STRATEGY IMPLEMENTATION CHAPTER 13 STRATEGIC ENTREPRENEURSHIP THE STRATEGIC MANAGEMENT PROCESS KNOWLEDGE OBJECTIVES KNOWLEDGE OBJECTIVES OPEN INNOVATION COMBINING EXTERNAL TECHNOLOGIES ID: 675187
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PART 3: STRATEGIC ACTIONS:
STRATEGY IMPLEMENTATION
CHAPTER 13
STRATEGIC ENTREPRENEURSHIPSlide2
THE STRATEGIC MANAGEMENT PROCESS
Slide3
KNOWLEDGE OBJECTIVESSlide4
KNOWLEDGE OBJECTIVESSlide5
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES
■
The world’s 10 most innovative firms in 2011: Apple Google
Twitter Dawning Information Industry
Facebook
NetFlix
Nissan
Zynga
,
Groupon
Epocrates
Source:
Fast Company■ Continuous innovation, the common denominator, is a potent competitive weapon, especially during tough economic times
OPENING CASE Slide6
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES
■ O
pen innovation occurs when a firm finds that a good idea is not commercially viable, given a firm’s present strategy; rather than shelving the idea, commercialization can take place through licenses, spin-offs, and joint ventures
■
P&G launched the concept of open innovation in 2001, with its
Connect & Develop
program
OPENING CASE Slide7
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES
■ Open innovation examples:
●
P&G -
Tide Total Care was developed through Sweden’s Lund University and two small chemical companies as partners
● P&G -
Glad brand plastic bag joint venture with Clorox, a historical rival
● P&G - F
ood product joint ventures with ConAgra and General Mills
OPENING CASE Slide8
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES
■ Open innovation examples:
●
Nike and Apple developed a sensor that transmits data from inside a shoe to the runner’s iPod or
iPhone
●
GlaxoSmithKline and
Oratech
partnered to develop
Aquafresh
White Trays, a tooth-whitening strip
OPENING CASE Slide9
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES
■ Open innovation examples:
●
Kimberly-Clark and
SunHealth
Solutions developed Little Swimmers Sun Care, an adhesive sticker that changes color to alert parents to the risk of sunburn
●
Kraft and Hershey developed
S’mores
,
a mixture of hot marshmallows that melt the chocolate between two graham crackers
OPENING CASE Slide10
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES
■
Three paths for open innovation solutions:
● Customer-driven: tapping unmet customer needs
●
Technology-driven: substantial R&D investments
●
Competitor-driven:
Fast follower
of competitors’ successful strategies
■
Senior-level championing is critical for success
OPENING CASE Slide11
IMPORTANT DEFINITIONS
Organizational culture:
the complex set of ideologies, symbols, and core values shared throughout the firm
and
that influence how the firm conducts business
The
s
ocial
energy that drives
—
or fails to drive
—
the organization
Strategic entrepreneurship:
entrepreneurial actions (exploiting found opportunities in the external environment) through a strategic perspective (innovation efforts)
Entrepreneurship dimension:
identifying opportunities to exploit through innovations
Strategic dimension:
determining the best way to manage the firm’s innovation effortsSlide12
IMPORTANT DEFINITIONS
Strategic entrepreneurship actions can be taken by:
Individuals
Corporations
Corporate entrepreneurship:
the u
se or application of entrepreneurship within an established firmSlide13
ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES
Entrepreneurship is concerned with:
The discovery of profitable opportunities
The exploitation of profitable opportunities
Entrepreneurship:
the process
by which individuals or groups identify and pursue entrepreneurial opportunities without the immediate constraint of the resources they currently controlSlide14
ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES
Purpose of entrepreneurship:
To create wealth
Firms that foster entrepreneurship
are:
Risk takers
Committed to innovation
Proactive in creating opportunities rather than waiting to respond to opportunities created by othersSlide15
ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES
Entrepreneurial opportunities:
Are opportunities others do not see or for which they do not recognize the commercial potential
Are
c
onditions
in which new products or services can satisfy a need in the market
Exist due to competitive market imperfections and unevenly distributed information
Are
s
tudied
at the level of the individual firm
May be the economic engine driving many nations’ economies in the global competitive landscapeSlide16
ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES
Creative Destruction
(
Schumpeter)
Entrepreneurship, as a process, results in the ‘
creative destruction
’ of existing products (good or services) or methods of producing them, and replaces them with new products/production methods
Entrepreneurial firms value individual innovations and the ability to continuously innovate across timeSlide17
KEY CHAPTER POINTS
THREE ‘I’s
Three types of innovation activities according to Schumpeter
●
Invention
●
Innovation
●
Imitation
THREE WAYS TO INNOVATE
●
Internal - autonomous vs. induced
●
Cooperative strategies (e.g., strategic alliances)
●
AcquisitionsSlide18
INNOVATION
Innovation is the “specific function of entrepreneurship” (
Drucker
)
It is “the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth” (
Drucker
)
It is a
s
ource
of competitive success, especially in turbulent and highly competitive environments
For global markets, innovation is key for competitive parity at a minimum, much less for competitive advantageSlide19
INNOVATION
Invention
The act of creating or developing a new product or process
Brings something new into being
Technical criteria determine the success of an inventionSlide20
INNOVATION
Invention
Innovation
Process of creating a commercial product from an invention
Brings something new into use
Commercial criteria determine
the
success of an innovationSlide21
INNOVATION
Invention
Innovation
Imitation
A
doption
of an innovation by similar firms
Usually leads to product or process standardization
Products based on imitation often are offered at lower prices and without as many features
Results of imitation
Product or process standardization
Products made with fewer features
Products offered at lower prices Slide22
THE IMPORTANCE OF INNOVATION
Entrepreneurship is the linchpin between invention and innovation
Inventions are easier than commercializing those inventions: roughly 80% of R&D occurs in large firms, but these same firms produce fewer than 50% of the patents
Note: Google Labs was created to facilitate the transition from invention to innovation
Especially in the U.S., innovation is the most critical of the three types of innovative activitiesSlide23
ENTREPRENEURS
Entrepreneurs
Individuals, acting independently or as part of an organization, who see an entrepreneurial opportunity and then take risks to develop an innovation to exploit it
Entrepreneurial Mind-set
Values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovationsSlide24
ENTREPRENEURS
Entrepreneurial characteristics:
Highly motivated
Willing
to take responsibility for their projects
Passionate
Optimistic
Emo
tional
about the value and importance of their innovation-based ideas
Entrepreneurial mind-set
Able to deal with uncertainty
More alert to opportunities than others
Good social skills and plan exceptionally well Slide25
INTERNATIONAL ENTREPRENEURSHIP
●
Firms creatively discover and exploit opportunities outside their domestic markets in order to develop a competitive advantage
●
Entrepreneurship has become a global phenomenon
as internationalization typically leads
to improved firm performance
●
EXAMPLE
- Large multinational companies (MNCs) generate roughly 54% of their sales outside their domestic market, and more than 50% of their employees work outside of the home countrySlide26
INTERNATIONAL ENTREPRENEURSHIP
Risks include:
Unstable foreign currencies
Inefficient markets
Insufficient infrastructures to support businesses
Limitations on market size and growthSlide27
INTERNATIONAL ENTREPRENEURSHIP
Rates of entrepreneurship differ across countries due to:
●
Impact of national culture
Entrepreneurship declines as collectivism increases
Exceptionally high levels of individualism can be dysfunctional for entrepreneurship
Balance between individual initiative and cooperative spirit versus group ownership of innovation is required
●
Level of investment outside of the home country made by new ventures
●
Top executives with international experience
Internationally
diversified firms are generally more innovative
Slide28
INTERNATIONAL ENTREPRENEURSHIP
Entrepreneurship can:
Fuel economic growth
Create employment
Generate prosperity for citizens
There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation.Slide29
INTERNAL INNOVATION
Firms take deliberate efforts to develop inventions and innovations within the organization, selecting from several types of innovation and the specific processes through which each type is produced.
