Managing
Innovation and
Fostering
Corporate
Entrepreneurship
chapter 12
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
.
Learning Objectives
12-2
After reading this chapter, you should have a
good understanding of:
LO12.1 The importance of implementing strategies
and practices that foster innovation.
LO12.2 The challenges and pitfalls of managing
corporate innovation processes.
LO12.3 How corporations use new venture teams,
business incubators, and product champions to
create an internal environment and culture that
promote entrepreneurial development.
Learning Objectives
12-3
LO12.4 How corporate entrepreneurship achieves
both financial goals and strategic goals.
LO12.5 The benefits and potential drawbacks of
real options analysis in making resource deployment
decisions in corporate entrepreneurship contexts.
LO12.6 How an entrepreneurial orientation can
enhance a firm’s efforts to develop promising
corporate venture initiatives.
Managing Innovation
12-4
Consider…
To remain competitive, established firms
must continually seek out opportunities for
growth and develop new methods for
strategically renewing their performance.
How can entrepreneurial activities become
an avenue for achieving competitive
advantage?
Managing Innovation
12-5
 Innovation
allows for
 Transformation
of organizational processes
 Creation of new & commercially viable
products & services
 Innovation
 The
requires new knowledge from
latest technology
 The results of experiments
 Creative insights
 Competitive information
Question?
12-6

Whereas _______ are often associated with the
low-cost leader strategy, ________ are frequently
an important aspect of the differentiation
strategy.
A.
B.
C.
D.
process innovations; product innovations
product innovations; service innovations
radical innovations; instrumental innovations
marketing innovations; incremental innovations
Managing Innovation
12-7
 Types
of innovation include
 Product
innovation
 Creates
new product designs
 Applies technology to develop new products for
end-users
 Common during early stages of an industry’s life
cycle
 Associated with a differentiation strategy
Managing Innovation
12-8
 Types
of innovation also include
 Process
innovation
 Improves
the efficiency of an organizational
process
 Improves materials utilization, shortens cycle
time, increases quality
 Common during later stages of an industry’s
lifecycle
 Associated with overall cost leadership strategies
Managing Innovation
12-9
 Other
types of innovation include
 Radical
innovation
A
major departure from existing practices
 Usually as a result of technological change
 Can be highly disruptive
 Can transform or revolutionize a whole industry
 Incremental
 Can
innovation
enhance existing practices
 Make small improvements in products & processes
 Can create evolutionary applications of earlier
innovations; provide new capabilities
Managing Innovation
12-10
Exhibit 12.1 Continuum of Radical and Incremental Innovations
Managing Innovation
12-11
 Additional
types of innovation include
 Sustaining
innovations
 Extend
sales in an existing market
 Enable new products or services to be sold at
higher margins, i.e. via the Internet
 Disruptive
 Overturn
innovations
markets with a new approach to meeting
customer needs
 Are technologically simpler & less sophisticated
 Appeal to less demanding customers
 Take time to take effect
Managing Innovation:
Challenges
12-12
 Innovation
 Seeds
dilemmas
versus weeds
 Seeds
are likely to bear fruit
 Weeds should be cast aside

Projects may require considerable investment before
merit can be determined
 Experience
 Who
versus initiative
should lead an innovation project?
Senior managers have experience & credibility, but tend
to be more risk averse
 Mid-level employees may be the innovators
themselves, and have more enthusiasm

Managing Innovation:
Challenges
12-13
 Innovation
 Internal
dilemmas, continued
versus external staffing
 Insiders
may have greater social capital, may know
the organization’s culture & routines, but may not
be able to think outside the box
 Outsiders are costly to recruit, hire, & train, and
may have difficulty building relationships
 Building
capabilities versus collaborating
 Capabilities
may come from internal departments
 Collaborators may come from other companies
 Dependencies may inhibit internal skills
development or create conflict
Managing Innovation:
Challenges
12-14
 Innovation
dilemmas, final choices
 Incremental
 An
versus preemptive launch
incremental launch is less risky, requires fewer
resources, serves as a market test
 An incremental launch can undermine the project’s
credibility if it is too tentative
 An incremental launch can open the door for a
competitive response
 A large-scale launch requires more resources
 A large-scale launch can effectively preempt a
competitive response
Managing Innovation:
Improving the Process
12-15
 Cultivating
 Discovery
innovation skills
skills allow leaders to see the
potential in innovations
 Creative intelligence allows individuals to
develop more creative, higher potential
innovations by means of
 Associating
patterns, information & insights
 Questioning common wisdom
 Observing behavior
 Experimenting with new possibilities
 Networking with a diverse set of individuals
Managing Innovation:
Improving the Process
12-16
Defining the scope of innovation
 Defining the strategic envelope

 Focus
on a common technology?
 Focus on a market theme?

