©2004 by South-Western/Thomson Learning 1

Strategic EntrepreneurshipStrategic Entrepreneurship

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 12Chapter 12

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Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4The InternalThe InternalOrganizationOrganization

Chapter 6Chapter 6Competitive Rivalry andCompetitive Rivalry andCompetitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9International StrategyInternational Strategy

Chapter 1Chapter 1Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3The ExternalThe ExternalEnvironmentEnvironment

Chapter 5Chapter 5Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11Corporate GovernanceCorporate Governance

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 7Chapter 7Corporate-Level StrategyCorporate-Level Strategy

Chapter 10Chapter 10Cooperative StrategyCooperative Strategy

Chapter 12Chapter 12Strategic EntrepreneurshipStrategic Entrepreneurship

StrategicAnalysis

StrategicThinking

CreatingCompetitiveAdvantage

MonitoringAnd CreatingEntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

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Discussion QuestionsDiscussion QuestionsClick Here

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1. What is strategic entrepreneurship and why is it important?

2. What are the two major types of innovation?

3. What are the two central processes associated with internal corporate venturing?

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Discussion Questions (cont.)Discussion Questions (cont.)Click Here

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4. Will horizontal organization in general and cross-functional teams in particular facilitate appropriation of value from innovation?

5. Are strategic alliances a viable way to get innovations? What are the tradeoffs with strategic entrepreneurship through alliances?

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Discussion Questions (cont.)Discussion Questions (cont.)

6. How do acquisitions affect innovative inputs (R&D) and outputs (patents)? How does a firm prevent innovation problems associated with the acquisition process?

7. How can venture capital be used as an external approach to strategic entrepreneurship?

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Discussion Question 1Discussion Question 1

What is strategic entrepreneurship and why is it important?

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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 Three types of innovative activityThree types of innovative activity

– invention brings something new into beinginvention brings something new into being– innovation brings something new into useinnovation brings something new into use– imitation is the adoption of an innovation by imitation is the adoption of an innovation by

similar firmssimilar firms 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 innovationClick Here Return to Discussion Questions

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Discussion Question 2Discussion Question 2

What are the two major types of 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 developed in separate units that start internal venturesstart internal ventures

IncrementalIncrementalinnovationinnovation

Radical InnovationRadical Innovation

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Discussion Question 3Discussion Question 3

What are the two central processes associated with internal corporate venturing?

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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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Discussion Question 4Discussion Question 4

Will horizontal organization in general and cross-functional teams in particular facilitate appropriation of value from innovation?

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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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Discussion Question 5Discussion Question 5

Are strategic alliances a viable way to get innovations? What are the tradeoffs with strategic entrepreneurship through alliances?

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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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Discussion Question 6Discussion Question 6

How do acquisitions affect innovative inputs (R&D) and outputs (patents)? How does a firm prevent innovation problems associated with the acquisition process?

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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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Discussion Question 7Discussion Question 7

How can venture capital be used as an external approach to strategic entrepreneurship?

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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

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Creating Value Through Creating Value Through Strategic EntrepreneurshipStrategic Entrepreneurship Newer entrepreneurial firms often are

more effective than larger firms in identifying opportunities

Larger and well-established firms often have more resources and capabilities to exploit opportunities

Firms can be simultaneously entrepreneurial and strategic regardless of their size and age

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Creating Value Through Creating Value Through Strategic EntrepreneurshipStrategic Entrepreneurship To be entrepreneurial firms must– develop an entrepreneurial mindset among

managers and employees– emphasize the development of their resources,

especially human and social capital– seek to enter and compete in international

markets

Enterpreneurial firms can achieve competitive advantages and create value for their customers and shareholders