Corporate Entrepreneurship
UNCHAIN
Dr. V.E. Scholten
v.e.scholten@tudelft.nl
UNCHAIN – Corporate Entrepreneurship
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Technology Based Entrepreneurship
Bachelor course for all TU students
Organized by
Delft Centre for Entrepreneurship
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Technology Based Entrepreneurship
Courses in ‘technopreneurship’:
• Introduction to entrepreneurship and writing a
business plan (4 ec)
• Essentials of technology-based business (4 ec)
• Finance for entrepreneurs (3 ec)
• Product Development and Innovation (3 ec)
• Business Marketing for Engineers (3 ec)
• Managing Start-ups (3 ec)
• Integrating: Case study in technopreneurship (10 ec)
• Total program of 30 EC
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Technology Based Entrepreneurship
• Block 1: Kick-off and intensive two weeks of introduction course
• To get familiar with each other
• To work in diverse groups
• Block 1: 5 weeks of 3 individual courses
• entrepreneurship essentials/ finance/ product development
• Block 2: 7 weeks of 2 individual courses
• Managing start-ups/ business marketing for engineers
• Block 1 & 2: Case study in technopreneurship
• Integrates the individual courses in a large assignment
• 10 teams of 5 students, student choose their company
• Criteria: 10-75 fte, 5+ years old, technology oriented
•
•
•
•
First block: understanding the company: technology and markets
After first block students present innovation to all teachers
Second block: implementing innovation in the company and market
After second block students present their innovation to company and
external jury
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Management of Technology
• Master level program at Faculty of Technoloy, Policy and
Management
• Technology Management course for engineers
• Open to technical students, 50% Dutch – 50% Foreign
• Focus is on private companies and has a company orientation
• How to remain competitive based on technological innovations
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Management of Technology curriculum
First year 2010-2011
1st semester 30 ects
First course period
2nd semester 30 ects
Second course period
Third course period
Fourth course period
MoT1420
MoT1512
MoT9511
Economic Foundations (6
HRM en
Advanced Project
MoT2420
ects)
Leaderschip
Management
Innovation
(4 ects)
(5 ects)
Management
MoT1431
MoT 1410
MoT
Technology Dynamics
Marketing
(6 ects)
Technology and
(4 ects)
(4 ects)
MoT1001
Integration
Strategy
MoT1002
(6 ects)
Integration
Moment I
Moment II
MoT1440
MoT1450
MoT2310
Philosophy of Science
Decision Making
Corporate Finance and
Qantitative
(3 ects)
(6 ects)
Accounting
Research Methods
(4 ects)
(4 ects)
(4 ects)
MoT
Managing Technology
The Corporation
Research Methodology
UNCHAIN – Corporate Entrepreneurship
(4 ects)
Integration Moment
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Management of Technology curriculum
Second year 2011-2012
1st semester 30 ects
First course period
2nd semester 30 ects
Second course period
Third course period
MoT1601
MoT2320
System Modelling
Qualitative
Preparation for
(5 ects)
Research
the Master Thesis
Methods
(4 ects)
Fourth course period
MoT2001
(4 ects)
MoT2910
MSc Thesis Project
MoT2410
(30 ects)
Corporate Social Responsibility
(3 ects)
Specialisation
(14 ects)
Managing Technology
The Corporation
Research Methodology
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Integration Moment
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Specialization Entrepreneurship
• The aim is to gain in-depth knowledge and acquire
practical skills with respect to entrepreneurship.
• The first part of the specialization is a general part
regarding the identification of entrepreneurial opportunities
and how technology can be used to create value.
• In the second part, students can choose either to follow
the track on writing a business plan or corporate
entrepreneurship.
