Internal and external factors of entrepreneurship ppt

Entrepreneurship

Required readings: Chapters 12 & 13 in the textbook, read week 7 lecture notes (Chapter 12 and 13 Lecture ), and review Chapter 12 and Chapter 13 PowerPoint presentations.

This week we focus on entrepreneurship. Corporate entrepreneurship (CE) refers to building entrepreneurial businesses within existing corporations. It has two primary aims: the creation of new venture opportunities and strategic renewal. In this section, we address corporate growth and renewal via internal venture development.

All the factors that influence the strategy implementation process - corporate culture, leadership, features of organizational structure, and rewards and learning systems - will affect how corporations engage in internal corporate venturing.

In some large corporations, the spirit of entrepreneurship permeates every part of the organization. It is found in companies where the strategic leaders and the culture together generate a strong impetus to innovate, take risks, and seek out new venture opportunities.

Firms using a focused approach typically separate the corporate venturing activity from the other ongoing operations of the firm. That is, CE is usually the domain of autonomous work groups that pursue entrepreneurial aims independent of the rest of the firm.

Two forms - new venture groups (NVGs) and business incubators - are among the most common types of focused approaches.

The following article describes one type of highly focused entrepreneurial environment - Samsung's VIP Center where innovative ideas and engineering problems are addressed with great intensity and speed.

Samsung's Intensely Focused VIP Center
Some of the most successful corporate innovators operate in a climate of intense pressure. One of these is Samsung, the South Korean electronics maker that made a $9.4 billion profit in 2004 compared to $1.5 billion by Sony, its close competitor.

This success - and the pressure - is due in part to the role played by its VIP Center. VIP stands for Value Innovation Program (not very important person) and it refers to a 5-story building in the heart of Samsung's industrial complex in Suwon, South Korea. It is completely dedicated to research, engineering and design. The first floor houses big training rooms. Floors two through four are workrooms for various team projects. The top floor has 42 dormitory-style rooms, each containing two beds, a shower, and a small desk. In the basement, there's a gym and sauna as well as ping-pong and billiards tables. In essence, it is an around-the-clock assembly line for ideas and experiments.

When an engineer or other Samsung employee is assigned there, they know they will be there until the particular problem they are working on is solved. "When people are told they have to come here," says Sun Woo Song, a senior engineer and project leader at the VIP Center, "they know they have to come up with results in a very, very short time." As a result, the building is occupied 24 hours a day, seven days a week. "This is not a prison," according to one engineer, "but it's not a volunteer job either."

This may seem like an extreme situation but most at Samsung see it as highly valuable. Doosik Joo, a father of three and five-time VIP alumnus says, "People say, 'You've spent all your life there, and what have you done?'" He says, "I can say, 'I drove down costs, created more value for the customer.'" Clearly, this level of commitment is a key element of Samsung's success: The company has lower manufacturing costs, higher profit margins (an industry leader in 2004 at 21 percent), quicker time to market, and, more often than not, more innovative products than its competition.

Source: Lewis, P. 2005. A perpetual crisis machine. Fortune, September 19:59-76.

Corporations often form new venture groups whose goal is to identify, evaluate, and cultivate venture opportunities. These groups typically function as semi-autonomous units with little formal structure. A NVG's mandate often extends beyond innovation and experimentation to coordinating with other corporate divisions, identifying potential venture partners, gathering resources, and, in some case, actually launching the venture.

Business incubators are designed to "hatch" new businesses. They are a type of corporate new venture group with a more specialized purpose - to support and nurture fledgling entrepreneurial ventures until they can thrive on their own as standalone businesses.

A culture of entrepreneurship is one in which the search for venture opportunities permeates every part of the organization. Everyone is attuned to opportunities to leverage the assets and capabilities of the corporation to create new businesses.

In this Discussion Forum, you have two tasks to perform:

First, watch the following video:

Entrepreneurship - http://video.mit.edu/watch/leadership-and-entrepreneurship-9505/

What is the difference between focused and dispersed approaches to corporate venturing?

