opportunities become
exhausted by competition. The information asymmetry that creates opportunities in
the first place is subsequently reduced by the diffusion of information about the
opportunity.
3. Third, information about the opportunity diffuses to resource owners, who may
seek to capture profits by raising the price of their resources in response to
information generated by the actions of the entrepreneurs about the new value of
their resources
Types of Opportunities
Locus of Changes
1.
2.
3.
4.
5.
Creation of new products or services
Creation of new geographical markets
Creation or discovery of new Raw Materials
New Production Methods
New methods of organizing
Sources of Opportunity
1. Asymmetries in existing information between market participants and exogenous
shocks of new information
Changes in technology, regulation, and other factors generate new information
about how resources might be used differently. This information changes the price
for resources, thereby allowing economic actors who have early access to the new
information to purchase resources at low prices, use the information to create
products or services and sell them at an entrepreneurial profit.
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2. Supply vs. demand side changes
In general, the entrepreneurship literature implicitly focuses on supply side changes.
For example, most discussions of opportunity concern changes in inputs, ways of
organizing, production processes, or products (Schumpeter, 1934). But changes in
demand alone can generate opportunities. Customer preferences influence the
allocation of resources because producers need to respond to the preferences and
purchasing habits of consumers.
3. Productivity-Enhancing vs. Rent-seeking Opportunities
However, it is also possible to think of entrepreneurial actions as private rentseeking, which Baumol (1990) has defined as opportunities that generate personal
value, but no social value. He points out several types of entrepreneurial
opportunities that are not productivity-enhancing, including crime, piracy, and
corruption.
4. Initiators - Catalysts of Change that generate Opportunities
Among the different types of actors that researchers have identified are noncommercial entities, such as:
1. governments or universities;
2. existing commercial entities in an industry, such as incumbents and their
suppliers and customers; and
3. new commercial entities in an industry such as independent entrepreneurs and
diversifying entrants
Shane (2000) – Opportunities and Entrepreneurship
Through in-depth case studies of eight sets of entrepreneurs who exploit a single MIT
invention, I show that entrepreneurs discover opportunities related to the information that
they already possess. I use these findings to draw several implications that differ from those
prevailing in the entrepreneurship literature, including: (1) entrepreneurs do not always
select between alternative market opportunities for new technologies; (2) the source of
entrepreneurship lies in differences in information about opportunities; (3) the results of
prior studies of entrepreneurial exploitation may suffer from bias; and (4) individual
differences influence the opportunities that people discover, how their entrepreneurial
efforts are organized, and how the government can influence this process.
Different theories of Entrepreneurship
1. Neo Classical Equilibrium Theories
(1) everyone can recognize all entrepreneurial opportunities,
(2)fundamental attributes of people, rather than information about opportunities,
determine who becomes an entrepreneur.
2. Psychological Theories
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(1) fundamental attributes of people, rather than information about opportunities,
determine who becomes an entrepreneur
(2) this process depends on people's ability and willingness to take action.
3. Austrian theories
(1) people cannot recognize all entrepreneurial opportunities
(2) information about opportunities, rather than fundamental attributes of people,
determine who becomes an entrepreneur
(3) this process depends on factors other than people's ability and willingness to take action.
Propositions
1. All individuals are not equally likely to recognize a given entrepreneurial opportunity
2. People can and will discover opportunities without actively searching for them
3. People’s prior knowledge about markets will influence their discovery of which
markets to enter to exploit a new technology
4. People’s prior knowledge about customers will influence their discovery of products
and which services to exploit in a new technology
Discussion
Existing explanations for entrepreneurship are incomplete because they do not explain
adequately the process of opportunity discovery, an important part of the entrepreneurship
process (Kirzner 1997). This study proposed that all people are not equally likely to
recognize the same entrepreneurial opportunities which result from technological change. It
also proposed the entrepreneurs can and will discover opportunities through recognition
rather than search. Moreover, it proposed that the prior distribution of knowledge in society
influences who discovers these opportunities.
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Davidsson (2015) – Entrepreneurial Opportunities and the
Entrepreneurship Nexus: A re-conceptualization
We suggest a fundamental re-conceptualization using the constructs
1. External Enablers
2. New Venture Ideas
3. Opportunity Confidence to capture the many important ideas commonly discussed
under the “opportunity” label
This re-conceptualization makes important distinctions where prior conceptions
have been blurred: between explananda and explanantia; between actor and the
entity acted upon; between external conditions and subjective perceptions, and
between the contents and the favorability of the entity acted upon. These
distinctions facilitate theoretical precision and can guide empirical investigation
towards more fruitful designs.
Each explanans and explanandum, or antecedent and outcome, should have clearly defined
and consistent meaning, which is distinct from other constructs in the theory.
Nexus View: the link between the constructs of Opportunity and Entrepreneurship. A core,
nexus assumption is that the effects of the characteristics of the Non-Actor component are
potentially contingent on characteristics of the Actor, and vice versa.
1. External Enablers
The first is External Enablers for the aggregate-level circumstances—such as
regulatory changes, technological breakthroughs, and demographic shifts—which
may affect a variety of new venture creation attempts by several, different actors.
External Enablers are assumed to create room for new economic activities but
cannot ensure success for particular ventures that are initiated in response to their
occurrence. Neither need they be positive (overall for the economy).
2. New Venture Ideas
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This denotes “imagined future ventures”; i.e., imaginary combinations of
product/service offerings, markets, and means of bringing these offerings into
existence. These can be of any quality and may be evaluated differently by different
individuals. New Venture Idea is our main alternative to accompany the actor under
the nexus view. New Venture Ideas are cognitive and non-material. They may to a
varying extent reflect the Actors' interpretation of identifiable External Enablers.
3. Opportunity Confidence
We suggest that Opportunity Confidence has the important, supplementary role of
eliminating perceived favorability from the other two constructs. Hence, Opportunity
Confidence refers strictly to a particular actor's subjective evaluation of the
attractiveness—or lack thereof—of a stimulus (External Enabler or New Venture
Idea) as the basis for entrepreneurial activity
Favorability
Lack of construct clarity (Suddaby, 2010) across and within works and “conversations” has
hampered the building of cumulative knowledge. This stems in large part from the dual
nature of “opportunity” as consisting of both contents and (assumed, perceived, or proven)
favorability. The favorability aspect of “opportunity” does not sit well in a prospective,
process framework aiming to explain not only action and success but also inaction and
failure. It is predominantly this aspect of “opportunity” rather than its contents that triggers
debate as to its objective vs. subjective nature, and makes it hard to apply the construct
consistently and comfortably across actors, space, time, and levels of analysis.
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Lim & Xavier (2015) – Opportunity recognition framework:
Exploring the technology entrepreneurs
For entrepreneurship to happen, opportunity recognition must first happen. In an effort to
take better sense of the factors shaping the entrepreneurial opportunity recognition,
this study aims to examine the potential effect of entrepreneurial alertness, prior
knowledge and social network on opportunity recognition and ultimately reaping
the rewards of superior business performance. The goal of this study is to propose a model
of the opportunity recognition model.
Determinants of Opportunity Recognition
1. Entrepreneurial Alertness
Alertness is defined as a process and perspective that helps some individuals to be more
aware of changes, shifts, opportunities and overlooked possibilities.
2. Prior Knowledge
The increase of likelihood of opportunity recognition is attributed to:
(1) Prior knowledge provides an absorptive ability which facilitates the gaining of additional
information about markets, production processes and technologies which triggers an
entrepreneurial conjecture
(2) People’s existing stock of information influences their abilities to see solutions when
encountering problems. With increased knowledge, they individuals become increasingly
more efficient in their task and to also appear to be more intuitive in thinking during the
decision process.
3. Social Network
It can be said that entrepreneurship is embedded in social networks which facilitates the
entrepreneurial process by linkages among entrepreneurs, resources and opportunities.
Based on the strength and closeness of relations involved, social network can be classified
as strong and weak ties. The two different sets of ties offer an entrepreneur with
information of different nature.
1. Strong ties
Weak ties are the ties that require substantial interaction between people such as
family members, relatives and close friends. Strong ties are more likely to offer
information, which are trustworthy in respect to opportunity recognition.
2. Weak ties
Strong Ties on the other hand are ties with casual acquaintance within the social
network such as customers, supplier and strangers. Weak ties act as a source of nonredundant information. Non-redundancy of ties within the network increases the
possibilities of entrepreneur gaining the right complement of information necessary
30
for opportunity recognition. Weak ties can be seen as a bridge linking to new and
different information, which give entrepreneurs a better chance of recognizing
opportunities.
Amabile (1996) – Creativity and Innovation in Organizations
It long has been a misunderstanding that creativity stems from an in explainable personality
trait like source, a person-centered approach.
Contemporary approach to creativity assumes that all humans with normal capacities are
able to produce at least moderately creative work in some domain, some of the time and
that the environment can influence both the level and the frequency of creative behavior.
Creativity is the production of novel and useful ideas in any domain. In order to be
considered creative, a product or an idea must be different from what has been done
before. It must be appropriate for the goal, and be correct, valuable or expressive of
meaning.
Innovation is the successful implementation of creative ideas within an organization
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Where does creativity reside?
It can be:
1. Person
2. Processes
3. Products
To scientifically observe creativity, a product or idea must be expressed. This can be
anything from an uttered word to a working product; as long as it is observable.
Recognizing creativity
32
Judging creativity can be done with consensual assessment.
Components of Creativity
33
1. Expertise
Expertise is the foundation of all creative work
1. Memory for factual knowledge
2. Technical proficiency
3. Special talents in the target work domain
2. Creative thinking
A cognitive style favorable to taking new perspectives on problems
An application of techniques (Heuristics) for taking on new perspectives on problems
A working style conducive to persistent, energetic pursuit of one’s work.
3. Intrinsic Task Motivation
Task motivation is what determines what a person will actually do and is therefore the most
important of the three constructs.
