Corporate Entrepreneurship

Prague, 22.06.2010 Martina L. Jakl, PhD & lic.oec. HSG

Outline of todays lecture: Corporate Entrepreneurship Reasons for existing organizations to become entrepreneurial Corporate Entrepreneurship: Definition Related terms to corporate entrepreneurship Introducing Corporate Entrepreneurship in a existing organization

 Business has only two basic functions: marketing and innovation. Marketing and innovation produce results. All the rest are costs. (Peter F. Drucker) () the last bastion of Soviet-style central planning can be found in Fortune 500 companies. (Gary Hamel)

Reasons for existing organizations to become entrepreneurial

Most established companies find it hard to maintain the initial entrepreneurial spirit that helped them to make it through during the start-up stage: How do the excellent innovators do it? managers ask, presuming that excellent innovators exist What drives the development of new promising opportunities? How do we find new ideas?

Source: Thierry Volery

Corporate entrepreneurship: identifying and pursuing discontinuous opportunities

New Markets

Adjacent Opportunities Exploit current assets and capabilities

Discontinuous Opportunities Create new markets and new products

Existing Markets

Status Quo Grow market share and profit (business expansion, not new business development) Existing products/ Technology

Adjacent Opportunities Increase primary market demand

New products/ Technology

Source: Thierry Volery

 which create disproportionate wealth relative to adjacent opportunities

100

14% 38% 61%

50

Discontinuous opportunities Adjacent opportunities

86% 62% 39%

0 Type of new Business launch Revenues

Profits

Source: Chan & Mauborgne (1997)

Knowledge creation in corporate entrepreneurship

Inertial forces
Knowledge base

Capability development

Opportunities

Idea
Existing capabilities

Initiative

New capability

Social structures

Weak social ties

Central actors

Emerging networks

Source: Thierry Volery

Corporate entrepreneurship: a tedious process

The field trial worked! The customer likes it!

We have an order! New costs Look great

and orders and inventory

ENTHUSIASM

Yes it is!

They like it and the approvals Well make it We have all the sizes

It works! We have A fix They need all Deliveries Are late the sizes? We need No, he documentation loves it! Documentation done! Problems solved

It works! I have an idea

Its not proprietary

The market estimate Failures The boss in the field trial hates the project was wrong

Several failures reported

Source: Thierry Volery

Corporate Entrepreneurship: Definition 10 Definitions of corporate entrepreneurship Corporate entrepreneurship according to Sharma/Chrisman

10 definitions of corporate entrepreneurship

Burgelman (1983) Corporate entrepreneurship refers to the process whereby the firms engage in diversification through internal development. Such diversification requires new resource combinations to extend the firm's activities in areas unrelated, or marginally related, to its current domain of competence and corresponding opportunity set. Chung & Gibbons (1997) Corporate entrepreneurship is an organizational process for transforming individual ideas into collective actions through the management of uncertainties. Covin & Slevin (1991) Corporate entrepreneurship involves extending the firm's domain of competence and corresponding opportunity set through internally generated new resource combinations.

10 definitions of corporate entrepreneurship

Guth & Ginsberg (1990) Corporate entrepreneurship encompasses two types of phenomena and the processes surrounding them: (1) the birth of new businesses within existing organizations, i. e., internal innovation or venturing; and (2) the transformation of organizations through renewal of the key ideas on which they are built, i. e. strategic renewal. Jennings & Lumpkin (1989) Corporate entrepreneurship is defined as the extent to which new products and/ or new markets are developed. An organization is entrepreneurial if it develops a higher than average number of new products and/ or new markets. Schendel (1990) Corporate entrepreneurship involves the notion of birth of new businesses within on- going businesses, and . . . The transformation of stagnant, on- going businesses in need of revival or transformation. Spann, Adams, & Wortman (1988) Corporate entrepreneurship is the establishment of a separate corporate organization (often in the form of a profit center, strategic business unit, division, or subsidiary) to introduce a new product, serve or create a new market, or utilize a new technology.

