12

Managing Innovation and
Fostering Corporate Entrepreneurship

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Learning Objectives

• After reading this chapter, you should have a good understanding of:
• The importance of implementing strategies and practices that foster innovation.
• The challenges and pitfalls of managing corporate innovation processes.
• The role of product champions and exit champions in internal corporate venturing.
• How independent venture teams and business incubators are used to develop corporate ventures.

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Learning Objectives

• After reading this chapter, you should have a good understanding of:
• How corporations create an internal environment and culture that promotes entrepreneurial development.
• The benefits and potential drawbacks of real options analysis in making resource deployment decisions in corporate entrepreneurship contexts.
• How an entrepreneurial orientation can enhance a firm’s efforts to develop promising corporate venture initiatives.

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Question

What is one of the most important sources of growth opportunities?

A) The economy

B) Labor capital

C) Financial capital

D) Innovation

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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

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Example

• Some Companies, such as Apple, are always innovating popular products, while others are constantly struggling for their one great idea.
• 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

Source: “Getting to ‘Aha!’,” Business Week. September 4, 2006.

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Types of Innovation

• Degree of innovativeness
• Radical innovation
• Fundamental changes and breakthroughs
• Evoke major departures from existing practices
• Can be highly disruptive
• Can transform or revolutionize a whole industry
• 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 Continuum of Radical and Incremental Innovations

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Types of Innovation

• Product and process innovations
• Product innovation
• Efforts to create product designs
• Applications of technology to develop new products for end users
• More radical and common during early stages of an industry’s life cycle
• Associated with differentiation strategies

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Types of Innovation

• Product and process innovations
• Process innovations
• Improving efficiency of an organizational process
• Manufacturing systems and operations
• Can improve materials utilization
• Shorten cycle time
• Increase quality
• More likely to occur in later stages of an industry’s life cycle
• Associated with cost leader strategies

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Challenges of Innovation

• 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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Challenges of Innovation

• Experience versus initiative
• Deciding who will lead an innovation project
• Senior managers
• Have experience and credibility
• Tend to be more risk averse
• Midlevel employees
• May be the innovators themselves
• May have more enthusiasm

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Challenges of Innovation

• Internal versus external staffing
• Innovation projects need competent staffs to succeed
• People drawn from inside the firm
• May have greater social capital
• Know the organization’s 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

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Challenges of Innovation

• Building capabilities versus collaborating
• Innovation projects often require building new sets of skills
• 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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Challenges of Innovation

• Incremental versus preemptive launch
• Companies must manage the timing and scale of new innovation projects
• Incremental launch
• Less risky
• Requires few resources
• Serves as a market test
• Can undermine the project’s 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)
• 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?

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Managing the Pace of Innovation

• Firms need to regulate 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 time-consuming mistakes
• Strict timelines unrealistic

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Collaborating with Innovation Partners

• Innovation often requires collaborating with others who possess complementary knowledge and skills
• Partners can come from several sources
• Other personnel within the department
• Personnel within the firm but from another department
• Partners outside the firm
• Non-business sources, including research universities and the federal government

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Corporate Entrepreneurship

• Corporate culture
• Leadership
• Structural features that guide and constrain action
• Organizational systems that foster learning and manage rewards

• Use of teams in strategic decision making
• Whether the company is product or service oriented
• Whether the firm’s innovation efforts are aimed at product or process improvements
• The extent to which it is high-tech or low-tech

Determining

how

entrepreneurial projects will be pursued

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Focused Approaches to Corporate Entrepreneurship

Autonomous corporate venturing work group

• Autonomous corporate venturing (work) group
• Frees entrepreneurial team members from constraints imposed by existing norms and routines
• Facilitates open-minded creativity
• But, does isolate the group from the corporate mainstream
• New venture groups (NVGs)
• Business incubators

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New Venture Groups (NVGs)

• Goal is to identify, evaluate, and cultivate venture opportunities
• Typically function as semi-autonomous units with little formal structure
• Involvement includes
• Innovation and experimentation
• Coordinating with other corporate divisions
• Identifying potential venture partners
• Gathering resources
• Launching the venture

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Business Incubators

• Business incubators are designed to “hatch” new businesses
• Incubators provide some or all of the following functions
• Funding
• Physical space
• Business services
• Monitoring
• Networking

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Dispersed Approaches to
Corporate Entrepreneurship

• Dedication to principles and practices of entrepreneurship is spread throughout the firm
• Ability to change is a core capability
• Stakeholders can bring new ideas or venture opportunities to anyone in the organization
• Two related aspects of dispersed entrepreneurship
• Entrepreneurial culture
• Product champions

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Entrepreneurial Culture

• Culture of entrepreneurship
• Search for venture opportunities permeates every part of the organization
• Effect is strongest when it animates all parts of the organization
• Strategic leaders and the culture generate a strong impetus
• To innovate
• Take risks
• Seek out new venture opportunities

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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
• New project must pass two critical stages
• Project definition
• Project impetus

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Measuring the Success of Corporate Entrepreneurship Activities

• Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed
• Comparing strategic and financial CE goals
• Are the products or services offered by the venture accepted in the marketplace?
• Are the contributions of the venture to the corporation’s internal competencies and experience valuable?
• Is the venture able to sustain its basis of competitive advantage?

