Strategic Entrepreneurship is integration of two disciplines: Entrepreneurship (Identifying opportunities through Innovation) and Strategic Management (Manage the firm's resources/innovation efforts). So we can define strategic management as: A firm's "efforts to exploit its today's competitive advantages while exploring for the innovations that will be the foundation of tomorrow's competitive advantages.
Identifying opportunities to exploit through innovation is entrepreneurship dimension of strategic entrepreneurship, while determining the best way to manage the firm's innovation efforts is the strategic dimension.
The key to success of Entrepreneurship is innovation and acceptance in the market. Innovation is the process of creating a commercial product from an invention that brings something new into being or into use. A firm may go for Strategic Entrepreneurship due to many reasons like to improve the organizational profitability or to increase its competitive position or renewal of existing businesses. When individuals within well established organizations go for it, it's called as corporate Entrepreneurs.
Research evidence suggests that inside board directors with equity positions favour internal innovation while outside directors with equity positions prefer acquired innovation. Also, in the global competitive landscape, then long term success of new ventures and established firms is a function of the ability to meld entrepreneurship with strategic management.
Corporate Entrepreneurship: Concept of use and application of innovation and entrepreneurship within established organisations. An important part of entrepreneurship, corporate entrepreneurship increasingly is thought to be linked to survival and success of established organisations.
Entrepreneur is a word derived from French language which means: "One who undertakes" and entrepreneurial capabilities are conditions in which new good or services can be launched to satisfy a need in the market. These opportunities exist because of the competitive imperfections in markets and among the factors of production and to produce them and when information about these imperfections is distributed asymmetrically among individuals. As a process, entrepreneurship results in creative destruction of existing products or methods of producing them and replaces them with new products and production method.
Innovation - Peter Ducker said that "Innovation is the specific function of entrepreneurship, whether in an examining business, a public service institution, or a new venture started by a lone individual." Moreover, it is the means by which the entrepreneur either creates new wealth producing resources or uses existing resources for creating wealth. Innovation is the key outcome firms seek through entrepreneurship and is often the source of competitive success in the dynamic environment.
As per Schumpeter, Types of Innovation are - Invention, Innovation and Imitation. Here invention brings something new whereas innovation is creating a commercial product out of it.
Two of the best examples of companies which promote innovation companies are 3M and Google. At Google employees are given 20% of their time to devote to their personal followings.
International Entrepreneurship: Process in which firms creatively discover and exploit opportunities that are outside their domestic markets in order to develop a competitive advantage. Even though entrepreneurship is a global phenomenon, the rate of entrepreneurship differs across countries.
Different ways to Innovate:
Internal Innovation: In established organisations, innovation mostly comes from the R&D efforts of the company which also leads to gaining intellectual capital in terms of patents registered. Being able to innovate this way can create a competitive advantage for firms in many industries which lead to long term corporate success. There are two types of internal innovations - Incremental and Radical Innovation.
Incremental innovations build on existing knowledge bases and develop small improvements in the products. These innovations are evolutionary and linear in nature. Motorola's launch of Razr2 is an example of this.
Radical innovations on the other hand, provides significant break through in technologies and create new knowledge. They are revolutionary and non linear in nature. As they establish new functionalities for consumers, radical innovation have strong potential to increase the revenue and profits.
Internally developed incremental and radical innovation results from efforts which can be specifically termed as Internal Corporate Venturing, which is initiatives and process to develop internal inventions and especially innovation.
Implementing Internal innovations: An entrepreneurial mindset is the first requirement to be innovative and to develop successful internal corporate venture and firms also provide incentives to managers to be entrepreneurial and to commercialise innovations. They must also allocate resources, coordinate activities, communicate with many different parties, and make a series of decisions to convert the innovations into successful products.
- Cross functional product development teams facilitate efforts to integrate activities with different organisational functions such as design, manufacturing. Using these teams, product development stages can be made parallel to decrease the development time.
- Facilitating integration and innovation - shared value and effective leadership are important to achieve the same. Shared values should be framed around firm's mission and vision, and would promote integrate integration between functional units.
- Creating value through internal innovation
Innovation through Cooperative strategy: Due to lack of resources, it is difficult for every company to innovate internally and develop a sufficient number of innovations to meet the demands of the market. Alliances with other firms can prove to be a helpful external resource as they provide information on new business opportunities and how to exploit them. Thus, different firms align their complementary assets which have potential to lead to future innovations.