1. Instrinsic/extrinsic motivation is easiest to be affect as it is strongly subject to even subtle
social influence
2. No amount of skill or expertise can compensate for a lack of motivation
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Organizational Influences on Creativity and Innovation
Organizational Motivation to Innovate
1.
2.
3.
4.
A value placed on creativity and innovation in general
Orientation toward risk (versus an orientation for maintaining status quo)
A sense of pride in the organizations members and confidence in their abilities
Offensive strategy of taking the lead toward the future
Resources
1.
2.
3.
4.
5.
6.
Sufficient time for producing novel work in the domain
People with the necessary expertise
Funds allocated to this work,
Material resources
Systems and processes relevant information
Availability of training
Management Practices
1.
2.
3.
4.
5.
6.
Autonomy and freedom in work
Appropriate match of individual and tasks and providing a positive challenge
Clear setting of goals
Clear planning and feedback
Good communication between super visor and group
Setting up teams with good communication skills and diversity of skills and trust and
challenging each other’s ideas.
35
Enhancing creativity
Creative Problem Solving program
Synectics – distancing from what is normal, ‘make the familiar strange and the strange
familiar’.
De Jong & Den Hartog (2007) – How Leaders Influence
Employees’ Innovative Behavior
Findings – It was found that there were 13 relevant leadership behaviors. Although
innovative behavior is crucial in such firms, it has received very little attention from
researchers. Leaders influence employees’ innovative behavior both through their
deliberate actions aiming to stimulate idea generation and application as well as by their
more general, daily behavior.
Innovative behavior
However, innovation also includes the implementation of ideas. Here, we define innovative
behavior as behavior directed towards the initiation and application (within a work role,
group or organization) of new and useful ideas, processes, products or procedures.
Innovation theorists often describe the innovation process as being composed of two main
phases:
1. Initiation
To initiate innovations employees can generate ideas by engaging in behaviors to explore
opportunities, identify performance gaps or produce solutions for problems. Opportunities
to generate ideas lie in incongruities and discontinuities – things that do not fit expected
patterns, such as problems in existing working methods, unfulfilled needs of customers, or
indications that trends may be changing.
2. Implementation
Implementation has been examined far less than creativity or innovation initiation.
The division between the two phases is believed to be the point at which the idea is first
adopted; i.e. the point at which the decision to implement the innovation is made. The first
stage ends with the production of an idea, while the second stage ends as soon as the idea
is implemented
Leadership
Popular recent leadership approaches:
36
1. Transformational leadership
Mixed results whether it is positive for creativity
2.
1)
2)
3)
Participative leadership
Using various decision-making procedures
Autonomy and influence of employees on leader’s decisions
Consultation, joint decision-making and delegation
3. LMX – Leadership Member Exchange
LMX theory focuses on the social exchange relationships between leaders and
employees. It proposes that the quality of the relationship between a leader and
follower influences outcomes such as
3.
4.
5.
6.
7.
8.
Subordinate satisfaction
Supervisor satisfaction
Performance
Commitment
Role conflict & role clarity
Turnover intentions
Kotter (1990) differentiates their intended outcomes: management seeks to produce
predictability and order, while leadership aims to produce change. In Kotter’s view, leaders
and managers are not necessarily different persons, but rather different roles.
37
38
Markides (2013) – Business Model Innovation: What can the
Ambidexterity Literature Teach Us?
Can a company compete using two business model simultaneously?
A company that uses different business models may both positions simultaneously risks
damaging its existing business, confusing its customers, and alienating its various
stakeholders, including its own managers.
A proposed solution is to physically separate into two distinct organizations, by making a
spin-off. On the other hand: "spinoffs often enable faster action early on but they later have
difficulty achieving true staying power in the market. Even worse, by launching a spinoff, a
company often creates conditions that make future integration very difficult,"
More than One Solution
Research on ambidexterity has identified at least two other possible mechanisms to manage
a duality;
1. Temporal separation
The main idea is that the same unit or unit or company can undertake two seemingly
incompatible activities (such as exploitation and exploration) but at different times
A company could start off independently and be reintegrated over time.
When Temporal vs. Physical Separation? Two key factors influence the choice of
organizational strategy:
(1) Possible Conflict between business models
How serious the conflicts between the two business models are, because this determines
whether a separation strategy would he especially beneficial or not, and
(2) Similarity between Old and New market
How strategically similar the new market is perceived to the to the existing business
Specifically, spatial separation is preferable when
(a) The external environment undergoes frequent or big changes,
(b) Visibility of interdependencies between the two business models is high,
(c) decisions between the two units are aligned, and
(d) the two business models are weakly linked.
2. Contextual ambidexterity
39
Can be defined as:
1.
2.
3.
4.
5.
Culture
Values
Structure
Processes
Incentives
If we want people to display ambidextrous behaviors in an organization, we must first create
the appropriate organizational context for such behaviors to emerge. This implies that if we
want to change behaviors in a system, we must first change the underlying structure of the
system.
This posits that under certain conditions, managers modulate between or among discrete
structures because by modulating a firm's formal structure, they dynamically position the
informal organization (such as communication patterns, work routines, and knowledge
flows) at levels that approximate optimum functionality.
Tushman, Smith, Chapman Wood, Westerman & O’Reilly (2010) –
Organizational Designs & Innovation Streams
This article empirically explores the relations between alternative organizational designs and
a firm’s ability to explore as well as exploit. We operationalize exploitation (improving
existing products) and exploration (innovating) in terms of innovation streams;
1. Incremental Innovation
Continued exploitation and local search of an existing technological trajectory
2. Architectural Innovation
Add or subtract product subsystems or change linkages between systems
3. Discontinuous Innovation
Involves fundamental technical change in a product’s core subsystem
We find that ambidextrous organization designs are relatively more effective in executing
innovation streams than functional, cross-functional, and spinout designs.
Innovation streams and organizational adaptation
40
It appears that structural differentiation, targeted structural integration, and senior team
integration are an integrated set of organizational mechanisms that facilitate exploration in
the context of ongoing exploitation.
Hamel (1999) – Bringing Silicon Valley inside
Hamel talks about the Silicon Valley mentality and how they are forming the new economy.
People in the valley know how to create wealth or value and strategy life cycles have
drastically shortened from decades to months.
The Innovation lab (example of Royal Dutch Shell), workshops in which employees are
encouraged to spot opportunities
From Resource Allocation to Resource Attraction
Silicon Valley's not just an incestuous little cluster of universities, perched on a peninsula. At
its core are three interconnected markets:
1. Market for ideas
2. Market for capital
3. Market for talent.
It is at the intersection of unbounded imagination, opportunity seeking cash, and energetic
freethinking people that wealth gets created
41
Silicon Valley is based not on resource allocation but on resource attraction-a crucial
distinction. If an idea has merit, it will attract resources in the form of venture capital and
talent. If it doesn't, it won't. There's no CEO of Silicon Valley. There's no giant brain making
global allocation decisions.
The Market for Ideas
The proposition that innovation creates new wealth is so obvious as to be totally
unremarkable. But employees in most large companies live in a world where operational
efficiency is everything.
All too often, the risk-reward trade-off for internal entrepreneurs is long on risk and short
on reward. Why should employees risk a bruising battle with the defenders of the status
quo when the potential payoff is so meager? Unless the champions of the new believe there
is a chance for substantial personal wealth creation, the marketplace for ideas will be as
barren as the shelves of a Soviet supermarket. It's ironic that companies pay CEOs millions
upon millions to unlock shareholder wealth but seem incapable of funneling six- and seven
figure rewards to people who can actually create new wealth.
There's a second reason large companies fail to spur much true innovation. Inside their
walls, the marketplace for ideas is a monopsony-there's only one buyer. There's only one
place to pitch a new idea-up the chain of command-and all it takes is one nyet to kill that
idea.
The third reason why the market for ideas is much more vibrant in Silicon Valley is that
there's no prejudice about who is or is not capable of inventing a new business model. The
hierarchy of imagination counts for far more than the hierarchy of experience.
There is an implicit belief in most large companies that strategy is the province of the
senior management
Think about the corporate pyramid and ask yourself three questions. First, where in the
pyramid will you find the least genetic diversity in terms of how people think ahout the
business? Second, where in the organization will you find people who have most of their
emotional equity invested in the past? And third, where will you find people who have, for
the most part, already "made it"?
The Market for Capital
It is very hard for lower management or employees to get funding from the top for small
entrepreneurial try-outs. There is an assumption in companies that anything nonincremental is high risk and anything incremental is low risk. VC’s provide relatively little
capital in comparison to top management, thus taking risk but no big risks.
The market for capital works very differently in Silicon Valley. Talk to Steve Jurvetson, who
funded Hotmail and is one of the Valley's hottest young VCs. Ask him how he evaluates a
potential business idea, and this is what he'll tell you: The first thing I ask is.
Who will care? What kind of difference will this make? Basically, How high is up? I want to
fund things that have just about unlimited upside. The second thing I ask is.
42
How will this snowball? How will you scale this thing? What's the mechanism that drives
increasing returns? Can it spread like a virus?
Finally, I want to know how committed the person is. I never invest in someone who says
they're going to do something; I invest in people who say they're already doing something
and just want the funding to drive it forward. Passion counts for more than experience. A VC
has a very different notion of what constitutes a business plan than the typical CFO. Again,
listen to Jurvetson: The business plan is not a contract in the way a budget is. It's a story. It's
a story about an opportunity, about the migration path and how you're going to create and
capture value. I never use Excel at work. I never run the numbers or build financial models. I
know the forecast is a delusional view of reality. I basically ignore this. Typically, there are
no IRR forecasts or EVA calculations. But I spend a lot of time thinking about how big the
thing could be.
The Market for Talent
In SV, employees will leave as soon as they feel their project is not exciting anymore or be
bought away by other firms.
Isn’t it amazing that while every company has at least some kind of process for capital
allocation, almost no company has a process for talent allocation-much less an open market
for talent?