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Measuring the Success of Corporate Entrepreneurship Activities

• Techniques used to limit the expense of venturing or to cut losses when entrepreneurial initiatives (CE) appear doomed
• Exit champions
• Willing to question the viability of a venture project
• Demand hard evidence and challenge the belief system that is carrying an idea forward
• Hold the line on ventures that appear shaky
• Real options
• Managing the uncertainty associated with launching new ventures

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Real Options Analysis

• Real options analysis (ROA) is an investment tool from the field of finance.
• The phrase “real options” applies to situations where options theory and valuation techniques are applied to real assets or physical things as opposed to financial assets.
• Potential pitfalls include
• Agency theory and the back-solver dilemma
• Managerial conceit: overconfidence and the illusion of control
• Managerial conceit: irrational escalation of commitment

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Question

Discuss the traps that can affect decision makers. Have you experienced any of these?

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Entrepreneurial Orientation

Dimension Definition

Autonomy Independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion.

Innovativeness A willingness to introduce novelty through experimentation and creative processes aimed at developing new products and services as well as new processes.

Proactiveness A forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand.

Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91.

Adapted from Exhibit 12.3 Dimensions of Entrepreneurial Orientation

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Entrepreneurial Orientation

Dimension Definition

Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91.

Adapted from Exhibit 12.3 Dimensions of Entrepreneurial Orientation

Risk taking Making decisions and taking action without certain knowledge of probable outcomes; some undertakings may also involve making substantial resource commitments in the process of venturing forward.

Competitive An intense effort to outperform industry rivals. It is characterized by a combative posture or an aggressive response aimed at improving position or overcoming a threat in a competitive marketplace.

aggressiveness

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Entrepreneurial Orientation

• Autonomy
• Two techniques often used to promote autonomy
• Using skunkworks to foster entrepreneurial thinking
• Designing organization structures that support independent action
• Innovativeness
• Two methods used to enhance competitive position through innovativeness
• Fostering creativity and experimentation
• Investing in new technology, R&D, and continuous improvement

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Entrepreneurial Orientation

• Proactiveness
• Two methods to promote acting proactively
• Introducing new products or technological capabilities ahead of the competition
• Continuously seeking out new product or service offerings
• Competitive aggressiveness
• Two ways competitively aggressive firms enhance their entrepreneurial position
• Entering markets with drastically lower prices
• Finding successful business models and copying them.

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Entrepreneurial Orientation

• Risk taking
• Three types of risks faced by organizations and their executives
• Business risk taking
• Financial risk taking
• Personal risk taking
• Two methods to strengthen competitive position through risk taking
• Researching and assessing risk factors to minimize uncertainty
• Using techniques that have worked in other domains

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Example

• A design thinking approach can help you deal with risk.
• Here are seven ways to get started:
• Cultivate an unreasonable obsession with desirability
• Become more comfortable acting on your informed intuition
• Prototype, prototype, prototype
• Think big, but start small(er)
• Treat money as a positive constraint
• Make a list of the best things that could happen
• Seek challenges

Source: Rodriguea, Diego and Jacoby, Ryan. “Embracing Risk to Grow Innovation,” Business Week. May 16, 2007

12

Managing Innovation and
Fostering Corporate Entrepreneurship

11

Strategic Leadership:
Creating a Learning Organization
and an Ethical Organization

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Learning Objectives

• After reading this chapter, you should have a good understanding of:
• The three key activities in which all successful leaders must be continually engaged.
• The importance of recognizing the interdependence of the three key leadership activities, and the salience of power in overcoming resistance to change.
• The crucial role of emotional intelligence (EI) in successful leadership as well as its potential drawbacks.
• The value of creating and maintaining a “learning organization” in today’s global marketplace.

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Learning Objectives

• After reading this chapter, you should have a good understanding of:
• The five central elements of a “learning organization.”
• The leader’s role in establishing an ethical organization.
• The benefits of developing an ethical organization.
• The high financial and nonfinancial costs associated with ethical crises.

