Corporate Entrepreneurship

1. Corporate Entrepreneurship Salvatore Sciascia 23/05/2003

2. Section 1: The concept of Corporate Entrepreneurship

3. C.E. as action: Entrepreneurship within existing organizations

4. The field of Entrepreneurship “The scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated and exploited. Consequently the field involves the study of • sources of opportunities; • the process of discovery, evaluation and exploitation of opportunities; • and the set of individuals who discover, evaluate and exploit them” (Shane and Venkatamaran, 2000)

5. Corporate Entrepreneurship • Strategic Renewal: “corporate entrepreneurial efforts that result in significant changes in an organization's strategy and structure” • Corporate Venturing: “corporate entrepreneurial efforts that lead to the creation of new business organizations within the corporate organization” • The concepts both suggest changes in the strategy and structure of an existing corporation, which may involve innovation for the industry.

6. Independent Entrepreneurship (strictu sensu) Strategic Renewal New for the market Internal Venturing I II INITIATIVE Start-up Strategic Renewal Old for the market Internal Venturing IV III Outside any existing organization Whithin an existing organization CONTEXT Independent Entrepreneurship (latu sensu) Corporate Entrepreneurship (latu sensu)

7. Designs for Internal Venturing Special Business Unit Independent Business Unit Complete Spin off Operational Relatedness NewDepartment New Venture Division Contracting Integration Micro new venture department Nurturing and Contracting Strategic Importance (Burgelman, 1983)

8. Types of Strategic Renewal Rejuvenating Innovation Leadership Innovation Degree of Industry Change Catch up Change Kaizen Degree of Internal Change (Baden-Fuller, 1995)

9. The capacity to change Capacity to change Leadership Rejuvenating Catch up (Baden-Fuller, 1995) Time

10. C.E. as strategic management approach

11. i) ii) CE as management approach SM SM E E CE as action: Strategic Renewal CE as action: Internal Venturing Between two fields

12. Competition has a new meaning • Competition as positioning (outside-in) • Competition as dominating(inside-out) • Competition as innovating

13. (Miller, 1983) The entrepreneurial orientation Innovation Proactiveness Risk taking

14. (Stevenson & Gumpert, 1985) The entrepreneurial continuum

15. Where is the opportunity? What resources do I need to capitalize on it? What structure is appropriate? What resources do I control? What structure determines our organization’s relationship to its mkt? What opportunity is appropriate? Promoter Vs Trustee in Strategic Orientation

16. A contextual model (Burgelman, 1983)

17. Substitutes Suppliers Competitors New entrants Product system A new Business Idea Competitive system WHO Niche/segment Clients Stakeholders consonance consonance Normann’s Business Idea WHAT HOW Offered perspectives/ required contributions Firm’s structure consonance

18. Substitutes Suppliers Competitors Competitive system New entrants Pursued quality development Scope Niche/segment Meaning of profit Clients Stakeholders consonance Managerial and organizational ‘philosophy’ Product system consonance Normann’s Business Idea Role towards main stakeholders Role in competitive arena Pursued dimensional growth Time horizon Offered perspectives/ required contributions Firm’s structure consonance Behind the Business Idea...

19. Pursued quality development Scope Meaning of profit Managerial and organizational ‘philosophy’ Role towards main stakeholders Role in competitive arena Pursued dimensional growth Time horizon …the Underlying Strategic Orientation

20. Section 2: Cases

21. Modafil - Bottega Verde

22. Case discussion • Wich are the main events in the history of Modafil? • Describe Bottega Verde B.I. before and after the acquisition by Modafil. • What is Modafil U.S.O.? • Which were the tension determinants that brought Modafil to grow? • Which role has the knowledge played within the entrepreneurial process?

23. 1994. Bottega Verde buys a cosmetics plant, hence starting to obtain its products internally. 1960. Modafil is established as traditional wool mill 1965. Modafil starts mail-order of knitting wool Main events 1967. Euronova is established as mail-order company with a catalogue of miscellaneous products 1971-78. Euronova holds a catalogue of cosmetic products: Miss Beauté 1973. Modafil abandons wool production, to focus on mail-order sale of knitting wool 1987. Mondoffice is established, focusing on mail-order sale of office furniture 1989-92. Euronova is sold to the German group Otto Versand. Non-competition agreement excluding cosmetics. 1991. Within Modafil, a catalogue with household linen is started (Ricami Esclusivi) 1992. Bottega Verde is bought from Mr. Morriconi. It is active in mail-order sale of cosmetics, purchased from outside contractors. 1997-99. Mondoffice is sold to a foreign multinational