Novelty, meaning and impact are the oxygen that gives life to the entrepreneurial spirit
Mobility fuels commitment. When employees are truly attracted to the projects and teams
they work on, commitment is a foregone conclusion.
The bottom line is this: if you have highly creative and ambitious people who feel trapped in
moribund businesses, they are going to leave.
The Innovation Frontier
Silicon Valley exists not because large companies are incapable of innovation but because
they have been unwilling to abandon the tightly knit safety net of resource allocation. A
disciplined, top-down approach to allocating money and talent gives top management a
sense of control. But in a world where the risk of being rendered irrelevant by an
impertinent interloper is ever present, such control is illusory. Yes, you can do your best to
ensure that you never put a dollar of capital or a great employee into anything that doesn't
come wrapped in an ironclad business case. But in the process, you'll surrender the future
and its wealth to more intrepid souls.
Wolcott (2007) – The Four Models of Corporate
Entrepreneurship
First, though, what exactly is corporate entrepreneurship? We define the term as the
process by which teams within an established company conceive, foster, launch and manage
a new business that is distinct from the parent company but leverages the parent’s assets,
market position, capabilities or other resources. It differs from corporate venture capital,
which predominantly pursues financial investments in external companies.
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1. The Opportunist Model
The opportunist model works well only in trusting corporate cultures that are open to
experimentation and have diverse social networks behind the official hierarchy (in other
words, places where multiple executives can say “yes”). Without this type of environment,
good ideas can easily fall through organizational cracks or receive insufficient funding.
2. The Enabler Model
The basic premise of the enabler model is that employees across an organization will be
willing to develop new concepts if they are given adequate support. Dedicating resources
and processes (but without any formal organizational ownership) enables teams to pursue
opportunities on their own insofar as they fit the organization’s strategic frame. In the most
evolved versions of the enabler model, companies provide the following: clear criteria for
selecting which opportunities to pursue, application guidelines for funding, decision-making
transparency, both recruitment and retention of entrepreneurially minded employees and,
perhaps above all, active support from senior management.
Enabler programs can support efforts to enhance a company’s culture. When an
organization already enjoys substantial collaboration and ideation at the grassroots level,
the enabler model can provide clear channels for concepts to be considered and funded. For
companies seeking cultural transformation, enabler processes in combination with new
hiring criteria and staff development can result in a number of employees becoming
effective change agents. The enabler model is particularly well-suited to environments in
which concept development and experimentation can be pursued economically throughout
the organization.
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3. The Advocate Model
In the advocate model, a company assigns organizational ownership for the creation of new
businesses while intentionally providing only modest budgets to the core group. Advocate
organizations act as evangelists and innovation experts, facilitating corporate
entrepreneurship in conjunction with business units.
For companies that want to accelerate the growth of established divisions, the advocate
model might be the best option because of the limited resources of this model, managers
must tailor their initiatives to the interests of existing lines of business, and employees have
to collaborate intensively throughout the organization. This enhances the potential fit of
opportunities to a company’s operations, but also requires leadership to ensure that
projects do not become too incremental. Advocates exist to help business units do what
they can’t accomplish on their own but should pursue in order to remain vital and relevant.
Moreover, the advocate model (as well as the producer model) can prevent corporate
entrepreneurship from becoming a casualty of powerful business units or competing silos.
4. The Producer Model
As with the enabler and advocate models, an objective is to encourage latent
entrepreneurs. But the producer model also aims to protect emerging projects from turf
battles, encourage cross-unit collaboration, build potentially disruptive businesses and
create pathways for executives to pursue careers outside their business units.
If a company seeks to conquer new growth domains, discover breakthrough opportunities
or thwart potentially disruptive competition, then it should consider the producer model.9
In general, business units are not likely to pursue disruptive concepts, and they often face
strong near-term pressures that discourage investments in new growth platforms. The
producer model helps overcome this, and it can provide the necessary coordination for
initiatives that involve complex technologies or require the integration of certain capabilities
across different business units.
Putting the models to work
Each of the models requires different forms of leadership, processes and skill sets. An
enabler model depends on establishing and communicating simple, clear processes for
selecting projects, allocating funds and tracking progress, all New leaders of corporate
entrepreneurship initiatives are often surprised by how much time they spend talking with
corporate and business-unit management. Nevertheless, such communication is essential
with well-defined executive involvement. Advocate models require individuals with the
instincts, access and talent to navigate the corporate culture and facilitate change. Leading
advocate organizations build an arsenal of facilitation methodologies, new business design
tools and networks with external capabilities. The producer model requires considerable
capital and staffing and a direct line to top management. Understaffed, part-time or
underfunded producer teams are set to fail.
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! Stopford & Baden-Fuller (1994) – Creating Corporate
Entrepreneurship
This paper demonstrates how the various types of corporate entrepreneurship-individual
managers, business renewal and Schumpeterian, or industry, leadership-share five 'bundles'
of attributes. Each type can exist in one firm; though at different times, as the common
attributes change their role and relative importance.
The data suggest a provocative conclusion: troubled firms in hostile environments can shed
past behaviors, adopt policies fostering entrepreneurship and accumulate innovative
resource bundles that provide a platform on which industry leadership can be built
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Types of Entrepreneurship
The strategy literature identifies three types of corporate entrepreneurship:
1. Individual (internal venturing or intrapreneurship)
2. Renewal (Transformation of existing organizations)
3. Frame-Breaking (Competition/industry rule changer)
Alternative Conceptions of Entrepreneurship
Most authors accept that all types of entrepreneurship are based on innovations that
require changes in the pattern of resource deployment and the creation of new capabilities
to add new possibilities for positioning in markets.
The behavior must transform not only the enterprise but also the competitive environment
or 'industry' into something significantly different from what it was. We label this behavior
as Frame-breaking Change
Common Attributes
1. Pro-activeness
This attribute has many dimensions. It does not necessarily mean to be first in the industry
to do something, but being proactive in breaking from past behaviors. It is therefore not
associated with high risk so state the authors.
Individual (employee) entrepreneurialism is associated with the freedom to conduct
experiments.
Renewal (of the organization) is more associated with more extensive experimentation by
groups
2. Aspirations beyond current capability
The desire to fulfill a goal and striving for continuous improvement, by finding better
combinations of resources.
Aspirations need to exceed resources to drive processes of entrepreneurship
3. Team orientation
The crucial role played by teams of top and middle managers in building colaitions to
support innovative ideas and creative individuals
Vertical teams (diverse?) can help decision-making and implementation.
Too much team thinking can facilitate ‘group thinking’ and stifle innovation.
4. Capability to resolve dilemmas
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Resolving challenges which seemed impossible previously: Schumpeterian entrepreneurship
is about combing what had been regarded mutual opposites and harnessing the outcomes
as innovation in the market
5. Learning capability
Team learning is seen as essential to either renewal or frame-breaking change, for it enables
managers to conjure with new possibilities and create new options without becoming
frozen into fixed patterns of thought that limit progress.
Linking individual, renewal and frame-breaking entrepreneurship
The process of Innovation implementation can take different paths, of which the following
are opposites in terms of speed of implementation
1. Incremental path over extended periods
The sequence could start when the efforts of individually entrepreneurial managers begin to
be harnessed at the top.
Renewal follows as the first developmental moves are extended throughout the
organization.
The final stage is when the attributes of corporate entrepreneurship become pervasive
throughout the enterprise.
Each stage is dominated by one type of entrepreneurship and encompasses earlier ones, like
expanding concentric circles of activity. This sequence implies the importance of time and
processes of diffusion from individuals to groups to firms.
This model of sequential building does not mean that renewal necessarily leads to framebreaking behavior, but it suggests that firms breaking the frame are likely to find a period of
renewal a useful prelude.
2. Radical or metamorphic change
Punctuates long periods of stasis or inertia
Radical change means that the organization transforms itself from stasis to industry
leadership, either avoiding an intermediate stage (with renewal as an outcome) or making
renewal a brief transition.
The likelihood of radical change would be increased if some attributes of renewal were
relatively unimportant for frame-breaking change. Skipping out renewal would thus save
money and time. But if all five attributes are important in each stage, an incremental
evolution based on sustained investments to develop all of them, albeit at different speeds,
would seem more likely.
Triggers for change - related to the incremental or radical innovation change
Triggers are the drivers for the organizational innovation. Fuzzy and diffused triggers are
associated with the Incremental Process. Sharp and Clear triggers are associated with
radical/metamorphic change.
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The authors show that change can be stimulated by opportunity as well as by threat.
Obstacles to progress
Even when some managers aspire to improve, progress can be impeded by organizational
inertia. Companies in the process of innovation should keep momentum
Results from sample companies
Stage 1 – Individual Entrepreneurship
Most company leaders made use of ‘sensing’ rather than hard data.
Benchmarking is not a good tool for assessing the attractiveness of an innovation. It is more
widely used by less successful competitors and mainly works for imitation rather than
innovation.
Stage 2 – Starting of a process of Renewal
There were few clear signals as to when the second stage began. We took as an indicator
the period when the chief executive's initial entrepreneurial instincts began to be shared
and modified by the top team; the beginnings of the transition from individual to corporate
entrepreneurship. For this to happen, old behaviors had to be 'unfrozen' as new ones
developed.
Figure 1 lays out two sets of conditions about the state of understanding and perception of
threat or opportunity that needed to be grasped before renewal could begin:
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Inertia and lack of teamwork at the top were common obstacles to progress and the
resolution of dilemmas. Often, extensive discussions failed to lead to action, either because
managers were unclear about the strategic challenge or because they lacked confidence.
Referring to Section A of Figure 1, we found that all the top teams had been in one of the
other three states before they could commit themselves to collective internal action.
Closely related to these issues are those of the perceptions of the scope and urgency of the
actions required-Section B of Figure 1. In all cases, action in at least one other box was taken
before the firm arrived at the point of departure for renewal. Often symptoms of 'life' were
in some form of 'skunkworks.
