Strategic Entrepreneurship

Hitt - Chapter 13
MGNT428 Spring 2006 Dr. Gar Wiggs, Instructor

Knowledge Objectives
After this session, you should have an understanding of the strategic management knowledge needed to:
Define and explain strategic entrepreneurship. Describe the importance of entrepreneurial opportunities, innovation, and entrepreneurial capabilities. Discuss the importance of international entrepreneurship. Describe autonomous and induced strategic behaviorthe two forms of internal corporate venturing.

Knowledge Objectives (contd)

This class session should provide you with the strategic management knowledge needed to: Discuss how cooperative strategies such as strategic alliances are used to develop innovation. Explain how firms use acquisitions to increase their innovations and enrich their innovative capabilities. Describe the importance of venture capital and initial public offerings to entrepreneurial activity. Explain how strategic entrepreneurship creates value in all types of firms.
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The Strategic Management Process

Figure 1.1
Copyright 2004 South-Western. All rights reserved.

Strategic Entrepreneurship
Strategic Entrepreneurship
Taking entrepreneurial actions using a strategic perspective Engaging in simultaneous opportunity seeking and competitive advantage seeking behaviors Designing and implementing entrepreneurial strategies to create wealth

Strategic entrepreneurship actions can be taken by:

Individuals Corporations
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Strategic Entrepreneurship and Innovation

Entrepreneurship is concerned with:
The discovery of profitable opportunities The exploitation of profitable opportunities

Firms that encourage entrepreneurship are:

Risk takers Committed to innovation Proactive in creating opportunities rather than waiting to respond to opportunities created by others 6

Entrepreneurial Opportunities
Entrepreneurial Opportunities
Conditions in which new products or services can satisfy a need in the market

Entrepreneurs or entrepreneurial managers must be able to:

Identify opportunities not perceived by others Take actions to exploit the opportunities Establish a competitive advantage
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Innovation Process
Invention

The act of creating or developing a new product or process Brings something new into being Technical criteria are used to determine the success of an invention

Innovation Process
Invention

Innovation

The process of creating a commercial product from an invention Brings something new into use. Commercial criteria are used to determine the success of an innovation

Innovation Process
Invention

Innovation

Imitation

The adoption of an innovation by similar firms Usually leads to product or process standardization Products based on imitation often are offered at lower prices but with fewer features
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The Importance of Innovation

Innovation
Is a key outcome firms seek through entrepreneurship Is often the source of competitive success

Corporate Entrepreneurship
Innovations produced in large established firms

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Entrepreneurs
Entrepreneurs
Individuals acting independently or as part of an organization who create a new venture or develop an innovation, take risks entering innovations into the marketplace Can be any manager or employee in an organization

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Entrepreneurial Capabilities
Entrepreneurial capabilities include:
Intellectual capital Entrepreneurial mind-set Transfer of entrepreneurial competence to others in the organization Effective human capital

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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

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International Entrepreneurship
There must be a balance (in the culture) between
individual initiative and the spirit of cooperation and group ownership of innovation

Successful entrepreneurial firms

Provide appropriate autonomy Offer incentives for individual initiative Promote cooperation and group ownership of an innovation

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Incremental and Radical Innovation

Incremental Innovation Most innovations are incremental Provides small increments in current product lines Improves existing knowledge and processes Can create value Radical Innovation Are rare because of difficulty and risk Provides significant technological breakthroughs Creates new knowledge and processes Can create value
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Internal Corporate Venturing: A Model

SOURCE: Adapted from R. A. Burgelman, 1983, A model of the interactions of strategic behavior, corporate context, and the concept of strategy, Academy of Management Review, 8: 65.

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Internal Corporate Venturing

The set of activities used to create inventions and innovations through internal means R&D spending is linked to success in internal corporate venturing Product champion Organizational member with an entrepreneurial vision of a new good or service who seeks to create support for the visions commercialization
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Internal Corporate Venturing

A bottom-up process in which product champions:
Pursue new ideas, often through a political process Develop and coordinate the commercialization of a new good or service until it achieves success in the marketplace

Forms of internal corporate venturing

Autonomous strategic behavior Induced strategic behavior

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Venturing: Strategic Behaviors

Autonomous Strategic Behavior
Based on a firms knowledge and resources that are the sources of the firms innovation A firms technological capabilities and competencies are its basis for new products and processes

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Venturing: Strategic Behaviors

Induced Strategic Behavior
A top-down process whereby the firms current strategy and structure foster product innovations The strategy in place is filtered through a matching structural hierarchy Innovations are associated closely with that strategy and structure

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Implementing New Product Development and Internal Ventures

To be innovative and develop internal ventures requires:
An entrepreneurial mindset Risk propensity An emphasis on execution

Individuals with an entrepreneurial mindset

Engage the energies of everyone in their domain both inside and outside the organization

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CrossFunctional Product Development Teams

Facilitate integration of activities associated with different organizational functions Design, manufacturing, marketing, etc.

Cross-functional Product Development Team

New product development processes can be completed more quickly

Products can be more easily commercialized when cross-functional teams work effectively
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CrossFunctional Product Development Teams

Product development stages are grouped into parallel or overlapping processes, allowing the firm to tailor its product development efforts

Cross-functional Product Development Team

Unique core competencies

Needs of the market
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Barriers to Cross-Functional Teams Effectiveness

Different orientations and perceptions
Individuals from separate functions have different orientations on issues Perceive product development activities in different ways

Organizational politics
Aggressive competition for resources among different organizational functions Must achieve cross-functional integration with minimal political conflict
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Facilitating Integration and Innovation

Shared values
Framed around the firms 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
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Creating Value from Innovation

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Cooperative Strategies for Entrepreneurship and Innovation

Cooperation and integration of knowledge and resources is required to successfully commercialize inventions
Entrepreneurial firms need investment capital and distribution capabilities Established companies need the technological knowledge possessed by entrepreneurial firms

Firms innovate through the sharing their knowledge and skills in a cooperative relationship
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Acquisitions to Buy Innovation

Acquisitions
Rapidly extend the product line Increase the firms revenues

Key risks of acquisitions

The firm may substitute the ability to buy innovations for an ability to produce innovations internally The firm may lose intensity in R&D efforts The firm may lose its ability to produce patents

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Capital for Entrepreneurial Ventures

Venture capital firms
Seek high returns on their investment Value the competence of the entrepreneur or the human capital in the firm Place weight on the expected scope of competitive rivalry the firm is likely to experience Evaluate the degree of instability in the market addressed

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Capital for Entrepreneurial Ventures

Initial public offerings (IPOs)
Are new stock priced to reflect the firms high potential
Often yield much larger equity investments than can be obtained from venture capitalists Investment bankers frequently play major roles in the development and offering of IPOs Firms that have previously received venture capital backing usually receive greater returns from IPOs

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Creating Value through Strategic Entrepreneurship

Be effective in identifying opportunities Be flexible and willing to take risks

Have sufficient resources and capabilities to exploit identified opportunities

Sustain a competitive advantage while identifying and exploiting opportunities Develop an entrepreneurial mind-set among managers and employees Seek to enter and compete in international markets
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