Most innovation is due to research and development (R&D):
Investments are uncertain
Often not achieved in the short term
Firms innovate internally in two ways
1. Autonomous strategic behavior
2. Induced strategic behaviorSlide30
INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION Slide31
INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION
Incremental Innovation
Is evolutionary and linear
Most innovations are incremental
Builds on existing knowledge bases and provides small improvements in current product lines/processes
Radical Innovation
Is revolutionary and nonlinear
Is rare because of difficulty and risk
Generates significant technological breakthroughs and creates new knowledge/
processes
Requires creativitySlide32
INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION
Incremental Innovation
Results from deliberate efforts
Primarily - induced strategic behavior
Can create value
Radical Innovation
Results from deliberate efforts
Strong potential to lead to significant growth in revenues and profits
Primarily - autonomous strategic behavior
Can create valueSlide33
MODEL OF INTERNAL CORPORATE VENTURING
FIGURE 13
.1
Model of Internal Corporate VenturingSlide34
INTERNAL INNOVATION
Internal Corporate Venturing refers to the set of activities firms use to develop internal inventions and innovations: autonomous and inducedSlide35
INTERNAL INNOVATION
■
Bottom-up process in which product champions pursue new ideas, often through a political process, to develop and coordinate the commercialization of a new good or service
■
Product champion:
individual with an entrepreneurial vision of a new good or service who seeks to create support in the organization for its commercialization
■
Autonomous strategic behavior is focused on firm’s knowledge and resources
■
Knowledge must be continuously diffused throughout the firmSlide36
INTERNAL INNOVATION
Induced strategic behavior
Top-down process whereby the firm’s current strategy and structure foster product innovations that are closely associated with that strategy and structureSlide37
IMPLEMENTING INTERNAL INNOVATIONS
Entrepreneurial
m
ind
-set: required for internal corporate ventures
Viewpoint that values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations
Value creation through internal innovation processes:
1. Cross-functional product development teams
2. Facilitating integration and innovation
3. Creating value from internal innovationSlide38
CREATING VALUE THROUGH INTERNAL INNOVATION PROCESSES
FIGURE 13
.2
Creating Value Through Internal Innovation ProcessesSlide39
IMPLEMENTING INTERNAL INNOVATIONSCross-Functional Product Development Teams
Efforts to integrate and coordinate activities and apply knowledge from different functional activities associated with different functional areas to maximize innovation:
Design
Manufacturing
Marketing
New product development processes can be completed more quickly
Products can be more easily commercialized when cross-functional teams work effectively
Cross-Functional
Product Development
TeamSlide40
IMPLEMENTING INTERNAL INNOVATIONS Cross-Functional Product Development Teams
Cross-Functional
Product Development
Team
Horizontal structures support use of cross-functional teams
Two primary barriers to success:
Independent frames of reference of members with distinct specializations
Organizational politics that create competition for resources and inter-unit conflictSlide41
IMPLEMENTING INTERNAL INNOVATIONS Facilitating Integration and Innovation
Shared Values
Are framed around the firm’s strategic intent and mission
Become the glue that promotes integration between functional units
Effective Leadership
Sets goals and allocates resources
Goals include integrated development and commercialization of new goods and services
Effective Communication
All are important to successfully innovate and facilitate cross-functional integration
.Slide42
IMPLEMENTING INTERNAL INNOVATIONSCreating Value from Internal Innovation
Entrepreneurial mind-set is necessary
Manager support
Cross-functional teams
Effective leadership and shared valuesSlide43
INNOVATION THROUGH COOPERATIVE STRATEGIES
To successfully commercialize inventions, firms may need to cooperate and integrate knowledge and resources
Entrepreneurial new venture firms may need investment capital and distribution capabilities
More established companies may need new technological knowledge possessed by newer entrepreneurial firms
To innovate via cooperative relationships, firms must share their knowledge and skills – strategic alliances and joint ventures allow this to occurSlide44
INNOVATION THROUGH ACQUISITIONS
Rapidly extend the product line
Increase the firm’s revenues
KEY RISK
: a firm may substitute its ability to buy innovations for its ability to produce innovations internally
A firm may:
Lose its intensity in R&D efforts
Lose its ability to produce patents
Research demonstrates that subsequent to acquisitions, firms introduce fewer new products into the market
This is because firms focus on the financial controls at the expense of strategic control
Slide45
CREATING VALUE THROUGH STRATEGIC ENTREPRENEURSHIP
Entrepreneurial ventures:
Produce more radical innovations
Possess strategic flexibility and willingness to take risks
Do more opportunity seeking
Must learn how to gain a competitive advantage (advantage-seeking behaviors)
Larger, well-established firms:
Produce more incremental innovations
Possess more resources and capabilities to exploit identified opportunities
Must relearn how to identify entrepreneurial opportunities (opportunity-seeking skills)Slide46
CREATING VALUE THROUGH STRATEGIC ENTREPRENEURSHIP
Objective is to help firms develop successful incremental and radical innovations
Be flexible and willing to take risks.
Identify and exploit opportunities with sufficient resources and capabilities to launch strategic actions.
Sustain a competitive advantage while identifying and exploiting opportunities.
Foster an entrepreneurial mind-set among managers and employees.
Emphasize resource management, particularly human capital and social capital.
Seek to enter and compete in international markets.