All companies had improved efficiencies within some or all of the functions, though no
attempt had been made to link the functions together: a key feature of renewal.
Actions in both parts of Figure 1 can be regarded as a process of exhausting all the 'obvious'
actions. Renewal had to wait until such actions had demonstrably failed to provide a lasting
solution to the underlying problems.
Stage 2 – Embedding renewal
The ‘unfreezing’ of the organization. Often initiated by making (sometimes draconian) cuts,
while embedding the new values required the firms to start building as well.
Building was done to hold out hope that there really was an exciting future ahead.
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Dilemmas had to be resolved in the first stage of cutting, for it was not obvious where best
the knife should fall to create an effective focus. There were also many dilemmas to be
resolved in determining the timing and form of the new initiatives for building; conventional
accounting systems often gave ambiguous or misleading signals.
All seven Stage 2 firms were distinct from most competitors in terms of their ability to
resolve multiple dilemmas. That ability grew over time as more managers gained confidence
in what was for many a novel mental approach to problem solving. As with the wider
processes of renewal, they tackled the dilemmas sequentially, starting from the simpler
ones.
Stage 3 - Breaking the frame
Transition to stage 3 was gradual. The transition was indicated by a stream of new
investments to develop and deploy capabilities that made economic change possible in the
marketplace and required competitors to respond.
These failures spurred significant shifts in strategy (learning) as the organization sought to
resolve dilemmas that seemed at times to be insuperable. So too in the other three framebreakers. They all outpaced their rivals in innovation in both the supply and demand sides of
strategy.
In some respects, the move into Stage 3 is an outcome of success at earlier stages. The real
difference is in terms of the extent of the changes and the impact on competitors' behavior.
Cooper (2008) – Perspective: The Stage-Gate Idea-to-Launch
Process – Update, What’s New and NexGen Systems
Stage-Gate has become a popular system for driving new products to market; but there are
many misconceptions and challenges in using Stage-Gate.1 Challenges faced in employing
Stage-Gate are identified including governance issues, over-bureaucratizing the process, and
misapplying cost cutting measures such as Six Sigma and Lean Manufacturing in product
innovation. Solutions are offered, including better governance methods: “gates with teeth’’.
That’s the major theme of this article: ensuring that users really do understand the StageGate system and its principles, debunking some of the myths and misconceptions
surrounding Stage-Gate, and at the same time, dealing with some of the problems and
challenges that users face.
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What is Stage-Gate?
A Stage-Gate® process is a conceptual and operational map for moving new product
projects from idea to launch and beyond – a blueprint for managing the new product
development (NPD) process to improve effectiveness and efficiency. Stage-Gate is a system
or process not unlike a playbook for a North American football team: it maps out what
needs to be done, play by play, huddle by huddle – as well as how to do it – in order to win
the game.
Stage-Gate, in simplest format, consists of (Exhibit 1):
• A series of stages – where the project team undertakes the work, obtains the needed
information, and does the subsequent data integration and analysis
• Followed by gates – where Go/Kill decisions are made to continue to invest in the project.
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The Stages
The innovation process can be visualized as a series of stages, with each stage comprised of
a set of required or recommended best-practice activities needed to progress the project to
the next gate or decision point. Think of the stages as plays in a football game – well defined
and mapped out, clear goals and purpose, and proficiently executed:
• Each stage is designed to gather information to reduce key project uncertainties and risks;
the information requirements thus define the purpose of each of the stages in the process.
• Each stage costs more than the preceding one: The process is an incremental
commitment one – a series of increasing bets, much like a game of Texas Hold’em. But with
each stage and step increase in project cost, the unknowns and uncertainties are driven
down, so that risk is effectively managed.
• The activities within stages are undertaken in parallel and by a team of people from
different functional areas within the firm; that is, tasks within a stage are done concurrently,
much like a team of football players executing a play
• Each stage is cross-functional: There is no “R&D stage” or “Marketing stage”; rather, every
stage is Marketing, R&D, Production or Engineering. No department “owns” any one stage.
The Gates
Following each stage is a gate or a Go/Kill decisionpoint, as in Exhibit 2. The gates are like
the huddles on the football field: Gates serve as quality‑ control check points, Go/Kill and
prioritization decisions points, and points where the path forward for the next play or stage
of the project is agreed to. The structure of each gate is similar. Gates consist of:
• Deliverables – what the project leader and team bring to the decision point (for example,
the results of a set of completed activities). These deliverables are visible, are based on a
standard menu for each gate, and are decided at the output of the previous gate.
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• Criteria against which the project is judged. These include must meet criteria or knock
out questions (a checklist) designed to weed out misfit projects quickly; and should meet
criteria that are scored and added (a point count system), which are used to prioritize
projects.
• Outputs – a decision (Go/Kill/Hold/Recycle), along with an approved action plan for the
next stage (an agreed-to timeline and resources committed), and a list of deliverables and
date for the next gate.
Debunking the Myths About Stage-Gate
Not a functional, phased review process
The stages are cross-functional, and not dominated by a single functional area: This is a
business process, not an R&D or Marketing process. The play is rapid, with activities
occurring in parallel rather than in series. The governance process is clear, with defined
gates and criteria for efficient, timely decision-making. A dedicated and empowered team of
players, led by an entrepreneurial team leader or team captain, executes the project.
Not a rigid, lock-step process
Stage-Gate is a map to get from Point A (Idea) to
Point B (successful new product). As in any map, when the situation merits, detours can be
taken. For example, many companies tailor the model to their own circumstances and build
lots of flexibility into their process:
• Not all projects pass through every stage or every gate of the model.
• In any project, activities and deliverables can be omitted or bypassed.
• Similarly, activities can be moved from one stage to another – for example, moving an
activity ahead one stage in the event of long lead times.
Not a linear system
Inside stages, there is much looping, iterations, and back-and-forth play as the project
proceeds; some activities are undertaken sequentially, others in parallel, and others
overlapping. Even the stages are allowed to overlap (beginning one stage before the
previous one is completed), while often the project must iterate back to a previous stage.
Not a project control mechanism
Rather Stage-Gate is a playbook designed to enable project teams and team leaders get
resources for their projects, and then speed them to market using best possible methods to
ensure success.
Not a dated, stagnant system
Today’s modern Stage-Gate system bears little resemblance to the original model. It has
evolved considerably to include new principles of lean and rapid product development; it
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has built in a number of new best practices that were not envisioned back in the early days;
and now there are many different and tailored versions of Stage-Gate.
The point is that Stage-Gate is not a static tool; rather it’s a comprehensive, integrated,
evolving and evergreen system that builds in many best practices and methods.
Not a bureaucratic system
Remember: the objective here is a systematic, streamlined process, not a bogged‑ down
bureaucratic one. Take a hard look at your idea-to-launch process.
Not a data entry scheme
Stage-Gate is not a data entry system. While software, with its required data entry, can be a
valuable tool and facilitator to the process, don’t let the tail wag the dog here. Stage-Gate is
comprised of a set of information gathering activities; the data that these activities yield
can be conveniently handled by IT to facilitate document management and communication
among project team members. But the software and data entry is a tool, not the process!
Not just a “back end” or product-delivery process
Some executives see the process useful after the back-end process or after the product has
been developed, which is incorrect.
Look at the flow in Exhibit 2: three of the stages (or half the model) happen before
Development begins. The fuzzy front end – ideation, scoping the project, defining the
product, and building the business case – is perhaps the most critical part of Stage-Gate!
Not the same as project management
Stage-Gate is a Macro process – an overarching process. By contrast, project management is
a micro process. Stage-Gate is not a substitute for sound project management methods.
Rather, Stage-Gate and project management are used together. Specifically, project
management methods are applied within the stages of the Stage-Gate process.
Dealing With Common Errors and Fail-Points
Problems with the Stage-Gate governance process – making the gates work
In a robust gating system, poor projects are spotted early and killed; and projects in trouble
are also detected, and sent back for rework or redirect – put back on course. But it seems
that as quality control checkpoints, the gates aren’t too effective in too many companies,
and allow of lot of poor projects to proceed.
Gates with no teeth
The most common complaint is that, while the company has installed a stage-and-gate
system, the gates, which are the vital component of the governance or decision-making
process, are either non-existent or lack teeth. The result is that projects are rarely killed at
gates.
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Hollow decisions at gates
A Go decision is made, but resources are not committed. The project leader and team must
leave the gate meeting with the resources they need to progress their project.
Who are the gatekeepers?
Every senior manager feels that they should be a gatekeeper, and so the result is too many
gatekeepers – more of a herd than a tightly defined decision group – and a lack of crisp
Go/Kill decisions.
Gatekeepers behaving badly
• Executive “pet projects” receiving special treatment and by-passing the gates
• Gate meetings cancelled
• Gate meetings held, but decisions not made and resources not committed
• Go/Kill decisions based on opinion and speculation, rather than facts; and even worse,
decision based on a political or personal agenda
• Using personal and hidden Go/Kill and prioritization criteria (rather than robust and
transparent decision-making criteria).
Next Generation Stage-Gate – How Companies Have Evolved & Accelerated
the Process
Scaled to suit different risk level projects
The process should be flexible and adaptable
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An efficient, lean and rapid system
Smart companies have made their next generation Stage-Gate process lean , removing
waste and inefficiency at every opportunity. They have borrowed the concept of value
stream analysis from lean manufacturing, and have applied it to their new product process.
A value stream is simply the connection of all the process steps with the goal of maximizing
customer value (Fiore, 2005).
Hansen & Birkinshaw (2007) – The Innovation Value Chain
Hansen and Birkinshaw recommend viewing innovation as a value chain comprising three
phases: idea generation, conversion, and diffusion. Six linking tasks are performed across
those phases:
1. Internal, external, and cross-unit collaboration;
2. Idea selection and development;
3. Spread of developed ideas.
Any weak link can break your innovation efforts, so focus on pinpointing and strengthening
your deficiencies.
