CHAPTER 13 Strategic Entrepreneurship

KNOWLEDGE OBJECTIVES Studying this chapter should provide you with the strategic management knowledge needed to: • Define strategic entrepreneurship and corporate entrepreneurship. • Define entrepreneurship and entrepreneurial opportunities and explain their importance. • Define invention, innovation, and imitation and describe the relationship among them. • Describe entrepreneurs and the entrepreneurial mind-set. • Explain international entrepreneurship and its importance. © 2007 Thomson/South-Western. All rights reserved.

KNOWLEDGE OBJECTIVES (cont’d) Studying this chapter should provide you with the strategic management knowledge needed to: • Describe how firms internally develop innovations. • Explain how firms use cooperative strategies to innovate. • Describe how firms use acquisitions as a means of innovation. • Explain how strategic entrepreneurship helps firms create value. © 2007 Thomson/South-Western. All rights reserved.

Strategic Entrepreneurship • Strategic Entrepreneurship • Taking entrepreneurial actions using a strategic perspective. • Engaging in simultaneous opportunity seeking and competitive advantage seeking behaviors. • Designing and implementing entrepreneurial strategies to create wealth. • Strategic entrepreneurship actions can be taken by: • Individuals • Corporations © 2007 Thomson/South-Western. All rights reserved.

Strategic Entrepreneurship and Innovation • Entrepreneurship is concerned with: • The discovery of profitable opportunities • The exploitation of profitable opportunities • Firms that encourage entrepreneurship are: • Risk takers. • Committed to innovation. • Proactive in creating opportunities rather than waiting to respond to opportunities created by others. © 2007 Thomson/South-Western. All rights reserved.

Entrepreneurial Opportunities • Entrepreneurial Opportunities • Conditions in which new products or services can satisfy a need in the market. • Entrepreneurs or entrepreneurial managers must be able to: • Identify opportunities not perceived by others. • Take actions to exploit the opportunities. • Establish a competitive advantage. © 2007 Thomson/South-Western. All rights reserved.

The act of creating or developing a new product or process Brings something new into being. Technical criteria are used to determine the success of an invention. Invention Innovation Process © 2007 Thomson/South-Western. All rights reserved.

The process of creating a commercial product from an invention. Brings something new into use. Commercial criteria are used to determine the success of an innovation. Invention Innovation Innovation Process (cont’d) © 2007 Thomson/South-Western. All rights reserved.

The adoption of an innovation by similar firms Usually leads to product or process standardization. Products based on imitation often are offered at lower prices but with fewer features. Invention Innovation Imitation Innovation Process (cont’d) © 2007 Thomson/South-Western. All rights reserved.

The Importance of Innovation • Innovation • Is a key outcome firms seek through entrepreneurship. • Is often the source of competitive success. • Corporate Entrepreneurship • Innovations produced in large established firms. © 2007 Thomson/South-Western. All rights reserved.

Entrepreneurs • Entrepreneurs • Individuals acting independently or as part of an organization who create a new venture or develop an innovation, take risks entering innovations into the marketplace. • Can be any manager or employee in an organization. • Entrepreneurial capabilities include: • Intellectual capital • Entrepreneurial mind-set • Transfer of entrepreneurial competence to others • Effective human capital © 2007 Thomson/South-Western. All rights reserved.

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. © 2007 Thomson/South-Western. All rights reserved.

International Entrepreneurship (cont’d) • There must be a balance (in the culture) between • Individual initiative and • The spirit of cooperation andgroup ownership of innovation. • Successful entrepreneurial firms: • Provide appropriate autonomy. • Offer incentives for individual initiative. • Promote cooperation and group ownership of an innovation. © 2007 Thomson/South-Western. All rights reserved.

Incremental Innovation Is the usual case for innovation in organizations. Provides small increments in current product lines. Improves existing knowledge and processes. Can create value. Radical Innovation Is rare because of difficulty and risk. Provides significant technological breakthroughs. Creates new knowledge and processes. Can create value. Incremental and Radical Innovation © 2007 Thomson/South-Western. All rights reserved.

FIGURE13.1Model of Internal Corporate Venturing Source: Adapted from R. A. Burgelman, 1983, A model of the interactions of strategic behavior, corporate context, and the concept of strategy, Academy of Management Review, 8: 65. © 2007 Thomson/South-Western. All rights reserved.

