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Strategy Management …

Strategy Management
Robert E. Hoskisson; Michael A. Hitt; R. Duane Ireland

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  • Strategic Entrepreneurship Supplemental instructor notes are provide for three topic associated with this chapter: • Why do we study and pay so much attention to entrepreneurship? (see slide titled “ Strategic Entrepreneurship”) • Strategic entrepreneurship and innovation, including two thought provoking questions (see first slide titled “Internal Corporate Venturing”): 1. How many new ideas does my company need to screen so as to obtain a single commercial good or service? 2. How much capital does my company need to invest so as to obtain a single commercial good or service? • Cooperative strategies for entrepreneurship and innovation (see slide titled “Cooperative Strategies for Entrepreneurship and Innovation”) Note: For additional sources, see the Reference section in the text.
  • Strategic Entrepreneurship Why do we study and pay so much attention to entrepreneurship? (Clue: Not because we think that it is a sexy topic.) The Global Entrepreneurship Monitor (GEM) started in 1997 as a joint research of Babson College, London Business School, and the Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation. The long-term, multinational project included the G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) and Denmark, Finland and Israel. In 2000 the Global Entrepreneur Monitor project added 11 countries: Argentina, Australia, Belgium, Brazil, India, Ireland, South Korea, Norway, Singapore, Spain and Sweden. All in all, more than 42,000 individuals were surveyed and nearly 800 experts were interviewed around the globe. The key findings and implications for public policy were compelling: • Entrepreneurship is strongly associated with economic growth. All countries with high levels of entrepreneurial activity also have above average economic growth. Only a few high growth countries have low levels of entrepreneurial activity. (Continued on next slide.)
  • Entrepreneurial Opportunities Continued from previous slide. • Entrepreneurial activity differs significantly between countries. In Brazil, one of every eight adults is starting a business, whereas in the United States it is one in 10. In other countries: It is one in 25 in Germany and the United Kingdom; one in 50 in Finland and Sweden, and one in 100 in Ireland and Japan. There were also differences between countries in the prevalence of new firms. The rates range from 9% in South Korea to less than .5% in Japan and Ireland. • Most firms are started and operated by men, with peak entrepreneurial activity among those aged 25–34. Men are twice as likely as women to be involved in entrepreneurial activity. The ratio of male to female entrepreneurs varies from 5:1 in Finland to less than 2:1 in Brazil and Spain. • Financial support, particularly from nonventure capitalists, is highly associated with entrepreneurial activity. Venture capital investments in 1999 ranged from 52% of Gross Domestic Product (GDP) in the United States to 2.2% in Japan. The average amount invested per company ranged from slightly more than $13 million in the United States to less than $1 million in many other countries. Total private investments in U.S. entrepreneurial companies in 1999 was over $63 billion, which is substantially more than the $46 billion invested in start-ups by venture capitalists. Thus, the informal private investments in emerging and new businesses dwarf the more formal venture capital outlays. (Continued on next slide.)
