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innovations
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Managing Innovation and
Fostering Corporate
Entrepreneurship
Chapter Twelve
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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
12-2
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
12-3
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
industry’s life cycle Associated with differentiation strategies
12-4
Types of Innovation
Process innovations Improving efficiency of an organizational
process Manufacturing systems and operations More likely to occur in later stages of an
industry’s life cycle Associated with cost leader strategies
12-5
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
12-6
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
12-7
Types of Innovation
Incremental innovation Enhance existing practices Small improvements in products and
processes Evolutionary applications within existing
paradigms
12-8
Continuum of Radical and Incremental Innovations
12-9
Exhibit 12.1
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.
12-10
Challenges of Innovation
12-11
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
12-12
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
12-13
Internal versus External Staffing
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
12-14
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
12-15
Incremental versus Preemptive Launch
Incremental launch Less risky Requires few resources Can undermine the project’s credibility if too
tentative
Large-scale launch Requires more resources Can effectively preempt a competitive
response
12-16
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 firm’s domain of interest.
12-17
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?
12-18
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 time-consuming mistakes
12-19
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
12-20
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.
12-21
Collaborating with Innovation Partners
To choose partners, firms need to ask what competencies they are looking for and what the innovation partner will contribute.
Knowledge of markets
Technology expertise
Contacts with key players in an industry
12-22
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.
12-23
Factors affecting Entrepreneurial Ventures
The use of teams in strategic decision makingWhether the company is product or service
orientedWhether its innovation efforts are aimed at
product or process improvementsThe extent to which it is high-tech or low-tech
12-24
Rules for Fostering Innovation
12-25
Exhibit 12.3
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.
12-26
New Venture Groups
Involvement includes Innovation and experimentation Coordinating with other corporate divisions Identifying potential venture partners Gathering resources Launching the venture
12-27
Focused Approaches to Corporate Entrepreneurship
Business incubator supports and nurtures
fledgling entrepreneurial ventures until they can thrive on their own as stand-alone businesses.
12-28
Business Incubators
Incubators provide some or all of the following functions Funding Physical space Business services Mentoring Networking
12-29
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
Entrepreneurial culture, Product champions
12-30
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
12-31
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
12-32
Measuring the Success of Corporate Entrepreneurship Activities
Comparing strategic and financial CE goals1. Are the products or services offered by the
venture accepted in the marketplace?
2. Are the contributions of the venture to the corporation’s internal competencies and experience valuable?
3. Is the venture able to sustain its basis of competitive advantage?
12-33
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.
12-34
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.
12-35
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
12-36
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
12-37
Dimensions of EntrepreneurialOrientation
12-38
Exhibit 12.4