Professional Documents
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Department of
In spite of a growing body of knowledge on the importance of innovation and change, firms still experience great difficulties in being continuously
entrepreneurial. This article addresses reasons for such difficulties. Building on a
conceptual discussion, the article first identifies seemingly opposing forces found
at the core of corporate entrepreneurship. These forces are in the article described
in terms of creative destruction and controlled adaptation. Both forces are identified as being essential to successful corporate entrepreneurship, but set very different agendas, which can be expected to give rise to tension. Next, a case study
of a Danish high-tech SME is introduced in order to identify patterns of practices
which are potentially supportive of the creation of balance between the seemingly
opposing forces. Based on this, the article introduces a framework for discussion
of the two forces and the consequences of how they are approached managerially.
INTRODUCTION
Successful firms are often referred to as; organic organizations (Burns
and Stalker, 1961), spaghetti-organizations (Larsen, 2002), or dynamic and
flexible organizations with a continuous focus on innovation (Boer et al.,
2006). Intensified global competition and rapidly changing market conditions increase uncertainty of a wide range of traditional business parameters,
Corresponding author.
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the main driving forces discussed in this article. The stream of research
focusing on corporate venturing activity essentially deals with questions
related to creating and growing a new business, therefore emphasizing issues
related to exploitation, planning, structuring and management of small businesses. The more holistic perspective on corporate entrepreneurship as firm
behavior focuses primarily on the innovative activity created through corporate entrepreneurship, thus emphasizing processes and practices supporting
exploration and innovation. We argue that this creates a duality of opposing
forces in the understanding of corporate entrepreneurship. Explorative forces
resemble Schumpeters (1934) thoughts on creative destruction, whereas
exploitative forces draw closer resemblance to Kirznerian (1982) views on
entrepreneurship.
A range of corporate entrepreneurial attributes, which also illustrate
this duality are identifiable in the field of research. Antoncic and Hisrich
(2003), based on the work of Lumpkin and Dess (1996), point to eight
attributes which rather well sum up the essences of much prior research;
(1) Product/service innovation; (2) Process innovation; (3) Self-renewal;
(4) Risk-taking; (5) Pro-activeness and; (6) Competitive aggressiveness;
(7) New ventures and; (8) New businesses. When considering the relationship between these attributes, the presence of duality, between the forces
of creative destruction and controlled adaptation, becomes noticeable. On
the one hand, the forces of creative destruction refer to the need of firms
to explore new markets through rejuvenating activities that per se involve
pro-activity, increased risks, and an autonomous approach. The center of
attention is breaking with the existing patterns, and this process is often
rooted in bottom-up processes. On the other hand, the forces of controlled
adaptation refer to the fact that firms also need to embrace the ability to
exploit the innovative action efficiently in order to create competitive advantages on the market. This is done through corporate venturing and strategic entrance into new business areas. This requires a strategic approach to
the structural diversification and exploitation hereof. The centre of attention is finding and creating an appropriate space for the new venture, which
often requires extensive considerations on existing structures and a top-down
decision-making process.
Noticeably, Burgelmans (1983) definition of corporate entrepreneurship
also includes considerations on opposing forces of controlled planning and
structuring, and diversity through experimentation-and-selection. This terminology essentially parallels what in this article is referred to as creative
destruction versus management through controlled adaptation. Burgelman
(1983) considered it the task and challenge of strategic management to
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yes
yes
yes
yes
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Corporate Entrepreneurship
DIGITAL CORP.
An Exploration-Driven Firm
Digital Corp. was started in the midth-1970s as an entrepreneurial venture
by two brothers. It was based on their personal interest in how to develop
new technological advances for guitar pedal-effects. The firm was highly
innovative from the beginning, where there was focus on exploration of
new technological capabilities. Many tasks were initially placed on very
few persons; one brother was in charge of the financial, organizational, and
business related matters, while the other brother focused on technology and
product development. The brothers were driven by a high degree of personal
interest, and took pride in their goal, i.e. optimizing the quality of guitar
pedal effects. An idea of creating an entirely new technological approach to
doing so was the point of departure of the firm. Especially, the technological
flair of one of the brothers, and his abilities to create new ideas, lifted the
firm. Digital Corp. very soon became a well-known player in the market.