Rather than reflexively importing innovation best practices, managers should adopt a
tailored, end-to-end approach to generating, converting, and diffusing ideas.
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Think Innovation Value Chain
To improve innovation, executives need to view the process of transforming ideas into
commercial outputs as an integrated flow— rather like Michael Porter’s value chain for
transforming raw materials into finished goods.
The first of the three phases in the chain is to generate ideas; this can happen inside a unit,
across units in a company, or outside the firm. The second phase is to convert ideas, or,
more specifically, select ideas for funding and developing them into products or practices.
The third is to diffuse those products and practices. Let’s examine the activities and
challenges associated with each.
Idea Generation
The bigger sparks, they discover, are ignited when fragments of ideas come together—
specifically, when individuals across units brainstorm or when companies tap external
partners for ideas.
Companies also need to assess whether they are sourcing enough good ideas from outside
the company and even outside the industry— that is, tapping into the insights and
knowledge of customers, end users, competitors, universities, independent entrepreneurs,
investors, inventors, scientists, and suppliers.
Idea Conversion
No matter how well screened or funded, ideas still must be turned into revenue generating
products, services, and processes.
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Companies have to have strong screening and funding mechanisms
Idea Diffusion
Companies must get the relevant constituencies within the organization to support and
spread the new products, businesses, and practices across desirable geographic locations,
channels, and customer groups.
Focus on the Right Links
Executives should view their companies’ innovation processes as a value chain, engaging in
a link-by-link analysis.
In short, a company’s strongest innovation links are simply no good if they prompt the
organization to spend money with little hope of solid returns or if the attention paid to them
further weakens other parts of the innovation value chain.
Indeed, our research suggests that a company’s capacity to innovate is only as good as the
weakest link in its innovation value chain.
Organizations typically fall into one of three broad “weakest link” scenarios
1. Idea-Poor Company
2. Conversion-Poor Company
3. Diffusion-Poor Company
Fixing the Idea-Poor Company
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Managers fail to forge quality links with others outside their company. These companies
need to build external networks as well as internal cross-unit networks to generate ideas
from new connections.
1. Build external networks
There are two fundamentally different approaches to building external networks, each
which fulfills different objectives.
1. A Solution Network
Geared toward finding answers to specific problems – ‘’how can we protect fatty
acids from oxidation?’
2. Discovery Network
Geared toward unearthing new ideas
For example using scouts that cultivate relationships with scientists, doctoral
students, venture capitalists, entrepreneurs, governments and corporate labs. Their
real value as scouts, though, lies in their ability to match emerging technologies to
their specific businesses.
The objective of discovery networks should be to learn, not to tell.
Whether managers are developing solution networks or discovery networks, the key metric
for them to keep in mind is diversity, not number, of contacts. The goal here should be to
tap as many unique sources of information and ideas as possible as opposed to interacting
with many similar contacts.
2. Build internal cross-unit networks
A complementary approach to generating new ideas from outside companies is to build
cross-unit networks inside organizations.
What’s needed is an ongoing dialogue and knowledge exchange between people from
different units.
What’s needed is an ongoing dialogue and knowledge exchange between people from
different units.
Fixing the Conversion-Poor Company
Two innovation practices can go a long way toward addressing the idea-conversion
problem—
1. Multichannel funding
From small discretionary pots of seed money all the way to full-scale venture funds
2. Safe havens
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Tenco’s executives saw their role as shielding these new businesses from the short-term
thinking and budget constraints that pervaded the rest of the organization, but without
isolating them. On the one hand, the management team built a governance structure that
kept the new businesses close to the mainstream ones.
Fixing the Diffusion-Poor Company
Diffusion doesn’t happen by fiat; executives can’t just order a companywide rollout of
developed ideas. Instead, they need to create buzz for new concepts by using a variety of
catalysts. One such catalyst is the “idea evangelist”—someone who preaches the good
word about an emerging product or business.
The best evangelists relentlessly use their deep, high-touch personal networks to increase
awareness among employees and persuade them to adopt a new product or business
concept.
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New Measures, New Roles
If executives tailor their solutions to the right problems, over time, a weak link in the
innovation value chain will become a strong one— and some other part of the chain will
need tending instead. Managers need to monitor each link in the chain constantly in order
to continually improve the whole. They will need to implement new key performance
indicators that focus on the specific deliverables from each link in the chain.
Managers adopting the value chain view of innovation will also need to cultivate new roles
for employees. For instance, team members at Siemen’s Silicon Valley unit are external
scouts, seeking good ideas from outside the company.
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A company that is poor at converting ideas into new products and lines of business, for
instance, may look to bring in people with venture capital backgrounds in order to foster
that mind-set at the organization.
Chesbrough (2007) – Bringing Open Innovation to Services
Findings
1. Many open innovation concepts apply readily to services
2. One way companies can move toward open innovation in services is by closely
working with customers to develop new solutions
3. Product-oriented companies face organizational challenges in moving to a greater
emphasis on services
Rethinking Business – From a Service Perspective
In porter’s value chain, service comes only at the very end of his diagram  a wrong
depiction from what services provide.
People don’t want the product but the experience the products produces
Service is an ongoing Iterative Process, which creates this experience, whereas product
production is linear
The process begins with engaging the customer and looks for his needs, co-creation.
With those points in mind, the service offering is made to the customer.
How Open Innovation Applies to Services
Openness usually refers to ways of sharing with others and inviting their participation
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In the Open Innovation Model, there are two complementary kinds of openness:
1. Outside In
Here a company makes use of external ideas and technologies in its own business
Here the Not Invented here syndrome has to be overcome, welcoming new external
contributions
2. Outside In
Here a company allows some of its own ideas, technologies or processes to be used by other
businesses.
Here the Not Sold Here Syndrome has to be overcome, where the company monopolizes its
use of innovations.
How to Foster Open Service Innovation
It is not easy to move to a service innovation
Work Closely with Customers to develop new Solutions
Use pilot projects – companies and customers work together on a customer’s problem, the
customer gets a solution while the company is allowed to scale it
Focus Offer on Utility, rather than the Product
Xerox, for instance, provides companies with copiers and printers. The customer only pays a
fixed price per copy while the rest is managed by Xerox. It is more capital efficient for the
customers and gives Xerox more control.
Embed your company in your Customer’s Organization
Some companies offer their services at a wide base. UPS can handle your shipping, even
though it might eventually be shipped by FedEx. Otherwise, they can help with inbound
supplies within a companies supply chain, gaining more visibility in the business conduct of
their customer. This enhances UPS’ tailoring of its service even further.
All in all, service innovation provides a competitive advantage, by knowing exactly what
value means to the customer.
Vinig & Haan (2005) – How do Venture Capitalists Screen
Business Plans? Evidence from the Netherlands and the US
The main criteria identified are:
3.
4.
5.
6.
7.
The Entrepreneur
The Product or Service
The Market
Financial Considerations including investment
Exit considerations
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These criteria are consistent with business strategy research and venture capital research
findings as factors that impact the survival of new ventures.
The findings suggest that overall agreement exists on the relative importance of the main
criteria (Entrepreneur, Product, Market, Financial) among Dutch and US VC’s. Both Dutch
and US VC’s consider the Entrepreneur as the most important attribute.
US VC’s rank the criteria of Product, Market and Financials at the same level of relative
importance.
Dutch VC’s rank Product and Market at the same level of relative importance and the
Financials as least important criteria.
The relative importance of the sub-criteria reveal differences between Dutch and US VC’s.
Dutch VC’s rank the relative importance of innovative product/service high whereas
US VC’s rank proprietary, protected products with high relative importance. The
organizational processes behind the business plan screening process have also been
examined in this study. VC’s with passive deal flow generation tend to relay on a hierarchical
screening approach whereas VC’s with active deal flow generation have a less hierarchical
screening process and tend to use more domain experts and senior staff when screening
business plans.
A passive deal-flow approach in which the VC relies on industry events, advertising,
network events and the Internet to generate a flow of business plans and thus accepting
unsolicited business plans. This approach is common among technology Incubators. The
other approach is an active deal-flow generation – actively looking for new ventures and
investment opportunities using their network. Such a VC will usually not address unsolicited
business plans
Schwienbacher & Larralde (2010) – Crowdfunding of Small
Entrepreneurial Ventures
An inherent problem that entrepreneurs face at the very beginning of their entrepreneurial
initiative is to attract outside capital, given the lack of collateral and sufficient cash flows
and the presence of significant information asymmetry with investors. A recent trend is
‘crowdfunding’
Definition of crowdfunding
In simple terms, crowdfunding is the financing of a project or a venture by a group of
individuals instead of professional parties (like, for instance, banks, venture capitalists or
business angels). In theory, individuals already finance investments indirectly through their
savings, since banks act as intermediary between those who have and those who need
money. In contrast, crowdfunding occurs without any intermediary: entrepreneurs “tap the
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crowd” by raising the money directly from individuals. The typical mode of communication
is through the Internet.
More conceptually, Lambert and Schwienbacher (2010) extend the definition of
crowdsourcing provided by Klemann et al. (2008), by describing crowdfunding as “an open
call, essentially through the internet for the provision of financial resources either in form of
donation in exchange for some form of reward and/or voting rights in order to support
initiatives for specific purposes”.
From Crowdsourcing to Crowdfunding
Crowdsourcing takes place when a profit oriented firm outsources specific tasks essential for
the making or sale of its product to the general product (the crowd) in the form of an open
call over the internet, with the intention of animating individual to make a voluntary
contribution to the firm’s production process for free or significantly less than that
contribution is worth to the firm. Put differently, for-profit firms create value by using
consumers as volunteers and almost free taskforce.
They have three characteristics:
1. They take part in the production process
2. Create value
3. Their capacities are valuable assets
Why do companies crowdsource/crowdfund?