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Specialization Entrepreneurship
MOT
MOT9555:
Opportunit
y Framing
(2 ECTS)
WM0516:
Turning
Technology
into
Business
(6 ECTS)
WM0506:
Writing a Business
Plan
(6 ECTS)
MOT9556:
Corporate
Entrepreneurship
(6 ECTS)
MSc Thesis Project
Skills
(1 ECTS)
UNCHAIN – Corporate Entrepreneurship
-Starting a venture
-New business
development
-Corporate
Entrepreneurship
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Specialization Entrepreneurship
• Opportunity Framing explores the fundamental principles
of identifying and recognizing entrepreneurial
opportunities
• Turning Technology into Business aims at developing a
plan for the commercializing a patentable scientific finding
• Writing a Business Plan is about the hands-on skills that
entrepreneurs need to craft a sophisticated business plan
• Corporate entrepreneurship aims at understanding how to
foster an entrepreneurial culture, initiate strategic renewal
in large established firms and manage corporate venture
programs
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Corporate Entrepreneurship
UNCHAIN
Dr. V.E. Scholten
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Contents
• The need for new business and paths to grow
• Strategic renewal
• Organising internal corporate venturing
• Organising external corporate venturing
• Discussing the Xerox Technology Ventures case
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The need for new business and paths to grow
Organization
Environment
Sustainable
competitive
advantage
Role of
technology
innovation
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The need for new business and paths to grow
Discontinuous
technological innovation
and firm alignment with
the environment
4) Stress is too large,
firm renews
5) Firm is aligned
with environment
2) Change in environment
1) Firm is aligned with environment
==> Dominant logic prevails
Environment
Firm
3) build-up of stress between
changing demands of
environment and inert company
==> need to unlearn dom. logic
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The need for new business and paths to grow
Why large firms have difficulty to take up more radical innovations
• Distorted perceptions
• Myopia, Arrogance and denial, Grooved thinking
• Dulled motivation
• Direct cost of change, Cross subsidy comforts, Installed base, cannibalization
costs
• Failed creative response
• Reactive mind-set, Inadequate strategic vision
• Political deadlocks
• Departmental politics, Incommensurable beliefs, Vested values
• Action blockades and disconnects
• Leadership inaction, Embedded routines, Collective action problems, Capability
gaps
• Mostly they react by
• Downsizing, outsourcing support activities, divesting non-core businesses
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The need for new business and paths to grow
Disruptive technologies
• Initially unattractive
• Different package of performance
attributes
• Inferior performance for
mainstream market
• New markets or new applications
• Improving over time
• Performance improvement
required by mainstream market
• Invasion of mainstream market
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The need for new business and paths to grow
Disruptive technologies are often financially unattractive
• small market, difficult to project the long term
• is often seen as not meaningful contribution to corporate growth
• not worth to invest in
• disruptive: unreliable estimates of the market
• traditional: backing projects of which the market is
assured, fulfilling the requirements of
profitable customers and reducing risk.
Disruptive technologies need a different management approach.
Source: Bower & Christensen (1995) Disruptive Technologies: Catching the Wave.
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The need for new business and paths to grow
Crossing the chasm
Gadgets-likes vs pragmatists
require a different approach
Signaling Disruptive Innovations
• Technologies at the horizon,
signal disagreements between
marketing, financial and
technology managers.
• Pay attention to lead
customers not the mainstream
customer
• Keep the new activity loosely
coupled from mainstream
activities
• Integration leads to problems
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Corporate venturing
• Managing new radical innovations using start-up ventures
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Vehicles to grow
Organic
growth?
Internal growth
External growth
Acquisitions?
Alliances?
If unrelated than it requires a different management approach:
Field of corporate entrepreneurship
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Inverted u-shape relation between scope and
performance
Company
performance
Company scope
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Bounded rationality
Herbert Simon (1955)
• Individuals have limits:
• In formulating the problem
• In solving complex models
• In processing (receiving, storing, retrieving, transforming)
information
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Bounded Rationality
• Agents with bounded rationality look for satisfying answers, which
means that agents deliberate only long enough to come up with good
enough course of actions.
• It will be difficult for managers to focus on exploiting current business
and exploit new emerging business
• Mechanisms to solve the exploitation  exploration dilemma
• Alternating between different roganizational designs (i.e. organic and
mechanistic structures) (Hedberg et al., 1976)
• Creating loosely coupled organizations (Levinthal, 1997)
• Separating distinct units (Christensen, 1998)
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Corporate entrepreneurship
Strategic Renewal
Innovation
Corporate Venturing
Internal
Corporate
Venturing
•Struct. Autonomy
•Degree of relatedness
•Extent of innovation
•Sponsorship
New organizational forms:
&
New Mindset
UNCHAIN – Corporate Entrepreneurship
External
Corporate
Venturing
•Semi-autonomous
•Less related
•Pioneering innov.
•Outside the corp.
Joint ventures
Spin-offs
Corporate ventures
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Corporate entrepreneurship
• Strategic renewal
•
•
•
•
Significant changes in strategy or structure (Sharma and Chrisman, 1999)
Implementation of a new strategy (Covin and Miles, 1999)
Altering the firm’s resource base (Stopford and Baden-Fuller, 1994)
Changes in organizational structure (Guth and Ginsberg, 1990)
• Corporate venturing
• Creation of new business organizations
• Focus on new innovations
• External corporate venturing
• Semi-autonomous entities outside the existing organizational domain
• Internal corporate venturing
• New organizational entities within the organizational domain.
