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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

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Part 3 strategic actions strategy implementation

PART 3: STRATEGIC ACTIONS:

STRATEGY IMPLEMENTATION

CHAPTER 13STRATEGIC ENTREPRENEURSHIP


The strategic management process

THE STRATEGIC MANAGEMENT PROCESS


Part 3 strategic actions strategy implementation

KNOWLEDGE OBJECTIVES


Part 3 strategic actions strategy implementation

KNOWLEDGE OBJECTIVES


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: AppleGoogle

TwitterDawning Information Industry

FacebookNetFlix

NissanZynga,

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


Part 3 strategic actions strategy implementation

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


Part 3 strategic actions strategy implementation

IMPORTANT DEFINITIONS

  • Strategic entrepreneurship actions can be taken by:

    • Individuals

    • Corporations

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


Part 3 strategic actions strategy implementation

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


Part 3 strategic actions strategy implementation

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


  • Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    INTERNATIONAL ENTREPRENEURSHIP

    • Risks include:

      • Unstable foreign currencies

      • Inefficient markets

      • Insufficient infrastructures to support businesses

      • Limitations on market size and growth


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    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


    Part 3 strategic actions strategy implementation

    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.


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    INTERNAL INNOVATION: INCREMENTAL AND RADICAL INNOVATION


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    MODEL OF INTERNAL CORPORATE VENTURING

    FIGURE 13.1

    Model of Internal Corporate Venturing


    Part 3 strategic actions strategy implementation

    INTERNAL INNOVATION

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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    CREATING VALUE THROUGH INTERNAL INNOVATION PROCESSES

    FIGURE 13.2

    Creating Value Through Internal Innovation Processes


    Part 3 strategic actions strategy implementation

    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


  • Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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.


    Part 3 strategic actions strategy implementation

    IMPLEMENTING INTERNAL INNOVATIONS

    Creating Value from Internal Innovation

    • Entrepreneurial mind-set is necessary

    • Manager support

    • Cross-functional teams

    • Effective leadership and shared values


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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


    Part 3 strategic actions strategy implementation

    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)


    Part 3 strategic actions strategy implementation

    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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