Corporate Entrepreneurship & Innovation

Week 12

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Impact of Innovation on Firm Outcomes

Key source of competitive success Enhances a firms strategic competitiveness and financial performance. Firms competing in global industries that invest more in innovation also achieve the highest returns.

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Corporate Innovation
Some firms nurture innovation and corporate entrepreneurship This can be a source of strategic competitiveness

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Innovative Activity
Three stages: Invention Creating or developing a new product or process idea Innovation Creating a commercial product from invention Imitation Adoption of innovation by a group of similar firms

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Successful Entrepreneurship
The key to success with entrepreneurship and innovation is moving from invention of an idea to its effective commercialisation and acceptance in the marketplace

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Innovation and Competitive Advantage

Difficult for Competitors to Imitate
Characteristics of innovations that lead to:

Commercially Exploitable with Present Capabilities

Competitive Advantage Provides Significant Value to Customers Copyright Guy Harley 2004

Timely

Entrepreneurship
Schumpeter called entrepreneurship creative destruction The focus is on discovery and exploitation of opportunities that may prove profitable.

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Entrepreneurial Firms
Firms involved with entrepreneurship are: Risk takers Committed to innovation Proactive (i.e., they try create their own opportunities)

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Corporate Entrepreneurship
A firms ability to develop new goods or services and to manage the innovation process The key to success with entrepreneurship and innovation is moving from invention of an idea to its effective commercialisation and acceptance in the marketplace

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Corporate Entrepreneurship
A situation where an individual or group within an organisation creates a new venture or develops innovation The sum of a firms innovation, renewal and venturing efforts

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Entrepreneurs
Agents of economic growth that introduce new products, new production methods, and other innovations that stimulate economic activity. Can surface at any level in the firm Form innovative production processes or service delivery mechanisms.
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Organisational Entrepreneurs
Organisational entrepreneurs engage in entrepreneurship by: taking risks acting aggressively acting proactively in their firms

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International Entrepreneurship
Top priority in many countries (eg Ireland, France, Finland) China has tension between collectivism and individualism When collectivism emphasised, entrepreneurship declines Need to have a balance

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Internal Corporate Venturing

Innovation is necessary but not sufficient condition to competitive success Need processes and structures in place so that the firm can successfully implement the outcomes of internal corporate ventures is as crucial as the actual innovations themselves Two types Autonomous Strategic Behavior Induced Strategic Behavior
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Autonomous Strategic Behavior

Autonomous strategic behaviour is a bottom-up process through which product champions pursue new product ideas through to commercialisation Product champions are individuals who have an entrepreneurial vision for a new product and who seek support for its commercialisation

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Induced Strategic Behavior

A top-down process in which the current strategy and structure foster closely associated product innovations

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Model of Internal Corporate Venturing

Concept of Corporate Strategy Strategic Context Autonomous Strategic Behaviour Copyright Guy Harley 2004 Structural Context

Induced Strategic Behaviour

Using Product Development Teams

Emphasises horizontal organisation rather than vertical Processes to support innovation can be: Formal Defined & documented as procedures & practices Informal Routines or ways of working that evolve over time
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Barriers to horizontal integration

Specialization has encouraged development of divergent functions, different roles, and functional differentiation based on four factors. 1. Time orientation, as some functions are shortterm oriented while others are long-term oriented 2. Interpersonal orientation 3. Goal orientation, with some goals focused on efficiency and others on effectiveness 4. Formality of structure (informal vs formal)
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Barriers to Horizontal Integration

Functional specialisation may hinder crossfunctional integration Organisational politics, especially those centered around protecting historical resource allocation processes, may inhibit integration

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4 Methods for Facilitating Integration

1. 2. 3. 4. Shared values or corporate culture Leadership Goals and budgets Effective communication systems

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Shared Values
Are expressed through the firms corporate culture (as discussed in Chapter 12) Should be clearly linked with the firms strategic intent and strategic mission Can reduce political conflict and promote coupling between and among functional specialties

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Leadership
Enforces the importance to the firm of the valuecreating potential of innovation Emphasizes the value-creating potential of innovation and, in turn, encourages the integration of functional activities

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Goals and Budgets

Relate to the formulation of goals and allocation of budgeted resources necessary to achieve them Represent specific targets for the integrated design and production of new goods and services Can serve as self-reinforcing strategies to encourage and support cross-functional integration
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Effective Communication
Leads to: Increased motivation More and better information Sharing of knowledge across cross-functional team members

