Copyright Guy Harley 2004 Corporate Entrepreneurship & Innovation Week 12

Copyright Guy Harley 2004

Corporate Entrepreneurship & Innovation

Week 12


Impact of Innovation on Firm Outcomes

Key source of competitive success Enhances a firm’s strategic competitiveness and

financial performance. Firms competing in global industries that invest

more in innovation also achieve the highest returns.


Corporate Innovation

Some firms nurture innovation and corporate entrepreneurship

This can be a source of strategic competitiveness


Innovative Activity

Three stages: Invention

Creating or developing a new product or process idea

InnovationCreating a commercial product from invention

ImitationAdoption of innovation by a group of similar firms


Successful Entrepreneurship

The key to success with entrepreneurship and innovation is moving from invention of an idea to its effective commercialisation and acceptance in the marketplace


CommerciallyExploitable

with Present Capabilities

Competitive Advantage

Difficult for Competitors to Imitate

Timely

Provides Significant Value to Customers

Innovation and Competitive Advantage

Characteristics of innovations

that lead to:


Entrepreneurship

Schumpeter called entrepreneurship ‘creative destruction’

The focus is on discovery and exploitation of opportunities that may prove profitable.


Entrepreneurial Firms

Firms involved with entrepreneurship are: Risk takers Committed to innovation Proactive (i.e., they try create their own

opportunities)


Corporate Entrepreneurship

A firm’s ability to develop new goods or services and to manage the innovation process

The key to success with entrepreneurship and innovation is moving from invention of an idea to its effective commercialisation and acceptance in the marketplace


Corporate Entrepreneurship

A situation where an individual or group within an organisation creates a new venture or develops innovation

The sum of a firms innovation, renewal and venturing efforts


Entrepreneurs Agents of economic growth that introduce

new products, new production methods, and other innovationsthat stimulate economic activity.

Can surface at any level in the firm Form innovative

production processes or service delivery mechanisms.


Organisational Entrepreneurs

Organisational entrepreneurs engage in

entrepreneurship by: taking risks acting aggressively acting proactively in their firms


International Entrepreneurship

Top priority in many countries (eg Ireland, France, Finland)

China has tension between collectivism and individualism

When collectivism emphasised, entrepreneurship declines

Need to have a balance


Internal Corporate Venturing

Innovation is necessary but not sufficient condition to competitive success

Need processes and structures in place so that the firm can successfully implement the outcomes of internal corporate ventures is as crucial as the actual innovations themselves

Two types Autonomous Strategic Behavior Induced Strategic Behavior


Autonomous Strategic Behavior

Autonomous strategic behaviour is a bottom-up process through which product champions pursue new product ideas through to commercialisation

Product champions are individuals who have an entrepreneurial vision for a new product and who seek support for its commercialisation


Induced Strategic Behavior

A top-down process in which the current strategy and structure foster closely associated product innovations


Model of Internal Corporate Venturing

Concept of Corporate Concept of Corporate StrategyStrategy

Strategic Strategic ContextContext

Structural Structural ContextContext

AutonomousAutonomousStrategic Strategic BehaviourBehaviour

InducedInducedStrategic Strategic BehaviourBehaviour


Using Product Development Teams

Emphasises horizontal organisation rather than vertical

Processes to support innovation can be: Formal

Defined & documented as procedures & practices

InformalRoutines or ways of working that evolve over time


Barriers to horizontal integration

Specialization has encouraged development of divergent functions, different roles, and functional differentiation based on four factors. 1. Time orientation, as some functions are short-

term oriented while others are long-term oriented

2. Interpersonal orientation3. Goal orientation, with some goals focused on

efficiency and others on effectiveness4. Formality of structure (informal v’s formal)


Barriers to Horizontal Integration Functional specialisation may hinder cross-

functional integration Organisational politics, especially those

centered around protecting historical resource allocation processes, may inhibit integration


4 Methods for Facilitating Integration

1. Shared values or corporate culture

2. Leadership

3. Goals and budgets

4. Effective communication systems


Shared Values

Are expressed through the firm’s corporate culture (as discussed in Chapter 12)

Should be clearly linked with the firm’s strategic intent and strategic mission

Can reduce political conflict and promote coupling between and among functional specialties


Leadership

Enforces the importance to the firm of the value-creating potential of innovation

Emphasizes the value-creating potential of innovation and, in turn, encourages the integration of functional activities


Goals and Budgets

Relate to the formulation of goals and allocation of budgeted resources necessary to achieve them

Represent specific targets for the integrated design and production of new goods and services