Mainly for cost-reduction reasons
It allows a company to reduce the length of production development
Have better customer acceptance
Increase the customers’ perception of production newness
Characteristics of Crowdfunders
Most projects financed by crowdfunding do not offer any reward to their investors, rather
live from donations
Participants (investors) have either intrinsic or extrinsic motivations
CROWDFUNDING DECISIONS IN THE CONTEXT OF ENTREPRENEURIAL
PROJECTS
Existing sources of finance
1. Equity
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2. Debt
Risk, moral hazard and information asymmetry
How much risk the entrepreneur is willing to bear is also a condition when choosing
financing. Indeed, managers take risks, but shareholders are those who actually carry it. As a
result, equity finance is a way to spread risk over different people.
In contrast, debt finance makes the entrepreneur (provided he is the only shareholder) bear
the risk alone.
Therefore, the financial structure of a company is influenced by the original riskiness of the
project along with the risk-taking personality of the entrepreneur.
Information asymmetry is another issue in financing entrepreneurial initiatives. This is the
common issue of information asymmetry, whereby different parties engaged in a deal do
not have access to the same level of information.
Moreover, the entrepreneur might be even more reluctant to disclose information to this
type of investors, due to their number and lack of professionalism. Idea stealing may further
be particularly strong here, since the entrepreneur needs to disclose sensible information to
a wider audience than under traditional forms of fundraising.
Organizational form - non-profit organizations are more successful in achieving funding
goals as they may focus on quality more
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Control preferences
Conflict between owners and managers (profit maximization vs. innovative creation related
goals respectively).
Control needs to be clearly held by one of the parties
It is unlikely that crowdfunding investors with their large numbers will be able to have
fundamental control over the project
Amounts required by Entrepreneurs
As small businesses may require only small amounts in the beginning, VC’s that handle an
investment minimum are unattractive financers. This may affect the structure of the startup
Legal issues regarding equity issuance and multiple investors
Regulation on equity issuance for private companies may limit the extent to which
crowdfunding can be a viable source of financing and the capacity of firms to seek funding
from the crowd, as it may be perceived as being a general solicitation of public saving.
Moreover, in some countries there is a limit on the number of shareholders that some forms
of business organizations are allowed have.
The ‘’wisdom of the crowd’’ argument
Entrepreneurs may require external support on how to run their company or to assess the
economic potential of their product. Unlike business angels or venture capital funds, crowdfunders might not have any special knowledge about the industry.
However, the “wisdom of the crowd” argument states that a crowd can at times be more
efficient than individuals or teams in solving corporate problems. Hence, crowdfunders as a
crowd would be more efficient than a few equity investors alone.
The crowd may further become consumers once the product has been brought to the
market and have an incentive to disseminate the information about the product it if they
participate in the profits of the venture.
BUSINESS MODELS OF CROWDFUNDED VENTURES AND
CROWDFUNDING PLATFORMS
Donations
Crowdfunding initiatives seek to attract donations rather than offer financial rewards or any
other form of recognition to investors
Passive investments by the crowd
Most of the crowdfunding projects do not offer any possibility to investors to become
actively involved in the initiative, such as voting for selected characteristics of the final
product or provide working time to the company
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Active investments by the crowd
Other entrepreneurs offer investors to become active in the initiative, next to offering
rewards to them. This may provide valuable feedback to the entrepreneur on potential
market demand and product characteristics that the market may prefer most. Also, the
active involvement may be structured in forms discussed above under the concept of
crowdsourcing.
Based on the study and analysis, it would seem fairly relevant to give these few pieces of
advice to potential crowdfunders:
1.
2.
3.
4.
5.
efficiently communicate with Web 2.0, or at least know people that
do: the more communication around the project you get, the better;
network as extensively as possible: communication from people that
have faith in your project is way more effective than formal communication;
information asymmetry at your advantage: make the project look fancy but
have barriers make it look ugly to non-serious investors;
skills your company could benefit from, and look for these skills in
your potential investors;
shareholders to be active participants in your company, by creating
the adequate platform and showing them how valuable their help is;
6.
make you an outlaw.
In this article, we discussed when it makes sense for small entrepreneurial ventures to use
crowdfunding rather than another source of finance. Some main characteristics of ventures
emerged:
1. They need to raise a reasonably low amount of capital that would accommodate a
relatively small number of investors. First because some legal forms have limitations
in respect to that, and second because managing too big groups can prove to be
difficult, even with new technologies. There are however a few cases that have
shown how to circumvent many of these problems.
2. They have an interesting project to offer to prospects, in particular something
innovative. Indeed, since crowdfunders are not only rent-seekers, they also need to
be interested in the project, often ready to become an active investor in decision
making.
3. They need to be willing to extend their skill set, or at least welcome other people’s
opinions. The reason for this is that, once again, crowdfunders seek projects where
they can participate and be useful. This could be an advantage to anybody.
4. They need to know how to work the controls of Web 2.0, because the whole
process goes through the interactive Internet, from communicating the project to
managing shareholders. All of this could be done without the web, but at a
considerably higher cost in time, money and efficiency.
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Reitzig (2004) – Strategic Management of Intellectual
Property
Intellectual property now makes up a large proportion of many companies’ market value,
yet executive attention has not been drawn steadily yet.
Possible questions regarding Intellectual Property (IP)
How can the company use intellectual property rights to gain and sustain competitive
advantage?
How do IP rights affect the industry’s structure?
What options do IP rights offer vis-à vis competitors?
How can IP rights grant incumbency advantage and establish barriers to entry?
How can IP rights help the company gain vertical power along the value chain?
What organizational design accommodates an intellectual property strategy most
effectively?
Creating and Sustaining Competitive Advantage
Intellectual property rights can help a company gain competitive advantage in various ways,
but three are paramount:
1. They can provide a temporary technological lead (incumbency)
The use of patents is an example of IP use, providing a short-term technological lead
2. Protect brand names
As with aspirin, the patent may expire after a while. Yet, trademarks continue to exist
3. Help form an industry standard
Some leading innovation companies set the standard by using their exclusive licensing as
tool to get other companies to use the same modalities in their products
Combinations of patents and trademarks can help to sustain IP-based competitive
advantages. Combinations of Patents can be used; as with two complementary products or
a patent fence can be build that also patents substitutes.
Vertical and Horizontal Differentiation
Competition along the dimension of technical IP rights has long been thought of as a matter
of protecting major technological breakthroughs that would lead to radical innovations in
the market (that is, competition with vertically differentiated products)
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According to a top IP manager at Nokia, one of the company’s most precious assets is a
multiple patent, design and trademark combination covering Nokia’s unique user interfaces
for cellular phones. A cellphone interface is rarely a radical innovation driving down the
opportunity costs of production. (Competition on this feature comes much closer to
horizontal than to vertical differentiation, well known from the field of branding but almost
unknown in the patent sector.)
Timing is also important. The key trade-off lies between the disclosure of technical
knowledge and the assurance of early protection through patents.
For that reason, secrecy may be more effective than the patent process for technology
products with short life cycles.
Incumbency Advantages
Incumbency advantages may result from:
1.
2.
3.
4.
5.
Economies of scale
Cumulative investment in a technology
Consumer loyalty
Switching costs - obtained by standardizing (Microsoft hardware and software)
Intellectual property
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Raising Entre Barriers
Optimally, an incumbency advantage can be turned into an entry barrier for followers
Trademarks or ways to pack a product
Creating Power with Suppliers
Nokia has patents in domains of the products their suppliers supply to them, to forearm
price increases from few suppliers in that domain.
Organizational Design
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Ideally, corporations should have an IP department at the corporate and the business unit
level. The organizational structure reflects both the importance assigned to IP rights by toplevel management and the company’s comprehensive approach to the issue.
The increasing corporate value of intellectual property has a consequence for senior
leaders: They must not leave IP-related questions to functional management levels alone.
Instead, they must take a strategic approach to the issue. The key lies in treating intellectual
property as they would any other strategic issue facing their organizations. By thinking
through the questions systematically — about competitive advantage, industry structure,
entry barriers, competitors, suppliers and organization — they can make IP a strategic
weapon in the corporate arsenal
Suarez (2004) – Battles for Technological Dominance: an
Integrative Framework
This paper proposes an integrative framework for understanding the process by which a
technology achieves dominance when “battling” against other technological designs. We
focus on describing the different stages of a dominance battle and propose five battle
milestones that in turn define five key phases in the process
Dominant technologies or Dominant Technology Trajectory, often named:
1. Dominant designs
2. Technological trajectories
3. Platform
Theoretical streams on technological dominance
A technology—broadly defined as a set of pieces of knowledge, some of which are
embodied in physical devices and equipment—becomes dominant as the result of a
complex process by which several competing alternatives and versions are de-selected until
a preferred technological “hierarchy” becomes evident; a particular design then emerges.
Streams in literature:
1. Hierarchy of technology – alternative technologies are deselected
2. Technological platforms or product families
3. Industrial economics – Network economics, based on game theory. Regards the
installed base of the network in comparison to competing technologies
3. Factors Associated with Technology dominance
A well-accepted classification is that of non-assembled products, simple assembled products
and complex systems.
Compatibility standards can be sponsored, where one or more actors have a direct or
indirect interest in the diffusion of the technology and persuade others to adopt it.
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Irrespective of the size of the technological field, two broad groups of factors influence the
outcome of a technology battle: firm-level factors and environmental factors—This
broad distinction is consistent with the existing schools of thought in management that
stress the importance of firm-level capabilities and resources (Dierickx and Cool, 1989 ) and
environmental factors (Dess and Beard, 1984; Hannan and Freeman, 1977; Porter, 1985 ) on
the performance of different firms in an industry. However, technology battles have very
special dynamics and it is therefore important to identify the specific factors that play a role
in the process
Factors
Technological superiority
Complementary assets and credibility
1. Reputation
2. Manufacturing Capabilities
Firm’s strategic maneuvering
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1. Timing of entry to the industry (early entry- leadership vs. later entry, not being
locked into a specific technological trajectory)
2. Pricing
3. Licensing policy
4. Use of marketing and PR resources
Size of a firm’s installed base
Regulation and institutional intervention
Network effects and switching costs
Network effects arise in firms’ environments as a result of consumption complementarities
where the utility derived by a consumer is affected by the total number of consumers
subscribed to the same network. Direct vs Indirect effects. The nth customer joins a
network and a network connection for all is created. Indirect are complementary products
or services, software, training etc.