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Leica
2002
2003
2004
2005
2008
Sales
144 mln
119 mln
98 mln
+15.7%
155mln
Operating result
2.8 mln
3.0 mln
-15.5 mln
0.6 mln
2.0 mln
Net income
1.5 mln
-3.4 mln
Cash flow
13.3 mln
5.5 mln
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LEICA
• Three Independent Global Companies Share the
Leica Brand
Leica Camera AG: cameras, lenses, binoculars, projectors
Leica Geosystems AG: capture, model, and visualize
spatial reality and to support bi-directional data flow
Leica Microsystems AG: vision, measurement, lithography
and analysis of micro structures.
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Leica: how to renew?
1.
2.
3.
4.
5.
Focus on analogue photography
Focus on digital photography
Focus on producing parts, like lenses
Stop, milk, and sell the camera business
Something else??
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Leica today
• Focus on Lenses
• Collaboration between Leica and Panasonic
• Nurtures other global companies
and Allows further growth
• Acquisition of Sinar in 2006
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Organization Designs for Corporate
Entrepreneurship
Unrelated
Operational
relatedness
Partly related
Strongly
related
Special business
Independent
Spin off
unit
business unit
New business
New venture
department
division
Direct integration
Micro New
Nurturing &
Ventures
contracting
Contracting
department
Very important
Source: Burgelman, 1984
Uncertain
Not important
Strategic importance
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Assessing Operational Relatedness
• What are the key capabilities to make this project successful?
• Where, how, and when are we going to get them if we do not have them
yet, and at what cost?
• Who else might be able to do this, perhaps better?
• How will these new capabilities affect the capacities currently employed in
our mainstream business?
Source: Burgelman, 1984
• Advantages
• Disadvantages
• Sharing and leveraging resources and
capabilities
• Economies of scope, scale, and
experience effects
• Intrusion
• Cannibalization
• Less potential for radical innovation
Issues:
• More related and it can be assessed better upfront
• More unrelated => less economies of scale
• More unrelated => What is the benchmark? (BU/ division/ firm)
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Assessing Strategic Importance
• How does this initiative maintain our capacity to move in areas where
major current or potential competitors might move?
• How does this help us to find out where not to go?
• How does this help us create new defensible niches?
• To what extent could it put the firm at risk?
Source: Burgelman, 1984
• Advantages
• Direct top management support
• Urgency of the venture is visible
• Disadvantages
Issues:
• Needs control
• Battle for scarce resources
• Organizational change is needed
• Need to have a clear strategic direction
• Difficult to assess upfront
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Golden rule of venturing:
The more unrelated the venture, the more
autonomous it should be!
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Organizing for ICV: Process model
Definition
Impetus
Corp mgt
Monitoring
Authorizing
Rationalizing
NVD mgt
Coaching
Strategic
building
Delineating
Venture
Techn and
need linking
mgr
Strategic
forcing
Strategic context
Gatekeeping
Structural context
Structuring
Negotiating
Questioning
Source: Burgelman, 1983
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Issues in managing ICV
• Domain and synergy: potential for overlap
Solution: a master strategy; common interests and top management
involvement
• Rewards:
• Size of business is important
• Successful venturing leads to neglect of quality
• Who is going to run the business when it is successful
Solution: reward system should reflect the special nature of the
NVD
• Lack of corporate diversification strategy
• How does if affect the corporate image
Solution: Create a strategy delineated in new business fields
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How to control entrepreneurial behavior in ICV
Ground rule 1: give up control to gain control
• Empowerment
• Accountability
• Goal congruence
Ground rule 2: create organizational slack
• Creates space to try new things
• Must not undermine operational needs
• Staged investments
Source: Morris and Kuratko, 2002
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Exxon’s Two-fold Corporate Venturing
Program
External financial
investment alongside
private VC
Internal ventures by special
internal unit: Exxon
Enterprises
18 ventures
19 ventures
• Air pollution control
Advanced materials,
components, systems 7
• Health care
• Advanced materials 2
Energy conversion and storage 5
• Energy conversion and
storage 3
Information systems and system
components 7
• Information systems 11
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The Failure of Exxon Enterprises
18 projects in
ICV:
successful
(IRR 51 %)
Internal
ventures by
special unit
Exxon
Enterprises
none break even,
all terminated and
special ICV unit
dissolved
What had happened?
