I will also discuss a complete entrepreneurial process of an entrepreneurial firm I had been part of, whilst working with company called Telcordia Technologies-Now part of Ericsson which is a pioneer in Telecommunication industries through its R&D , inventions , technologies and supporting software products. Historically this company is linked with father of Telephone - Graham Bell.
Telcordia was badly hit during financial crisis of 2007 which coincided with the strategic shift, which brought the company on the brink of closure in the region however circumstance gave birth to a new entrepreneurial firm which recovered the lost business as well has helped in expansion throughout EMEA.
"As firms grow the role of the founder needs to change" (Burns 2007, p242). For the growth of a firm as well as for the behaviour of its entrepreneur-cum-leader, academic and business knowledge offers numerous simplistic models and frameworks. A key question is not only whether these models from two different subjects - growth model on one hand and leadership model on the other hand - fit together, but whether a certain industry with certain entrepreneurs demonstrates behaviour different to theory.
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I will also discuss the challenges we have had to face during development and growth of this new entrepreneurial firm and the entrepreneurial management process we had to put in place which was completely different from the management process which had become part of culture of Telcordia -the parent company.
Situation, opportunity, startup
Development and business case.
Management and leadership
My understanding of Entrepreneurship is that it starts with a good idea - The idea which has business potential worthy of exploitation. These ideas can come either from deliberate search or from a chance encounter but these ideas don't get formulated in one day. As we discussed during the lecture session that study of inventors suggests that "Idea generation is an incremental process".
The example which I have discussed in this essay was clearly as a result of "Chance Encounter" which got further transformed though Effectuation-"an idea with a sense of purpose".
Entrepreneurial thinking can be broadly categorized into two principles, casual reasoning and effectual reasoning. Casual reasoning drives an entrepreneur to reach a defined goal with help of given set of means however in effectual reasoning an entrepreneur starts with a given set of means and the ultimate goal gradually emerges during the deployment process. C:\Users\asinha\Documents\MBA\Assignments\Enterprenureship\means-causal-vs-effectual.png
[ source :Society for effectual Action]
As S. Sarasvathy has pointed out "Effectuation is an idea with a sense of purpose". She has also suggested that 4 principles and a unique world view constitute Effectuation.
These 4 principles are:
Bird in Hand Principle -"Start with your means"
Affordable Loss Principle -"Set affordable loss"
Lemonade Principle -"Leverage contingencies"
Crazy-Quilt Principle -"Form partnerships"
Another fact about entrepreneurship was pointed out by J Schumpeter, which is popular as "Creative Destruction" [Capitalism, Socialism and Democracy, 1942].In very simple words he had suggested that an entrepreneurial process create a new innovation which in fact destroys an old innovation. For example digital camera is a modern innovation which had destroyed the market space for instant Polaroid camera.
Entrepreneurial process takes shape with setting up and managing a venture however there are several environmental factors which encourage and drive entrepreneurial process.
One of the most popular model is Diamond Model developed by Michael Porter [1990,"The Competitive Advantage of Nations" ] published along with his theory of why particular industries become competitive in particular locations.
He has suggested that Factor conditions, Demand Conditions, Related and supporting infrastructures, Firm strategy, structure and rivalry, Government and Chance are the six broad factors which interact with each other to create conditions where innovation and improved competitiveness occurs.
The role of Government in Porter's Diamond Model is "acting as a catalyst and challenger. Chance events are occurrences that are outside of control of a firm.
Always on Time
Marked to Standard
Yip's Global Driver provides a frame work to analyze the 4 major drivers which encourage the extent and degree of globalization of industry. These 4 major drivers are Market drivers, Cost drivers, Government drivers and Competitive drivers. These drivers help determine which feature of strategy are local and which are global therefore it is important that each driver should be analyzed for the industry and market under consideration.
[Source: International and Global Strategies: AuthorStream]C:\Users\asinha\Documents\MBA\Assignments\Enterprenureship\Yips.png
There are variety of businesses and entrepreneurs across geographies working in field of different technologies. However Timmons identifies that there are few central themes or driving forces that dominate dynamics of entrepreneurial process
Timmons has outlined that entrepreneurial process is led by entrepreneur and an entrepreneurial team and driven by opportunity. It is integrated and holistic. It is creative and resource stingy and depends on the fit and balance among these. C:\Users\asinha\Documents\MBA\Assignments\Enterprenureship\timmons.gif
[Source: Business School of Entrepreneurship]
Timmon's model itself is based on entrepreneur and believes that entrepreneurship is opportunity driven. It also clarifies the difference between an idea and an opportunity. An idea may be just notional and cannot have business potential however an opportunity has a business potential.
