©2003 Southwestern Publishing Company 1

Strategic EntrepreneurshipStrategic Entrepreneurship

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

Chapter 13Chapter 13

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Strategy ImplementationStrategy Implementation

Chapter 11Chapter 11OrganizationalOrganizationalStructure and Structure and

ControlsControls

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Strategy FormulationStrategy Formulation

StrategicStrategicCompetitivenessCompetitivenessAbove-AverageAbove-Average

ReturnsReturns

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 2Chapter 2The ExternalThe ExternalEnvironmentEnvironment

Chapter 3Chapter 3The InternalThe InternalEnvironmentEnvironment

The Strategic The Strategic Management Management ProcessProcess

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Chapter 13Chapter 13StrategicStrategic

EntrepreneurshipEntrepreneurship

Chapter 6Chapter 6Corporate-Corporate-

Level StrategyLevel Strategy

Chapter 9Chapter 9CooperativeCooperative

StrategyStrategy

Chapter 5Chapter 5Competitive RivalryCompetitive Rivalry

and Competitiveand CompetitiveDynamics Dynamics

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 7Chapter 7Acquisition andAcquisition andRestructuringRestructuring

StrategiesStrategies

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Strategic EntrepreneurshipStrategic Entrepreneurship Strategic entrepreneurship:Strategic entrepreneurship: taking taking

entrepreneurial actions using a strategic entrepreneurial actions using a strategic perspectiveperspective– engaging in simultaneous opportunity seeking engaging in simultaneous opportunity seeking

and competitive advantage seeking behaviorsand competitive advantage seeking behaviors– designing and implementing entrepreneurial designing and implementing entrepreneurial

strategies to create wealthstrategies to create wealth

These actions can be taken by individuals These actions can be taken by individuals or by corporationsor by corporations

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Entrepreneurial OpportunitiesEntrepreneurial Opportunities Entrepreneurial opportunities are Entrepreneurial opportunities are

conditions in which new products or conditions in which new products or services can satisfy a need in the marketservices can satisfy a need in the market

Entrepreneurs or entrepreneurial Entrepreneurs or entrepreneurial managers must be able to:managers must be able to:– identify opportunities not perceived by othersidentify opportunities not perceived by others– take actions to exploit the opportunitiestake actions to exploit the opportunities– establish a competitive advantageestablish a competitive advantage

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InnovationInnovation Innovation is the process of creating a Innovation is the process of creating a

commercial product from an inventioncommercial product from an invention– invention brings something new into beinginvention brings something new into being

– innovation brings something new into useinnovation brings something new into use

Innovation is a key outcome firms seek Innovation is a key outcome firms seek through entrepreneurship and is often the through entrepreneurship and is often the source of competitive successsource of competitive success

Innovations produced in large established Innovations produced in large established firms are often referred to as corporate firms are often referred to as corporate entrepreneurshipentrepreneurship

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EntrepreneursEntrepreneurs Entrepreneurs are:Entrepreneurs are:– individuals acting independently or as part of individuals acting independently or as part of

an organizationan organization– who create a new venture or develop an who create a new venture or develop an

innovation and take risks entering them into innovation and take risks entering them into the marketplacethe marketplace

Entrepreneurs Entrepreneurs – can be independent individuals can be independent individuals – can surface in an organization at any levelcan surface in an organization at any level

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International EntrepreneurshipInternational Entrepreneurship Entrepreneurship canEntrepreneurship can– fuel economic growthfuel economic growth– create employmentcreate employment– generate prosperity for citizensgenerate prosperity for citizens

There is a strong positive relationship There is a strong positive relationship between the rate of entrepreneurial between the rate of entrepreneurial activity and economic development in a activity and economic development in a nationnation

