Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship

Innovation allows for:

Transformation of organizational processes

Creation of new & commercially viable products & services

Innovation requires new knowledge from:

-Latest technology

-Results of experiments

-Creative insights

-Competitive information

Whereas are often associated with the low-cost leader strategy, are frequently an important aspect of the differentiation strategy.

A. process innovations; product innovations

B. product innovations; service innovations

C. radical innovations; instrumental innovations

D. marketing innovations; incremental innovations

A. process innovations; product innovations

what are the types of innovation?

product

process

Radical

Incremental

sustaining

Disruptive

what is product innovation

- creates new product designs

- applies technology to develop new products for end-users

- common during early stages of an industry's life cycle

- associated with a differentiation strategy

what is process innovation

- improves the efficiency of an organizational process

- improves materials utilization, shortens cycle time, increases quality

- common during later stages of an industry lifecycle

- associated with overall cost leadership strategies

what is radical innovation?

-major departure from existing practices

- usually as a result of technological change

- can be highly disruptive

- can transform or revolutionaize a whole industry

what is incremental innovation?

Enhancing existing practices or outputs.

Small improvements in products and processes.

can create evolutionary applications of earlier innovations; provide new capabilities

what are sustaining innovations?

extend sales in an existng market

enable new products or services to be sold at higher margins (ie. via the internet)

may be incremental or radical innovations

what are disruptive innovations

innovations which overturn markets with a new approach to meeting customer needs

- are technologically simpler/less sophisticated

- appeal to less demanding customers

- take time to take effect.

what are the innovation challegnes/dillemas?

seeds vs weeds

experience vs initiative

internal vs external staffing

building capabilities vs collaborating

incremental vs preemptive launch

what are seeds vs weeds dilemmas?

deciding which project to pursue

seeds are likely to bear fruit

weeds should be case aside

projects may require considerable investment before merit can be determined

what are experience vs initiative dilemmas?

who should lead an innovation project?

-senior managers have experience and credibility, but are more risk averse

- mid-level employees may be the innovators themselves and have more enthusiasm, but need to be supported

what is the internal vs external staffing dillema?

where to get competent staff?

- insiders have greater social capital, know the firms culture and routines, but can they think outside the box?

-outsiders are costly to recruit, hire, and train; may have difficulty building relationships

what the dilemma of building capabilities vs collaborating?

- how do we find needed skills

- capabilities may come from internal departments

- collaborators may come from other companies

- dependencies may inhibit internal skills development or create conflict

what is the dilemma of incremental vs preemptive launch?

an incremental launch is less risky, requires fewer resources, serves as a market test

- an incremental launch can undermine a project's credibility if it si too tentative

- an incremental launch can open the door for a competetive response

- a large-scale launch requires more resources

- a large scale launch can effectivel preempt a competetive response

What skills help leaders cultivate innovation and improve the innovation process?

1. discovery skills help leaders recognize innovation potential

2. creative intelligence supports high-potential innovators through:

-associating patterns and insights

-Questioning assumptions

- observing behaviors

- experimenting with new ideas

- networking with diverse individuals

What does defining the strategic envelope for innovation involve?

focusing on a common technology or a specific market theme

What questions should be asked when evaluating innovation results?

- what is the cost?

- is it commercially viable?

- what value could it add?

- what can be learned if it fails?

what is an incremental innovation?

An innovation that may take 6 months to 2 years

- may use a milestone approach, goals and deadlines

what is radical innovation?

may take 10 years or more

- may involve open ended experimentation and time-consuming mistakes

What HR practices help capture value from innovation projects?

- use experienced staff from diverse areas

- include new venture group service in career development

- transfer innovation experinece to core business roles

- separate individual performance from innovation outcomes to avoid stigmatizing failure

What are the benefits and challenges of collaborating with innovation partners like universities and government?

Benefits:

1. Access to new skills, insights, and technology/market expertise

2. Expanded social capital and networks

challenges

1. managing reward sharing

2. handling intellectual property rights

What is the value of unsuccessful innovation efforts?

- provides learning and experience

- helps improve future innovation efforts

- failure can lead to long-term insights and success

What is corporate entrepreneurship?

Pursuit of new venture opportunities

Strategic renewal through intrapreneuring (entrepreneurial behavior by employees)

what do entrepreneurial opportunities need to consider?

-corporate cultrue and leadership

- supportive structures and systems

- use of teams

- is the company product or service oriented; high-tech or low-tech

-is innovation aimed at product or process improvements

What is a focused approach to corporate entrepreneurship and how is it implemented?