Regime of appropriability
The regime of appropriability has been defined with respect to the aspects of the
commercial environment, excluding firm and market structure, that govern a firm’s ability to
capture the rents associated with an innovation.
For instance, a strong appropriability regime will favor firms with a superior technology, as it
will prevent or at least limit the effectiveness of competitor’s efforts to woo customers to
their camp.
Characteristics of the Technological Field
The structure and dynamics of the market dictate whether a companies interactions and
artifacts that emerge through a negotiated process will come to an agreement with
producers of complementary products and services.
The number and relative power of each actor and the level of cooperation vs. competition
are of importance here.
4. The dominance process
We posit that the technology dominance process can be described in terms of a few key
milestones. Each milestone marks the start of a new phase in the dominance battle, and
each phase is characterized by different dynamics that in turn make some of the factors
associated with dominance more relevant than others.
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Phase I - R&D Buildup
The beginning of the technological field can be traced back to the moment when a pioneer
firm or research group starts doing applied R&D aimed at producing a new commercial
product.
Phase II – Technical Feasibility
A second milestone is marked by the appearance of the first working prototype of the new
product. The first working prototype sends a powerful signal to all firms in the race that at
least one of the technological trajectories is feasible and has been developed to such a level
that there will soon be a product in the market.
Phase III - Creating the Market
A third milestone in the dominance process is the launching of the first commercial product,
which for the first time, directly connects a technology coming out of the lab to customers.
Phase IV – Decisive Battle
The presence of a clear front-runner marks the fourth milestone in the dominance battle.
Indeed, the front-runner has a chance of winning the battle, as its larger installed base tends
to create some “excess inertia”—a bias towards the technology with the largest market
share.
Phase V – Post Dominance
Finally, at some stage, a specific technological trajectory achieves dominance and marks the
last milestone in the dominance process. Different authors have determined the dominance
point differently.
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Conclusion
Our framework has also clear implications for managers, particularly in firms sponsoring one
of the competing technologies. On the one hand, the framework spells out the different
factors that affect the final outcome, separating those that firms can act upon directly from
the environmental factors that are mostly beyond a firm’s control. A comprehensive spelling
out of the different factors at play in a dominance battle is by itself helpful, as different
streams of literature have tended to place the emphasis on various sub-sets. On the other
hand, our framework enables managers to watch for five key milestones and five key phases
in the process, each with its own dynamics and sets of factors that are more likely to prevail.
In particular, the framework suggests that the interplay of firm- and environmental-level
dynamics in a dominance battle provides key areas in each phase that managers need to
stress. For example, since technological superiority is key in Phase II, managers may want to
follow their firms’ R&D efforts more closely in order to assess how their technologies
compare with those of competitors, and then plan their strategic actions—e.g. the
formation of alliances—based on this analysis. Moreover, a correct understanding of the
ways in which environmental factors constrain managerial action—e.g. through regulation
or network effects—can help managers to time their “strategic maneuvering” efforts better.
In Phase III, the outcome seems to be particularly affected by managers’ strategic actions
and a proper understanding of this “window of opportunity” for strategic maneuvering is
key to the effectiveness of different firm-level actions. Thus, Apple’s late effort to licensing
its technology was of little benefit to the company because it happened in Phase IV of the
dominance process
The outcome is a result of the interrelation between managerial decisions and
environmental factors that influence customer choice.
Conley (2002)– 3M ESPE AG: Managing Intellectual Property
in the Dental Impression Materials Market
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Learn slides from guest lecture!
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Harmermesh & Reinbergs (2005)– Shurgard Self-Storage:
Expansion to Europe
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Seeking new growth in an increasingly fragmented industry, Shurgard USA decided to
expand to Europe and in 1994 established regional headquarters in Brussels, Belgium.
Grant, a U.S. expatriate, moved to Brussels from Seattle in 1996 to lead the management
team, which he built over the next several years by hiring a mix of restaurant site developers
from McDonald’s Europe and real estate professionals. Despite unexpected challenges in
adapting the American self-storage concept to European consumer lifestyles, by July 1999
Grant’s team had opened 17 operating facilities in Europe (nine in Belgium, five in Sweden,
and three in France), with another 18 in development/construction, at a cost of €120 million
to its U.S. parent and joint-venture partners. Shurgard had grown to over 100 employees
and 4,000 self-storage customers across Europe.
Development of the Self-Storage Industry and Shurgard
Growth of Industry and Shurgard USA
Need for extra temporary space:
1.
2.
3.
4.
Increasingly affluent and mobile American consumer Lifestyle
Mass-produced appliances and electronics
Frequent relocations for work or study
Increase of Divorces
Initiation for temporary space industry:
1. Oil industry entrepreneurs Texas renting out warehouse space to consumers
2. Less legal liabilities for storage providers
3. No transport offered directly to consumer
Shurgard’s rise:
1. Started off in Seattle
2. Three generations of Shurgard US self-storage facilities evolved
a) 1. Mom and pop Operations – married couples
b) 2. Branding, use of Light house Theme (security). Store managers instead of
mom and pop couples, only one or two people needed. Managers could gain
promotions if they performed well
c) 3. Security – increased need for security. Increased control of access, no
longer a main branding theme
Customers, Operations and Pricing



Most Self-storage facilities were located on outskirts of cities near highways
Shurgard aimed to locate in Dominant Locations – Highly visible and accessible
Shurgard preferred creating Critical Mass – 10 -15 stores before moving to next city
Clustering stores increases brand awareness and maximizes advertising effort
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




Shurgard Maintained good relations with local communities as building permits
could easily be objected by residents
Active marketing to let consumer know about the existence of self-storage
Various sizes and features and services were provided for the different kinds of
customers
Shurgard - Flexible pricing based on demand
Occupation on average 86.9% (!)
Financial Issues


Financing was hard because concept is very different from other real estate concepts
Funded through 24 separate limited real estate partnerships, 80.000 individuals
investing $600 million – incorporated into REIT (Real estate Investment Trust)
Expansion to Europe
Shurgard quest to Europe



Swedish student Fogelberg saw opportunity for Europe – concluded EU is an
interesting market for Shurgard
Cooperation between Shurgard and Fogelbergs (10% vs. 90% equity)
EU banks reluctant to lend money to Fogelbergs
Shurgard Belgium



Important philosophical difference between Shurgard & Fogelbergs – acquiring new
self-storage sights versus converting existing industrial real estate. Compromise:
a)
First two facilities based on conversion of existing real estate – turned
out expensive. Third was built according to US model
Lukewarm response from Belgians – outside drive-up units popular in the US
perceived as unsafe & unappealing to Europeans.
Different price elasticity for Europans – Shurgard cut charges by 50%
Europe Phase II
France, Human Resources and Regulation.




Shurgard bought facilities from bankrupted competitor in France.
Significant variations in Size of storage in Europe – Focus on number of customers
instead of Square feat
Low awareness of self-storage in Europe
Stricter EU regulation, making it harder to fire employees or rotate them between
stores
Sweden and Marketing

Slightly more American mix of units
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
Successful media advertising campaign – Put your mother in law in storage
Future Expansion
 Learning - important cost differences in EU
a) Large overhead, expensive staffing
b) Costs for building
Decision Time





Detailed five-year growth plan – opening between 133 and 170 stores by end 2003
Required a 500m euro investment, 120m already invested by Shurgard US
No investor to be found
1999 – A group of large (investment) banks offered 122m in return for 43.3% of
Shurgard EU equity with an additional 140m credit option
Group wanted to review
a) Every investment in each new store
b) Super-majority approval of executive hires, salaries over 120.000 and annual
and five year plans
c) Grant disapproves this much invoice of the group and wants to limit their
power
Berry, Shankar, Parish, Cadwallader & Dotzel (2005)– Creating
New Markets Through Service Innovation
Many companies make incremental improvements to their service offerings, but few
succeed in creating service innovations that generate new markets or reshape existing ones.
To move in that direction, executives must understand the different types of marketcreating service innovations as well as the nine factors that enable these innovations.
For decades, the importance of services to the global economy has grown steadily while the
importance of goods has declined. In fact, services now dominate, making up about 70% of
the aggregate production and employment in the Organization for Economic Cooperation
and Development (OECD) nations and contributing about 75% of the GDP in the United
States.
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“Market-creating service innovation,” which we define as an idea for a performance
enhancement that customers perceive as offering a new benefit of sufficient appeal that it
dramatically influences their behavior, as well as the behavior of competing companies.
Service innovation differs from product innovation in important ways.
1. First, for labor-intensive, interactive services, the actual providers — the service
delivery staff — are part of the customer experience and thus part of the innovation.
2. Second, services requiring the physical presence of the customer necessitate “local”
decentralized production capacity. (Customers will drive only so far to eat at a
restaurant, no matter how innovative it may be.)
3. Third, service innovators usually do not have a tangible product to carry a brand
name.
Arriving at a Taxonomy of Service Innovations
Two primary dimensions:
1. Type of Benefit offered
On the first dimension, businesses can innovate by offering an important new core benefit
or a new delivery benefit that revolutionizes customers’ access to the core benefit.
2. Degree of service Separability
The second dimension concerns whether the service must be produced and consumed
simultaneously
Combining the dimensions of separability and type of benefit creates a two-by-two matrix
that can help managers see where their companies fit and how they may seek to innovate.
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Cell 1: Flexible Solutions
This cell describes service innovations that offer a new core benefit and that can be
consumed apart from where and when they are produced. These innovations allow their
users to break free of the constraints of time and place.