Evaluating results
 How
much will the innovation initiative cost?
 How likely is it to actually become commercially
viable?
 How much value will it add; what will it be worth
if it works?
 What will be learned if it does not pan out?
Managing Innovation:
Improving the Process
12-17
Managing the pace of innovation
 Incremental innovations

 May
take six months or two years;
 May use a milestone approach, goals & deadlines

Radical innovations
 May
take 10 years or more;
 May involve open ended experimentation &
time-consuming mistakes

“Time pacing” allows for control of the
innovation process
Example:
Pacing Innovation at Amazon
12-18
 Amazon
is well-known for innovative
ideas, but what about selling groceries
online? Webvan and others have failed.
 Amazon is using its recent acquisition of
Kiva robotics & former Webvan executives
to grow AmazonFresh slowly
 Limit
delivery to areas with a high
concentration of potential customers
 Focus relentlessly on warehouse efficiency
through technology
Managing Innovation:
Improving the Process
12-19
Staffing to capture value from innovation
 Effective human resource management
practices for innovation projects include

 Use
experienced players from diverse areas
 Require employees serve in the new venture
group as part of career development
 Once people have new venture experience,
transfer them to mainstream management
positions to revitalize core businesses
 Separate individual performance from innovation
performance so failure is not a stigma
Corporate Entrepreneurship
12-20

Corporate entrepreneurship
 Pursuit
of new venture opportunities
 Strategic renewal via “intrapreneuring”

How to pursue entrepreneurial projects?
 Consider
corporate culture & leadership
 Consider supportive structures & systems
 Consider using teams
 Consider whether the company is product or
service oriented; high-tech or low-tech
 Is innovation aimed at product or process
improvements?
Corporate Entrepreneurship
12-21

Focused approaches to corporate
entrepreneurship
 Autonomous
corporate venturing workgroup
separated from the rest of the firm
 Frees entrepreneurial team members from
constraints imposed by existing norms &
routines; facilitates open-minded creativity
 Does isolate the group from the corporate
mainstream via
New venture groups
 Business incubators

Corporate Entrepreneurship
12-22

New venture groups
 Are
semi-autonomous units with an informal
structure
 Innovate and experiment
 Coordinate with other corporate divisions
 Identify potential venture partners
 Gather resources & launch the venture

Business incubators hatch new businesses
 Provide
funding, physical space, business
services, monitoring, networking
Corporate Entrepreneurship
12-23

Dispersed approaches to corporate
entrepreneurship
 Entrepreneurship
is spread throughout the firm
 Ability to change is a core capability
 Stakeholders can bring new ideas or venture
opportunities to anyone in the organization
 Has three related aspects
An entrepreneurial culture
 Resource allotments to support entrepreneurial
activities
 Product champions

Corporate Entrepreneurship
12-24
 An
entrepreneurial culture exists when
 The
search for venture opportunities
permeates every part of the organization
 Every value chain activity is viewed as a
source of competitive advantage
 Top leaders support programs & incentives,
allowing ideas to come from the bottom up
 Strategic leadership & the culture encourages
 Innovation
 Risk-taking
 The
search for new venture opportunities
Corporate Entrepreneurship
12-25
 Resource
allotments involve the firm’s
investment in the generation & execution
of innovative ideas
 Time
investment – free time to work on
developing new products
 Monetary investment – proposals are
submitted for funding; further investments
can come from operating divisions
Corporate Entrepreneurship
12-26
 Product
champions are useful to
 Bring
entrepreneurial ideas forward
 Identify what kind of market exists for the
product or service
 Find resources to support the venture
 Promote the venture concept to upper
management
A
new project must pass two critical stages
 Project
definition
 Project impetus
Example: Corporate
Entrepreneurship at Samsung
12-27




Samsung has gained the reputation of a
being a “fast follower” – following Apple’s
innovations with rapid product development
Samsung tried a dispersed approach to
CE, but the culture wasn’t flexible enough
In December 2012 it began a more focused
approach with the Creative Labs project
The South Korean government is even trying
to cultivate more individual entrepreneurs by
providing funding, access to investment
capital, & offering tax break incentives
Corporate Entrepreneurship:
Measuring Success
12-28
 Is
corporate entrepreneurship worth it?
 Strategic reasons for undertaking a
corporate venture include
 Strengthening
competitive position
 Entering into new markets
 Expanding capabilities by learning & acquiring
new knowledge
 Building & extending the corporation’s base
of resources & experience
Corporate Entrepreneurship:
Measuring Success
12-29
 Exit
champions help avoid costly defeats by
 Questioning
the viability of a venture project
 Reducing ambiguity by gathering hard data
 Developing a strong case for why a project
should be killed
 Reasserting decision-making criteria to guide
venture decisions
 Risking loss of status while opposing popular
projects
 Saving a corporation’s finances & reputation
Question?
12-30