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Leadership: Three
Interdependent Activities

• Leadership is the process of transforming organizations from what they are to what the leader would have them become
• Leadership should be
• Proactive
• Goal-oriented
• Focused on the creation and implementation of a creative vision

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Leadership: Three
Interdependent Activities

Successful leaders must recognize three interdependent activities:

Adapted from Exhibit 11.1 Three Interdependent Activities of Leadership

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Setting a Direction

• Scan environment to develop
• Knowledge of all stakeholders
• Knowledge of salient environmental trends and events
• Integrate that knowledge into a vision of what the organization could become
• Required capacities
• Solve increasingly complex problems
• Be proactive in approach
• Develop viable strategic options

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Example

• DuPont’s vision statement is “to be the world's most dynamic science company, creating sustainable solutions essential to a better, safer and healthier life for people everywhere.”

Source: www.dupont.com

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Designing the Organization

• Difficulties in implementing the leaders’ vision and strategies
• Lack of understanding of responsibility and accountability among managers
• Reward systems that do not motivate individuals and groups toward desired organizational goals
• Inadequate or inappropriate budgeting and control systems
• Insufficient mechanisms to coordinate and integrate activities across the organization

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Nurturing a Culture

• In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives must
• Accept personal responsibility for developing and strengthening ethical behavior
• Consistently demonstrate that such behavior is central to the vision and mission
• Develop and reinforce
• Role models
• Corporate credos
• Codes of conduct
• Reward and evaluation systems
• Policies and procedures

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Overcoming Barriers to Change and the Effective Use of Power

• Reasons why organizations and managers at all levels are prone to inertia and slow to learn, adapt, and change
• Vested interests in the status quo
• Systemic barriers
• Behavioral barriers
• Political barriers
• Personal time constraints

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A Leader’s Bases of Power

Exhibit 11.2 A Leader’s Bases of Power

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Emotional Intelligence: A Key Leadership Trait

Accounting, business planning, etc.

Analytical reasoning, quantitative analysis, etc.

Ability to work with others, passion for work, etc.

Successful traits of leaders at the highest level

Technical skills

Cognitive abilities

Emotional intelligence

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Emotional Intelligence

• Five components of emotional intelligence
• Self-awareness
• Self-regulation
• Motivation
• Empathy
• Social skill

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Five Components of Emotional Intelligence at Work

Definition Hallmarks

Self-management skills:

• Self-awareness

• The ability to recognize and understand your moods, emotions, and drives, as well as their effect on others.

• Self-confidence
• Realistic self-assessment
• Self-deprecating sense of humor

• Self-regulation

• The ability to control or redirect disruptive impulses and moods.
• The propensity to suspend judgment—to think before acting.

• Trustworthiness and integrity
• Comfort with ambiguity
• Openness to change

Source: Adapted from D. Goleman, “What Makes a Leader,” Harvard Business Review, October-November 1998, p. 95 (with permission)

Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work

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Five Components of Emotional Intelligence at Work

Definition Hallmarks

Managing Relationships:

• Empathy

Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work

Self-management skills:

• Motivation

• A passion to work for reasons that go beyond money or status.
• A propensity to pursue goals with energy and persistence.

• Strong drive to achieve
• Optimism, even in the face of failure
• Organizational commitment

• The ability to understand the emotional makeup of other people.
• Skill in treating people according to their emotional reactions.

• Expertise in building and retaining talent
• Cross-cultural sensitivity
• Service to clients and customers

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Five Components of Emotional Intelligence at Work

Definition Hallmarks

Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work

Managing Relationships:

• Social Skill

• Proficiency in managing relationships and building networks.
• An ability to find common ground and build rapport.

• Effectiveness in leading change
• Persuasiveness
• Expertise in building and leading teams

Source: Adapted from D. Goleman, “What Makes a Leader,” Harvard Business Review, October-November 1998, p. 95 (with permission)

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Developing a Learning Organization

• Successful learning organizations
• Create a proactive, creative approach to the unknown
• Actively solicit the involvement of employees at all levels
• Enable all employees to use their intelligence and apply their imagination
• Learning environment
• Organization-wide commitment to change
• An action orientation
• Applicable tools and methods
• Guiding philosophy
• Inspired and motivated people with a purpose

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Key Elements of a
Learning Organization

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Key Elements of a
Learning Organization

• Empowering employees at all levels
• Salient elements of empowerment
• Start at the bottom by understanding needs of employees
• Teach employees skills of self-management
• Build teams to encourage cooperative behavior
• Encourage intelligent risk taking
• Trust people to perform

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Question

Do you agree with this statement by Ken Melrose, “the great leader is a great servant”?