  • Innovation Continued from previous slide. • Education plays a vital role in entrepreneurship. If the level of participation in postsecondary education were the only factor used to predict entrepreneurial activity, it would account for 40% of the difference between Global Entrepreneur Monitor countries. The experts interviewed in each of the 21 nations noted that providing entrepreneurship education should be a top priority. • Policies geared toward boosting entrepreneurial activity should not be confined to the entrepreneurship sector per se. Countries with higher levels of entrepreneurial activity are characterized by lower levels of corporate and marginal personal income tax rates. The most entrepreneurially active countries also have a greater ease of doing business, more flexible labor markets, and lower levels of nonwage labor costs. • The perceived social legitimacy of entrepreneurship makes a difference. Countries with high entrepreneurial activity also enjoyed stronger social legitimacy for entrepreneurship. Measure of social legitimacy included such indicators as (a) the extent to which fear of failure acts as a deterrent to starting a new firm; and (b) respect for those starting new firms. To recap, improvements in our standard of living depend to a remarkable degree on the success of industrial innovations, which is highly related to entrepreneurship. The promotion of entrepreneurship, its role in society and the opportunities it presents for personal gain, appear to be critical for facilitating economic growth. Source: Reynolds, P.D., et al. 2002. Global Entrepreneur Monitor . London Business School and Babson College. (http://www.entreworld.org/Bookstore/PDFs/Global Entrepreneur Monitor2001/Global Entrepreneur Monitor2001_ExpandedResearchReport.pdf)
  • Internal Corporate Venturing Strategic Entrepreneurship and Innovation While imitation is one of the sweetest complements to incumbents, entrepreneurs and strategists become successful innovators when they have the ingenuity and courage to originate—not imitate. How many new ideas does my company need to screen so as to obtain a single commercial good or service? The answer, of course, will vary across industry domains and market segments, but research suggests that it takes about 3,000 raw ideas to produce one substantially new commercially successful product. To give more concrete examples, Stevens and Burley (1997) noted that drug companies typically require a higher number of starting ideas (north of 8,000 ideas) for every successful commercial new product. Alternatively, if a company is developing product line extensions, instead of substantially new products, then fewer ideas are needed for each commercial success. (Continued on next slide.) Source: Stevens, G.A. and & Burley, J. 1997. 3,000 raw ideas equal 1 commercial success! Research Technology Management 40(3):16-27.
  • Internal Corporate Venturing Autonomous Strategic Behavior Continued from previous slide. How much capital does my company need to invest so as to obtain a single commercial good or service? Again, the answer varies across industry domains and market segments, but recent studies reports that among publicly traded pharmaceutical companies, the average cost of launching a new prescription drug is between $250 million and $802 million (Shulman, 1999; Tufts Center for the Study of Drug Development (CSDD), 2002). The CSDD suggests that a single daylong delay during FDA’s Phase I of new product application carries direct out-of-pocket expenditures of approximately $30,000 and that, for an average product, a single daylong interruption results in approximately $1.3 million in lost prescription sales. Additionally, only a few drugs account for much of companies’ revenues, which disproportionately punish companies unable to keep up with the race to innovation. Finally, despite blockbuster successes, most drugs and related products fail to reach their intended markets or to generate market interest. Thus, the innovation journey from lab bench to marketplace is characterized by tremendous peril and dead ends.
  • Cooperative Strategies for Entrepreneurship and Innovation (p. 386) Incremental and Radical Innovation What can companies, struggling to steer through these troublesome times, do to thrive? Recently, Gary Hamel said in Fortune that when signs of shaken confidence abound, when consumers are keeping their wallets shut, when layoffs are accelerating, when profits are evaporating, it is clear that the boom times of the 1990s are truly over. In such circumstances, retrenchment is a natural instinct. Yet retrenchment cannot be the only answer to the current crisis. If there is one essential quality that underpins success in a world of stupefying change, it is resilience: the capacity to adapt to radically new circumstances and emerge from a crisis not merely unbroken but substantially stronger. Hamel explains that there is a reason that many Industrial Age Paragons, from AT&T to Coca-Cola to Motorola to Intel, are struggling to adapt to a world where change is changing, and changing fast. Most companies are much betterat optimization than they are at rule-breaking, game-changing strategies leading to innovation. Optimization and incremental innovation are wired into incumbents’ metrics, woven into their management processes, and into their compensation criteria. Radical innovation, experimentation, and creativity are tolerated when safely corralled in R&D or product-development units, or locked up inside of incubators and new venture divisions, but they are seldom full-throated rivals to optimization. Put simply, most companies do not do paradox well. To succeed, therefore, firms must embrace paradox wholeheartedly and unreservedly; to be single-minded about nothing. This lopsided enthusiasm for incrementalism was forgivable, Hamel