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PART 3: STRATEGIC ACTIONS: STRATEGY IMPLEMENTATION. CHAPTER 13 STRATEGIC ENTREPRENEURSHIP. THE STRATEGIC MANAGEMENT PROCESS. KNOWLEDGE OBJECTIVES. KNOWLEDGE OBJECTIVES. OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES. OPENING CASE.

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Part 3 strategic actions strategy implementation

PART 3: STRATEGIC ACTIONS:

STRATEGY IMPLEMENTATION

CHAPTER 13STRATEGIC ENTREPRENEURSHIP





Open innovation combining external technologies and ideas with internal r d capabilities
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES

OPENING CASE

■ The world’s 10 most innovative firms in 2011: Apple Google

Twitter Dawning Information Industry

FacebookNetFlix

Nissan Zynga,

GrouponEpocrates

Source: Fast Company

■ Continuous innovation, the common denominator, is a potent competitive weapon, especially during tough economic times


Open innovation combining external technologies and ideas with internal r d capabilities1
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES

OPENING CASE

■ Open innovation occurs when a firm finds that a good idea is not commercially viable, given a firm’s present strategy; rather than shelving the idea, commercialization can take place through licenses, spin-offs, and joint ventures

■ P&G launched the concept of open innovation in 2001, with its Connect & Develop program


Open innovation combining external technologies and ideas with internal r d capabilities2
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES

OPENING CASE

■ Open innovation examples:

● P&G - Tide Total Care was developed through Sweden’s Lund University and two small chemical companies as partners

● P&G - Glad brand plastic bag joint venture with Clorox, a historical rival

● P&G - Food product joint ventures with ConAgra and General Mills


Open innovation combining external technologies and ideas with internal r d capabilities3
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES

OPENING CASE

■ Open innovation examples:

● Nike and Apple developed a sensor that transmits data from inside a shoe to the runner’s iPod or iPhone

●GlaxoSmithKline and Oratech partnered to develop Aquafresh White Trays, a tooth-whitening strip


Open innovation combining external technologies and ideas with internal r d capabilities4
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES

OPENING CASE

■ Open innovation examples:

● Kimberly-Clark and SunHealth Solutions developed Little Swimmers Sun Care, an adhesive sticker that changes color to alert parents to the risk of sunburn

● Kraft and Hershey developed S’mores,a mixture of hot marshmallows that melt the chocolate between two graham crackers


Open innovation combining external technologies and ideas with internal r d capabilities5
OPEN INNOVATION: COMBINING EXTERNAL TECHNOLOGIES AND IDEAS WITH INTERNAL R&D CAPABILITIES

OPENING CASE

■ Three paths for open innovation solutions:

● Customer-driven: tapping unmet customer needs

● Technology-driven: substantial R&D investments

●Competitor-driven: Fast follower of competitors’ successful strategies

■ Senior-level championing is critical for success


IMPORTANT DEFINITIONS

  • Organizational culture:the complex set of ideologies, symbols, and core values shared throughout the firm and that influence how the firm conducts business

    • The social energy that drives—or fails to drive—the organization

  • Strategic entrepreneurship:entrepreneurial actions (exploiting found opportunities in the external environment) through a strategic perspective (innovation efforts)

    • Entrepreneurship dimension:identifying opportunities to exploit through innovations

    • Strategic dimension:determining the best way to manage the firm’s innovation efforts


IMPORTANT DEFINITIONS

  • Strategic entrepreneurship actions can be taken by:

    • Individuals

    • Corporations

  • Corporate entrepreneurship: the use or application of entrepreneurship within an established firm


ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES

  • Entrepreneurship is concerned with:

    • The discovery of profitable opportunities

    • The exploitation of profitable opportunities

    • Entrepreneurship: the process by which individuals or groups identify and pursue entrepreneurial opportunities without the immediate constraint of the resources they currently control


ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES

  • Purpose of entrepreneurship:

  • To create wealth

  • Firms that foster entrepreneurshipare:

    • Risk takers

    • Committed to innovation

    • Proactive in creating opportunities rather than waiting to respond to opportunities created by others


  • ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES

    • Entrepreneurial opportunities:

      • Are opportunities others do not see or for which they do not recognize the commercial potential

      • Are conditions in which new products or services can satisfy a need in the market

      • Exist due to competitive market imperfections and unevenly distributed information

    • Are studied at the level of the individual firm

    • May be the economic engine driving many nations’ economies in the global competitive landscape


    ENTREPRENEURSHIP AND ENTREPRENEURIAL OPPORTUNITIES

    Creative Destruction

    • (Schumpeter)

      • Entrepreneurship, as a process, results in the ‘creative destruction’ of existing products (good or services) or methods of producing them, and replaces them with new products/production methods