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Barriers to Integration Different Time Orientation Interpersonal Orientation Different Goal Orientation Formality of Structure Facilitators of Integration
Shared Values Leaders Vision

Appropriating Value from Innovation

Time to Market
X-Functional Integration/ Design Teams Value Appropriati on from Innovation

Product Quality Creation of Customer Value

Budget Allocation
Effective Copyright Guy Harley 2004 Communication

Appropriating Value from Innovation

Decrease or reduce time-to-market Improve product quality Create value for customers

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Cooperating to Produce Innovation

Strategic Alliances Can help foster innovation by combining the knowledge and resources of two or more partners Firms must focus on building knowledge, identifying core competencies and developing strong human resources to manage such projects Firms can also give away core competencies by outsourcing to alliance partners rather than developing their own capabilities over time

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Strategic Alliances
Few firms possess all the Knowledge, Resources, Capabilities & Core competencies to pursue internal innovation

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Risks of Strategic Alliances

Gain competitive parity or competitive advantage relative to rivals Produce and manage innovative goods or services

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Strategic Alliances
Success depends upon: Focusing on knowledge Identifying core competencies Developing human resource policies to manage and retain core competencies Choosing partners with complimentary skills and compatible goals and strategic orientations

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Acquiring Innovative Capability

Many firms now acquire other firms as a substitute for developing innovations internally Acquiring innovative capability can reduce risk and lower costly R&D investments A major drawback is that firms can eventually lose their ability to generate innovations internally May result in reductions in expenditure on R&D and number of patents as a % of sales
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Buying Innovation
R & D Inputs 0 -0.002

R & D Intensity

-0.004 -0.006 -0.008 -0.01 -0.012 Years Before & After Acquisition

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Venture Capital
New enterprises backed by venture capital Provide important sources of innovation and new technology Are a major source of new wealth creation in the domestic economy (shown from financial figures to be particularly relevant in the U.S.) Create new jobs and expenditure on R&D

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Venture Capital
Strategic benefits of investing in venture capital Ability to invest early and observe what happens to the new venture Movement toward subsequent acquisitions, technology licensing, product marketing rights, and possibly the development of international opportunities Gaining a window on future technological development

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Venture Capital & Australian Innovation

In the USA, available venture capital is about A$40 billion, whereas in Australia it is about A$400 million Many of Australias leading innovations (for example the Sarich engine) are relocated to the USA in order to gain funding for the commercialisation process

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Entrepreneurship in Small Business

Small business and individual entrepreneurs account for significant portion of innovation measured by comparing R&D input with R&D output Small firms created most new jobs in the USA in the 1990s While large firms account for over 80% of the worlds R&D spending, individuals or small firms are granted more than half of new US patents
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Small Firms and Innovation

Many small firms are created when employees leave large firms to start their own businesses Ex-employees frequently continue to interact with their former firms to develop innovations and new products

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Large Firms Innovative Capacity

To improve large firm innovative capacity: Act small Greater levels of individual autonomy can be created through the restructuring of a firm into smaller and more manageable units (see Chapter 7). The additional amounts of creativity and innovation that tend to be witnessed among those granted more autonomy stimulates autonomous strategic behaviour when a firm purses innovation through internal corporate ventures.

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Large Firms Innovative Capacity

A firm can reengineer its operations to develop more efficient work-related processes and to form channels through which customers interests can be expressed with greater clarity and intensity. Cross-functional work teams can provide opportunities for personnel to think and act creatively. When handled effectively, downsizing can create arrangements through which a firm is able to focus efforts more on key tasks, such as those required to produce innovations. Allocating significant levels of resources to research and development can stimulate innovation. Cooperative arrangements can help to spawn innovations in the firm.
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Exam Revision
Competitive advantage & above average returns Vicarious liability Tangible & intangible resources International strategy Trust Restructuring strategies Changes in management from eCommerce Essay Topic

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Essay Topic
Describe 2 organisational designs that have emerged as a result of technological advancement Not Vertical (around before technology) M-Form (results from diversification) Global (around before technology) Examples Virtual Network Horizontal
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Essay Topic Role of technology in organisational design Not organisational structure All organisations use technology but it doesnt always have a role in design

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