says, when change meandered rather than lurched. But in a discontinuous competitive space, an inability to manage the paradox of optimization and innovation leads to failure. The recipe for such failure is simple: pour ever more energy into optimizing what is already there. To thrive in turbulent times, a company must do more than retrench: It must give customers new and compelling reasons to buy; it must reinvent its cost structure; it must build new growth platforms, and leverage on its competencies and assets. And to do all of that, it must use innovation. Through the eons, cataclysmic change has always accelerated the pace of innovation. The unprecedented challenges that now face companies will, likewise, dramatically accelerate organizational evolution. Incumbents, already challenged by disruptions of technology, more powerful customers, relentless margin pressure, and a horde of unorthodox newcomers, will in the next few years give way to companies with entrepreneurial mindset. What will the entrepreneurial mindset company look like? A few things are certain: It will balance optimization and innovation, focus and experimentation, discipline and passion, evolution and revolution. Accommodating these paradoxes will require ambidextrous strategists. Source: Hamel, G. 2001. What CEOs can learn from America. In these turbulent times, business should turn to a 225-year-old teacher. Fortune . October 28 (http://www.fortune.com/fortune/articles/0,15114,370431,00.html)
  • (Note: these references refer to work cited on slide titled “Cooperative Strategies for Entrepreneurship and Innovation”) References GEM Report: http://www.entreworld.org/Bookstore/PDFs/GEM2001/GEM2001_ExpandedResearchReport.pdf Greg A Stevens & James Burley, 1997. 3,000 raw ideas equals 1 commercial success! Research Technology Management, 40(3): 16-27. Hamel, G. 2001. What CEOs Can Learn From America. In these turbulent times, business should turn to a 225-year-old teacher. Fortune. October 28, 2001 http://www.fortune.com/fortune/articles/0,15114,370431,00.html

Transcript

  • 1. Strategic Entrepreneurship Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 12
  • 2. Chapter 2 Strategic Leadership Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 1 Introduction to Strategic Management Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process
  • 3. Discussion Questions
    • What is strategic entrepreneurship and why is it important?
    • What are the two major types of innovation?
    • What are the two central processes associated with internal corporate venturing?
    Click Here Click Here Click Here Click Here More discussion questions
  • 4. Discussion Questions (cont.)
    • Will horizontal organization in general and cross-functional teams in particular facilitate appropriation of value from innovation?
    • Are strategic alliances a viable way to get innovations? What are the tradeoffs with strategic entrepreneurship through alliances?
    Click Here Click Here Click Here More discussion questions
  • 5. Discussion Questions (cont.)
    • How do acquisitions affect innovative inputs (R&D) and outputs (patents)? How does a firm prevent innovation problems associated with the acquisition process?
    • How can venture capital be used as an external approach to strategic entrepreneurship?
    Click Here Click Here
  • 6. Discussion Question 1
    • What is strategic entrepreneurship and why is it important?
  • 7. 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
    • These actions can be taken by individuals or by corporations
  • 8. Entrepreneurial Opportunities
    • Entrepreneurial opportunities are 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
  • 9. Innovation
    • Three types of innovative activity
      • invention brings something new into being
      • innovation brings something new into use
      • imitation is the adoption of an innovation by similar firms
    • Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success
    • Innovations produced in large established firms are often referred to as corporate entrepreneurship
  • 10. Entrepreneurs
    • Entrepreneurs are:
      • individuals acting independently or as part of an organization
      • who create a new venture or develop an innovation and take risks entering them into the marketplace
    • Entrepreneurs
      • can be independent individuals
      • can surface in an organization at any level
  • 11. 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
  • 12. 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
      • incentives for individual initiative
      • promote cooperation and group ownership of an innovation
    Click Here Return to Discussion Questions
  • 13. Discussion Question 2
    • What are the two major types of innovation?
  • 14. Innovation Types:
    • most innovations are incremental
    • builds on existing knowledge bases
    • provides small improvements in the current product lines
    Incremental Innovation Incremental innovation
  • 15. Innovation Types
    • provides significant technological breakthroughs
    • creates new knowledge
    • is rare because of difficulty and risk
    • requires substantial creativity
    • radical innovations are often best developed in separate units that start internal ventures
    Radical Innovation Click Here Return to Discussion Questions Radical innovation Incremental innovation
  • 16. Discussion Question 3
    • What are the two central processes associated with internal corporate venturing?
  • 17. Internal Corporate Venturing Concept of corporate strategy Strategic context Autonomous strategic behavior Structural context Induced strategic behavior
  • 18. Internal Corporate Venturing:
    • Autonomous strategic behavior is 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
    Autonomous Strategic Behavior
  • 19.
