Corporate Entrepreneurship

26 March, 2014Guest Lecture TU/e

Drs. S.H.J. van den Hoogen

Importance and facilitators

1

Agenda1. Corporate Entrepreneurship

– Defining it– Importance

2. Strategic issues

3. Structural issues

4. Human Resources Management

5. Cultural issues

2

“Wealth in the new regime flows directly from innovation, not

optimization; that is, wealth is not gained by perfecting the known,

but by imperfectly seizing the unknown.”

~Kevin Kelly,“New Rules for the New Economy,” Wired

What is Entrepreneurship?

The most common keywords found in the definition of entrepreneurship

– Starting / Founding / Creating– New Business / New Venture– Innovation / New Products / New Market– Pursuit of Opportunity– Risk-taking / Risk Management / Uncertainty– Profit-seeking / Personal Benefit

What is Entrepreneurship?

An encompassing definition of entrepreneurship

“Entrepreneurship is the process of creating value by bringing together a unique combination of resources to exploit an opportunity.”

What is Entrepreneurship?

•Entrepreneurship involves a process

•Entrepreneurs create value where there was none before

•Entrepreneurs put resources together in a unique way

•Entrepreneurship is opportunity-driven behavior

What is Corporate Entrepreneurship?

“Corporate entrepreneurship is a term used to describe entrepreneurial behavior inside established mid-sized and large organizations.”

Other popular related terms• Organizational entrepreneurship• Intrapreneurship• Corporate venturing

Management Versus Entrepreneurship

“Management is the process of setting objectives and coordinating resources, including people, in order to attain them.”

Management Versus Entrepreneurship

Managers focus more on the current situation and how to improve efficiency and effectiveness

Entrepreneurs focus less on the current situation and more on what can be

Management Versus EntrepreneurshipThe Manager

• Planner

• Strategist

• Organizer

• Staffer

• Motivator

• Budgeter

• Evaluator

• Coordinator

• Supervisor

The Entrepreneur

• Visionary

• Opportunity-seeker

• Creator

• Innovator

• Calculated Risk-taker

• Resource Leverager

• Change Agent

• Active and Adaptive Concept Implementer

The Entrepreneurial

Manager

Turbulent Environments and the Embattled Corporation

The changing domain of the external environment

• Technological • Economic• Competitive• Labor• Resource • Customer

• Legal• Regulatory• Global• Customer• Social• Supplier

“Managers face shortened decision windows and diminishing opportunity streams, meaning they must act quickly or find themselves missing out on opportunities”

Turbulent Environments and the Embattled Corporation

Customers

Fragmented markets and rapidly rising customer expectations are forcing firms to customize their products, cultivate longer-term customer relationships and learn new skills in serving global markets

Technology

Firms have to change the ways they operate internally and how they compete externally based on:

-New information management technologies-New production and service delivery technologies-New customer management technologies

Competitors

Lead customers to entirely new market spaces

Quickly mimic which makes it harder to differentiate

Attack firms’ most profitable areas of business by specializing in narrow, profitable niches

Legal, Regulatory and Ethical Standards

Firms are increasingly accountable to multiple forcing management to make difficult choices and deliver results while behaving responsibly

Increasingly litigious environment

Increasing regulatory restrictions

The Embattled

Corporation

The New Path to Sustainable Competitive Advantage

Achieving a sustainable competitive advantage derives from five key company capabilities

– Adaptability– Flexibility– Speed– Aggressiveness– Innovativeness

“Entrepreneurship is the core source of sustainable advantage”

Exploring the Dimensions of Entrepreneurship

TR=f (SBR, MBR)

Missing the boat risk curve

Total Risk

Planning Time

Source: Dickson and Giglierano (1986).

“Missing-the-Boat” and “Sinking-the-Boat” Risk

Sinking the boat risk curve

The Entrepreneurial Imperative: A Persistent Sense of Urgency (1)

Managers within an organization tend to become

reactive by responding to the changes brought

about by the external environment but let

entrepreneurial fires within the company dwindle

and diminish

The Entrepreneurial Imperative: A Persistent Sense of Urgency (2)

1. How much more cost savings can the company wring out of its current business? Are managers within the firm working harder and harder for smaller and small efficiency gains?

2. How much more revenue growth can the company squeeze out of its current business? Is the company paying more and more for customer acquisition and market share gains?

Managers must ask themselves the following questions to avoid inevitable diminishing returns and refocus on new directives and entrepreneurial avenues:

The Entrepreneurial Imperative: A Persistent Sense of Urgency (3)

3. How much longer can the company keep propping up its share price through share buybacks, spin-offs, and other forms of financial engineering? Is top management reaching the limits of its ability to push up the share price without actually creating new wealth?