24. WHO Competitive system 1st B.I. (1) • Increase of sales in volume • Predominance of traditional distribution channels • General tendency towards “complex” cosmetics • Absence of competitors in mail-order distribution channel • Small, weak Italian competitors (e.g., L’Erbolario) • Few large European competitors (e.g., Yves Rocher) • Common practice of outsourcing production WHAT Product system • Average quality (compared to competitors) • “Natural-products”, “Herborist-like” image • Average/high price (compared to competitors) • Risk of stock-breaks • Absence of promotions and discounts • “Old fashioned” catalogues HOW Structure • “Randomly-developed” addresses file • Outsourcing of production (2-3 small suppliers) • Product-formulas developed by suppliers • In-house made catalogues • Store in Pienza • 3 employees for packaging 1 store salesperson • Casual help from the 2 children

25. Stakeholders • Relatives (1 son, 1 daughter) • Bank • 4 Employees 1st B.I. (2) Offered perspectives/ required contributions Structure (1981-92)  Limited growth and development perspectives, due to a business idea stemming from the mere need to “survive” and have fun  Unspecific required contribution  Flexibility, due to hectic business activity and chaotic organization

26. Competitive system WHO • Stagnation of sales in volume • “Democratization” of cosmetic products • Tendency towards “natural” cosmetics • Increase in modern-distribution market share • Decline or stagnation of some traditional distribution channels • Increasing request for quality-control in production • Absence of competitors in mail-order distribution channel • Small, weak Italian competitors (e.g., L’Erbolario) • Few large European competitors (e.g., Yves Rocher) • Common practice of outsourcing production 2nd B.I. (1) HOW Structure • Addresses file (built in 30 years ) • In-house made catalogues • R&D laboratory • Employees experienced in mail-order sales • Naj-Oleari brand (for “kickers”, i.e., gifts) • Call center in Pienza (75 part-time employees) • Consultants (product development, raw materials, quality control, plant layout, information system, MKTG policies) • Pavia University (Doctor Berardesca, dermathologist): consultants for ‘live’ dermatological tests. • Substantial financial resources (from Euronova sell-off) • After 1994 • Chemistry and micro-biology laboratories • Property production plant WHAT Product system • Average quality (compared to competitors) • Chemically and dermatologically tested products • Low price (compared to competitors) • Customer-tailored promotions • Frequent addition of new products • Reliable delivery (no stock-breaks) • On-line service • Frequent discounts • Good-image/low-quality “kickers” (i.e., gifts) • “Natural-products”, “Herborist-like” image • “Modern”, professional catalogues

27. Stakeholders • Relatives (wife, 2 sons, 1 daughter, in-laws) • Employees • Banks • Local community (Biella province) Offered perspectives/ required contributions  Diversified, growing firm, making use of advanced managerial tools. Responsibility position in growing, managerially-sophisticated firms (for family members). Secure job (for employees and local community) High debt/equity ratio, but considerable cash-flows from operations (for banks)  Work activities coherent with entrepreneur’s vision  Willingness to work in a partially informal, unstructured setting  Willingness to learn (both from internal and external sources, i.e., consultants)  Work experience in mail-order business (from higher-rank employees) 2nd B.I. (2)

28. U.S.O. • Scope. • Mail-order. • “Traditional”, “natural” image (when appropriate). • Location reinforcing image (when appropriate). • Broadest targeted market Quality. Stable, average quality level (appropriate to targeted segments) • Profit. • Long term objective for the family • Short term profits systematically reinvested • Managerial philosophy. • Sophisticated managerial tools • External consultants • ‘Closed’ governance structure • ‘Autocratic’ managerial style • Informal organizational structure • Incremental commitment of internal resources • High propensity towards using external resources • High propensity towards ‘calculated’ risk • Stakeholders. • Securing a future to successors • Offering a secure job to employees • Employing people from local communities • Developing entrepreneurship Role in Competition. Gradually but aggressively dominating entered competitive arenas Growth. Primary objective Time. Long-term, i.e., future generations of successors