A focused approach:

- Creates an autonomous venture group separate from the main organization

- Frees team members from existing norms to encourage creativity

-May isolate the group from the corporate mainstream

-Uses new venture groups and business incubators to support innovation

what are new venture groups?

semi-autonomous units with an informal strucutre

-innovate and experiment

- coordinate with other corporate divisions

- identify potential venture partners

- gather resources and launch the venture

what are busiess incubators?

hatch new businesses

- operate independently

- provide funding, physical space, business services, monitoring, networking

What is a dispersed approach to corporate entrepreneurship?

-Entrepreneurship is spread throughout the firm

-Adaptability is a core capability

-Stakeholders at any level can surface new opportunities

What are the three key aspects of a dispersed approach to corporate entrepreneurship?

1. An entrepreneurial culture focused on change and renewal

2. Resource allotments to support innovation

3. Product champions to promote and drive projects from start to finish

What are the key traits of an entrepreneurial culture within an organization?

An entrepreneurial culture exists when:

1. The search for venture opportunities is organization-wide

2. Every value-chain activity is seen as a potential competitive advantage

3. Top leaders support bottom-up innovation through programs and incentives

4. The culture and leadership encourage:

- Innovation

- Risk-taking

- Ongoing search for new opportunities

What are resource allotments and how do they support innovation?

Resource allotments involve a firm’s investment in generating and executing innovative ideas through:

- Time investment: Allowing employees free time to develop new products

- Monetary investment: Funding proposals, with potential follow-up investment from operating divisions

what do product champions do?

- bring entrepreneurial ideas forward

- identify what kind of market exists for the product or service

- find resources to support the venture

- promote the venture concept to upper management

what are the two critical stages a project must pass?

1. project definition: justifying the opportunity

2. project impetus: supporting its development

what are the strategic reasons for undertaking a corporate venture?

1. strengthening competetive position

2. entering into new markets

3. expanding capabilities by learning and acquiring new knoweldge

4. building and extending the corporation's base of resources and experience

how do exit champions help avoid costly defeat?

- questioning the viability of a venture project

- reducing ambiguity by gathering hard data

- developing a strong case for why a project should be killed

- reasserting decision-making criteria to guide venture decisions

- risking loss of status while opposing popular projects

- saving a corporations finances and reputation

Real options analysis is most appropriate when

A. the total investment required is small, but the environment is uncertain.

B. the investment required could be justified by Discounted Cash Flow (DCF) techniques.

C. a small investment upfront can be followed by a series of subsequent investments.

D. there is no prospect of obtaining additional information before making subsequent investments.

C. a small investment upfront can be followed by a series of subsequent investments.

what is a real options analysis?

an investment analysis tool that helps manage the uncertainty asosciated with launching new ventures

ROA helps the firm to make decisions (eg. should we abandon the activity? invest additional funds?)

it requires a series of decisions, and the idea must prove itself at each stage of development

what are the limitations of real options analysis?

1. agency theory and the back solver dilemma: managers scheme to have a project meet investment approval criteria (eg. by manipulating ROI to get approval when a project isnt viable)

2. managerial conceit: overconfidence and the illusion of control (blind spots lead to poor managerial decisions)

3. Managers irrational escalation of commitment (managers continue an existing project even when it should have ended)

what does an entrepreneurial orientation involve?

Strategy making practices used to identify and launch new ventures and a percpective toward entrepreneurship

this perspective should be reflected in a firms ongoing processes and culture

should permeate decision making styles and practices of the firms members

what are the dimensions of entrepreneurial orientation

- Autonomy

- Innovativeness

- Proactiveness

- Competetive aggressiveness

- risk taking

what is autonomy

a willingness to act independently in order to carry forward an entrepreneurial vision or opportunity

should involve org structures that foster creativity and flexibility

what are problems with autonomy?

- duplication of effort

- wasting of resources

what is innovativeness?

a firms efforts to find new opportunities and novel solutions

how is innovativeness promoted?

- fostering creativity and experimentation

- investing in product and process research and development

- encouraging and rewarding internal innovation

what are problems with innovativeness?

- waste of resources if no results

- the investment may not pay off

what is proactiveness?

a firms efforts to seize new opportunities

- identifying future needs of existing customers

- being willing to act ahead of the competition

what are problems with proactiveness?

- first movers are not always successful

- customers may be reluctant to commit to a new way of doing things

what is competetive aggressiveness

a firm's efforts to outperform its industry rivals by:

- entering markets with drasically lower prices

- finding succcessful business models and copying them

what are problems with competetive aggressiveness

- being overly aggressive and damaging a firms reputation

- trying to decimate rather than just defeat the competition

what is risk taking

a firms willingness to act boldly wihtout knowing the consequences by:

- knowing their firms appetite for risk including business, financial, and personal risk

- evaluating new venture opportunities thoroughly

what are problems with risk taking?

- lack of thorough research

- failure to evaluate and reduce uncertainty