Both entrepreneurial and established firms use cooperative strategies to innovate. As an entrepreneurial firm might need established firms' distribution capabilities and established firms may need new technology from entrepreneurial firms. Also, these strategic alliances are not without risks. To minimise risks, ideal partnership is one in which companies have complementary skills.
Innovations through acquisitions:
Sometimes firms acquire companies to use their innovations and competencies. Acquisitions provide rapid way to bring products to the market and increase revenue.
A key risk in this approach is that a firm may substitute an ability to buy innovations for an ability to produce innovations internally. For example, CISCO has been very successful in integration of acquired technology firms.
Forces shaping competitive landscape:
Rapid advancement in changes and tech: with ever increasing advancement in technology, firms feel the need of entering into new ventures and hence it an important force that shapes the competitive landscape. The World Wide Web has brought about a radical change in the way which companies operate and the ways they market their products, it therefore entails for innovation which will drive its strategic entrepreneurship. Also opening of global markets and success stories of enterprises throughout the world have pushed people further towards strategic entrepreneurship.
The key success factors
What it takes for corporations to be successful entrepreneurs is really a difficult question to answer due to lack systematic evidence. As we know that there can't be can be a cop book solution for corporations. But, we have categorised the factors as intrinsic/extrinsic to the corporations and how an organization can orient itself and the employees to sow the entrepreneurship seed throughout.
- Extrinsic Environment includes the industry scenario, technological advancement, competition, customers etc. All these factors may inhibit or it may help in progressing the strategic entrepreneurship. For example continuous demand from customer may be beneficial for new ventures other way can shut down the firm's entrepreneurial ventures. Also rapid advancing technologies threaten to annihilate the existing product line. Stiff competition spurs new ventures and it takes firms on their toes to continuously look out for new innovative ideas. Also regulatory barriers affect a lot like entry barrier in some fields may prevents innovations to be happening in that field.
- Intrinsic Environment including the company's management, culture, encouragement for creativity, sharing of profits are also very instrumental in the whole process. The management being the most crucial element for entrepreneurial development within the firm promotes environment that will encourage creativity and allow people to take ownership. The stage of business (growing, mature or declining) affects the way corporate look at innovation. Though corporate entrepreneurship should be the part of organization strategy but under circumstances of business decline or bottom line erosion the firm looks out for innovative ways to stay competitive. Also the firm's position vis-à-vis other players defines its investment and innovation regime.
Roadblocks/Bottlenecks: After many success stories, more and more Corporate take the Entrepreneurship as the new mantra to create value which is loaded with considerable risk. To develop a risk-averse environment most large organizations work clearly defined roles & responsibilities for their employees, but this kills the creativity and innovation. Also the inertia to change on the non supporting side and bring in a culture of innovation. The top management or the young creative employees are more open to hug the change. The organization has to strike a balance between business interests and employee creativity.
Creating value through strategic entrepreneurship: Being effective in identifying opportunities is the thumb rule for success in entrepreneurial activities. Flexible and willing to take risks is also needed for creating value through strategic entrepreneurship. As compared to large established firms, newer organizations are more effective in the identification of entrepreneurial opportunities. As a result entrepreneurial ventures produce more radical and innovative products than their well established. But conversely, larger and well maintained organizations because of the resources have an edge in this context. In today's competitive world, firms not only have to make an upper hand in opportunities, but they also need to do this while achieving competitive advantage and sustaining that. The newer entrepreneurial firms need to learn how to identify opportunity- seeking skill. The firms need to be entrepreneurial along with the managers and employees, by developing a entrepreneurial mind set amongst the employees.
A firm practising strategic entrepreneurship also contributes to country's economic development. Certain countries have changed the institutional rule for operating in the county, owing to the reason of its economic motives and individual motive.
Company Selected for Case Study: 3M
3M started out in Minnesota in 1902. The primary activity of the company was to mine stones from the quarries. The innovative founders of the company then tried to manufacture sandpaper from a stone mineral called Anorthosite. Soon they expanded to various related and unrelated markets as abrasive tapes, masking tapes (1925).
A decade later they were making defense equipments. Since then they have not looked back and established the brand name as synonym to innovation.