10 definitions of corporate entrepreneurship

Vesper (1984) Corporate entrepreneurship involves employee initiative from below in the organization to undertake something new. An innovation which is created by subordinates without being asked, expected, or perhaps even given permission by higher management to do so. Zahra (1993) Corporate entrepreneurship is a process of organizational renewal that has two distinct but related dimensions: innovation and venturing, and strategic renewal. Zahra (1995, 1996) Corporate entrepreneurship -- the sum of a company's innovation, renewal, and venturing efforts. Innovation involves creating and introducing products, production processes, and organizational systems. Renewal means revitalizing the company's operations by changing the scope of its business, its competitive approaches or both. It also means building or acquiring new capabilities and then creatively leveraging them to add value for shareholders. Venturing means that the firm will enter new businesses by expanding operations in existing or new markets.

10 definitions of corporate entrepreneurship: The essence?

Risk Taking innovativness Proactivness

So, what is corporate entrepreneurship?

Independent entrepreneurship is the process whereby an individual or group of individuals acting independently, create a new organization. Corporate entrepreneurship is the process whereby an individual or a group of individuals, in association with an existing organization, create a new organization or instigate renewal or innovation within that organization.

Source: Sharma / Chrisman (1999)

Hierarchy of terminology in corporate entrepreneurship

Entrepreneurship

Independent Entrepreneurship

Corporate Entrepreneurship

Strategic Renewal

Innovation

Corporate Venturing

External corporate venturing Potential outcomes: Joint ventures Spin off Venture capital initiatives

Internal corporate venturing Potential outcomes: integration new divisions new ventures

Source: Sharma / Chrisman (1999)

Strategic Renewal
Refers to the corporate entrepreneurial efforts that result in significant changes to an organization's business or corporate level strategy or structure. These changes alter pre- existing relationships within the organization or between the organization and its external environment and in most cases will involve some sort of innovation. Renewal activities reside within an existing organization and are not treated as new businesses by the organization.

Source: Sharma / Chrisman (1999)

Corporate Venturing
refers to corporate entrepreneurial efforts that lead to the creation of new business organizations within the corporate organization. They may follow from or lead to innovations that exploit new markets, or new product offerings, or both. These venturing efforts may or may not lead to the formation of new organizational units that are distinct from existing organizational units in a structural sense (e. g., a new division).

Source: Sharma / Chrisman (1999)

External vs. internal corporate venturing

External corporate venturing refers to corporate venturing activities that result in the creation of semi-autonomous or autonomous organizational entities that reside outside the existing organizational domain. Internal corporate venturing refers to the corporate venturing activities that result in the creation of organizational entities that reside within an existing organizational domain.

Source: Sharma / Chrisman (1999)

Related terms to corporate entrepreneurship

Intrapreneurship Internal entrepreneurship Corporate entrepreneur

What is intrapreneurship
Pinchot (1985): Intrapreneuring ... as entrepreneurship inside of the corporation. Knight (1987. An intrapreneur is a employee who: ... introduces and manages an innovative project within the corporate environment, as if he or she were an independent entrepreneur. Need for achievement, risk orientation, innovativness and need for autonomy Innovations are enforced in extreme cases by lone fighters

source: Steinle/Draeger (2002)

What is internal entrepreneurship (internes Unternehmertum, D/CH/AT)

Active support of the strategic orientation of the organization Through problem solving, social competent and implementing thinking and actions (core competencies) From all employees on all hierarchical levels and functional areas With high own initiative and responsibility Goal: activation of entrepreneurial potential of all employees with the background of realizing the goals of the organization Internal entrepreneurship as a leadership orientation

source: according to Wunderer (2000)

Enforcing elements and actions for internal entrepreneurs Management by objectives Own area of responsibility Targeted choice of employees Style of leadership (participative/delegation) Development and training of employees Evaluation of employees Challenging tasks Reward according to achievement

source: Wunderer (1999)

Barriers for internal entrepreneurs

Competencies to create sth. Sub-entrepreneurs high Internal entrepreneurs Intrapreneurial orientated employees

Cutback of de-motivational elements. Establishment of a motivational culture. Strategy, organisation and Personal structure

low Internally resigned / overstrained employees and active brakesman

Employees with low intrapreneurial competencies low

re-motivation, selective qualification, targeted use of employees

Social competencies

high

Targeted qualification and re-motivation; Re-positioning or release of employees

source: according to Wunderer (2000)

Introducing Corporate Entrepreneurship in a existing organization The key steps in developing entrepreneurship inside a corporation Develop a vision and strategy Create a culture of innovation Develop organizational support Reward according to results Communicate