Source: Chesbrough, 2000
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From traditional to current
Not all Internal Venturing activities are successful
More open approach to venturing is important
Emerging business requires a fundamental shift of generating and
commercializing new ideas
Innovation changed from a closed approach to a open approach
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ICV and Closed Innovation
• Successful innovation requires control
• Attract the best and brightest scientists
• Develop and manufacture yourself
• Market and distribute yourself
• Take profits and reinvest yourself (circle of innovation)
• Control your own IP and protect it from others
• High R&D investments
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Closed Innovation in Industrial R&D
Development Projects
Research Projects
Current Market
Company Boundary
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Open innovation
• Problem with closed innovation:
• Not all the smart people work for us
• Commercialization of own ideas as well as from other firms
• Bring inhouse ideas outside the current business
• No lock up of IP but use in licensing, joint ventures and corporate ventures
• Porous boundaries of the firm
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Open Innovation in Industrial R&D
New Market
Current Market
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Opening up the R&D Value Chain
from….
100%
R&D
to….
Spin-in of
ventures, e.g.
Systemonic
R&D
Spin-out of
technology, e.g.
Lasers
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Internal and External Venturing
Internal Corporate Venturing:
External Corporate Venturing:
• Corporate venturing activities that
• Corporate venturing activities that
result in the creation of organizational
result in the creation of semi-
entities that reside within an
autonomous or autonomous
organizational domain.
organizational entities that reside
outside the existing organizational
domain.
Source: Sharma & Chrisman, 1999
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External Corporate Venture Process
• How to control ventures when external corporate venturing?
• If
• Internal control is too tight
• And you know little about managing start-ups?
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External or Venture Capital
“Money provided by professionals who invest alongside
management in young, rapidly growing companies that have the
potential to develop into significant economic contributors.”
Source: National Venture Capital Association, 2001
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Value-added Support by VCs I
1.
Serving as a sounding board for the entrepreneur team
2.
Helping the firms obtain alternative further sources of equity funding
3.
Interfacing with the investor group
4.
Monitoring financial performance
5.
Helping their portfolio companies attract alternative sources of debt
financing
Source: MacMillan et al., 1988
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Value-added Support by VCs II
1.
Help with additional financing
2.
Strategic planning
3.
Management recruitment
4.
Operational planning
5.
Introductions to potential customers and suppliers
6.
Resolving compensation/ rewarding issues
Source: Gorman and Sahlman, 1989
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Comparison of CVC and VC
Organizational Attributes
Corporate Venture
Capital (CVC)
Venture Capital (VC)
Incentive intensity
Weaker
Strong
Financial discipline on
downside
Weaker
Strong
Monitoring
Internal
External
Discovering alternative
business models
Constrained
Unconstrained
Source: Chesbrough, 2000
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Comparison of CVC and VC Potential
Advantages
Corporate Venture Capital
(CVC)
Independent Venture
Capital (IVC)
Time horizon
Indefinite
Tied to fund length
Scale of capital invested
Potentially large
Smaller
Coordination of
complementarities
Extensive
Limited
Retention of group
learning
Strong
Weak
Source: Chesbrough, 2000
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Comparison of CVC and IVC Advantages
and Objectives
Corporate Venture
Capital (CVC)
Independent Venture
Capital (IVC)
Complementary assets /
synergy
Yes
No
Cannibalization conflict
potential
Yes
No
Objectives
Strategic and financial
Financial
Source: Chesbrough, 2000
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Best of Both Worlds
• Internal corporate venture
• Venture capital
• Time horizon
• Scale of capital invested
• Incentive intensity
• Coordination of complementarities
• Financial discipline on downside
• Retention of group learning
• Monitoring
• Discovering alternative business
models
Source: Chesbrough, 2000
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Best of both worlds
• Unilever and Langholm
• Shell, Kenda capital and Collar Capital
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Xerox Tech Ventures
1.
PARC was set up to invent the technology of the future. Most observers would
agree that it succeed in this endeavor. Many of the most important developments
in the field of computers were profoundly influenced by the work done at PARC.
However, Xerox, which funded the research, was unable to take advantages of the
commercial potential of most these innovations. What was the reason for Xerox’s
failure to capitalize on its innovations?
2.
Would you argue, despite the problems, that the XTV partnership does make
sense? Which terms and conditions seem the most interesting or problematic?
3.
Do you consider the XTV an effective means for limiting the departures of existing
employees, if not what else would you propose?
4.
In being spun-off as a subsidiary of Xerox, PARC is attempting to break away from
a history of missed chances. How would you think that the incorporation of PARC
as a Xerox subsidiary will allow it to better commercialize its innovations. Would
you suggest other organizations to adopt this model as well or would you propose
modifications?
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