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Chapter 3

Chapter 3. Levels of Entrepreneurship in Organizations: Entrepreneurial Intensity. Question 1: What are the three (3) dimensions of entrepreneurship?. Exploring the Dimensions of Entrepreneurship. Three dimensions characterize an entrepreneurial organization Innovativeness Risk-Taking

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Chapter 3

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  1. Chapter 3 Levels of Entrepreneurship in Organizations: Entrepreneurial Intensity

  2. Question 1: What are the three (3) dimensions of entrepreneurship?

  3. Exploring the Dimensions of Entrepreneurship Three dimensions characterize an entrepreneurial organization Innovativeness Risk-Taking Proactiveness Two additional (Lumpkin & Dess, 1996) Autonomy Competitive Aggressiveness

  4. Question 2: What are the three (3) frontiers of innovation? What is an example of each?

  5. Exploring the Dimensions of Entrepreneurship Three Frontiers of Innovation • Services – new or improved services • Ex. - Netflix, Google, Facebook • Products – unique or improved • Ex. - iPhone, Bluetooth, flat screen TVs • Processes – new or better ways to accomplish a task or function • Ex. – UHT pasteurization, improved metal recycling

  6. Question 3: What causes established businesses to innovate?

  7. Exploring the Dimensions of Entrepreneurship Innovativeness – to what extent is the company doing things that are novel, unique, or different Does the concept address a need that has not previously been addressed? Does it change the way one goes about addressing a need? Is it a dramatic improvement over conventional solutions? Does it represent a minor modification or improvement to an existing product? Is it just the geographic transfer of a proven product?

  8. Innovativeness as it Applies to Products and Services New to the World Products/Services  New to the Market Products/Services  New Product/Service Lines in a Company  Additions to Product/Service Lines  Product Improvements/Revisions  New Applications for Existing Products/Services  Re-positioning of Existing Products/Services  Cost Reductions for Existing Products/Services

  9. Innovativeness as it Applies to Processes Degree of Innovation Type of Process__ Major New Process Administrative Systems Service Delivery Systems Minor New Process Production Methods Financing Methods Significant Revision of Existing Process Marketing or Sales Approaches Procurement Techniques Modest Improvement to Existing Process Compensation Methods Supply Chain MGMT Techniques Distribution Methods Employee Training Programs Pricing Approaches Information MGMT Systems Customer Support Programs Logistical Approaches Hiring Methods

  10. Important Dilemmas of Innovation Innovation is about the unknown. Management is about control. How do you control the unknown? Innovation is often about breaking the rules. People who break rules don’t last long in organizations. Successful innovation tends to occur when there are constraints, routines and deadlines. There is a need for both freedom and discipline, and the issue is one of balance. An innovation succeeds because it addresses customer needs. Yet, when you ask customers about their needs, many do not know or cannot describe them to you except in very general terms. A company that innovates is frequently making its own products obsolete when there was still profit potential in those products. People who design innovations typically seek to perfect their new product or service, making it the best possible. But the marketplace often wants it to be “good enough,” not perfect. The additional time and money necessary to make the innovation “best possible” drive up prices beyond what the customer will pay, and result in missed opportunity. While typically associated with genius or brilliance, innovation is more often a function of persistence. Being first to market is not consistently associated with success, while being second or third is not consistently associated with failure.

  11. Question 4: How does prior knowledge of a product market/technology market help a firm innovate successfully? How should firms approach innovations in markets that are unknown to them? (Hint: how do firms manage downside risks?)

  12. Question 5: According to research conducted by Synectics, what are the three (3) categories of innovative firms? Describe them briefly.

  13. Exploring the Dimensions of Entrepreneurship Synectics, a leading international firm specializing in innovation and consulting characterized the “best practices” of companies that seem to be especially good at innovation yielded three categories of firms: • Stars– high performing companies that had successfully integrated innovation and creativity into their daily business practices • Seekers– display a number of appropriate innovation practices, but came up short in terms of innovation performance and company-wide commitment to innovation • Spectators– acknowledge the importance of innovation but provide little support for it Be HOT for innovation!

  14. Characteristics of the Stars Having CEO’s that were heavily involved in fostering innovation Defining innovation as critical to long-term company success Attaching great importance to the concept of managing change Having the words innovation and creativity in their mission statements Demonstrating an openness to outside ideas Having formal programs for idea generation and problem-solving Placing strong emphasis on cross-function communications Implementing programs to encourage employees to talk to customers Increasing levels of investment in R&D and a strong focus on product development Creating budgets allocated exclusively to innovation Providing rewards for individual creativity and innovation Spending time in meetings that were highly productive

  15. Question 6: How is a firm’s innovation success affected by the relatedness of their new innovation to existing products?