4. How many more scale economies can the company gain from mergers and acquisitions? Are the costs of integration beginning to overwhelm the savings obtained from slashing shared overhead costs?

5. How different are the strategies of the four or five largest competitors in the industry from the company’s strategy? Is it getting harder and harder to differentiate the company from its competitors?

Dispelling the Myths (1):• “Entrepreneurs are born, not made”

• “Entrepreneurs must be inventors”

• “There is a standard profile or prototype of the entrepreneur”

• “All you need is luck to be an entrepreneur”

• “Entrepreneurs are extreme risk takers (gamblers)”

Dispelling the Myths (2):

• “Entrepreneurial people are academic and social misfits”

• “All entrepreneurs need is money”

• “Ignorance is bliss for entrepreneurs”

• “Most entrepreneurial initiatives fail”

• “Entrepreneurship is unstructured and chaotic”

Entrepreneurial Realities: Understanding the Process

This process consists of six stages:

1. Identifying the opportunity2. Defining the business concept3. Assessing the resource requirements4. Acquiring the necessary resources5. Implementing and managing the concept6. Harvesting the venture

Corporate Entrepreneurship

“Entrepreneurship is the process of creating value by bringing together a unique combination of

resources to exploit an opportunity.”

The context in which entrepreneurship takes place is not defined.

Entrepreneurship can occur in:• Start-up ventures• Small firms• Mid-sized companies

• Large conglomerates• Non-profit organizations• Public sector agencies

Corporate Entrepreneurship (2)Similarities between start-up and corporate

entrepreneurship

• Both involve opportunity recognition and definition• Both require a unique business concept that takes the form of a

product, service or process• Both are driven by an individual champion who works with a

team to bring the concept to fruition• Both require that the entrepreneur be able to balance vision with

managerial skill, passion with pragmatism, and pro-activeness with patience

• Both involve concepts that are most vulnerable in the formative stage, and that require adaptation over time

Similarities (continued):

• Both entail a window of opportunity within which the concept can be successfully capitalized upon

• Both are predicated on value creation and accountability to a customer

• Both find the entrepreneur encountering resistance and obstacles, necessitating both perseverance and an ability to formulate innovative solutions

• Both entail risk and require risk management strategies• Both find the entrepreneur needing to develop creative strategies

for leveraging resources• Both involve significant ambiguity• Both require harvesting strategies

Corporate Entrepreneurship

How Corporate Entrepreneurship Differs

Start-up Entrepreneurship Corporate Entrepreneurship Entrepreneur takes the risk Company assumes the risks, other than

career-related risk

Entrepreneur “owns” the concept or innovative idea

Company owns the concept, and typically the intellectual rights surrounding the concept

Entrepreneur owns all or much of the business

Entrepreneur may have no equity in the company, or a very small percentage

Potential rewards for the entrepreneur are theoretically unlimited

Clear limits are placed on the financial rewards entrepreneurs can receive

One mis-step can mean failure

Vulnerable to outside influence

More room for errors, company can absorb failure

More insulated from outside influence

Independence of the entrepreneur; although the successful entrepreneur is typically backed by a strong team

Interdependence of the champion with many others; may also have to share credit with any number of people

Major differences

Start-up Entrepreneurship Corporate Entrepreneurship Flexibility in changing course,

experimenting or trying new directions

Rules, procedures and bureaucracy hinder the entrepreneur’s ability to maneuver

Speed of decision-making Longer approval cycles

Little security Job security

No safety net Dependable benefit package

Few people to talk to Extensive network for bouncing around ideas

Limited scale and scope initially Potential for sizeable scale and scope fairly quickly

Severe resource limitations Access to finances, R&D, production facilities for trial runs, an established sales force, an existing brand, distribution channels that are in place, existing databases and market research resources, and an established customer base

How Corporate Entrepreneurship DiffersMajor differences continued

How Corporate Entrepreneurship Differs

Corporate entrepreneurs face three major challenges linked to the need for inter-organizational political skills:

• Achieving credibility or legitimacy for the concept and the entrepreneurial team

• Obtaining resources• Overcoming inertia and resistance

How Corporate Entrepreneurship Differs

Corporate entrepreneurs remain in the corporate environment rather than starting their own ventures for three main reasons:

• The size of the resource base that they can tap into• The potential to operate on a fairly significant scope

and scale fairly quickly• The security they enjoy when operating in an existing

company

Organizational politics is one of the main reasons corporate entrepreneurs leave the company

How Corporate Entrepreneurship Differs

To cultivate an environment of entrepreneurship within an organization, managers must:

• Create environments where employees have a sense that resources can be accessed if an idea is sound

• Find ways to reinforce the ability of anyone in the firm to champion an idea and get it implemented

• Invest in the development of people

How Corporate Entrepreneurship Differs

Rules for Fostering an Innovative Organization

Rule #1 - Unreasonable Expectations Rule #2 - Elastic Business Definition Rule #3 - A Cause, Not a Business Rule #4 - New Voices Rule #5 - An Open Market for Ideas Rule #6 - Create an Open Market for Capital Rule #7 - Open a Market for Talent Rule #8 - Low-Risk Experimentation

Innovativeness

Little to noInnovative Activity

Home-runStrategy

Lots of trials and experiments/balanced portfolio of projects

Risk

High

Low

HighLow

Stimulating CE can diminish risk

The Open Innovation Revolution

Open innovation – “a firm is not solely reliant upon its

own innovative resources for new technology, product,

or business development purposes. Rather, the firm

acquires critical inputs to innovation from outside

sources.”

The Open Innovation RevolutionFour reasons companies are increasingly

choosing to pursue open innovation models:

1.) Importing new ideas is a good way to multiply the building blocks of innovation

2.) Exporting ideas is a good way to raise cash and keep talent

3.) Exporting ideas gives companies a way to measure an innovation’s real value and to ascertain whether further investment is warranted

4.) Exporting and importing ideas helps companies clarify what they do best

Exploring the Dimensions of Entrepreneurship

Three dimensions characterize an entrepreneurial organization

• Innovativeness• Risk-Taking• Pro-activeness

Pro-activeness: Technology-push vs market-pull

• Technology push: employees see possibility and capitalize on it– But: perfection syndrome!

• Market-pull: start with customer, driven by marketing people– But: customers don’t always know their needs or

cannot describe them accurately

• Solution: use both approaches simultaneously!

Exploring the Dimensions of Entrepreneurship

Three Frontiers of Innovation

• Services – new or improved services• Products – unique or improved• Processes – new or better ways to accomplish a task

or function

Strategic issues

How can strategy help in organizing/stimulating CE?

Strategy should:• Stimulate creativity• Take away “creative blocks”• Protect critical roles in the CE-process• Motivate entrepreneurial behavior

Managing Innovation Strategically: A Portfolio Approach

Moderate Innovation Success

Probability

High Innovation Success

Probability

Highest Innovation Success

Probability

Low Innovation Success

Probability

Moderate Innovation Success

Probability

High Innovation Success

Probability

Lowest Innovation Success

Probability

Low Innovation Success

Probability

Moderate Innovation Success

Probability

High

Medium

Low

Low Medium High

Firm’s Knowledge Pertaining to the New Products’/Service’s Targeted Market

Firm’s Knowledge Pertaining to the New Products’/Service’s Core Technology

Strategic implementation flaws

1. Misunderstanding industry attractiveness

2. No real competitive advantage

3. Pursuing an unsustainable competitive position

4. Compromising strategy for growth

5. Failure to explicitly communicate strategy internally

On structure…

• How many levels in organization?• Centralized or decentralized?• Formal or informal?• Functional specialization or cross-functional

interaction?• Control or autonomy?• Rigid or flexible?• Top-down or bottom-up decision making?

Organizational designs for CE

Very important

Uncertain Not important

Unrelated Special business units

Independent business units

Complete Spin-off

Partly related

New Product/Business department

New Venture Division

Contracting

Strongly related

Direct integration

Micro New Ventures Department

Nurturing and contracting

Strategic importance

Operational relatedness

HRM-structure-issues

Creating an Entrepreneurial Work Environment

Job planning & design

Recruitment & selection

Compensation & rewards

Training & development

Performance appraisals

Elements of an entrepreneurial culture

• Focus on people and empowerment• Value creation through innovation and change• Rewards for innovations• Learning from failure• Collaboration and teamwork• Freedom to grow and to fail• Commitment and personal responsibility• Emphasis on the future and sense of urgency

Timmons’ Chain of Greatness

VisionLeadershipBig picture

Think/act like ownersBest we can be

Perpetual learning cultureTrain and educateHigh performance goals/standardsShared learning/teach each otherGrow, improve, change, innovate

Entrepreneurial mindset and valuesTake responsibilityGet resultsValue and wealth creationShare the wealth with those who create itCustomer and quality driven

Widespread responsibility/accountabilityUnderstand and interpret the numbersReward short-term with bonusesReward long-term with equity

Results inAchievement of personal and performance goalsShared pride and leadershipMutual respectThirst for new challenges and goals

Fosters Leads to

And which

Thanks for your attention!