Managing

Innovation
and Fostering
Corporate
Entrepreneurs
hip
Chapter
Twelve
McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights

Learning Objectives
After reading this chapter, you should have a
good understanding of:
LO12.1 The importance of implementing strategies
and practices that foster innovation.
LO12.2 The challenges and pitfalls of managing
corporate innovation processes.
LO12.3 How corporations use new venture teams,
business incubators, and product champions
to create an internal environment and culture
that promote entrepreneurial development.
12-2

Learning Objectives (cont.)

LO12.4 How corporate entrepreneurship achieves
both financial goals and strategic goals.
LO12.5 The benefits and potential drawbacks of
real options analysis in making resource
deployment decisions in corporate
entrepreneurship contexts.
LO12.6 How an entrepreneurial orientation can
enhance a firms efforts to develop promising
corporate venture initiatives.
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Managing Innovation
Innovation
using new knowledge to transform
organizational processes or create
commercially viable products and services
Latest technology, results of experiments,
creative insights,
competitive information

12-4

Example: Getting to Aha

There are five disciplines for creating
what customers want
Identify important customer needs
Create solutions that fill those needs
Build innovation teams
Empower "innovation champions" who keep
the effort on track
Align the entire enterprise around creating
value for customers

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Types of Innovation
Product innovation
Efforts to create product designs
Applications of technology to develop new
products for end users
More common during early stages of an
industrys life cycle
Associated with differentiation strategies

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Types of Innovation
Process innovations
Improving efficiency of an organizational
process
Manufacturing systems and operations
More likely to occur in later stages of an
industrys life cycle
Associated with cost leader strategies

12-7

QUESTION
Radical innovations

A.Often result in quick profits

B.Often represent technological
breakthroughs
C.Usually apply to products and processes
simultaneously
D.Usually cannot be patented
12-8

Types of Innovation
Radical innovation
Fundamental changes and breakthroughs
Evoke major departures from existing
practices
Can be highly disruptive
Can transform or revolutionize a whole
industry

12-9

Types of Innovation
Incremental innovation
Enhance existing practices
Small improvements in products and
processes
Evolutionary applications within existing
paradigms

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Continuum of Radical and

Incremental Innovations
Exhibit 12.1

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Types of Innovation
Sustaining
innovations
extend sales in an
existing market,
usually by enabling
new products or
services to be sold
at higher margins.

Disruptive
innovations
overturn markets
by providing an
altogether new
approach to
meeting customer
needs.

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Challenges of Innovation

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Seeds versus Weeds

Deciding the merits of innovative ideas
Seeds likely to bear fruit
Weeds should be cast aside

Dilemma

Some innovation projects require considerable

level of investment before merit can be
determined

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Experience versus Initiative

Deciding who will lead an innovation
project
Senior managers have experience and
credibility and tend to be more risk averse
Midlevel employees may be the innovators
themselves and have more enthusiasm

12-15

Internal versus External

Staffing
People drawn from inside the firm
May have greater social capital
Know the organizations culture and routines
May not be able to think outside the box

People drawn from outside the firm

Are costly to recruit, hire, train
May have difficulty building relationships

12-16

Building Capabilities versus

Collaborating
Firms can seek help
Other departments
Partner with other companies that bring
resources and experience

Partnerships
Create dependencies and inhibit internal
skills development
Sharing benefits of innovation may create
conflict
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Incremental versus Preemptive

Launch
Incremental launch
Less risky
Requires few resources
Can undermine the projects credibility if too
tentative

Large-scale launch
Requires more resources
Can effectively preempt a competitive
response
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Defining the Scope of

Innovation
Firms must define the strategic
envelope (scope of the innovation efforts)
Firms ensure that their innovation efforts
are not wasted on projects that are
outside the firms domain
of interest.

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Defining the Scope of

Innovation
In defining the strategic envelope, a firm
should answer several questions
How much will the innovation cost?
How likely is it to actually become
commercially viable?
How much value will it add; that is, what will
it be worth if it works?
What will be learned if it does not pan out?