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International EntrepreneurshipInternational Entrepreneurship There must be a balance There must be a balance (in (in

the culture) betweenthe culture) between– individual initiative andindividual initiative and– the spirit of cooperation and the spirit of cooperation and

group ownership of innovationgroup ownership of innovation

Successful entrepreneurial firmsSuccessful entrepreneurial firms– provide appropriate autonomyprovide appropriate autonomy– incentives for individual initiative incentives for individual initiative – promote cooperation and group ownership of promote cooperation and group ownership of

an innovationan innovation

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Innovation Types:Innovation Types:

most innovations are incrementalmost innovations are incremental builds on existing knowledge basesbuilds on existing knowledge bases provides small improvements in the provides small improvements in the

current product linescurrent product lines

IncrementalIncrementalinnovationinnovation

Incremental InnovationIncremental Innovation

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RadicalRadicalinnovationinnovation

Innovation TypesInnovation Types

provides significant technological provides significant technological breakthroughsbreakthroughs

creates new knowledgecreates new knowledge is rare because of difficulty and riskis rare because of difficulty and risk requires substantial creativityrequires substantial creativity radical innovations are often best radical innovations are often best

developed in separate units that start developed in separate units that start internal venturesinternal ventures

IncrementalIncrementalinnovationinnovation

Radical InnovationRadical Innovation

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Internal Corporate VenturingInternal Corporate Venturing

Concept of corporate strategyConcept of corporate strategy

Strategic contextStrategic context

AutonomousAutonomousstrategicstrategicbehaviorbehavior

Structural contextStructural context

InducedInducedstrategicstrategicbehaviorbehavior

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Internal Corporate Venturing:Internal Corporate Venturing:

Autonomous strategic behavior is a Autonomous strategic behavior is a bottom-up process in which product bottom-up process in which product champions:champions:– pursue new ideas, often through a political pursue new ideas, often through a political

processprocess– develop and coordinate the commercialization develop and coordinate the commercialization

of a new good or service until it achieves of a new good or service until it achieves success in the marketplacesuccess in the marketplace

Autonomous Strategic BehaviorAutonomous Strategic Behavior

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A product champion is an organizational A product champion is an organizational member with an entrepreneurial vision of member with an entrepreneurial vision of a new good or service who seeks to create a new good or service who seeks to create support for its commercializationsupport for its commercialization

Autonomous strategic behavior Autonomous strategic behavior – based on a firm’s wellsprings of knowledge based on a firm’s wellsprings of knowledge

and resources that are the sources of the and resources that are the sources of the firm’s innovationfirm’s innovation

– a firm’s technological capabilities and a firm’s technological capabilities and competencies are the basis for new products competencies are the basis for new products and processesand processes

Internal Corporate Venturing:Internal Corporate Venturing:Autonomous Strategic BehaviorAutonomous Strategic Behavior

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Induced strategic behavior is a top-down Induced strategic behavior is a top-down process wherebyprocess whereby– the firm’s current strategy and structure foster the firm’s current strategy and structure foster

product innovationsproduct innovations

– innovations are associated closely with that innovations are associated closely with that strategy and structurestrategy and structure

Internal Corporate Venturing:Internal Corporate Venturing:Induced Strategic BehaviorInduced Strategic Behavior

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To be innovative and develop internal To be innovative and develop internal ventures requiresventures requires– an entrepreneurial mindsetan entrepreneurial mindset

– risk propensityrisk propensity

– an emphasis on executionan emphasis on execution

Individuals with an entrepreneurial mindset Individuals with an entrepreneurial mindset – engage the energies of everyone in their domainengage the energies of everyone in their domain

– both inside and outside the organizationboth inside and outside the organization

Internal Corporate Venturing:Internal Corporate Venturing:Induced Strategic BehaviorInduced Strategic Behavior

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Cross-Functional Product Cross-Functional Product Development TeamsDevelopment Teams

facilitate efforts to integrate facilitate efforts to integrate activities associated with different activities associated with different organizational functionsorganizational functions

design, manufacturing, marketing, design, manufacturing, marketing, etc.etc.

new product development new product development processes can be completed more processes can be completed more quicklyquickly

products can be more easily products can be more easily commercialized when cross-commercialized when cross-functional teams work effectivelyfunctional teams work effectively