In the 1980s the firm, as one of the first in the world, changed from
analogue to digital signal processing. First-mover advantages increased the
turn-over of the firm up through the 1980s, and sales expanded to international markets. Continued focus on development of new technological possibilities and implementation in products of high quality generated market
leadership in several markets. A respondent expressed the exploration-driven
focus in the following way: We usually produced one fantastic product for
one market, and when we then discovered that the technology could be used
in another market, we just went ahead and produced another fantastic product for this market. Nonetheless, the firm was not able to generate a solid
profit, as the act of creation through exploration of the unknown in itself
was the focal core and consumed all the attention of the entrepreneurs. With
a turnover of app. 2, 8 million Euros in 1989 and a low liquidity, the firm
could not afford the sales- and marketing efforts needed to be able to sell the
high-priced technological products.
Increasing Focus on Exploitation
After several near-bankruptcy experiences in the beginning of the 1990s, the
board of directors decided that a different type of management was necessary.
A new CEO and part owner was found. The new CEO entered with a clear
image of what professional management entails. His management principles
were to a high degree oriented towards a rational approach to exploitation
of the market and strategic development of the firm, rather than towards
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a love for technological possibilities and exploration. The new CEO and
management group decided that market focus should be narrowed down
to one segment, and the vision hereafter was to be world leaders within
digital signal and effect processing within the segment of professional sound
studios. By applying this niche strategy the firm specialized the marketing
and reached their specific customer segment better. A result of this strategic
thinking was for example that the firm took up a rather large bank loan in
order to develop one core product, which served as their basis for many years
to come. In 1996 this product was introduced to the market.
Finding and Sustaining the Balance Between Exploration and
Exploitation
After 1996 followed several years with up to 40% annual growth on turnover
(one year with 20% growth in profitability) and high increases in number of
employees (from 25 to 180 in Digital Corp. and 800 in an extended holding
company). Based on the core product, 10 different variants were developed,
which were all successful in the market, and by year 2000, Digital Corp.
had a turnover of approx. 18 million Euros. The combination of the creative
entrepreneurial spirit of the technology-oriented brother and the managerial
and controlled approach of the new CEO created a balanced synergy in
the firm. One respondent describes the period as follows: Really, it was
this melting pot of an entrepreneurial company, which only lacked the
strategist and leadership now we had the strategy and the leadership and
things really went fast!.
A well-established group of 40 R&D professionals was engaged in the
exploratory development of the core product as well as the more exploitative
development of the 10 following variants based on this product. The newly
found focus on more exploitative development did, however, not substitute
the explorative activities; it was integrated into the routines, as expressed
by a Program Manager when describing a software developer he considered
to do an excellent job: He worked on all the improvementsbut, when he
was done, he also had something extra in the drawersI love thatthis
self-reliant attitude. We can control certain things, but people just bobble
with ideas, and are willing to put in their own time. This gives us a fantastic dynamics without having to place everything in systems and stage-gate
models.
The new and more controlled approach to the innovation process included
the introduction of a more formalized phased development model. This
model stresses the need for planning, but was intuitively adjusted to fit the
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not effectively institutionalized in the organization, and over time the rift
between the opposing forces emerged once again. This increasing rift in
the organization and a segregated innovation focus, in combination with a
shrinking market of professional sound studios, gradually started causing
severe financial difficulties for Digital Corp.
Many questions were raised in the firm on how the former synergy
between frame breaking innovation and controlled adaptation could be
regained and sustained. One respondent says about the balance: Im not
sure we were ever really balancedmaybe it was just an effect of going
from one system to anotherand in the transition we had the best of both
worldsOr maybe we just forgot to pay attention to the balance. Now we
are just like other companies.
ANALYSIS AND DISCUSSION
The analysis of the case study both confirms the existence of opposing forces
and provides insight into several practices applied when balancing the two.
In this section a framework is developed, which illustrates the complexity
within the corporate entrepreneurial arena, and underlines the importance of
creating a balance between the two dimensions.
Tension Expressed as a Dilemma
It was identified in the case that the ability to carry out a successful corporate entrepreneurial process essentially concerns balancing the powerful
relationship between exploratory innovativeness and management based on
controlled adaptation. Digital Corp. was periodically dominated by different driving forces and was highly successful only in the intersections. The
beginning of the case narrative is focused on how the exploratory forces
were dominating, as the firm was intensively searching for new opportunities. The constant focus on exploration, however caused the firm to lose
contact with and understanding of the market, which resulted in a highly
fragmented sales focus. An improvisational management style was used,
and this early and nascent process was driven forward by a special affection
for technology development, which influenced all actions taken by the firm.
However, this approach demonstrated long-term disadvantages, reflected in
negative effects on the bottom line.
Later, the application of a more controlled management style in Digital Corp. caused focus to move away from innovative exploration towards
increasingly top-down decision-making and exploitation. The new authority
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Creative Destruction
Controlled Adaptation
Innovation
Exploratory
Future
Technology
Improvisational
Improvement
Exploitative
Present
Market
Controlled
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develop radically new products and services for emerging markets, where
experimentation, speed, and flexibility are critical.