From Theory to Practice
Frame of Evaluation
Telcordia Technologies, formerly Bell Communications Research, Inc. or Bellcore
In 1982 Modification of Final Judgment broke up the Bell System . As part of that broke up the company was created on October 20, 1983 as Central Services Organization, Inc. later it received the name Bell Communications Research, Inc
In 1992 issues related to the management of the software systems led to divestiture of the company, while retaining the name and logo.
In 1996, the company was provisionally acquired by Science Applications International Corporation (SAIC) and the name was officially changed to Telcordia Technologies, Inc.
Stake in the company was subsequently sold in November 2004 to Providence Equity Partners and Warburg Pincus, who both held equal stakes in the company. On January 12, 2012, Telcordia became a wholly owned subsidiary of Ericsson.
On June 14, 2011, Ericsson announced an agreement to acquire Telcordia for USD 1.15 billion. The acquisition was completed on January 12, 2012.
Telcordia Technologies has five business units. Each unit dedicated to a particular sector of Telecommunication industry e. g. OSS/BSS, Advance Technologies, Billing and Charging, R&D.
Each unit is being led by a vice president, reporting to the CEO. CEO and 5 VPs representing each business units are also part of a leadership team called Telcordia Leadership Team (TLT).
Other members of TLT are VPs and CEO of the two companies Providence Equity Partners and Warburg Pincus, who owns Telcordia.
TLT is responsible for making all Strategic decision and policy for the company. It approves budgets and finance for all the BU and provides directives on investment, R&D, technology and which segment of the industry sector a BU should focus on.
Telcordia offered following to its customer:
Software Product to operate, manage and support Telecommunication industry.
Consulting services limited to Telcordia Products and Technologies.
In 2006 TLT made a strategic decision, which had changed the business model for Telcordia. It was widely known as Partner program.
The key message behind this strategic shift was: "Telecom is our core competency so we will focus only on our product and associated consulting. Our partner companies will provide integration and IT services to our customers.
Theoretically this strategic change was quite right as discussed in the next section however proved lethal for the company's business. It was the same leadership team whose strategic vision and thinking had resulted in two fold increase business in past, now had resulted in major loss.
I wouldn't think it is appropriate to link this incident with a popular say, "The man who builds the business is the very man who destroys the business" rather It would be more appropriate to mention here the concept of " Kondratiev Cycle".
Kondratiev waves are illustrated as sinusoidal-like cycles. Each Cycle consist of average 50 years in the modern capitalist world economy. These cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth. According to Kondratiev these cycles have three phases: expansion, stagnation, recession.
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[Source: The Heaviest corner]
Probably the business was going through the third phase of the cycle.
Key Evaluation Features
Key change in business Strategy- why?
It was the time when Telecommunication industries was going through major transformation and there were huge demand in market for next generation cutting edge technologies and product which can bring revolution in the field of Telecommunication and media e.g IP TV, faster 100 meg broadband, fibre to the home(FTTH),4G mobile network (LTE)
Telcordia is chief architect of the telecommunications system, and has pioneered many of the telecommunications services used today, including Caller ID, Call Waiting, Mobile number portability and Toll-free telephone number (800) service, prepaid Charging system commonly called as intelligent network. Telcordia's expertise lies in managing large, complex projects across the operations and communications spectrum. Its research has led to ADSL, ATM, Frame Relay, SONET, AIN, ISDN, and many other industry breakthroughs
Given such a historical background in core Telecom it was ideal for Telcordia to focus on core competency rather than IT service so that it can play major role in Technological revolution.
According to the innovation theory, "Kondratiev waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors."
What went wrong?
Unforeseen financial crisis of 2007 gave a hard blow to the balance sheet and growth forecast of the company which had recently gone through a major strategic shift. Economic climate and a major change in company business strategy both resulted in loss of a major multimillion dollar business account "British Telecom" which had contributed 90% of the revenue generated in the UK arm of the company. Any IT company makes major profit through its services arm but that was closed down.