Can serve as self-reinforcing strategies to encourage and support cross-functional integration


Effective Communication

Leads to: Increased motivation More and better information Sharing of knowledge across cross-functional

team members


Value Appropriatio

n from Innovation

X-Functional Integration/

Design Teams

Time to Market

Product Quality

Appropriating Value from Innovation

Creation of Customer

Value

Facilitators of Integration

Shared Values

Leaders’ Vision

Budget Allocation

Effective Communication

Barriers to Integration

Different Time Orientation

Interpersonal Orientation

Different Goal Orientation

Formality of Structure


Appropriating Value from Innovation

Decrease or reduce time-to-market Improve product quality Create value for customers


Cooperating to Produce Innovation Strategic Alliances Can help foster innovation by combining the knowledge

and resources of two or more partners Firms must focus on building knowledge, identifying core

competencies and developing strong human resources to manage such projects

Firms can also give away core competencies by outsourcing to alliance partners rather than developing their own capabilities over time


Strategic Alliances

Few firms possess all the Knowledge, Resources, Capabilities & Core competencies

to pursue internal innovation


Risks of Strategic Alliances

Gain competitive parity or competitive advantage relative to rivals

Produce and manage innovative goods or services


Strategic Alliances

Success depends upon: Focusing on knowledge Identifying core competencies Developing human resource policies to manage

and retain core competencies Choosing partners with complimentary skills and

compatible goals and strategic orientations


Acquiring Innovative Capability

Many firms now acquire other firms as a substitute for developing innovations internally

Acquiring innovative capability can reduce risk and lower costly R&D investments

A major drawback is that firms can eventually lose their ability to generate innovations internally

May result in reductions in expenditure on R&D and number of patents as a % of sales


Buying Innovation

R & D Inputs

-0.012

-0.01

-0.008

-0.006

-0.004

-0.002

0

Years Before & After Acquisition

R &

D In

ten

sity


Venture Capital

New enterprises backed by venture capital Provide important sources of innovation and new

technology Are a major source of new wealth creation in the

domestic economy (shown from financial figures to be particularly relevant in the U.S.)

Create new jobs and expenditure on R&D


Venture Capital

Strategic benefits of investing in venture capital Ability to invest early and observe what happens

to the new venture Movement toward subsequent acquisitions,

technology licensing, product marketing rights, and possibly the development of international opportunities

Gaining a ‘window’ on future technological development


Venture Capital & Australian Innovation

In the USA, available venture capital is about A$40 billion, whereas in Australia it is about A$400 million

Many of Australia’s leading innovations (for example the Sarich engine) are relocated to the USA in order to gain funding for the commercialisation process


Entrepreneurship in Small Business

Small business and individual entrepreneurs account for significant portion of innovation measured by comparing R&D input with R&D output

Small firms created most new jobs in the USA in the 1990s

While large firms account for over 80% of the world’s R&D spending, individuals or small firms are granted more than half of new US patents


Small Firms and Innovation

Many small firms are created when employees leave large firms to start their own businesses

Ex-employees frequently continue to interact with their former firms to develop innovations and new products


Large Firms Innovative CapacityTo improve large firm innovative capacity: ‘Act small’ Greater levels of individual autonomy can be created

through the restructuring of a firm into smaller and more manageable units (see Chapter 7).

The additional amounts of creativity and innovation that tend to be witnessed among those granted more autonomy stimulates autonomous strategic behaviour when a firm purses innovation through internal corporate ventures.


Large Firms Innovative Capacity A firm can reengineer its operations to develop more

efficient work-related processes and to form channels through which customers’ interests can be expressed with greater clarity and intensity.

Cross-functional work teams can provide opportunities for personnel to think and act creatively.

When handled effectively, downsizing can create arrangements through which a firm is able to focus efforts more on key tasks, such as those required to produce innovations.

Allocating significant levels of resources to research and development can stimulate innovation.

Cooperative arrangements can help to spawn innovations in the firm.


Exam Revision

Competitive advantage & above average returns Vicarious liability Tangible & intangible resources International strategy Trust Restructuring strategies Changes in management from eCommerce Essay Topic


Essay Topic

Describe 2 organisational designs that have emerged as a result of technological advancement

Not Vertical (around before technology) M-Form (results from diversification) Global (around before technology)

Examples Virtual Network Horizontal


Essay Topic

Role of technology in organisational design Not organisational structure All organisations use technology but it doesn’t

always have a role in design

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Copyright Guy Harley 2004 Corporate Entrepreneurship & Innovation Week 12