      • Entrepreneurial firms value individual innovations and the ability to continuously innovate across time


    KEY CHAPTER POINTS

    THREE ‘I’s

    • Three types of innovation activities according to Schumpeter

    • ●Invention

    • ● Innovation

    • ● Imitation

      THREE WAYS TO INNOVATE

    • ● Internal - autonomous vs. induced

    • ● Cooperative strategies (e.g., strategic alliances)

    • ● Acquisitions


    INNOVATION

    • Innovation is the “specific function of entrepreneurship” (Drucker)

      It is “the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth” (Drucker)

    • It is a source of competitive success, especially in turbulent and highly competitive environments

    • For global markets, innovation is key for competitive parity at a minimum, much less for competitive advantage


    INNOVATION

    Invention

    • The act of creating or developing a new product or process

    • Brings something new into being

    • Technical criteria determine the success of an invention


    INNOVATION

    Invention

    Innovation

    • Process of creating a commercial product from an invention

    • Brings something new into use

    • Commercial criteria determine the success of an innovation


    INNOVATION

    Invention

    Innovation

    Imitation

    • Adoption of an innovation by similar firms

    • Usually leads to product or process standardization

    • Products based on imitation often are offered at lower prices and without as many features

    • Results of imitation

      • Product or process standardization

      • Products made with fewer features

      • Products offered at lower prices


    THE IMPORTANCE OF INNOVATION

    • Entrepreneurship is the linchpin between invention and innovation

    • Inventions are easier than commercializing those inventions: roughly 80% of R&D occurs in large firms, but these same firms produce fewer than 50% of the patents

    • Note: Google Labs was created to facilitate the transition from invention to innovation

    • Especially in the U.S., innovation is the most critical of the three types of innovative activities


    ENTREPRENEURS

    • Entrepreneurs

      • Individuals, acting independently or as part of an organization, who see an entrepreneurial opportunity and then take risks to develop an innovation to exploit it

    • Entrepreneurial Mind-set

      • Values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations


    ENTREPRENEURS

    • Entrepreneurial characteristics:

      • Highly motivated

      • Willing to take responsibility for their projects

      • Passionate

      • Optimistic

      • Emotionalabout the value and importance of their innovation-based ideas

      • Entrepreneurial mind-set

      • Able to deal with uncertainty

      • More alert to opportunities than others

      • Good social skills and plan exceptionally well


    INTERNATIONAL ENTREPRENEURSHIP

    • ●Firms creatively discover and exploit opportunities outside their domestic markets in order to develop a competitive advantage

    • ● Entrepreneurship has become a global phenomenon as internationalization typically leads to improved firm performance

    • ●EXAMPLE - Large multinational companies (MNCs) generate roughly 54% of their sales outside their domestic market, and more than 50% of their employees work outside of the home country


    INTERNATIONAL ENTREPRENEURSHIP

    • Risks include:

      • Unstable foreign currencies

      • Inefficient markets

      • Insufficient infrastructures to support businesses

      • Limitations on market size and growth


    INTERNATIONAL ENTREPRENEURSHIP

    • Rates of entrepreneurship differ across countries due to:

    • ● Impact of national culture

      • Entrepreneurship declines as collectivism increases

      • Exceptionally high levels of individualism can be dysfunctional for entrepreneurship

      • Balance between individual initiative and cooperative spirit versus group ownership of innovation is required

      • ● Level of investment outside of the home country made by new ventures

      • ● Top executives with international experience

      • Internationally diversified firms are generally more innovative


    INTERNATIONAL ENTREPRENEURSHIP

    • Entrepreneurship can:

      • Fuel economic growth

      • Create employment

      • Generate prosperity for citizens

    • There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation.


    INTERNAL INNOVATION

    • Firms take deliberate efforts to develop inventions and innovations within the organization, selecting from several types of innovation and the specific processes through which each type is produced.

    • Most innovation is due to research and development (R&D):

      • Investments are uncertain

      • Often not achieved in the short term

      • Firms innovate internally in two ways

        1. Autonomous strategic behavior

        2. Induced strategic behavior



    INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION

    • Incremental Innovation

      • Is evolutionary and linear

      • Most innovations are incremental

      • Builds on existing knowledge bases and provides small improvements in current product lines/processes

    • Radical Innovation

      • Is revolutionary and nonlinear

      • Is rare because of difficulty and risk

      • Generates significant technological breakthroughs and creates new knowledge/processes

      • Requires creativity


    INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION

    • Incremental Innovation

      • Results from deliberate efforts

      • Primarily - induced strategic behavior

      • Can create value

    • Radical Innovation

      • Results from deliberate efforts

      • Strong potential to lead to significant growth in revenues and profits

      • Primarily - autonomous strategic behavior

      • Can create value


    MODEL OF INTERNAL CORPORATE VENTURING

    FIGURE 13.1

    Model of Internal Corporate Venturing


    INTERNAL INNOVATION

    • Internal Corporate Venturing refers to the set of activities firms use to develop internal inventions and innovations: autonomous and induced


