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Chapter 13Chapter 13

Corporate Entrepreneurship and

Innovation

Corporate Entrepreneurship and

InnovationMichael A. Hitt

R. Duane IrelandRobert E. Hoskisson

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

©1999 South-Western College Publishing©1999 South-Western College Publishing

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Corporate EntrepreneurshipCorporate Entrepreneurshipand Innovationand Innovation

Corporate EntrepreneurshipCorporate Entrepreneurshipand Innovationand Innovation

Some argue that any firm’s (both large, Some argue that any firm’s (both large, established ones and start-ups) long term established ones and start-ups) long term competitive advantage is related to its ability to competitive advantage is related to its ability to continually create and successfully market new continually create and successfully market new products, services and processes.products, services and processes.

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Large, Established FirmsLarge, Established FirmsVersus Versus

Small, New Ventures:Small, New Ventures:Entrepreneurship and InnovationEntrepreneurship and Innovation

Large, Established FirmsLarge, Established FirmsVersus Versus

Small, New Ventures:Small, New Ventures:Entrepreneurship and InnovationEntrepreneurship and Innovation

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Corporate Entrepreneurship?Corporate Entrepreneurship?An OxymoronAn Oxymoron

Corporate Entrepreneurship?Corporate Entrepreneurship?An OxymoronAn Oxymoron

•What precludes large, established corporations from being entrepreneurial?•From where did these obstacles to entrepreneurship come?•How can corporate policies and procedures be modified to allow for more entrepreneurship?

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In the 1970s - 80s, it took around six years for accompany to change its strategy and 10 to 30 years to change its culture

Most existing firms are preoccupied with serving existing customers.

Incumbent firms many times demonstrate a general contempt for new (especially radical) innovation and entrepreneurial activity.

Impediments to Corporate EntrepreneurshipImpediments to Corporate EntrepreneurshipImpediments to Corporate EntrepreneurshipImpediments to Corporate Entrepreneurship

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Corporate EntrepreneurshipCorporate EntrepreneurshipFirm’s capabilities possessed to develop new goods or Firm’s capabilities possessed to develop new goods or services and manage the innovation processservices and manage the innovation process

InventionInventionCreating or developing a new product or process ideaCreating or developing a new product or process idea

InnovationInnovationCreating a commercializable product from inventionCreating a commercializable product from invention

ImitationImitationAdoption of innovation by a population of similar firmsAdoption of innovation by a population of similar firms

Defining EntrepreneurshipDefining EntrepreneurshipDefining EntrepreneurshipDefining Entrepreneurship

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Successful Corporate EntrepreneurshipSuccessful Corporate EntrepreneurshipSuccessful Corporate EntrepreneurshipSuccessful Corporate Entrepreneurship

The key to success with entrepreneurship and The key to success with entrepreneurship and innovation is moving from the invention of ideas innovation is moving from the invention of ideas to effective commercialization and acceptance in to effective commercialization and acceptance in the marketplacethe marketplace

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Internal Corporate VenturingInternal Corporate VenturingInternal Corporate VenturingInternal Corporate Venturing

Corporate Corporate IntrapreneurshipIntrapreneurship can occur as either a can occur as either a bottom-up process or as a top-down processbottom-up process or as a top-down process

Product Champions are individuals who have an Product Champions are individuals who have an entrepreneurial vision for a new product and entrepreneurial vision for a new product and seek support for its commercializationseek support for its commercialization

As a bottom-up process, corporate As a bottom-up process, corporate intrapreneurship often occur through intrapreneurship often occur through Product Product ChampionsChampions who pursue new product ideas to who pursue new product ideas to commercializationcommercialization

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•The ability to respond positively to challenges and learn from mistakes.•Taking personal initiative.•Great perseverance and determination.•Commitment and determination•Leadership•Opportunity Obsession•Tolerance for Risk, Ambiguity, and Uncertainty•Creativity, Self-reliance, and Adaptability•Motivation to Excel

Managers as EntrepreneursManagers as EntrepreneursManagers as EntrepreneursManagers as Entrepreneurs

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Managers as EntrepreneursManagers as EntrepreneursManagers as EntrepreneursManagers as Entrepreneurs

BusinessBusiness plans are not just for new ventures; intrepreneurial managers use them as well.

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•Cooperation with other Firms: Strategic Cooperation with other Firms: Strategic AlliancesAlliances•AcquisitionsAcquisitions•Establishing Venture Capital DivisionsEstablishing Venture Capital Divisions

Methods of Producing InnovationMethods of Producing InnovationMethods of Producing InnovationMethods of Producing Innovation

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Many firms now use acquisitions of other firms as Many firms now use acquisitions of other firms as a substitute for developing innovations internallya substitute for developing innovations internally

This can reduce risk and lower costly R&D This can reduce risk and lower costly R&D investmentsinvestments

The drawback is that firms can eventually lose The drawback is that firms can eventually lose their ability to generate innovations internallytheir ability to generate innovations internally

Many firms now use acquisitions of other firms as Many firms now use acquisitions of other firms as a substitute for developing innovations internallya substitute for developing innovations internally

Acquiring Innovative CapabilityAcquiring Innovative CapabilityAcquiring Innovative CapabilityAcquiring Innovative Capability

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

Many small firms are created when employees Many small firms are created when employees leave large firms to start their own businesses, leave large firms to start their own businesses, frequently continuing to interact with their former frequently continuing to interact with their former firms to develop innovations and new productsfirms to develop innovations and new products

Small firms have created most of the new jobs in Small firms have created most of the new jobs in the U.S. in the 1990sthe U.S. in the 1990s

Small Firms/New Ventures and InnovationSmall Firms/New Ventures and InnovationSmall Firms/New Ventures and InnovationSmall Firms/New Ventures and Innovation

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Successful entrepreneurs generally:•Are older•Have 8 - 10 years of work experience•Have a net worth that they contribute to the venture•Have participated in prior entrepreneurial activities

Small Firms/New Ventures and InnovationSmall Firms/New Ventures and InnovationSmall Firms/New Ventures and InnovationSmall Firms/New Ventures and Innovation

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•Bootstrapping (77% of NVs < $50,000)•Venture Capitalists (1% of all NVs)•Angels (select)

Sources of Capital for New VenturesSources of Capital for New VenturesSources of Capital for New VenturesSources of Capital for New Ventures