That time Owner of Telcordia ,"Providence Equity Partners" and "Warburg Pincus" were looking for a way to recover the lost business in the region as well as to build foundation for further growth in the region. It was clear the present business strategy with legacy company culture was not working at all. What we were left with a pool of experts with domain knowledge and years of experience in core Telecom and its backbone technologies, In addition to these we also had a comprehensive product portfolio, listing software products for every segment of a telecommunication industry ranging from fixed line to mobile or wireless.
Idea generation is foundation stage of an entrepreneurial process however entrepreneurs take action on only those ideas which have a business potential to exploit. Action taken on ideas for which there is no opportunity will fail. This is also true that "To have a good idea we need many ideas". [Course Manual, 2012]
Study of inventors suggests that journey from idea generation to a "Gestalt moment"- is an incremental process.[Classroom discussion,2012]
S. Ibrahim and M. H. Fallah found that the knowledge creation by individuals is what leads to new ideas or solutions that could become inventions and in turn innovations if they become commercialized and create economic value. In their research paper "Where do inventors get their ideas" they studied various source of knowledge and classified them into different types of knowledge.
[Source: Stevens Institute of Technology, Hoboken, NJ 07030, USA]
Generally an entrepreneur starts up a new business either based on an invention or an innovation. Based on degree of novelty and degree of usefulness/utility, and idea can be classified into four categories.
"High utility and high novelty -Innovation"
"High utility and low novelty-Invention"
"Low utility and high novelty-Improvement"
"Low utility and low novelty-Irrelevant"
The knowledge creation by individuals is what leads to new ideas or solutions that could become inventions and in turn innovations if they become commercialized and create economic value.
As we know that an opportunity always has a business potential worth exploitation.
Since Telcordia decided to focus on its Product Portfolio so that it can contribute to the Telco technology revolution. It pulled out its hand from services industry which left a gap in the IT services industry dedicated to Telco sector.
Cleary there was a window of opportunity for an It service company who:
Has expertise and show case of success history in Core Telco Domain.
Can offer competitive market price.
Owns or has access to wide range of product portfolio.
Has onsite presence in the UK
So we teamed up with an idea to start up a services company which will be backed up by our deep understanding of Telecommunication market, product and technologies. We already have product, resource and expertise, only important thing was to work out pricing model.
Once we set our entrepreneurial goal then next important thing is SWOT Analysis. SWOT Analysis was originated by Albert S Humphrey in the 1960s.It helps in identifying opportunities open to us and the threats we face, as well as for understanding our strength and weaknesses.
Since Strength and weakness are internal to organization while opportunities and threats are external factors, this reason SWOT analysis sometimes referred as internal-External analysis.
Telecom - A Core competency so huge knowledge base.
Knowledge built on years of practical experience
Highly skilled resources
Patent products so difficult to find exact substitute in market
Pioneer and inventor of Telecommunication technologies so better understanding of business in Telco comparison to other services company.
Proven value to the customer
Increased fixed cost e.g. infrastructure cost
Learning curve for resource from partner companies
Dedicated resource exempt from re assignment so more bench time during leisure
Competitive pricing model without price war
Effective lower cost combined with value, outbids low price offshore services companies.
Live business show case and success stories in the region for potential customer.
Shared IPLR on developed product.
Developed tools and modules with huge business potential will be productized without any additional cost to company on R&D and investment on new technologies.
Project closure by customer
Change or reshuffle in management/governance at customer .New management may pause or stop projects or award projects to offshore based companies.
Further cut in project funding due to budget deficit.
Before setting up a venture we must do market and industry analysis of the business case. Due to historic association, we already had deep understanding of Telco services market and industries.
Market analysis analyses the "market" the company operates in. It tries to find answerers for the questions like - "What features are important to the target customer?" "How can I cause the target customer to buy this company's product, instead of another's?" "What marketing vehicles will attract and engage the target customer?" "who is our target customer?
Target customers can be classified into three categories, Primary Target customer [PTA], Secondary Target customers [STA] and Tertiary Target Customers [TTA].We need to be very clear and specific about our primary target customers.
Industry Analysis considers all the economic forces and long-term pattern or trends that affect the overall industry. Michael Porter's  "Five Forces" provides a framework for industry analysis. It is a theory which provides guidelines to assess the structure of the industry.
