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Managing Innovation and Fostering Corporate Entrepreneurship

Chapter Twelve


Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Managing Innovation
 using new knowledge to transform organizational processes or create commercially viable products and services  Latest technology, results of experiments, creative insights, competitive information


Example: Getting to ‘Aha’
There are “five disciplines” for creating
what customers want
    Identify important customer needs Create solutions that fill those needs Build innovation teams Empower "innovation champions" who keep the effort on track  Align the entire enterprise around creating value for customers

Types of Innovation Product innovation  Efforts to create product designs  Applications of technology to develop new products for end users  More common during early stages of an industry’s life cycle  Associated with differentiation strategies 12-4 .

Types of Innovation Process innovations  Improving efficiency of an organizational process  Manufacturing systems and operations  More likely to occur in later stages of an industry’s life cycle  Associated with cost leader strategies 12-5 .

Usually cannot be patented 12-6 . Usually apply to products and processes simultaneously D. Often result in quick profits B. Often represent technological breakthroughs C.QUESTION Radical innovations A.

Types of Innovation Radical innovation  Fundamental changes and breakthroughs  Evoke major departures from existing practices  Can be highly disruptive  Can transform or revolutionize a whole industry 12-7 .

Types of Innovation Incremental innovation  Enhance existing practices  Small improvements in products and processes  Evolutionary applications within existing paradigms 12-8 .

Continuum of Radical and Incremental Innovations Exhibit 12.1 12-9 .

usually by enabling new products or services to be sold at higher margins.Types of Innovation Sustaining innovations  extend sales in an existing market. 12-10 . Disruptive innovations  overturn markets by providing an altogether new approach to meeting customer needs.

Challenges of Innovation Seeds versus Weeds Experience versus Initiative Internal versus External staffing Building capabilities versus Collaborating Incremental versus Preemptive launch 12-11 .

Seeds versus Weeds Deciding the merits of innovative ideas  Seeds – likely to bear fruit  Weeds – should be cast aside Dilemma  Some innovation projects require considerable level of investment before merit can be determined 12-12 .

Experience versus Initiative Deciding who will lead an innovation project  Senior managers have experience and credibility and tend to be more risk averse  Midlevel employees may be the innovators themselves and have more enthusiasm 12-13 .

Internal versus External Staffing People drawn from inside the firm  May have greater social capital  Know the organization’s culture and routines  May not be able to think outside the box People drawn from outside the firm  Are costly to recruit. hire. train  May have difficulty building relationships 12-14 .

Building Capabilities versus Collaborating Firms can seek help  Other departments  Partner with other companies that bring resources and experience Partnerships  Create dependencies and inhibit internal skills development  Sharing benefits of innovation may create conflict 12-15 .

Incremental versus Preemptive Launch Incremental launch  Less risky  Requires few resources  Can undermine the project’s credibility if too tentative Large-scale launch  Requires more resources  Can effectively preempt a competitive response 12-16 .

Defining the Scope of Innovation Firms must define the “strategic envelope” (scope of the innovation efforts) Firms ensure that their innovation efforts are not wasted on projects that are outside the firm’s domain of interest. 12-17 .

what will it be worth if it works?  What will be learned if it does not pan out? 12-18 . that is.Defining the Scope of Innovation In defining the strategic envelope. a firm should answer several questions  How much will the innovation cost?  How likely is it to actually become commercially viable?  How much value will it add.

Managing the Pace of Innovation Incremental innovation  May be six months to two years  May use a milestone approach driven by goals and deadlines Radical innovation  Typically long term – 10 years or more  Often involves open-ended experimentation and timeconsuming mistakes 12-19 .

Staffing to Capture Value from Innovation Create innovation teams with experienced players Require that employees seeking to advance their career serve in the new venture group 12-20 .

Staffing to Capture Value from Innovation (cont. transfer them to mainstream management positions Separate the performance of individuals from the performance of the innovation.) Once people have experience with the new venture group. 12-21 .

Collaborating with Innovation Partners To choose partners. markets Technology expertise Contacts with key players in an industry 12-22 . Knowledge of firms need to ask what competencies they are looking for and what the innovation partner will contribute.

12-23 .Corporate Entrepreneurship Corporate entrepreneurship  the creation of new value for a corporation. through investments that create either new sources of competitive advantage or renewal of the value proposition.

Factors affecting Entrepreneurial Ventures The use of teams in strategic decision making Whether the company is product or service oriented Whether its innovation efforts are aimed at product or process improvements The extent to which it is high-tech or low-tech 12-24 .

Rules for Fostering Innovation Exhibit 12.3 12-25 .

and cultivates venture opportunities.Focused Approaches to Corporate Entrepreneurship New venture group  a group of individuals. evaluates. that identifies. or a division within a corporation. 12-26 .

New Venture Groups Involvement includes      Innovation and experimentation Coordinating with other corporate divisions Identifying potential venture partners Gathering resources Launching the venture 12-27 .

12-28 .Focused Approaches to Corporate Entrepreneurship Business incubator  supports and nurtures fledgling entrepreneurial ventures until they can thrive on their own as stand-alone businesses.

Business Incubators Incubators provide some or all of the following functions      Funding Physical space Business services Mentoring Networking 12-29 .

Product champions 12-30 .Dispersed Approaches to Corporate Entrepreneurship Dedication to principles and practices of 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 Entrepreneurial culture.

take risks and seek out new venture opportunities 12-31 .Entrepreneurial Culture Culture of entrepreneurship  Search for venture opportunities permeates every part of the organization  Strategic leaders and the culture generate a strong impetus to innovate.

Product Champions Product (or project) champions  Bring entrepreneurial ideas forward  Identify what kind of market exists for the product or service  Find resources to support the venture  Promote the venture concept to upper management 12-32 .

Are the products or services offered by the venture accepted in the marketplace? Are the contributions of the venture to the corporation’s internal competencies and experience valuable? Is the venture able to sustain its basis of competitive advantage? 12-33 .Measuring the Success of Corporate Entrepreneurship Activities Comparing strategic and financial CE goals 1. 2. 3.

Measuring the Success of Corporate Entrepreneurship Activities Exit champions  individual working within a corporation who is willing to question the viability of a venture project by demanding hard evidence of venture success and challenging the belief system that carries a venture forward. 12-34 .

or (d) abandoning the activity. 12-35 . (c) shrinking the scale of.Real Options Analysis Real options analysis  for each investment step the investor has the option of (a) investing additional funds to grow or accelerate. (b) delaying.

Potential Pitfalls of Real Options Analysis Agency Theory and the Back-Solver Dilemma Managerial Conceit: Overconfidence and the Illusion of Control Managerial Conceit: Irrational Escalation of Commitment 12-36 .

80 percent B. 35 percent 12-37 . 50 percent D.QUESTION On average. approximately what percentage of corporate ventures reaches profitability after six years? A. 65 percent C.

4 12-38 .Dimensions of Entrepreneurial Orientation Exhibit 12.