Cross functionalCross functionalproductproductdevelopment teamdevelopment team

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Cross-Functional Product Cross-Functional Product Development TeamsDevelopment Teams

product development stages are product development stages are grouped into parallel or grouped into parallel or overlapping processesoverlapping processes

this approach allows the firm to this approach allows the firm to tailor its product development tailor its product development effortsefforts– unique core competenciesunique core competencies– needs of the marketneeds of the market

Cross functionalCross functionalproductproductdevelopment teamdevelopment team

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Barriers to Cross-Functional Barriers to Cross-Functional Team EffectivenessTeam Effectiveness Different orientations and perceptionsDifferent orientations and perceptions

– individuals from separate functions have individuals from separate functions have different orientations on issuesdifferent orientations on issues

– perceive product development activities in perceive product development activities in different waysdifferent ways

Organizational politicsOrganizational politics– aggressive competition for resources among aggressive competition for resources among

different organizational functionsdifferent organizational functions

– must achieve cross-functional integration with must achieve cross-functional integration with minimal political conflictminimal political conflict

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Creating Value Through Internal Creating Value Through Internal Innovation ProcessesInnovation Processes

Creating valueCreating valuethrough innovationthrough innovation

EntrepreneurialEntrepreneurialmindsetmindset

Cross functionalCross functionalproduct developmentproduct development

teamsteams

Facilitating integrationFacilitating integrationand innovationand innovation• Shared ValuesShared Values• EntrepreneurialEntrepreneurial

LeadershipLeadership

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Cooperative Strategies for Cooperative Strategies for Entrepreneurship and InnovationEntrepreneurship and Innovation

Firms may need to cooperate and integrate Firms may need to cooperate and integrate knowledge and resources to successfully knowledge and resources to successfully commercialize inventionscommercialize inventions– entrepreneurial new venture firms may need entrepreneurial new venture firms may need

investment capital and distribution capabilitiesinvestment capital and distribution capabilities– more established companies may need new more established companies may need new

technological knowledge possessed by newer technological knowledge possessed by newer entrepreneurial firmsentrepreneurial firms

To innovate through a cooperative relationship, To innovate through a cooperative relationship, firms must share their knowledge and skillsfirms must share their knowledge and skills

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Acquisitions to Buy InnovationAcquisitions to Buy Innovation AcquisitionsAcquisitions– rapidly extend the product linerapidly extend the product line– increase the firm’s revenuesincrease the firm’s revenues

A key risk of acquisitions is that a firm A key risk of acquisitions is that a firm may substitute the ability to buy may substitute the ability to buy innovations for an ability to produce innovations for an ability to produce innovations internallyinnovations internally– firm may lose intensity in R&D effortsfirm may lose intensity in R&D efforts– firm may lose ability to produce patentsfirm may lose ability to produce patents

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Loss of Innovative Capability Loss of Innovative Capability Following Large AcquisitionsFollowing Large Acquisitions

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Loss of Innovative Capability Loss of Innovative Capability Following Large AcquisitionsFollowing Large Acquisitions

Years Before and After AcquisitionsYears Before and After Acquisitions

0 2 4-2-4AfterAfterBeforeBefore

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Capital for Capital for Entrepreneurial VenturesEntrepreneurial Ventures Venture capital firmsVenture capital firms– seek high returns on their investmentseek high returns on their investment– value competence of the entrepreneur or the value competence of the entrepreneur or the

human capital in the firmhuman capital in the firm– place weight on the expected scope of place weight on the expected scope of

competitive rivalry the firm is likely to competitive rivalry the firm is likely to experienceexperience

– evaluate degree of instability in the market evaluate degree of instability in the market addressedaddressed

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Capital for Capital for Entrepreneurial VenturesEntrepreneurial Ventures Initial public offerings (IPOs)– new stock new stock

– firm needs high potential in order to sell new firm needs high potential in order to sell new stock stock

– often quite larger than the amounts obtained often quite larger than the amounts obtained from venture capitalistsfrom venture capitalists

– investment bankers frequently play major roles investment bankers frequently play major roles in the development and offering of IPOsin the development and offering of IPOs

– firms that have also received venture capital firms that have also received venture capital backing usually receive greater returns from backing usually receive greater returns from IPOsIPOs