12-20

Managing the Pace of

Innovation
Incremental
innovation
May be six months
to two years
May use a
milestone
approach driven by
goals and
deadlines

Radical
innovation
Typically long term
10 years or more
Often involves
open-ended
experimentation
and timeconsuming
mistakes
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Staffing to Capture Value from

Innovation
Create innovation teams with
experienced players
Require that employees seeking to
advance their career serve in the new
venture group

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Staffing to Capture Value from

Innovation (cont.)
Once people have experience with the
new venture group, transfer them to
mainstream management positions
Separate the performance of individuals
from the performance of the innovation.

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Collaborating with
Innovation Partners
To choose partners, Knowledge of
firms need to ask
what competencies
they are looking for
and what the
innovation partner
will contribute.

markets
Technology
expertise
Contacts with key
players in an
industry

12-24

Corporate Entrepreneurship
Corporate entrepreneurship
the creation of new value for a corporation,
through investments that create either new
sources of competitive advantage or renewal
of the value proposition.

12-25

Factors affecting
Entrepreneurial Ventures
The use of teams in strategic decision making
Whether the company is product or service
oriented
Whether its innovation efforts are aimed at
product or process improvements
The extent to which it is high-tech or low-tech

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Rules for Fostering Innovation

Exhibit 12.3

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Focused Approaches to
Corporate Entrepreneurship
New venture group
a group of individuals, or a division within a
corporation, that identifies, evaluates, and
cultivates venture opportunities.

12-28

New Venture Groups

Involvement includes

Innovation and experimentation

Coordinating with other corporate divisions
Identifying potential venture partners
Gathering resources
Launching the venture

12-29

Focused Approaches to
Corporate Entrepreneurship
Business incubator
supports and nurtures
fledgling
entrepreneurial
ventures until they can
thrive on their own as
stand-alone
businesses.

12-30

Business Incubators
Incubators provide some or all of the
following functions

Funding
Physical space
Business services
Mentoring
Networking

12-31

Dispersed Approaches to
Corporate Entrepreneurship
Dedication to

Stakeholders can

principles and
practices of
entrepreneurship is
spread throughout
the firm
Ability to change is
a core capability

bring new ideas or

venture
opportunities to
anyone in the
organization
Entrepreneurial
culture, Product
champions
12-32

Entrepreneurial Culture
Culture of entrepreneurship
Search for venture opportunities permeates
every part of the organization
Strategic leaders and the culture generate a
strong impetus to innovate, take risks and
seek out new venture opportunities

12-33

Product Champions
Product (or project) champions
Bring entrepreneurial ideas forward
Identify what kind of market exists for the
product or service
Find resources to support the venture
Promote the venture concept to upper
management

12-34

Measuring the Success of

Corporate Entrepreneurship
Activities
Comparing strategic and financial CE goals

1.
2.
3.

Are the products or services offered by the

venture accepted in the marketplace?
Are the contributions of the venture to the
corporations internal competencies and
experience valuable?
Is the venture able to sustain its basis of
competitive advantage?

12-35

Measuring the Success of

Corporate Entrepreneurship
Activities

Exit champions

individual working within a corporation who is

willing to question the viability of a venture
project by demanding hard evidence of
venture success and challenging the belief
system that carries a venture forward.

12-36

Real Options Analysis

Real options analysis
for each investment step the investor has the
option of (a) investing additional funds to
grow or accelerate, (b) delaying, (c) shrinking
the scale of, or (d) abandoning the activity.

12-37

Potential Pitfalls of Real

Options Analysis
Agency Theory and the Back-Solver
Dilemma
Managerial Conceit: Overconfidence and
the Illusion of Control
Managerial Conceit: Irrational Escalation
of Commitment

12-38

QUESTION
On average, approximately what percentage
of corporate ventures reaches profitability
after six years?

A.80 percent
B.65 percent
C.50 percent
D.35 percent
12-39

Dimensions of Entrepreneurial
Orientation
Exhibit 12.4

12-40