Internal Corporate Venturing • The set of activities used to create inventions and innovations through internal means. • R&D spending is linked to success in internal corporate venturing. • Product Champion • An organizational member with an entrepreneurial vision of a new good or service who seeks to create support for the vision’s commercialization. © 2007 Thomson/South-Western. All rights reserved.

Internal Corporate Venturing (cont’d) • A bottom-up process in which product champions: • Pursue new ideas, often through a political process. • Develop and coordinate the commercialization of a new good or service until it achieves success in the marketplace. • Forms of internal corporate venturing: • Autonomous strategic behavior • Induced strategic behavior © 2007 Thomson/South-Western. All rights reserved.

Venturing: Strategic Behaviors • Autonomous Strategic Behavior • Based on a firm’s knowledge and resources that are the sources of the firm’s innovation. • A firm’s technological capabilities and competencies are its basis for new products and processes. • Induced Strategic Behavior • A top-down process whereby the firm’s current strategy and structure foster product innovations. • The strategy in place is filtered through a matching structural hierarchy. © 2007 Thomson/South-Western. All rights reserved.

Implementing New Product Development and Internal Ventures • To be innovative and develop internal ventures requires: • An entrepreneurial mindset • Risk propensity • An emphasis on execution • Individuals with an entrepreneurial mindset • Engage the energies of everyone in their domain both inside and outside the organization. © 2007 Thomson/South-Western. All rights reserved.

Facilitate integration of activities associated with different organizational functions. Design, manufacturing, marketing, etc. New product development processes can be completed more quickly. Products can be more easily commercialized when cross-functional teams work effectively. Cross-functionalProduct Development Team Cross–Functional Product Development Teams © 2007 Thomson/South-Western. All rights reserved.

Product development stages are grouped into parallel or overlapping processes, allowing the firm to tailor its product development efforts Unique core competencies Needs of the market Cross-functionalProduct Development Team Cross–Functional Product Development Teams © 2007 Thomson/South-Western. All rights reserved.

Barriers to Cross-Functional Teams Effectiveness • Different orientations and perceptions • Individuals from separate functions have different orientations on issues. • Create differing approaches to product development activities. • Organizational Politics • Cause aggressive competition for resources among different organizational functions. • Organizations must achieve cross-functional integration with minimal political conflict. © 2007 Thomson/South-Western. All rights reserved.

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 © 2007 Thomson/South-Western. All rights reserved.

Cooperative Strategies for Entrepreneurship and Innovation • Cooperation and integration of knowledge and resources is required to successfully commercialize inventions. • Entrepreneurial firms need investment capital and distribution capabilities. • Established companies need the technological knowledge possessed by entrepreneurial firms. • Firms innovate through the sharing their knowledge and skills in a cooperative relationship. © 2007 Thomson/South-Western. All rights reserved.

Acquisitions to Buy Innovation • Acquisitions • Can rapidly extend the product line. • Can quickly increase the firm’s revenues. • Key risks of acquisitions • The firm may substitute the ability to buy innovations for an ability to produce innovations internally. • The firm may lose intensity in R&D efforts. • The firm may lose its ability to produce patents. © 2007 Thomson/South-Western. All rights reserved.

Capital for Entrepreneurial Ventures • Venture Capital Firms • Seek high returns on their investment. • Value the competence of the entrepreneur or the human capital in the firm. • Place weight on the expected scope of competitive rivalry the firm is likely to experience. • Evaluate the degree of instability in the market addressed. © 2007 Thomson/South-Western. All rights reserved.

Capital for Entrepreneurial Ventures • Initial Public Offerings (IPOs) • Are new stock priced to reflect the firm’s high potential. • Often yield much larger equity investments than can be obtained from venture capitalists. • Investment bankers frequently play major roles in the development and offering of IPOs. • Firms that have previously received venture capital backing usually receive greater returns from IPOs. © 2007 Thomson/South-Western. All rights reserved.

Creating Value through Strategic Entrepreneurship • Be effective in identifying opportunities. • Be flexible and willing to take risks. • Have sufficient resources and capabilities to exploit identified opportunities. • Sustain a competitive advantage while identifying and exploiting opportunities. • Develop an entrepreneurial mind-set among managers and employees. • Seek to enter and compete in international markets. © 2007 Thomson/South-Western. All rights reserved.

CHAPTER 13 Strategic Entrepreneurship