  16. Exploring the Dimensions of Entrepreneurship Risk-taking involves a willingness to pursue opportunities that have a reasonable likelihood of producing losses or significant performance discrepancies • Includes both the probability of loss and the magnitude of loss • Involves a reasonable awareness of the risks involved – financial, technical, market, personal, etc. – and an attempt to capture and manage those risks • Reflected in the resource allocation decisions made by an individual or an organization

  17. Question 7: What are the two sub-dimensions of risk-taking? How do they combine to help entrepreneurs assess risk levels?

  18. Exploring the Dimensions of Entrepreneurship Isoquant Risk Map High Risk Probability of Loss Low Low High Magnitude of Loss

  19. Question 8: How can firms mitigate the risks of shifting market/technology shifts when innovating? (Hint: see Figure 3-2)

  20. Little to noInnovative Activity High Home-runStrategy Risk Lots of trials and experiments/balanced portfolio of projects Low Low High Innovativeness Exploring the Dimensions of Entrepreneurship

  21. Question 9: What are the four (4) types of innovation?

  22. Exploring the Dimensions of Entrepreneurship Four Types of Innovation: Discontinuous innovation – a breakthrough innovation (e.g., cellphones) Dynamically continuous innovation – a dramatic improvement (e.g., smart phones) Continuous innovation – incremental innovation (e.g., touch screens, gyroscopes) Imitation – copying, adapting, or mimicking innovations (e.g., Samsung/Windows phone v. Apple iPhone)

  23. High RISK Low Exploring the Dimensions of Entrepreneurship Relating Types of Innovation to Risk Magnitude of Potential Reward Dynamically Continuous Imitation Continuous Discontinuous TYPE OF INNOVATION

  24. Question 10: What characterizes risk of “sinking the boat” versus “missing the boat”?

  25. Exploring the Dimensions of Entrepreneurship “Missing-the-Boat” and “Sinking-the-Boat” Risk Total Risk TR=f (SBR, MBR) Missing the boat risk curve Sinking the boat risk curve Planning Time Source: Dickson and Giglierano (1986). Reprinted with permission

  26. Exploring the Dimensions of Entrepreneurship Proactiveness • “Entrepreneurial firms acting on, rather than reacting to their environments” • 3 items to measure proactiveness • Following versus leading competitors in innovation • Favoring the tried and true versus emphasizing growth, innovation, and development • Trying to cooperate with competitors versus trying to undo them

  27. Question 11: What are three (3) ways that firms approach proactiveness?

  28. Exploring the Dimensions of Entrepreneurship Proactivness occurs in three (3) ways: Seeking new opportunities that may or may not be related to the present line of operations; Introducing new products and brands ahead of the competition; & Strategically eliminating operations that are in the mature or declining stages of the life cycle.

  29. Exploring the Dimensions of Entrepreneurship High Dreamer Entrepreneur Innovativeness Stuck inthe Mud Wild-eyedGambler Low Low High Risk-taking

  30. Combining the Dimensions of Entrepreneurship: Degree of Entrepreneurship • Different combinations of the three dimensions of ENT are possible • They do not always vary in unison • More restrictive definition – entrepreneurial organizations are concurrently high on all dimensions • Less restrictive definition – entrepreneurial organizations are assessed via the sum of ENT properties

  31. Entrepreneurial Intensity: Combining Degree and Frequency of Entrepreneurship • Combining Degree and Frequency…… The Entrepreneurial Grid

  32. Question 12: Draw and describe the entrepreneurial grid. What are the dimensions? How does entrepreneurial intensity integrate into the grid?

  33. Entrepreneurial Intensity: Combining Degree and Frequency of Entrepreneurship High Continuous/Incremental Revolutionary Frequency of Entrepreneurship Dynamic Periodic/Incremental Periodic/Discontinuous Low Low High Degree of Entrepreneurship(innovativeness, risk-taking, proactiveness)

  34. Applying the Entrepreneurial Grid to Organizations The entrepreneurial grid is a useful too for managers attempting to define the role of entrepreneurship within their organizations. A company’s entrepreneurial strategy is effectively defined according to where it falls on the grid.

  35. Applying the Entrepreneurial Grid to Organizations High Procter & Gamble  Level 3 Communications  Frequency of Entrepreneurship 3M   Wendy’s Nucor Steel  Low Low High Degree of Entrepreneurship

  36. Question 13: Select a firm and discuss where it is positioned on the entrepreneurial grid. Why?

  37. Applying the Grid at the Level of the Individual Manager The entrepreneurial grid can serve as a useful means for diagnosing entrepreneurial management profiles

  38. High Frequency of Entrepreneurship Low Low High Degree of Entrepreneurship Applying the Grid at the Level of the Individual Manager  Richard Branson (Virgin)  Ted Turner (CNN)  Rich DeVos (Amyway Household Products)  Akio Morito (Sony)  Bill Gates (Microsoft)  Ray Kroc (McDonald’s)  Sachiro Honda (Honda Motors)  Herb Kellehner (Southwest Airways)  Howard Head (Head Skis, Prince Tennis Racquets)  Steven Jobs (Apple, NeXT and Pixar)

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