Managing Innovation and
Fostering Corporate Entrepreneurship
Professor John Coy

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Learning Objectives

After reading this chapter, you should have a good understanding of:
The importance of implementing strategies and practices that foster innovation.
The challenges and pitfalls of managing corporate innovation processes.
The role of product champions and exit champions in internal corporate venturing.
How independent venture teams and business incubators are used to develop corporate ventures.
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Learning Objectives

After reading this chapter, you should have a good understanding of:
How corporations create an internal environment and culture that promotes entrepreneurial development.
The benefits and potential drawbacks of real options analysis in making resource deployment decisions in corporate entrepreneurship contexts.
How an entrepreneurial orientation can enhance a firm’s efforts to develop promising corporate venture initiatives.
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Question

What is one of the most important sources of growth opportunities?

A) The economy

B) Labor capital

C) Financial capital

D) Innovation

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Answer: D

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Managing Innovation

Innovation: using new knowledge to transform organizational processes or create commercially viable products and services
Latest technology
Results of experiments
Creative insights
Competitive information
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Example

Some Companies, such as Apple, are always innovating popular products, while others are constantly struggling for their one great idea.
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
Source: “Getting to ‘Aha!’,” Business Week. September 4, 2006.

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Types of Innovation

Degree of innovativeness
Radical innovation
Fundamental changes and breakthroughs
Evoke major departures from existing practices
Can be highly disruptive
Can transform or revolutionize a whole industry
Incremental innovation
Enhance existing practices
Small improvements in products and processes
Evolutionary applications within existing paradigms
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Continuum of Radical and
Incremental Innovations

Exhibit 12.1 Continuum of Radical and Incremental Innovations

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Types of Innovation

Product and process innovations
Product innovation
Efforts to create product designs
Applications of technology to develop new products for end users
More radical and common during early stages of an industry’s life cycle
Associated with differentiation strategies
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Types of Innovation

Product and process innovations
Process innovations
Improving efficiency of an organizational process
Manufacturing systems and operations
Can improve materials utilization
Shorten cycle time
Increase quality
More likely to occur in later stages of an industry’s life cycle
Associated with cost leader strategies
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Challenges of Innovation

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
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Challenges of Innovation

Experience versus initiative
Deciding who will lead an innovation project
Senior managers
Have experience and credibility
Tend to be more risk averse
Midlevel employees
May be the innovators themselves
May have more enthusiasm
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Challenges of Innovation

Internal versus external staffing
Innovation projects need competent staffs to succeed
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
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Challenges of Innovation

Building capabilities versus collaborating
Innovation projects often require building new sets of skills
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
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Challenges of Innovation

Incremental versus preemptive launch
Companies must manage the timing and scale of new innovation projects
Incremental launch
Less risky
Requires few resources
Serves as a market test
Can undermine the project’s credibility if too tentative
Large-scale launch
Requires more resources
Can effectively preempt a competitive response
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Defining the Scope of Innovation

Firms must define the “strategic envelope” (scope of the innovation efforts)
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; that is, what will it be worth if it works?
What will be learned if it does not pan out?
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Managing the Pace of Innovation

Firms need to regulate 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 time-consuming mistakes
Strict timelines unrealistic
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Collaborating with Innovation Partners

Innovation often requires collaborating with others who possess complementary knowledge and skills
Partners can come from several sources
Other personnel within the department
Personnel within the firm but from another department
Partners outside the firm
Non-business sources, including research universities and the federal government
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Corporate Entrepreneurship

Corporate culture
Leadership
Structural features that guide and constrain action
Organizational systems that foster learning and manage rewards
Use of teams in strategic decision making
Whether the company is product or service oriented
Whether the firm’s innovation efforts are aimed at product or process improvements
The extent to which it is high-tech or low-tech
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Focused Approaches to Corporate Entrepreneurship

Autonomous corporate venturing work group

Autonomous corporate venturing (work) group
Frees entrepreneurial team members from constraints imposed by existing norms and routines
Facilitates open-minded creativity
But, does isolate the group from the corporate mainstream
New venture groups (NVGs)
Business incubators
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New Venture Groups (NVGs)