Currently the product lines of 3M can be broadly classified into:
- Displays & Graphics: flat-panel computer monitors, PDAs, and LCD televisions
- Electronics, Electrical & Commmunications: 3M Touch Systems
- Health Care: Stethoscopes, Orthodontic products
- Home and Leisure: Scotch-BriteÂ®, and Scotchgardâ„¢
- Manufacturing and Industry: 3M Adhesives & Tapes
- Office: Stationery, Post-It notes
- Safety, Security and protection: Computer Privacy Filters,Corrosion Protection Products
- Transportation Industry: 3M Car Care, 3M Automotive Aftermarket
Corporate Entrepreneurship requires a firm to innovate in order to gain competitive advantage. The innovation can take three forms on the basis of knowledge about the markets and technology, it involves. At 3M innovations takes place in all these forms.
The first type of innovation called product line extension is very prevalent across different product/service categories. These innovations are in actual, routine variations of a baseline product of the company. Thus it comes under the realm of Current knowledge about the technology and market. Thus these forms of innovation require little of new technology and targets existing customers of the company. Innovations achieved are in the form of flavour, forms, colour, packet size and added ingredients.
3M context: Scotch Brit elite created after Scotch Brite (original), as a thinner version but equally effective
The second type of innovation is named new platform development. This type of innovation is introduced periodically when companies target a new market and/or technology domain. Here, a firm is either developing some new or more advanced technology to take to existing customers, or is targeting new customers with its own advanced technologies. i-phone belongs to this category. The company in this case still has better estimates about acceptability of the product and its abilities to fulfil the needs of the customer.
3M context: Cellophanes tapes made after abrasive tapes
The third and last form of innovation is called new business creation. This is carried out as a new technology product launched in a new market. Here lesser estimates are available about the acceptability and usability of the products by the customer. E.g. the development of the "On Star" system by General Motors. It involves subscription-basedcommunications, in-vehicle security,hands free calling,turn-by-turnnavigation, andremote diagnosticssystems throughout theUnited StatesandCanada.
3M context: Overhead projector invented by 3M was a completely new product for a new market, i.e. assisting corporate professionals to present their proposal to a large number of people simultaneously
Matching market uncertainty and learning needs
Market uncertainty is defined as the state of not knowing or a lack of knowledge about the future direction of a given market. While contemplating the future, managers often face many complexities, making it difficult to know in advance what the appropriate reaction/result would be incited upon entering a given market. The receptivity of a new invention or innovation once it is released to the market is extremely difficult to predict. Often intended markets reject a new alternative while unanticipated markets can emerge to adopt it. The market environment can be very turbulent in regard to the acceptance and implementation of entrepreneurial endeavors.
Learning distance refers to the proximity of a firm's knowledge base and causal beliefs, which have their bearing from past activities of the firm. It addresses the extent to which a firm's current capabilities are near to the capabilities needed to create the desired innovations.
Low learning distance firms would usually attempt to further exploit current capabilities whereas more distant learning ones are likely to substantially stretch existing capabilities as a means to exploit bigger but currently undeveloped opportunities.
The matching model of market uncertainty and learning needs helps firms to choose a way to go about innovations depending upon the environment and learning distance in the firms. These ways are reflected as four quadrants/combinations.
Internal Venture is suggested when uncertainty is high and capabilities and learning distances are low. The invention to be pursued is largely within the knowledge base related to the focal firm's current resources and capabilities, and therefore in such cases pursuit of the targeted innovation should largely remain internal.
When the learning distance is high in uncertain markets, the firm to innovate via joint venture mainly by exploiting the complementary capabilities of partner firms and use the opportunity as a learning experience exercise.
Acquisition should be the desirable mode to innovate in case of high distance learning and uncertain markets, because the firm to be acquired has already pioneered the uncertainty and it is economically not beneficial for the acquiring firm to develop capabilities on its own.
Companies that are in a position of low uncertainty and low learning distance are likely to pursue only incremental product innovations and process innovations associated with current technology.
The learning distances are very low in 3M owing to the knowledge capital creation methods employed over last century. Also the type of products 3M innovates seems to cover a lot of market uncertainty. Hence, 3M operates in the "Internal Venture" quadrant to sustain its innovation advantage, which also is its competitive advantage
3M's seven pillars of innovation
- Commitment to Innovation
- Maintenance of Corporate Culture
- Broad Base of Technology
- Set individual expectations and reward employees for outstanding work
- Quantify efforts
- Research must be tied to the customer
From the chief executive on down, the company shows its committed to innovation.
