McGraw-Hill/Irwin Strategic Management, 10/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Control, Innovation, and Entrepreneurship Session 23

13-2 Learning Objectives Describe and illustrate four types of strategic control. Summarize the balanced scorecard approach and how it integrates strategic and operational control. Summarize the difference between incremental and breakthrough innovation. Explain what is meant by continuous improvement and how it contributes to incremental innovation Evaluate the risks associated with an incremental versus a breakthrough approach to innovation. Describe the three key elements of the entrepreneurship process. Explain intrapreneurship and how to enable it to thrive.

13-3 Establishing Strategic Controls Strategic control is concerned with tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments Characterized as a form of “steering control”

13-4 Premise Control Premise control is designed to check systematically and continuously whether the premises on which the strategy is based are still valid Environmental factors Industry factors

13-5 Strategic Surveillance Strategic surveillance is designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy Strategic surveillance must be kept as unfocused as possible Despite its looseness, strategic surveillance provides an ongoing, broad-based vigilance in all daily operations

13-6 Special Alert Control A special alert control is the thorough, and often rapid, reconsideration of the firm’s strategy because of a sudden, unexpected event A drastic event should trigger an immediate and intense reassessment of the firm’s strategy and its current strategic situation Crisis teams Contingency plans

13-7 Implementation Control Strategy implementation takes place as series of steps, programs, investments, and moves that occur over an extended time Implementation control is designed to assess whether the overall strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy –Monitoring strategic thrusts –Milestone reviews

13-8 Balanced Scorecard Methodology An alternative approach linking operational and strategic control, developed by Harvard Business School professors Robert Kaplan and David Norton, is a system they names the balanced scorecard system (not only a measurement system) that enables companies to clarify their strategies, translate them into action, and provide meaningful feedback

13-9 Integrating Shareholder Value and Organizational Activities across Organizational Levels

13-10 Balanced Scorecard Four perspectives: 1.The learning and growth perspective: How well are we continuously improving and creating value? 2.The business process perspective: What are our core competencies and areas of operational excellence? 3.The customer perspective: How satisfied are our customers? 4.The financial perspective: How are we doing for our shareholders?

13-11 Innovation Invention is the creation of new products or processes through the development of new knowledge or from new combinations of existing knowledge Innovation is the initial commercialization of invention by producing and selling a new product, service, or process –Product innovation –Service innovation –Process innovation

13-12 Incremental Innovation Incremental innovation refers to simple changes or adjustments in existing products, services, or processes Continuous improvement, what in Japanese is called kaizen, is the process of relentlessly trying to find ways to improve and enhance a company’s products and processes from design through assembly, sales, and service

13-13 Incremental Innovation Toyota’s CCC21: construction of cost competitiveness for the 21st century Six Sigma is a rigorous and analytical approach to quality and continuous improvement with an objective to improve profits through defect reduction, yield improvement, improved consumer satisfaction, and best-in-class performance

Essential Elements that Lead to Incremental Innovation 1.Define quality and customer value 2.Develop a customer orientation 3.Focus on the company’s business processes 4.Develop customer and supplier partnerships 5.Take a preventive approach 6.Adopt an error-free attitude 7.Get the facts first 8.Encourage every manager and employee to participate 9.Create an atmosphere of total involvement 10.Strive for continuous improvement

13-15 Breakthrough Innovation A breakthrough innovation is an innovation in a product, process, technology, or the cost associated with it that represents a quantum leap forward in one or more of those ways Breakthrough approaches to innovation are inherently more risky than incremental innovation approaches

13-16 Risks Associated with Innovation Innovation involves creating something that doesn’t now exist Long odds for success Market risk Technology risk

13-17 Idea Factors Need spotting Solution spotting Mental inventions Random events Market research Trend following

13-18 Treacy’s Useful Points about Managing Risks The point of innovation is growth Get the most from the minimum innovation Incremental product innovations can lock in existing customers Incremental business process innovations can generate more revenue gain or cost savings with less risk than radical ones Radical innovations are often too radical The time to launch breakthrough innovations is when they are essential to the marketplace

13-19 Ways to Lower Risk Product teams Cross-functional groups Joint ventures Cooperation with lead users “Do it yourself” innovation Acquiring innovation Outsourcing innovation

13-20 Entrepreneurship Entrepreneurship is the process of bringing together creative and innovative ideas and actions with the management and organizational skills necessary to mobilize the appropriate people, money, and operating resources to meet an identifiable need and create wealth in the process Inventors Promoters Administrators Entrepreneurs

13-21 Who Is the Entrepreneur?

13-22 Three Elements Central to Entrepreneurial Process 1.Opportunity 2.Entrepreneurial Teams 3.Resources

13-23 Resources 1.Debt financing is generally obtained from a commercial bank to pay for property, equipment, and maybe provide working capital 2.Equity financing is usually obtained from one or more of three sources: friendly sources, informal venture investors, or professional venture capitalists

13-24 Intrapreneurship Intrapreneurship, or entrepreneurship in large companies, is the process of attempting to identify, encourage, enable, and assist entrepreneurship within a large, established company so as to create new products, processes, or services that become major new revenue streams and sources of cost savings for the company

13-25 Pinchot’s 10 Freedom Factors 1.Self-selection 2.No hand-offs 3.The doer decides 4.Corporate “slack” 5.End the “home run” philosophy 6.Tolerance of risk, failure, and mistakes 7.Patient money 8.Freedom from turfness 9.Cross-functional teams 10.Multiple options