Chapter Thirteen

Strategic Entrepreneurship and

Innovation

Department of Management
Hang Seng University
 Last Week Review
Why organisational structure matters?
 Optimal organisational structure leads to effective strategy
(demonstrated / measured by organisational control)
Business-level strategy Diversification strategy International strategy
Cost Differentiat Integrated Related Related Unrelated Multi- Global Trans-
leadership ion constrained linked domestic national
Functional structure Multidivisional structure
HHH LLL MMM Cooperative SBU Competitive Worldwide Worldwide Hybrid
(Financial) (Strategic) (Both) (Strategic) (SBU: (Financial) geographic product
Financial; area divisional
division:
Strategic)

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 Learning Objectives
 Define strategic entrepreneurship and corporate entrepreneurship.
 Define entrepreneurship and entrepreneurial opportunities and explain
their importance.
 Define invention, innovation, and imitation, and describe the
relationship among them.
 Describe entrepreneurs and the entrepreneurial mind-set.
 Describe how firms internally develop innovations.
 Explain how firms use cooperative strategies to innovate.
 Describe how firms use acquisitions as a means of innovation.
 Explain how strategic entrepreneurship helps firms create value.

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What is entrepreneurship?

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 Entrepreneurship
 Entrepreneurship: the process by which individuals or
organisations identify and exploit entrepreneurial opportunities
without being immediately constrained by the resources they
currently control.
 ‘Creative destruction’ of existing and replacement of
new products or methods of production
 One of the major economic engines driving economic
growth, creating employment and generating
prosperity in the global competitive landscape

Joseph Schumpeter
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Photo Sources: Wikipedia
 Entrepreneurial Opportunities
 Entrepreneurial Opportunities: conditions in which new
products or services can satisfy a need in the market
 Existence due competitive imperfections in markets and among the
factors of production, while others not recognising the potential.
 Opportunity exploration versus opportunity exploitation

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 Entrepreneurs
 Entrepreneurs: Individuals acting independently or as part of
an organisation, who see an entrepreneurial opportunity and
then take risks to develop an innovation to exploit it.
 Identify opportunities not perceived by others
 Take actions to exploit the opportunities
 Entrepreneurial Mindset values uncertainty in the
marketplace and seeks to continuously identify opportunities
with the potential to lead to important innovations.

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 Entrepreneurial Characteristics
 Highly motivated and optimistic
 Passionate and emotional about the value and importance of their
innovation-based ideas
 More alert to opportunities than others
 Emphasised in execution
 Willing to take responsibility for their projects
 Able to deal with uncertainty (e.g. risk propensity)

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 Corporate Entrepreneurship
 Corporate entrepreneurship: the use or application of
entrepreneurship within an established firm
 Risk takers committed to innovation
 Proactive in creating opportunities rather than waiting to respond to
opportunities created by others
 Strategic Entrepreneurship: Taking entrepreneurial actions
from a strategic perspective to create wealth

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 What is Entrepreneurship

Entrepreneurial … or Within a firm

Mindset (corporate
entrepreneurship)

Entrepreneurial
Opportunities

Individually…
Entrepreneur

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Photo Sources: twitter.com; flickr.com; forbes.com; blinkassociates.com
 Entrepreneurship and Innovation
Then how do firms explore and exploit entrepreneurial
opportunities?
 Innovation: means by which the entrepreneur either creates
new wealth-producing resources or endows existing resources
with enhanced potential for creating wealth.
 “Specific function of entrepreneurship”
 Source of competitive success, especially in turbulent and highly
competitive environment.

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 Innovative Activities: Three I’s

• The act of creating or developing a new product

Invention
or process
• Brings something new into being
• Technical criteria are used to determine the
success of an invention

Photo Source: Wikipedia

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 Innovative Activities: Three I’s

• The process of creating a commercial product

Invention from an invention
• Brings something new into use
• Key outcome firms seek through entrepreneurship
Innovation • The source of competitive success
• Commercial criteria are used
to determine the success of
an innovation.