Porter identified the following forces that affect an industry: "Bargaining power of suppliers", "Bargaining power of buyers", "Threat of new entrants", "Threat of substitutes" and "Rivalry among competitors".
Pricing is those elements of a business venture that produces revenue. Pricing strategy is a key element behind success of a business. Therefore careful consideration must be given to the while setting the price, If pricing strategy goes wrong definitely the business will fail.
Michael Porter [1980,"Competitive Strategy: Techniques for Analyzing Industries and Competitors"] reduced pricing competition down to three classic strategies: First, "Cost leadership", Second, "Product differentiation" and Third "Market segmentation". These three strategies provided guidelines for an organisation for setting up a price a customer may expect from them.
Cliff Bowman  further enhanced and extended the Porter's strategy and developed Bowman's Strategy Clock.
Figure below, represents Bowman's eight different strategies that are identified by varying levels of price and value. Position 1: "Low Price/Low Value", Position 2: "Low Price", Position 3: "Hybrid (moderate price/moderate differentiation)", Position 4: "Differentiation", Position 5: "Focused Differentiation", Position 6: "Increased Price/Standard Product", Position 7: "High Price/Low Value", Position 8: "Low Value/Standard Price"
Behavioural economics is another aspect which influence setting up a price in a demographic segment. Sendhil Mullainathan and Richard H. Thaler  in their research paper have suggested need for analysis of three unrealistic traits of human behaviour which influences pricing strategy: "Unbounded rationality", "unbounded willpower" and "unbounded selfishness".
After carefully analysing the market condition, competitors offering and project budget and fund available at customer end to run the project, we worked out our pricing strategy. Two key components of our pricing strategy are:
We will provide 25% credit back to the customer, to fund the project.
We will hire staff from partner offshore companies at discounted rate and make them part of our team at 50-50 ratio although they will be billed as our staff.
We picked up a typical piece of project deliverable and prepared our estimate to accomplish that work. In parallel we asked customer to find out cheapest estimate for the same piece of delivery work from offshore companies.
Our estimate: 20 resource, Telcordia rate £1000/day, 6 months [120 working Days]
Total cost : 20x1000x120=£ 2,400,000
10% contingency (+) £240,000
25% credit to customer (-) £660,000
Final Cost £1,980,000
Competitor's estimate (1): 30 resource, rate £500/day, 6 months [120 working Days]
Total Cost : 30x500x120=£ 1,800,000
Final Cost £1,800,000
Competitor's estimate (2): 20 resource, rate £500/day, 9 months [180 working Days]
Total Cost : 20x500x180=£ 1,800,000
Final Cost £1,800,000
Our estimate: 20 resource, 10@ Telcordia rate £1000/day + 10 @ Partner company preferred rate 350/day, 6 months [120 working Days]
Total cost : (10x1000x120)+(10X350X120)=
10% contingency (+) £162,000
Comparison of case [A] and case [B] was presented to the customer. It made clear that aalthough offshore companies were proposing 50% cheaper daily rate, which looks lucrative on the face value but in actual it cost more than what it sounds like and there were minimal difference in total cost. Added value in return in case [A] was far more than differential cost.
Comparison of case [A] and case[C] was presented internally to secure the fund. This comparison made the case clear that although we will be providing 25% credit back to the customer but effectively we will make up the loss in through use of resource from partner offshore company in our team.
We [One VP,one Program Director and one Technical Director] teamed up with a business plan to start up a new venture ,called " New NEJ" [ New Network engineering Journey] with following clear objectives:
Recover the lost business with British Telecom.
Deliver value in term of services associated with Product.
Build foundation for future growth in the region.
Live show case of success for potential customers in the region.
Enhancement and add features supporting modern technologies and business case to the product building huge potential for new business in the region, without any additional investment on technology and R&D.
We knew who our primary target customer was: British Telecom but this venture has huge potential for new business opportunity with secondary and tertiary Telco customers in the region, by showing the success story with British Telecom.
An executive summary of the business plan is given below:
A venture doing business dedicated to "British Telecom" the biggest customer in the UK.
Customer will be our partner in the venture and they will always have a say and influence on operational control.
To compete with price offered by offshore based services companies, we will provide 25% credit back to the customer.
These credits will be in the form of contribution from the company to fund the project, rather than discount on invoice.