Goal is to identify, evaluate, and cultivate venture opportunities
Typically function as semi-autonomous units with little formal structure
Involvement includes
Innovation and experimentation
Coordinating with other corporate divisions
Identifying potential venture partners
Gathering resources
Launching the venture
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Business Incubators

Business incubators are designed to “hatch” new businesses
Incubators provide some or all of the following functions
Funding
Physical space
Business services
Monitoring
Networking
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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
Two related aspects of dispersed entrepreneurship
Entrepreneurial culture
Product champions
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Entrepreneurial Culture

Culture of entrepreneurship
Search for venture opportunities permeates every part of the organization
Effect is strongest when it animates all parts of the organization
Strategic leaders and the culture generate a strong impetus
To innovate
Take risks
Seek out new venture opportunities
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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
New project must pass two critical stages
Project definition
Project impetus
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Measuring the Success of Corporate Entrepreneurship Activities

Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed
Comparing strategic and financial CE goals
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?
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Measuring the Success of Corporate Entrepreneurship Activities

Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed
Exit champions
Willing to question the viability of a venture project
Demand hard evidence and challenge the belief system that is carrying an idea forward
Hold the line on ventures that appear shaky
Real options
Managing the uncertainty associated with launching new ventures
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Real Options Analysis

Real options analysis (ROA) is an investment tool from the field of finance.
The phrase “real options” applies to situations where options theory and valuation techniques are applied to real assets or physical things as opposed to financial assets.
Potential pitfalls include
Agency theory and the back-solver dilemma
Managerial conceit: overconfidence and the illusion of control
Managerial conceit: irrational escalation of commitment
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Question

Discuss the traps that can affect decision makers. Have you experienced any of these?

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First, managerial conceit occurs when decision makers past success makes them believe they possess superior expertise for managing uncertainty.

Second, employing the real-options perspective can encourage decision makers towards a biased action which may lead to carelessness.

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Entrepreneurial Orientation

Dimension Definition

Autonomy Independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion.

Innovativeness A willingness to introduce novelty through experimentation and creative processes aimed at developing new products and services as well as new processes.

Proactiveness A forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand.

Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91.

Adapted from Exhibit 12.3 Dimensions of Entrepreneurial Orientation

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Entrepreneurial Orientation

Dimension Definition

Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91.

Adapted from Exhibit 12.3 Dimensions of Entrepreneurial Orientation

Risk taking Making decisions and taking action without certain knowledge of probable outcomes; some undertakings may also involve making substantial resource commitments in the process of venturing forward.

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Entrepreneurial Orientation

Autonomy
Two techniques often used to promote autonomy
Using skunkworks to foster entrepreneurial thinking
Designing organization structures that support independent action
Innovativeness
Two methods used to enhance competitive position through innovativeness
Fostering creativity and experimentation
Investing in new technology, R&D, and continuous improvement
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Entrepreneurial Orientation

Proactiveness
Two methods to promote acting proactively
Introducing new products or technological capabilities ahead of the competition
Continuously seeking out new product or service offerings
Competitive aggressiveness
Two ways competitively aggressive firms enhance their entrepreneurial position
Entering markets with drastically lower prices
Finding successful business models and copying them.
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Entrepreneurial Orientation

Risk taking
Three types of risks faced by organizations and their executives
Business risk taking
Financial risk taking
Personal risk taking
Two methods to strengthen competitive position through risk taking
Researching and assessing risk factors to minimize uncertainty
Using techniques that have worked in other domains
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Example

A design thinking approach can help you deal with risk.
Here are seven ways to get started:
Cultivate an unreasonable obsession with desirability
Become more comfortable acting on your informed intuition
Prototype, prototype, prototype
Think big, but start small(er)
Treat money as a positive constraint
Make a list of the best things that could happen
Seek challenges
Source: Rodriguea, Diego and Jacoby, Ryan. “Embracing Risk to Grow Innovation,” Business Week. May 16, 2007

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Managing Innovation and
Fostering Corporate Entrepreneurship
Professor John Coy

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Answer: D

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First, managerial conceit occurs when decision makers past success makes them believe they possess superior expertise for managing uncertainty.

Second, employing the real-options perspective can encourage decision makers towards a biased action which may lead to carelessness.