The key steps in developing entrepreneurship inside a corporation

1. Develop a vision and strategy Mission statement Welcome new ideas Set up a framework that allows prudent risk taking 4. Reward according to results Fair and flexible compensation Financial rewards Non-financial rewards Communicate Face to face Tell powerful stories Brief supervisors Meetings / events Groupware Intranets 3. Develop organisational support Traditional R&D New venture division Venture capital fund 2. Create a culture of innovation Allow divergent thinking Supervisory encouragement Tolerate failure, learn from mistakes

Source: Thierry Volery

1. Developing a vision and strategy mission A mission statement is an enduring statement of purpose for an organisation that identifies the scope of its operations in product and market terms, and reflects its values and priorities Essentially, the mission statement defines the company and provides an answer to the question: What kind of company do we want to be? Not all executives like to conceive their companys future through strategic-planning exercises. Jack Welch had his business units envision how the future could hurt them Destroy Your Business

Source: Thierry Volery

1. Developing a vision and strategy welcoming new ideas Leaders of highly innovative companies demonstrate in every decision, action, and communication that innovation propels profitability The emphasis is on developing whole new business concepts, product platforms, and systematically destroying ones own. Continual innovation is their soul business. Be a failure-tolerant leader: The fastest way to succeed, IBMs Thomas Watson once said, is to double your failure rate.

Source: Thierry Volery

2. Creating a culture of innovation Allowing divergent thinking

Convergent thinking focuses on clear problems and provides well-known solutions quickly. Order, simplicity, routine, clear responsibilities and predictability are the bedrock of convergent thinking Divergent thinking focuses on broadening (or diverging) the context of decision making. Divergent thinking essentially requires three central skills conversation, observation, and reflection to identify new business ideas

Source: Thierry Volery

2. Creating a culture of innovation Supervisory encouragement Top management play a central role in developing the vision and sharing it with the rest of the organisation. Leaders of successful, continually innovative companies create a sense of community across the organisation. Find, empower, and champion middle manager entrepreneurs - frontline supervisors who assume the career risk of pursuing a new idea within the corporation, and who serve needed resources, run interference for the idea so it can germinate, and endure the flack of institutional inertia and resistance.

Source: Thierry Volery

2. Creating a culture of innovation Tolerating failures Employees must be given permission to occasionally fail and learn from failure. Dead ends can sometimes be very enlightening - knowing what doesnt work can be as useful as knowing what does. Creating a culture in which people feel comfortable with failure also requires abandoning traditional ideas about personal competition. 3M has encouraged idea sharing for decades, from the coffee-and-donut sessions years ago to todays more formal tech forums and in-house trade shows.

Source: Thierry Volery

3. Developing organisational support balancing partitioning and integration Separation is no doubt the model of choice when the new and the old differ greatly, but The simple injunction to cordon off new business is too narrow. Although ventures do need space to develop, strict separation prevents them from obtaining invaluable resources and robs their parents of the vitality they can generate. A delicate blend of separation and co-operation is a prerequisite for achieving both focused performance and faster growth.

Source: Thierry Volery

3. Developing organisational support New Venture Divisions (NVDs) NVDs are separate organisational units under the corporate umbrella, tasked with incubating mainly discontinuous opportunities from idea conceptualisation through commercialisation and final value capture. The NVD model combines traditional corporate business development and venture capital principles. NVDs provide business ventures with a customised level of corporate sponsorship and support, along with the flexibility and autonomy of an entrepreneurial environment.

Source: Thierry Volery

4. Reward according to result The importance of rewarding

All efforts are not of equal value Intrapreneurs are achievers; and achievers are not equal to other people, not even to each other

What sort of reward ?

Financial rewards: bonus, incentive stock options Avoid using money to bribe individuals who come up with new ideas Non-financial rewards: holiday, promotion, awards and other types of personal recognition

Promote open communication

Role-based incentives (inventor, organiser, etc.) Incentives for team work Based on event milestones Simple and realistic

Source: Thierry Volery

4. Communicate
Communication type and content
Focus on face-to-face communication Other types of communication can be used: meetings, events, emails, Intranet Tell powerful stories

Who should be targeted ?