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• Accumulating and sharing internal knowledge
• “Open book” management
• Numbers on each employee’s work performance and production costs generated daily
• Information is aggregated once a week from top level to bottom level
• Extensive training in how to use and interpret the numbers – how to understand balance sheets, cash flows and income statements

Key Elements of a
Learning Organization

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Key Elements of a
Learning Organization

• Gathering and integrating external information
• Awareness of environmental trends and events
• Internet accelerates the speed with which useful information can be located
• “Garden variety” traditional sources for acquisition of external information
• Benchmarking
• Focus directly on customers for information

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Key Elements of a
Learning Organization

• Challenging the status quo and enabling creativity
• Challenging the status quo
• Create a sense of urgency
• Establish a “culture of dissent”
• Foster a culture that encourages risk taking
• Cultivate culture of experimentation and curiosity

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Creating An Ethical Organization

• Organizational ethics is a direct reflection of its leadership
• Unethical business practices
• Involves tacit, if not explicit, cooperation of others
• Reflect the values, attitudes, and behavior pattern that define the organization’s operating culture
• Driving forces of ethical organizations
• Ethical values
• Integrity

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Example

• In order to avoid unethical business practices, you should never do the following:

Suppress information that might damage your reputation.

Deny charges that are relevant and factual.

Spend money for public relations or advertising to counter honest complaints.

Ignore problems with the products you sell.

Refuse to accept blame.

Source: Gerson, Vicki. “Avoiding Unethical Business Practices,” www.nfib.com. February 21, 2003.

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Creating An Ethical Organization

• Ethical values
• Shape the search for opportunities
• Shape the design organizational systems
• Shape the decision-making process used by individuals and groups
• Provide a common frame of reference that serves as a unifying force

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Integrity-Based versus Compliance-Based Approaches to Organizational Ethics

• Essential links between organizational integrity and individual integrity
• Cannot be high-integrity organizations without high-integrity individuals
• Individual integrity is rarely self-sustaining
• Organizational integrity, resting on a concept of
• Purpose
• Responsibility
• Ideals

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Question

Integrity-based ethics programs combines a concern for law with an ______.

A) emphasis on the proper use of managerial power

B) emphasis on legal consequences of unethical behavior

C) emphasis on managerial responsibility for ethical behavior

D) emphasis on social responsibility for ethical behavior

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Approaches to Ethics Management

Characteristics Compliance-Based Integrity-Based

Approach Approach

Ethics Conformity with externally Self-governance according to

imposed standards chosen standards

Objective Prevent criminal Enable responsible conduct

misconduct

Leadership Lawyer-driven Management-driven with aid of

lawyers, HR, and others

Source: L. S. Paine, “Managing for Organizational Integrity,” Harvard Business Review 72, no. 2 (1994), p. 113 (with permission).

Adapted from Exhibit 11.6 Approaches to Ethics Management

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Approaches to Ethics Management

Characteristics Compliance-Based Integrity-Based

Approach Approach

Source: L. S. Paine, “Managing for Organizational Integrity,” Harvard Business Review 72, no. 2 (1994), p. 113 (with permission).

Adapted from Exhibit 11.6 Approaches to Ethics Management

Methods Education, reduced Education, leadership,

discretion, auditing and accountability, organizational

controls, penalties systems and decision

processes, auditing and controls, penalties

Behavioral Autonomous beings Social beings guided by

Assumptions guided by material material self-interest, values,

self-interest ideals, peers

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Key Elements of Highly
Ethical Organizations

• These interrelated elements must be present and constantly reinforced
• Role models
• Corporate credos and codes of conduct
• Reward and evaluation systems
• Policies and procedures

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Key Elements of Highly
Ethical Organizations

• Role Models
• Leaders are role models for their organizations
• Leaders must be consistent in their words and deeds
• Values and character of leaders become transparent to an organization’s employees
• Effective leaders take responsibility for ethical lapses within the organization

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Key Elements of Highly
Ethical Organizations

• Corporate credos and codes of conduct
• Provide a statement and guidelines for norms, beliefs and decision making
• Provide employees with clear understanding of the organizations position regarding employee behavior
• Provide the basis for employees to refuse to commit unethical acts
• Contents of credos and codes of conduct must be known to employees

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Key Elements of Highly
Ethical Organizations

• Reward and evaluation systems
• Inappropriate reward systems may cause individuals at all levels of the organization to commit unethical acts that they might not otherwise do
• Penalties in terms of damage to reputations, human capital erosion, and financial loss are typically much higher than any gains that could be obtained through such unethical behavior

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Key Elements of Highly
Ethical Organizations

• Policies and procedures
• Policies and procedures can specify proper relationships with a firm’s customers and suppliers
• Policies and procedures can guide employees to behavior ethically
• Policies and procedures must be reinforced
• Effective communication
• Enforcement
• Monitoring
• Sound corporate governance practices

11

Strategic Leadership:
Creating a Learning Organization
and an Ethical Organization