    INTERNAL INNOVATION

    • ■ Bottom-up process in which product champions pursue new ideas, often through a political process, to develop and coordinate the commercialization of a new good or service

    • ■ Product champion: individual with an entrepreneurial vision of a new good or service who seeks to create support in the organization for its commercialization

    • ■ Autonomous strategic behavior is focused on firm’s knowledge and resources

    • ■ Knowledge must be continuously diffused throughout the firm


    INTERNAL INNOVATION

    Induced strategic behavior

    • Top-down process whereby the firm’s current strategy and structure foster product innovations that are closely associated with that strategy and structure


    IMPLEMENTING INTERNAL INNOVATIONS

    • Entrepreneurial mind-set: required for internal corporate ventures

      • Viewpoint that values uncertainty in the marketplace and seeks to continuously identify opportunities with the potential to lead to important innovations

    • Value creation through internal innovation processes:

      1. Cross-functional product development teams

      2. Facilitating integration and innovation

      3. Creating value from internal innovation


    CREATING VALUE THROUGH INTERNAL INNOVATION PROCESSES

    FIGURE 13.2

    Creating Value Through Internal Innovation Processes


    IMPLEMENTING INTERNAL INNOVATIONS

    Cross-Functional Product Development Teams

    Cross-FunctionalProduct Development Team

    • Efforts to integrate and coordinate activities and apply knowledge from different functional activities associated with different functional areas to maximize innovation:

      • Design

      • Manufacturing

      • Marketing

  • New product development processes can be completed more quickly

  • Products can be more easily commercialized when cross-functional teams work effectively


  • IMPLEMENTING INTERNAL INNOVATIONS

    Cross-Functional Product Development Teams

    Cross-FunctionalProduct Development Team

    • Horizontal structures support use of cross-functional teams

    • Two primary barriers to success:

      • Independent frames of reference of members with distinct specializations

      • Organizational politics that create competition for resources and inter-unit conflict


    IMPLEMENTING INTERNAL INNOVATIONS Facilitating Integration and Innovation

    • Shared Values

      • Are framed around the firm’s strategic intent and mission

      • Become the glue that promotes integration between functional units

    • Effective Leadership

      • Sets goals and allocates resources

      • Goals include integrated development and commercialization of new goods and services

    • Effective Communication

    All are important to successfully innovate and facilitate cross-functional integration.


    IMPLEMENTING INTERNAL INNOVATIONS

    Creating Value from Internal Innovation

    • Entrepreneurial mind-set is necessary

    • Manager support

    • Cross-functional teams

    • Effective leadership and shared values


    INNOVATION THROUGH COOPERATIVE STRATEGIES

    • To successfully commercialize inventions, firms may need to cooperate and integrate knowledge and resources

      • Entrepreneurial new venture firms may need investment capital and distribution capabilities

      • More established companies may need new technological knowledge possessed by newer entrepreneurial firms

    • To innovate via cooperative relationships, firms must share their knowledge and skills – strategic alliances and joint ventures allow this to occur


    INNOVATION THROUGH ACQUISITIONS

    • Rapidly extend the product line

    • Increase the firm’s revenues

    • KEY RISK: a firm may substitute its ability to buy innovations for its ability to produce innovations internally

    • A firm may:

      • Lose its intensity in R&D efforts

      • Lose its ability to produce patents

    • Research demonstrates that subsequent to acquisitions, firms introduce fewer new products into the market

    • This is because firms focus on the financial controls at the expense of strategic control


    CREATING VALUE THROUGH STRATEGIC ENTREPRENEURSHIP

    • Entrepreneurial ventures:

      • Produce more radical innovations

      • Possess strategic flexibility and willingness to take risks

      • Do more opportunity seeking

      • Must learn how to gain a competitive advantage (advantage-seeking behaviors)

    • Larger, well-established firms:

      • Produce more incremental innovations

      • Possess more resources and capabilities to exploit identified opportunities

      • Must relearn how to identify entrepreneurial opportunities (opportunity-seeking skills)


    CREATING VALUE THROUGH STRATEGIC ENTREPRENEURSHIP

    • Objective is to help firms develop successful incremental and radical innovations

    • Be flexible and willing to take risks.

    • Identify and exploit opportunities with sufficient resources and capabilities to launch strategic actions.

    • Sustain a competitive advantage while identifying and exploiting opportunities.

    • Foster an entrepreneurial mind-set among managers and employees.

    • Emphasize resource management, particularly human capital and social capital.

    • Seek to enter and compete in international markets.


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