Photo Source: Wikipedia

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 Innovative Activities: Three I’s

Invention

• The adoption of an innovation by similar firms

Innovation • Product or process standardisation within
industries
• Products based on imitation often are offered at
lower prices but with fewer features
Imitation
Photo Source: marketingland.com
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How do firms innovate?

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 Internal Innovation
 Internal corporate venturing: the set of activities to develop
internal inventions and innovations, selecting from several
types of innovation and the specific processes through which
each type is produced
 R&D spending linked to success in internal corporate venturing
 Uncertain investment and often not achieved in short-term
 Incremental versus radical innovation

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 Internal Innovation
 Incremental innovation: building on existing knowledge
bases and providing small increments in current product lines
 Radical innovation: generating significant technological
breakthroughs and creating new knowledge

Which innovation is more likely to happen in firms?

Which innovation can create value?

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 Incremental Versus Radical Innovation

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 Autonomous Strategic Behaviour
 Autonomous Strategic Behaviour: a bottom-up process in
which product champions pursue new ideas and develop and
coordinate the commercialisation of a new good or service
until it achieves success in the marketplace.
 Product Champion: an individual with an entrepreneurial vision of a
new good or service who seeks to create support for the vision’s
commercialisation
 Often achieved through product champion’s informal networks and
social capital and firm’s technological capabilities and resources

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 Induced Strategic Behaviour
 Induced Strategic Behaviour: a top-down process whereby
the firm’s current strategy and structure foster product
innovations.
 The strategy in place is filtered through a matching structural
hierarchy.
 It results in internal innovations that are consistent with the firm’s
current strategy.

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Autonomous Versus Induced Strategic Behaviour

Radical Incremental
Innovation Innovation

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 Value Creation Through Internal Venturing
 Entrepreneurial start-ups
 Possessing strategic flexibility and willingness to take risks
 More radical innovation
 Well-established firms
 Possessing more resources and capabilities to exploit identified
opportunities
 More incremental innovation

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 Cross-Functional Product Development Teams
 Cross-functional product development teams facilitate
integration of activities associated with different organisational
functions.
 Products can be more easily (and hence quickly)
commercialised when cross-functional teams
work effectively.

Cross-functional
Product Development
Team

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Barriers to Cross-Functional Teams Effectiveness
 Different orientations and perceptions: individuals from
separate functions have different orientations on issues.
 Differing approaches to product development activities
 Organisational Politics: aggressive competition for resources
among different organisational functions.
 Shared values, effective leadership and communication integrate
functional units and mitigate organisational politics.

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 Other Innovative Approaches
 Innovation though cooperative strategies: sharing knowledge
and skills with partners (e.g., collaborative advantage)
 Entrepreneurial firms need investment capital and distribution
capabilities.
 Established companies need the technological knowledge
possessed by entrepreneurial firms.
 Innovation though acquisition: acquiring the knowledge and
capabilities from the target firms
 Rapid extension of product line and increase in firm’s revenue
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Value Creation Through Strategic Entrepreneurship
 Be flexible and willing to take risks
 Identify and exploit opportunities with sufficient resources and
capabilities to launch strategic actions
 Sustain a competitive advantage while identifying and exploiting
opportunities.
 Foster an entrepreneurial mind-set among managers and employees.
 Emphasise resource management, particularly human capital and
social capital.
 Seek to enter and compete in international markets.

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Where does entrepreneurial capital
come from?

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 Venture Capital Firm
 Venture capital (VC) firms are institutions which invest in
companies in exchange for equity in the companies they
invest in, which usually have a novel technology or business
model in high technology industries.
 Seeking high returns on investment
 Consideration of the expected scope of competitive rivalry.
 Evaluation of the degree of instability in the market addressed.

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 SoftBank

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Photo Sources: wikipedia
 Initial Public Offerings
 Initial Public Offerings (IPOs) are new stock priced to reflect
the firm’s high potential.
 Often yield much larger equity investments than can be obtained
from venture capitalists.
 Investment bankers frequently play major roles in the development
and offering of IPOs.
 Firms that have previously received venture capital backing usually
receive greater returns from IPOs.

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 NASDAQ

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Photo Sources: wikipedia