By focusing on a fundamental service benefit that can be experienced separately from the
service provider, executives can turn unsolved customer problems into service innovation
opportunities that spawn new markets.
Cell 2: Controllable Convenience
Innovations that create markets on the basis of new delivery benefits offer controllable
convenience. As with flexible solutions, customers can enjoy the service benefits in this cell
at any time and place.
Cell 3: Comfortable Gains
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This cell refers to service innovations that offer a new core benefit consumed at the time
and place of production. These innovations provide comfortable gains — substantially new
experiences with direct benefits to customers’ emotional or physical comfort.
Managers of services that are produced and experienced in the same location need to look
for creative ways by which the service experience can be made more comfortable,
distinctive, enjoyable or memorable. Service innovations in this cell allow customers to
benefit from a distinctive experience.
Cell 4: Respectful Access
In this cell, service innovators offer a new delivery benefit, and the production and
consumption of the service are inseparable. Companies that create new markets in this
space are granting their customers respectful access: They’re demonstrating respect for
their customers’ time and physical presence in using the service.
Successful Drivers of Market-Creating Service Innovation
Executives who attempt to create a new market through service innovation must
concentrate on the tasks that determine success or failure. Our research identified nine
success drivers behind such innovations, some of which will be familiar to readers.
Drivers:
1. A Scalable Business Model
a) Become more Capital Intensive
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2.
3.
4.
5.
6.
7.
8.
9.
b) Separable version of Service – e.g. online software complementing/replacing
traditional service
Comprehensive Customer Experience Management – Experience clues
a) Functional Clues – pointing to technical quality of offering
b) Mechanical Clues – nonhuman elements such as design of facility
c) Human Clues – Behavior and Appearances of Employees
Investment in Employee Performance
a) Careful Hiring
b) Training and Education
c) Information Sharing
d) Performance based Compensation
e) Internal branding
Continuous Operational Innovation
a) Continuous improvements and streamlining of handlings when helping a
customer
Brand Differentiation
a) Trusted Brand reduces Perceived Risk
b) Vital for Cell 1
An Innovation Champion
a) Requires a mobilizer of resources, a master persuader who gets things done
A superior Customer Benefit
a) Offering a Clear and Better Solution to a Problem of Sufficient Importance to
the Customer
Affordability
a) Customers have to have the means to buy the solution
Continuous Strategic Innovation
1) Devoting resources to Brain Storm and Monitor new Innovations
Innovation Starts with Culture
For companies operating in the separable cells, it’s especially important to use continuous
innovation to stay ahead of the competition, because these businesses place greater
reliance on factors that can easily be replicated.
In addition to fostering a corporate culture that builds human capital, companies seeking to
create new markets with services must create a culture for innovation — a “style of
corporate behavior that is comfortable with, even aggressive about, new ideas, change, risk
and failure.” Employees must have the confidence to take risks and to freely share thoughts
and suggestions with anyone in the organization. They must care enough and trust enough
to try to create something new.
Hertog & van der Aa & de Jong (2010)– Capabilities for
Managing Service Innovation: Toward a Conceptual
Framework
This theoretical paper offers a conceptual framework for managing service innovation by
proposing six dynamic service innovation capabilities. This framework builds on and is
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integrated with a model of service innovation that covers the possible dimensions where
service innovation can take place.
Service innovations are ubiquitous and their role in creating economic growth and well
being is increasingly acknowledged.
The rise of the service-dominant logic perspective
Next, our claim in this paper is that linking the insights gained from the valuable combined
service (innovation) perspectives indicated above to a dynamic capabilities view (DCV)
(Stems from the RBV) of the firm may result in a promising conceptual framework for the
strategic management of service innovation, including promising future research avenues.
We propose that the dynamic capability perspective is particularly useful for service
industries because the service innovation process is less tangible and more interwoven with
the capabilities embedded in the processes and routines throughout an organization.
Service Innovation as a Multidimensional Phenomenon
These service dimensions lead, individually but most likely in combination, to one or more
(re)new(ed) service functions that are new to the firm. These service functions do change
the service or goods offered on the market and so require structurally new technological,
human or organizational capabilities of the service organization.
With the latter we refer to the idea that to realize these service innovations, the innovative
firm can draw on various operational resources and capabilities mostly linked to functional
management domains (i.e. first ring of circles around the core of Figure 1). By adding these
resources and capabilities, we anticipate the switch from the dimensions of service
innovation as a discrete phenomenon and the dynamic capabilities needed for managing
service innovation.
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Our definition of service innovations reads as follows:
A service innovation is a new service experience or service solution that consists of one or
several of the following dimensions:
1) New service concept
The service concept or offering describes the value that is created by the service provider in
collaboration with the customer. The innovation is often a new idea of how to organize a
solution to a problem or a need of a customer. (Telecom providers offering integrated
bundles of their various services)
2) New customer interaction
The interaction process between the provider and the client is an important source of
innovation – more so when the business service itself is offering support for innovation
(which, for example, is the case in research and development (R&D) or design services).
3) New Value system/business partners
New services – thus creating and appropriating value – are increasingly realised through
combinations of service functions provided by a coalition of providers, both parties in the
value chain, and actors in the wider value network
4) New revenue model
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Only a few new service concepts become successful service innovations as especially
those services requiring multiple actors to produce have to find models to distribute
costs and revenues in appropriate ways.
5) New Delivery system: Personnel, Organization Culture
It refers to the organizational structure of the service company itself. Appropriate
management and organization are needed to allow service workers to perform new
jobs properly, and to develop and offer innovative services.
6) Technological service delivery system.
This dimension pinpoints the observation that ICTs (predominantly, but not
exclusively) have enabled numerous service innovations ranging from electronic
government and e-health, to advanced multi-channel management, customization of
services, introduction of self-service concepts, virtual project teams and so on.
A service business can innovate every single dimension, or a combination of the several
dimensions previously outlined. The significance of the dimensions, as well as the
interactions between them, will vary across individual service innovations and firms.
Business model innovation can be perceived as a systems-level innovation where (almost)
every dimension is changed.
Six Dynamic Capabilities for Managing Service Innovation – (Introducing the
RBV and DCV)
1) Resource Based View
In the RBV, a resource is defined as “an asset or input to production (tangible or intangible)
that an organization owns, controls, or has access to on a semi-permanent basis”
Essentially the RBV conceptualizes firms as “bundles of resources” that are
“heterogeneously distributed across firms” and assumes that these “resource differences
persist over time”
The bases for competitive advantage are essentially resources that meet the valuable, rare,
inimitable and non-substitutable (VRIN) criterion and give rise to “fresh value creating
strategies that cannot be easily duplicated by competing firms”
2) DCV - Dynamic Capabilities View
The DCV as compared to the initial, basic version of the RBV, offers the more dynamic
version of the RBV by emphasizing that possessing a set of resources with VRIN
characteristics is not enough to stay competitive in a changing business context. Instead,
dynamic capabilities or “are seen as key and perceived as the cornerstone of competitive
advantage.”
He proposes three categories of dynamic capabilities that he sees as most critical for
sustaining evolutionary and entrepreneurial fitness i.e.:
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1) The capacity to sense and shape opportunities and threats
2) To seize opportunities
3) Dynamic capabilities to maintain competitiveness through enhancing, combining,
protecting and, when necessary reconfiguring the business enterprise’s intangible
and tangible assets.
Operational vs. Dynamic Capability
How should we discriminate then between an operational capability and a dynamic
capability? Helfat and Peteraf (2003, p. 999) have defined a (organizational) capability as
“the capability of an organization to perform a coordinated set of tasks utilizing
organizational resources, for the purpose of achieving a particular end result”. They stress
“dynamic capabilities do not directly affect output for the firm in which they reside, but
indirectly contribute to the output of the firm through an impact on operational
capabilities”.
Dynamic service innovation capabilities refer to specific capabilities, i.e. organizational
competencies, routines and processes organizations already have or newly develop to
manage the process of service innovation. In practice this means combining existing and
creating new resources and operational capabilities in order to realize (temporary)
competitive advantage and an up to date service offer.
In order to innovate effectively, new service experiences, new service concepts and/or new
ways of delivering must be aligned with firm strategy.
Six Dynamic Service Innovation Capabilities
1. (A) Signaling user needs and technological options
Two important Sub-capabilities are signaling user and technological needs:
1) Capability to empathically understand users and sense their (potential) needs well in
advance by interacting intensively with (potential) clients.
2) Capability to signal New Technological Options making a group of people respondent
for monitoring for new promising technologies
2. (B) Conceptualizing
Innovation Service is hard to be researched, developed, prototyped or tested in the same
way physical goods can.
1) Its predominantly conceptual nature makes it difficult for a customer to assess
beforehand what will be experienced and what will be delivered
2) Second, its highly interactive or shared process character
3. (C) (Un-)bundling Capability
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1) Bundling Services by offering all-inclusive packages
2) Unbundling – stripping a service to its essential, creating highly specialized servides.
4. (D) Co-producing and Orchestrating
It is hypothesized that managing service innovation across the boundaries of the individual
firm and managing and engaging in networks is a key dynamic capability for being able to
put a new service concept or configuration on the market.
This implies that the core service provider has to co-design and co-produce a service
innovation with other suppliers and manage the accompanying alliance. Customers will
often be involved in these alliances, co-producing and co-designing service innovations.
5. (E) Scaling and Stretching
1) Hard to scale because of intangible Character, human component and
cultural dependency
2) Scaling is most about diffusion – needs to be described to other parts of the
firm
3) Stretching relates to the immaterial character of service innovation –
stretching to other service offerings
6. (F) Learning and Adapting
It is defined as the capability to deliberately learn from the way service innovation is
managed currently and subsequently adapt the overall service innovation process.
The type of questions we should be asking include: what have we learned from our latest
set of service experiments? Can we use bundling and unbundling strategies for deriving new
services? How do we make sure we generate enough cues for service innovations? Are we
experimenting enough with new revenue models?
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