29. Tension to growth Securing a responsibility position in growing, managerially sophisticated firms ‘Diffused tension’ determinants entrepreneur’s growth orientation Stagnation of Modafil market after sharp decline Sell-off of Euronova (1989-92) ‘Direct tension’ determinants Availability of forty-years mail-order sales experience. Availability of address files and data-analysis tools and techniques Reduced growth potential Strong will to grow 1 2 3 Availability of financial resources 'Cultural' family tendency towards 'natural' products Previous experience (Miss Beauté) Existing growth potential Non competition agreement 4 Tension to grow Direct tension towards a specific business area (i.e., cosmetics) Tension to grow in the mail-order sector 5 Tension to grow in the mail-order sale of cosmetics

30. The role of knowledge External context/Environment Organizational context External resources/competencies Organizational and Governance Structure Attitude towards resource/knowledge combinations. Pursuit of entrepreneurial opportunities, regardless of internal resources currently controlled Content. Entrepreneurial behavior: Growth orientation Internal resources/competencies Strategic context Behavioral context/Past experiences

31. Barilla - Mulino Bianco

32. Barilla • It’s the largest pasta maker in Italy; it holds one of the most appealing brands for the Italian consumers. • This family-owned giant has revenues for 2 billions Euros, employs 8.500 persons, produces in 25 different plants (5 of them are abroad) and exports in more then 100 countries. • Its Italian market share (in pasta) is 25%

33. Mulino Bianco • Mulino Bianco is a line of products that Barilla funded 25 years ago: under this umbrella-brand we find biscuits, cakes, sweet snacks, crackers and bread (the so called “bakery products”). • In all these markets Mulino Bianco has a leading position in Italy. • The division is growing so fast that MB sales count for about 50% of the Barilla’s group turnover

34. A growing and innovating company (1) • 1877 Pietro Barilla settles a pasta and bread shop in Parma: • 1910 he settles the first plant: 80 employees produce 8000 kilos of pasta daily • 1911 the famous corporate logo is created • 1936 the number of employees reaches 700 • 1950 the Barillas visit the States: they come back to Italy with new ideas to improve efficiency and customer satisfaction • 1955 Barilla is the first company selling pasta in packs

35. A growing and innovating company (2) • 1960 The company become a PLC; it employees 1300 persons • 1970 they build a plant in Pedrignano (it’s still the largest pasta plant in the world) • 1971 W.R.Grace buys Barilla for over $70 million; they start diversification • 1975 they fund Mulino Bianco • 1979 W.R.Grace sells the company to the Barillas for $65 million; they build Barilla France, the first foreigner subsidiary

36. A growing and innovating company (3) • 1987 they structure their internationalization process and start focused advertising campaign in several foreign countries • 1991 the Greek pasta leader Misko is taken over 1992 They take over Pavesi, well known biscuits producer • 1996 On average they reduce prices by 15% to face the strong competition of Hard Discount and own label products; fresh pasta production starts • 1999 They buy Wasa from Novartis • 2000 Barilla launchs the filled dried pasta • 2002 Barilla launchs the frozen pasta

37. Tension to Corporate Entrepreneurship • Mature pasta market • Declining financial results • Mono-business company (high risk)

38. In which industry to diversify? • growing market • low competition • good profitability • possibility to innovate • relatedness to pasta WHO Biscuits!

39. The penetration strategy  step by step they introduce other bakery products under the same umbrella-brand: • 1976 stick bread and toasted bread slices, already produced by Barilla, are shifted under MB brand • 1977 sweet snacks and Pan carrè • 1983 cream filled biscuits: • 1985 crackers • 1986 fresh cakes inside the same segment, they enlarge the range products. • this policy was implemented because, studying the customer behavior, a need of change was found: after some months he is in need to change kind of biscuit.

40. The business Idea WHAT HOW • New Brand “Mulino Bianco” • Image of traditional, simple and genuine pdt • Original shapes • Innovating packaging • Strong promotion and advertising • High price • Wide range • Investments in R&D • From external to internal production • Accurate supplier selection • Synergy in distribution • Advanced information system

41. Corporate Support • Financial • Organizational • Bargaining power • Brand reputation • Efficiency culture • Approach to the customer

42. Conclusions • Today competition means spotting entrepreneurial opportunities • Innovation can be pursued in different ways (SR vs IV), requiring different organizational levers • Corporate Entrepreneurship occurs with no regards to company size • Develop an entrepreneurial orientation • The success of entrepreneurial development is related mostly to immaterial factors