Real options analysis is most appropriate when
A.
B.
C.
D.
the total investment required is small, but the
environment is uncertain.
the investment required could be justified by
Discounted Cash Flow (DCF) techniques.
a small investment upfront can be followed by a
series of subsequent investments.
there is no prospect of obtaining additional
information before making subsequent
investments.
Corporate Entrepreneurship:
Measuring Success
12-31
 Real
options analysis is an investment tool
 Helps manage the uncertainty associated
with launching new ventures
 ROA helps the firm decide whether to
 Invest
additional funds to accelerate the
activity
 Delay further investment in order to learn more
 Shrink the scale of the activity
 Abandon the activity
 Requires
a series of go or no-go decisions
Corporate Entrepreneurship:
Measuring Success
12-32
 Real
options analysis has limitations
 Agency
theory and the back solver dilemma
 Managers
have an incentive to propose projects
that might be successful, so
 Managers may “game the system” by backsolving any formula
 Managerial
conceit: overconfidence and the
illusion of control
 Managers
believe they possess superior expertise
for managing uncertainty, therefore
 Managers may believe they can solve any
problem
Corporate Entrepreneurship:
Measuring Success
12-33
 Real
options analysis has another limitation
 Managerial
conceit: irrational escalation of
commitment occurs when
 The
exercise decision retains some uncertainty
 An option to exit requires reversing an initial
decision
 Managers are invested in their original decision
 They feel they will lose face by reversing course
 They will try to make the existing decision work
 They will continue an existing project even if it
should be ended
Entrepreneurial Orientation
12-34
 An
entrepreneurial orientation involves
 Strategy
making practices used to
identify & launch new ventures
 A unique frame of mind
 A perspective toward entrepreneurship
 Reflected
in a firm’s ongoing processes
 Reflected in the corporate culture
 That permeates decision-making styles &
practices of the firm’s members
Entrepreneurial Orientation
12-35
Exhibit 12.3 Dimensions of Entrepreneurial Orientation
Sources: Dess, G.G. & Lumkin, G.T. 2005. The Role of Entrepreneurial Orientation in Stimulating Effective Corporate
Entrepreneurship. Academy of Management Executive, 19(1): 147-156; Covin, J.G. & Slevin, D.P. 1991. A Conceptual
Model of Entrepreneurship as Firm Behavior. Entrepreneurship Theory & Practice, Fall: 7-25; Lumpkin, G.T. & Dess,
G.G. 1996. Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance. Academy of
Management Review, 21: 135-172; Miller, D. 1983. The Correlates of Entrepreneurship in Three Types of Firms.
Management Science, 29: 770-791.
Entrepreneurial Orientation
12-36
 Autonomy
refers to a willingness to act
independently in order to carry
forward an entrepreneurial vision or
opportunity, and can be promoted by
 Using
skunk works to foster
entrepreneurial thinking
 Designing organizational structures that
support independent action
 Problems
can include duplication of
effort & wasting of resources
Entrepreneurial Orientation
12-37
 Innovativeness
refers to a firm’s efforts
to find new opportunities & novel
solutions, and can be promoted by
 Fostering
creativity & experimentation
 Investing in new technology, R&D, &
continuous improvement
 Problems
 Waste
can include
of resources if no results
 Competitors may copy it more profitably
 The investment may not pay off
Entrepreneurial Orientation
12-38
 Proactiveness
refers to a firm’s efforts
to seize new opportunities, and can be
promoted by
 Introducing
new products or
technological capabilities ahead of the
competition
 Continuously seeking out new product or
service offerings
 Problems
 First
can include
movers are not always successful
 Brand extensions can go too far
Entrepreneurial Orientation
12-39
 Competitive
aggressiveness refers to a
firm’s efforts to outperform its industry
rivals, & can be promoted by
 Entering
markets with drastically lower prices
 Finding successful business models & copying
them
 Problems
 Being
can include
overly aggressive & damaging a firm’s
reputation
 Trying to decimate rather than just defeat the
competition
Entrepreneurial Orientation
12-40
 Risk
taking refers to a firm’s willingness to
act boldly without knowing the
consequences, and can be promoted by
 Researching
& assessing risk factors to
minimize uncertainty
 Using techniques that have worked in other
domains
 Problems
 Lack
can include
of forethought, research, & planning
 Failure to evaluate uncertainty