In 2005, 3M spent $1.24 billion on research and development, or 6% of its $21.2 billion in revenue
The company hires good people and let them do their job in their own ways. It believes in tolerance of mistakes. As tribes, 3M people keep their culture alive through oral histories
Innovation is impossible without a broad base of technology. 3M claims to have leading know-how in 42 diverse technologies. This allows researchers to take an idea from one realm and apply it to another. E.g. thetechnology behind layered plastic lenses to make more durable abrasives, golf gloves that allowing a tighter grip without squeezing as hard, and more reflective highway signs
Management at 3M has long encouraged networking - formal and informal - among its researchers. 3M considers this as their secret weapon. The 3M scientists themselves formed an organization called the Technical Forum in 1951. It invites all of the company's 9,700 R&D personnel to an annual symposium, where everyone can see what everyone else is working on. Thus this gives a platform to share knowledge and information
3M Management reinforces this by fostering a dual-career ladder. i.e veteran researchers can continue to move up without becoming managers if they have career pursuits only in research.
Also the company gives the top 20 overachievers and their spouses a four-day holiday at 3M's corporate retreat in Park Rapids, Minns.
3M is able to judge whether its R&D money is being spent wisely. 3M tallies how much of its revenue comes from products introduced in the past four years to judge whether its R&D money is being spent wisely
Employees spend a lot of time with customers to understand what their needs are so they can go back to the labs to come up with valuable products. This ensures high success rate of plethora of products innovated at 3M research centres.
Innovation Methodology at 3M: Lead User Method
The concept of lead user method is quite talked about at 3M. It is an accurate forecasting market opportunity by taping the expertise base of" lead users". Lead Users are the people whose experiences are ahead of the market segment. They may lead in either target or analogous market. They may be involved with just one or more attributes of the problems users met. Lead users are certain consumers experiencing needs ahead of other consumers and that some of the former would seek to innovate on their own. The lead user method is richer and provides more reliable information and provides acceleration of the product and service development process. There are some prerequisites for this method to be selected like very Supportive management, Use of a cross disciplinary team of highly skilled people and a clear understanding of the principles of the Lead user research.
Stage 1- Project Planning:
It goes for 4-6 minute. We have to find key types of market, products, and innovation level. Key business constraints are available. This help focus in key market trends by interviewing industry experts. It is about majorly two questions, what and how?
What? : Identifying the type of markets and the new products of interest and the desired level of innovation and in how it's informally interviewing industry experts, customers, suppliers, and internal company managers
Stage2: Trends/Needs Identification
Trends need/ identification is done here, its spread over 5-6 weeks and a specific need related is s finding top experts information and develop good information of trends. Top experts are also searched by various methods like telephone, telephone , scan literature and consulting in-house colleague. By the end of this stage a good understanding of major trends and needs are identified which are the input to next stage
Stage 3-Preliminary Concept Generation
This stage usually lasts up to 5-6 weeks; the group acquires a more precise understanding of the needs it has selected as the area focus. Interview lead user experts for technical knowledge that pertains to concept generation. Meet with key managers to confirm that needs and concepts fit well with business interests.
Stage 4-Final concept Generation and learn from lead user
The duration for this step is also about a month or so. Here the team takes the preliminary concept developed toward completion. To ensure that all possible solutions have been explored. Lead user workshop also has brainstorming to arrive at consensus on the concepts (1-2 days) and the evaluation is done on the context of cleanness. Taking the preliminary concept developed toward completion. Ensuring that all possible solutions have been explored. Brainstorming to arrive at consensus on the concepts also guidance for tomorrow and the evaluation is on the basis of technical feasibility, market appeal, and management priorities.
- Strategic Entrepreneurship helps in creating and sustaining growth
- Presence of Knowledge incubators essential for innovation
- Innovation essential for keeping a firm ahead coping with imitation threats
- Resource Management pivotal for innovative capabilities
- An Innovation paves way for future innovation
The case study of 3M explains how a firm can create a sustainable competitive advantage by innovating constantly and rationally. The firm employs the concept of Stregic Entrepreneurship in its truest sense
Innovation models can't be achieved in a single day. Investment made today in creating knowledge incubators helps firms in innovate in long term. 3M achieved this by establishing research centres and by organising symposiums for knowledge and research sharing.
Apart from coping with product life cycle, promoting innovation also keeps the firm ahead of possible imitation. The time that imitation takes in happening, is milking period for the company as they sell a differentiated product.
As seen in 3M's case resource allocation and management is very crucial to further a firm's innovative capabilities. It should be known and reasoned out, which research areas should be provided what funds and this should be in sync with actual returns they produce after exploiting the innovation in market.
Lastly, an innovation at many times forms base, or inspires for future innovations to come. Like in 3M's case abrasive tapes inspired creation of cellophane tapes