1. ©2003 Southwestern Publishing Company 1 Strategic Entrepreneurship Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Chapter 13

2. 2 Strategy Implementation Chapter 11 Chapter 11 Organizational Structure and Structure and Controls Chapter 10 Chapter 10 Corporate Governance Chapter 12 Chapter 12 Strategic Leadership Strategy Formulation Strategic Competitiveness Above-Average Returns Strategic Intent Strategic Intent Strategic Mission Strategic Mission Chapter 2 Chapter 2 The External The External Environment Chapter 3 Chapter 3 The Internal The Internal Environment The Strategic Management Process Feedback Strategic Inputs Strategic Actions Strategic Outcomes Chapter 13 Chapter 13 Strategic Entrepreneurship Chapter 6 Chapter 6 Corporate- Level Strategy Level Strategy Chapter 9 Chapter 9 Cooperative Strategy Chapter 5 Chapter 5 Competitive Rivalry Competitive Rivalry and Competitive and Competitive Dynamics Chapter 8 Chapter 8 International Strategy Chapter 4 Chapter 4 Business-Level Strategy Chapter 7 Chapter 7 Acquisition and Acquisition and Restructuring Strategies

3. 3 Strategic Entrepreneurship Strategic entrepreneurship: taking entrepreneurial actions using a strategic perspective 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 These actions can be taken by individuals or by corporations

4. 4 Entrepreneurial Opportunities Entrepreneurial opportunities are conditions in which new products or services can satisfy a need in the market 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: Entrepreneurs or entrepreneurial managers must be able to: –identify opportunities not perceived by others –take actions to exploit the opportunities –establish a competitive advantage

5. 5 Innovation Innovation is the process of creating a commercial product from an invention Innovation is the process of creating a commercial product from an invention –invention brings something new into being – innovation brings something new into use Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success 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 Innovations produced in large established firms are often referred to as corporate entrepreneurship

6. 6 Entrepreneurs Entrepreneurs are: 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 Entrepreneurs –can be independent individuals –can surface in an organization at any level

7. 7 International Entrepreneurship Entrepreneurship can 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 There is a strong positive relationship between the rate of entrepreneurial activity and economic development in a nation

8. 8 International Entrepreneurship There must be a balance (in the culture) between There must be a balance (in the culture) between –individual initiative and –the spirit of cooperation and group ownership of innovation Successful entrepreneurial firms Successful entrepreneurial firms –provide appropriate autonomy –incentives for individual initiative –promote cooperation and group ownership of an innovation

9. 9 Innovation Types: most innovations are incremental most innovations are incremental builds on existing knowledge bases builds on existing knowledge bases provides small improvements in the current product lines provides small improvements in the current product lines Incrementalinnovation Incremental Innovation

10. 10 Radicalinnovation Innovation Types provides significant technological breakthroughs provides significant technological breakthroughs creates new knowledge creates new knowledge is rare because of difficulty and risk is rare because of difficulty and risk requires substantial creativity requires substantial creativity radical innovations are often best developed in separate units that start internal ventures radical innovations are often best developed in separate units that start internal ventures Incrementalinnovation Radical Innovation

11. 11 Internal Corporate Venturing Concept of corporate strategy Strategic context Autonomousstrategicbehavior Structural context Inducedstrategicbehavior

12. 12 Internal Corporate Venturing: Autonomous strategic behavior is a bottom-up process in which product champions: 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

13. 13 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 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 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

14. 14 Induced strategic behavior is a top-down process whereby 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

15. 15 To be innovative and develop internal ventures requires To be innovative and develop internal ventures requires –an entrepreneurial mindset –risk propensity –an emphasis on execution Individuals with an entrepreneurial mindset 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

16. 16 Cross-Functional Product Development Teams facilitate efforts to integrate activities associated with different organizational functions facilitate efforts to integrate activities associated with different organizational functions design, manufacturing, marketing, etc. design, manufacturing, marketing, etc. new product development processes can be completed more quickly new product development processes can be completed more quickly products can be more easily commercialized when cross- functional teams work effectively products can be more easily commercialized when cross- functional teams work effectively Cross functional product development team

17. 17 Cross-Functional Product Development Teams product development stages are grouped into parallel or overlapping processes product development stages are grouped into parallel or overlapping processes this approach allows the firm to tailor its product development efforts this approach allows the firm to tailor its product development efforts –unique core competencies –needs of the market Cross functional product development team

18. 18 Barriers to Cross-Functional Team Effectiveness Different orientations and perceptions Different orientations and perceptions –individuals from separate functions have different orientations on issues –perceive product development activities in different ways Organizational politics Organizational politics –aggressive competition for resources among different organizational functions –must achieve cross-functional integration with minimal political conflict

19. 19 Creating Value Through Internal Innovation Processes Creating value through innovation Entrepreneurialmindset Cross functional product development teams Facilitating integration and innovation Shared ValuesShared Values EntrepreneurialEntrepreneurialLeadership

20. 20 Cooperative Strategies for Entrepreneurship and Innovation Firms may need to cooperate and integrate knowledge and resources to successfully commercialize inventions 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 To innovate through a cooperative relationship, firms must share their knowledge and skills

21. 21 Acquisitions to Buy Innovation Acquisitions 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 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

22. 22 Loss of Innovative Capability Following Large Acquisitions Firm Minus Industry R&D Intensity Years Before and After Acquisitions 0 2 4-2-4 AfterBefore -.012 -.010 -.008 -.006 -.004 -.002 -.000

23. 23 Loss of Innovative Capability Following Large Acquisitions Years Before and After Acquisitions 0 2 4-2-4 AfterBefore Patent Intensity.018.020.022.024.026.030.032.028

24. 24 Capital for Entrepreneurial Ventures Venture capital firms 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

25. 25 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