Frontline managers their support is crucial Key elements in informal networks throughout the company

Promote open communication

Develop alternative communication channels Provide employees who do not meet normally to interact: communal areas, informal gathering

Source: Thierry Volery

Your task:
Form small groups of three to four persons. Develop a program for a corporation to introduce corporate entrepreneurship (see examples) in the next 30 minutes Present your results briefly in the audience

What would you do? Procter &Gamble

Procter & Gamble has over 300 and 10000 employees in 80 countries, world leader in consumer products Alan Lafley, the CEO at P&G, sees the revival of an entrepreneurial culture as essential to rekindling growth The last big innovation Always - was launched back in 1983, the company has lost some 10% in market share in the past five years. In 2000, volumes decreased by 2% and in 2001 grew only by 3%. Problem says that employees are very creative, but their ideas are usually shared with other colleagues during the coffee break, and then we tend to forget about them. The firm has also stifled innovation and prevented new ideas from getting to market quickly. But some new categories and products like Febreze or Swiffer have been created and put on the market.

What would you do? Berther Bauunternehmung

Berther Bauunternehmung AG was founded in 1978. Headquarters are located in Disentis/Mustr in the canton of Grison (Switzerland). The company employs about 80 people and is active in the area of building, construction and special construction, also in the high mountains (more than 3000 m above sea level). Owner and managing director of the company is Heinrich Berther. His central leadership principal is: by exemplary! He is politically active as a member of the cantons parliament (legislation). Since he originally learnt the profession of a bricklayer he is an operational expert of construction and emphasizes on being able to understand the progress of work on the different construction sites. In addition he shows the craftsmen how to work. Berther Bauunternehmung AG has grown continually. This was possible with internal growth without investments in other companies. This huge growth led to new requirements with respect to organizational and managerial capacities. Nowadays it is simply impossible for Heinrich Berther to run his company as if it had only three bricklayers and an apprentice. Core problems of the growing company are the following: Strategic questions are neglected. Managerial capacities do not grow with the company. They have to be adapted to the new situation. The entrepreneur has to delegate. But how? Declining motivation of employees. Without any responsibility and participation in the decision making process they feel like execution orders. The tasks in the grown company become increasingly more complex and partially more specific The entrepreneur has no longer the knowledge needed and has to hire specialists.

What would you do? The cantonal centre for education and post education of the communities

The CEC is part of the cantonal administration, but is organized in its internal structures like a SME. The CEC is operating on its own account. Structured like an SME, the centre as a player on the free market is free to analyse customer needs, to develop education programs, to fix prices and to sell the products according to its performance contract. The CEC offers professional education programs for all levels of employees in communities as well as for politicians who manage those communities. The most important programs are: (1) a course of 140 lessons for functionaries in communities, (2) an education program of 500 lessons for head of administration in communities and (3) a post-diploma education program of 320 lessons to obtain a cantonal diploma for community managers, comparable to the concept of city managers, but which is adapted to the needs of small and middle sized communities. In addition to the education programs, the centre offers also consulting services for communities as well as for parts of the cantonal public administration. All products and services offered by the CEC are subject to fees and the CEC has to be completely self-financed through these services. The centre is situated inside the public administration of the Canton. The centre is operating on a single legal basis, the regulation for professional education and post-education for the communities sector (Regolamento sulla formazione professionale di base e continua per il settore degli Enti locali). The first years were highly successful due to structured courses by the CEC that are focused exactly on the community's needs as well as a market with a great demand and small offers. The small and dynamic team has been proven as an additional success factor. In the last 12 months, competitors like the University of Applied Sciences of the Canton Ticino, the University of Southern Switzerland or private SMEs started to offer similar courses and study programs like the CEC. Therefore, the CEC is now confronted with the situation of a growing number of competitors in a limited market.

From bureaucracy to internal entrepreneurs

Change as a threat Fear of failure Change as a chance Openness to commit faults and to learn from them Supporting new ideas Sense making through diversity Freedom and trust Customer orientation Rewarding also small innovations

Questioning of new ideas Instruction and rules control Inside orientation Big-Bang innovation

Source: Wunderer (1999)

Wrap up
Corporate entrepreneurship can be defined as the process whereby an individual or group of individuals, in association with an existing organization, create a new organisation or instigate renewal or innovation within that organisation Other reasons to develop corporate entrepreneurship are among others retaining and motivating the brightest staff

Source: Thierry Volery