Customer will receive premium services similar to offered by Telcordia, without paying a premium price.
Onsite presence of team will provide faster response on operational and management issues which will be an added on value to the customer.
Company premise will have a separate business area, fitted with all modern equipment and facilities, dedicated for customer use. A premium treatment.
Above facilities will always bring customer in premise. A close interaction and involvement of customer will one side increase the efficiency of project, on the other side reduce the project waste hence effective lower cost.
New features supporting modern technologies, Developed customization which would add value to our product will be productised without any additional cost.
We will hire less experienced resource from partner offshore companies at discounted rate and make them part of our team. They will work under close supervision and guidance of highly experience Telcordia resource. This way we will recover the loss in profit margin given back to customer in form of credit.
We did some financial calculation and cost analysis to present our business case to both our customer so that we can get the business and to owner companies, so that we can secure the fund for the venture.
Managing finance is challenging as well as tricky task for a start up. Generally seed capital and growth capital can be funded through Banks, business angles and venture capitalist if business plan looks attractive to them.
In our case, finding source of funding was not an issue .They were that time owner companies of Telcordia, "Providence Equity Partners" and "Warburg Pincus", however challenging task for us was to secure fund from them for the start up venture.
Managing operations and Resources
Operation separated from Telcordia. Separate reporting structure for employee. Separate financial control and balance sheet. Close monitoring of operation and faster response to any crisis
Risk management and mitigation process in place.
Securing skilled resources were critical factor for the success of this new business. Although dual reporting structure practiced with in Telcordia always poses threat for resources assigned on projects. Short term Resource pull of and long term re assignment was biggest challenge we could face. We were not in position to afford loss of skilled resource special when they have customer specific business knowledge.
Keeping them motivated and keeping them appraised regularly with their achievement was a key motivation factor.
Managing growth and changes
My understanding of Business growth is definitely not that growth, which is the shortest connection between the starting point and the current point of time. Growth demonstrates phases of business increase as well as of decrease, stability, crisis, and changes. One of the most used growth models was developed by Greiner (1972) who pointed out alternating phases of evolution (creativity, direction, delegation, coordination, collaboration) and of revolution (leadership, autonomy, control, red tape). "Each phase of growth is followed by a crisis that necessitates a change in the way the founder manages the business if it is to move on and continue to grow" (Burns 2007, p210).
Churchill and Lewis (1983) developed a growth model covering five stages of existence, survival, success, take-off, and maturity. Very close to this is the five-stage model proposed by Scott and Bruce (1987) embracing the stages of inception, survival, growth, expansion, and maturity with focus on top management role, management style, and organizational structure. At least Burns (1996) suggested a four-stage model covering stages of existence, survival, success and take-off and summarizing "the main business imperatives as a firm grows in terms of the orientation of the firm (â€¦)" (Burns 2007, p218).
Leadership and Strategic Management
My understanding of leadership is that it is a relationship through which one person influences the behavior or actions of other people. For our investigations on entrepreneurs we are aware that there is a difference between leadership and management. The 7-S framework used in strategic management provides a distinction that managers rely on strategy, structure and systems whereas leaders are concerned with the soft Ss of style, staff, skills and shared goals. A key questions always puzzles entrepreneurs 'Is an entrepreneur a manager or a leader?' At least he is both in one person. Hence it is valuable to consider both of an entrepreneur his managerial role as well as his leadership approach.
Mintzberg (1990) classifies the activities of organized sets of behavior associated with a position based on formal authority and status. He points out ten managerial roles divided into three groups .
Regarding general approaches to leadership, we face in real business life, there is no mutual exclusiveness. Hence contemporary entrepreneurs may demonstrate several leadership approaches in one person.
This new Venture started as "New NEJ" although started with slow rate but very soon picked up business with BT.Customer realized the value delivered to them through our product and services together under one umbrella.
Within span of a year since launch, several products listed in Product catalog of Telcordia got sold to the customer and we signed new services contract with the customer.
Telcordia product catalog got several latest addition as well as existing products become up to date to support new technologies without significant investment on R & D.
Live show cases of success became marketing ground for potential customers without any additional burden on Marketing Budget.
Several new opportunities got signed up throughout Europe which also helped in stepping up in Middle East.
Recommendation for the Future[In Progress]