How to Create the Balance
Gupta, Smith and Shalley (2006) write: Ambidexterity refers to the synchronous pursuit of both exploration and exploitation via loosely coupled
and differentiated subunits or individuals, each of which specializes in either
exploration or exploitation (p. 693). Such, continuous incorporation is a difficult managerial challenge. In the case of Digital Corp., several indicators of
positive practices were, however, identified, which will be further extended
and discussed in this section.
The first element which was identified in the case study was the fact
that the need for ambidexterity was acknowledged by the board of directors,
through the realization that a controlled adaptation approach was also a
need in the highly exploratory firm. This resulted in focused exploration
(development of a highly innovative core product combined with exploitative
variety development and market penetration), and thereby adaptability to
different markets. Furthermore, the active realization generated a strategic
trajectory which was very visible in the organization, and activities were
initiated to support this trajectory.
The second pattern we recognized was a period of redefinition of the
dilemma, through the creation of new contexts in which the formerly known
segregation between areas, and the well-known rules and routines, were
broken down. For example, a forum for discussion of both exploitative and
explorative potential in new projects was established, thereby creating a
new context for redefinition. This additionally served as an outset for a
new cultural path in the organization, where the values/practices/behaviour
of the R&D professionals were not seen as opposite of a market oriented
perspective, but as an essential ingredient for being continuously successful
at exploration as well as exploitation. The cognitive abilities of the employees
to modify their behaviour and deal effectively with a wide variety of different
and changing contexts were emphasized and encouraged in order to create
redefinitions of the dilemmas.
The third pattern we identified was a continuous integration of opposite
views that in particular developed a unique rationality which valued both the
forces of frame breaking innovation and those of controlled adaptation. This
was instrumental for the creation of alignment and coherence in activities
of the firm, which created a sense of unity in direction and goals, though
working on differentiated projects.
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traditional business unit, whereas additional and informal project teams (secondary structures) open up for exploration (Raisch and Birkenshaw, 2008).
Within the case, the visible participation of both the CEO and CTO in the
projects can be seen as an example of parallel structuring, since they both
in this way engage in a structure that does not reflect their primary positions. As described, Digital Corp. continuously struggled with maintaining
the balance once it was created. One of the possible explanations could be
found in a failing focus on integrating the balance in structures, contexts,
processes and the culture. Instead the balance was achieved when management paid explicit focus to dealing with it, and slipped when management
focus slipped.
Figure 1 illustrates the complex innovation arena, which the corporate
entrepreneurial phenomenon has to embrace. It is an arena in which streams
towards the future as well as the past; exploitation as well as exploration
unfold. A focus on either innovation through creative destruction or controlled adaptation creates a high likelihood of failure, since the two dimensions cannot exist without each other for a longer period of time. At the
same time punctuated pendulum swings and restructuring processes between
the forces are, as aforementioned, difficult and potentially deadly for
the firm. It is therefore argued that there is a continuous need for both
frame breaking innovation through creative destruction and management
through controlled adaptation a balance rather than an either/or in
approach, in order to form a continuous innovation cycle. In the framework,
the stars and dots refer to a portfolio of exploratory projects aimed at
Future
Creative
Destruction
Exploitation
Exploration
Controlled
Adaptation
Present
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CONCLUSION
This article has dealt with the dilemma many firms experience between frame
breaking innovation, based on creative destruction, and management through
controlled adaptation. Building on a literature review and a case study of a
Danish high-tech SME, the two opposing forces of creative destruction and
controlled adaptation were investigated, as well as the management practices
to support the creation of balance between them. The article furthermore
introduced a figure for discussing the arena of corporate entrepreneurship in
the light of the two forces and their consequences.
Overall, the research supports the idea that the success of corporate
entrepreneurship depends on the firms capability to continuously balance
exploration of the future through creative destruction and exploitation of
the present from controlled adaptation. Punctuated equilibrium views on
innovation are found to be problematic in a corporate entrepreneurship setting, whereas structural and contextual ambidexterity supports the creation
of balance.
We suggest further research and integration of adjacent literature in corporate entrepreneurship to elaborate on the managerial skills needed to deal successfully with the paradoxical streams of creative destruction and controlled
adaptation in organizations. Finally, this research studied the phenomenon
of creative destruction and controlled adaptation within the specific organizational context of an SME. Future studies should research the phenomenon
in different organizational contexts, as this may open up for diverse expressions of the forces of creative destruction and controlled adaptation as well
as the managerial implications and practices.
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