    • A product champion is an organizational member with an entrepreneurial vision of a new good or service who seeks to create support for its commercialization
    • Autonomous strategic behavior
      • based on a firm’s wellsprings of knowledge and resources that are the sources of the firm’s innovation
      • a firm’s technological capabilities and competencies are the basis for new products and processes
    Internal Corporate Venturing: Autonomous Strategic Behavior
  • 20.
    • Induced strategic behavior is a top-down process whereby
      • the firm’s current strategy and structure foster product innovations
      • innovations are associated closely with that strategy and structure
    Internal Corporate Venturing: Induced Strategic Behavior
  • 21.
    • 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
    Internal Corporate Venturing: Induced Strategic Behavior Click Here Return to Discussion Questions
  • 22. Discussion Question 4
    • Will horizontal organization in general and cross-functional teams in particular facilitate appropriation of value from innovation?
  • 23. Cross-Functional Product Development Teams
    • facilitate efforts to integrate activities associated with different organizational functions
    • design, manufacturing, marketing, etc.
    • new product development processes can be completed more quickly
    • products can be more easily commercialized when cross-functional teams work effectively
    The Firm Cross functional product development team
  • 24. Cross-Functional Product Development Teams
    • product development stages are grouped into parallel or overlapping processes
    • this approach allows the firm to tailor its product development efforts
      • unique core competencies
      • needs of the market
    The Firm Cross functional product development team
  • 25. Barriers to Cross-Functional Team 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
  • 26. Creating Value Through Internal Innovation Processes Click Here Return to Discussion Questions Creating value through innovation Entrepreneurial mindset Cross functional product development teams
    • Facilitating integration
    • and innovation
      • Shared values
      • Entrepreneurial
      • Leadership
  • 27. Discussion Question 5
    • Are strategic alliances a viable way to get innovations? What are the tradeoffs with strategic entrepreneurship through alliances?
  • 28. Cooperative Strategies for Entrepreneurship and Innovation
    • Firms may need to cooperate and integrate knowledge and resources to successfully commercialize inventions
      • entrepreneurial new venture firms may need investment capital and distribution capabilities
      • more established companies may need new technological knowledge possessed by newer entrepreneurial firms
    • To innovate through a cooperative relationship, firms must share their knowledge and skills
    Click Here Return to Discussion Questions
  • 29. Discussion Question 6
    • How do acquisitions affect innovative inputs (R&D) and outputs (patents)? How does a firm prevent innovation problems associated with the acquisition process?
  • 30. Acquisitions to Buy Innovation
    • Acquisitions
      • rapidly extend the product line
      • increase the firm’s revenues
    • A key risk of acquisitions is that a firm may substitute the ability to buy innovations for an ability to produce innovations internally
      • firm may lose intensity in R&D efforts
      • firm may lose ability to produce patents
  • 31. Discussion Question 7
    • How can venture capital be used as an external approach to strategic entrepreneurship?
  • 32. Capital for Entrepreneurial Ventures
    • Venture capital firms
      • seek high returns on their investment
      • value 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 degree of instability in the market addressed
  • 33. Capital for Entrepreneurial Ventures
    • Initial public offerings (IPOs)
      • new stock
      • firm needs high potential in order to sell new stock
      • often quite larger than the amounts obtained from venture capitalists
      • investment bankers frequently play major roles in the development and offering of IPOs
      • firms that have also received venture capital backing usually receive greater returns from IPOs
  • 34. Creating Value Through Strategic Entrepreneurship
    • Newer entrepreneurial firms often are more effective than larger firms in identifying opportunities
    • Larger and well-established firms often have more resources and capabilities to exploit opportunities
    • Firms can be simultaneously entrepreneurial and strategic regardless of their size and age
  • 35. Creating Value Through Strategic Entrepreneurship
    • To be entrepreneurial firms must
      • develop an entrepreneurial mindset among managers and employees
      • emphasize the development of their resources, especially human and social capital
      • seek to enter and compete in international markets
    • Enterpreneurial firms can achieve competitive advantages and create value for their customers and shareholders