Chapter 3 Levels of Entrepreneurship in Organizations Entrepreneurial

Chapter 3 Levels of Entrepreneurship in Organizations: Entrepreneurial Intensity Copyright (c) 2011 by Donald F. Kuratko All rights reserved.

E Exploring the Dimensions of Entrepreneurship Three dimensions characterize an entrepreneurial organization v Innovativeness v Risk-Taking v Proactiveness

E Exploring the Dimensions of Entrepreneurship Three Frontiers of Innovation v Services – new or improved services v Products – unique or improved v Processes – new or better ways to accompl a task or function

E Exploring the Dimensions of Entrepreneurship Innovativeness – to what extent is the company doing thi that are novel, unique, or different v Does the concept address a need that has not previous been addressed v Does it change the way one goes about addressing a ne v Is it a dramatic improvement over conventional solutio soluti v Does it represent a minor modification or improvemen an existing product v Is it just the geographic transfer of a proven product

E Innovativeness as it Applies to Products an Services New to the World Products/Services New to the Market Products/Services New Product/Service Lines in a Company Additions to Product/Service Lines Product Improvements/Revisions New Applications for Existing Products/Services Re-positioning of Existing Products/Services Cost Reductions for Existing Products/Services

E Innovativeness as it Applies to Processes Degree of Innovation Major New Process Minor New Process Significant Revision of Existing Process Modest Improvement to Existing Process Supply Chain Management Techniques Distribution Methods Type of Process_______ Administrative Systems Service Delivery Systems Production Methods Financing Methods Marketing or Sales Approaches Procurement Techniques Compensation Methods Employee Training Programs Pricing Approaches Information Management Systems Customer Support Programs Logistical Approaches Hiring Methods

E Sixteen Dilemmas of Innovation v Not all entrepreneurs are innovators, and not all innovators are entrepreneurs, but successful v v v v entrepreneurship tends to involve continued innovation (in products, services and processes/methods). Innovation is about the unknown. Management is about control. How do you control the unknown? Innovation is often about breaking the rules. People who break rules don’t last long in organizations. Successful innovation tends to occur when there are constraints, routines and deadlines. There is a need for both freedom and discipline, and the issue is one of balance. Failure is likely if the firm does not innovate. But the more the firm innovates, the more it fails. An innovation succeeds because it addresses customer needs. Yet, when you ask customers about their needs, many do not know or cannot describe them to you except in very general terms. Innovating can be risky. Not innovating can be more risky. Innovation can be revolutionary or evolutionary. The costs, risks, and returns of both types differ, and both require different structures and management styles. A company that innovates is frequently making its own products obsolete when there was still profit potential in those products.

E Sixteen Dilemmas of Innovation (continued) v Innovation requires supporting infrastructure to be successful, and the existing infrastructure is v v v often inadequate. However, these infrastructure needs may not become apparent until after the innovation is developed. While innovation is more technically complex and costly today, many breakthrough innovations do not come from large companies or corporate R&D labs with sizeable budgets, but from individual inventors and entrepreneurs. People who design innovations typically seek to perfect their new product or service, making it the best possible. But the marketplace often wants it to be “good enough, ” not perfect. The additional time and money necessary to make the innovation “best possible” drive up prices beyond what the customer will pay, and result in missed opportunity. Technology-driven innovation often leads to dramatic new products that prove to be “better mousetraps” nobody wants. Customer-driven innovation often leads to minor modifications to existing products or “me-too” products meeting a competitive brick wall. While typically associated with genius or brilliance, innovation is more often a function of persistence. While innovation is sometimes associated with breaking the rules of the game (e. g, 3 M), it frequently entails playing an entirely different game (e. g. , Starbucks, Dell). Being first to market is not consistently associated with success, while being second or third is not consistently associated with failure.

E Exploring the Dimensions of Entrepreneurship Synectics, a leading international firm specializing in innovation and consulting characterized the “best practices” of companies that seem to be especially good at innovation yielded three categories of firms: v Stars– high performing companies that had successfully integrated innovation and creativity into their daily business practices v Seekers– display a number of appropriate innovation practices, but came up short in terms of innovation performance and company-wide commitment to innovation v Spectators– acknowledge the importance of innovation but provide little support for it

E Stars have a number of characteristics that distingui them: v v v Having CEO’s that were heavily involved in fostering innovation; Defining innovation as critical to long-term company success; Attaching great importance to the concept of managing change; Having the words innovation and creativity in their mission statements; Demonstrating an openness to outside ideas; Having formal programs for idea generation and problem-solving; Placing strong emphasis on cross-function communications; Implementing programs to encourage employees to talk to customers; Increasing levels of investment in R&D and a strong focus on product development; Creating budgets allocated exclusively to innovation; Providing rewards for individual creativity and innovation; Spending time in meetings that were highly productive.

E Exploring the Dimensions of Entrepreneurship Risk-taking = Individual level & Organization level • Financial • Technical • Market • Personal • Social

E Exploring the Dimensions of Entrepreneurship High Little to no Innovative Activity Home-run Strategy Risk Lots of trials and experiments/ balanced portfolio of projects Low Innovativeness High

E Exploring the Dimensions of Entrepreneurship Four Types of Innovation: v. Discontinuous innovation v. Dynamically continuous innovation v. Continuous innovation v. Imitation

E Exploring the Dimensions of Entrepreneurship Relating Types of Innovation to Risk High RISK Low Imitation Continuous Dynamically Continuous TYPE OF INNOVATION Discontinuous

E Exploring the Dimensions of Entrepreneurship Proactiveness v “Entrepreneurial firms acting on, rather than reacting t their environments” v 3 items to measure proactiveness Following versus leading competitors in innovation = Favoring the tried and true versus emphasizing growth, innovation, and development = Trying to cooperate with competitors versus trying t undo them =

E Exploring the Dimensions of Entrepreneurship “Missing-the-Boat” and “Sinking-the-Boat” Risk Total Risk TR=f (SBR, MBR) Missing the boat risk curve Planning Time Source: Dickson and Giglierano (1986). Reprinted with permission

E Exploring the Dimensions of Entrepreneurship Seeking new opportunities that may or may not be related to the present line of operations; 2. Introducing new products and brands ahead of the competition; & 3. Strategically eliminating operations that are in the mature or declining stages of the life cycle. 1.

E Exploring the Dimensions of Entrepreneurship v. Stuck in the Mud v. Wild-Eyed Gambler v. Dreamer v. Entrepreneur

E Exploring the Dimensions of Entrepreneurship High Dreamer Entrepreneur Stuck in the Mud Wild-eyed Gambler Innovativeness Low High Risk-taking

E Entrepreneurial Intensity: Combining Degree and Frequency of Entrepreneurship v. Combining Degree and Frequency…… The Entrepreneurial Grid

E Entrepreneurial Intensity: Combining Degree and Frequency of Entrepreneurship High Low Continuous/ Incremental Revolutionary Dynamic Periodic/ Incremental Low Periodic/ Discontinuous High Degree of Entrepreneurship (innovativeness, risk-taking, proactiveness)

E Applying the Entrepreneurial Grid to Organizations The entrepreneurial grid is a useful too for manage attempting to define the role of entrepreneursh within their organizations. A company’s entrepreneurial strategy is effectively defined according to where it falls on the grid.

E Applying the Entrepreneurial Grid to Organizations High Procter & Gamble Level 3 Communications Frequency of Entrepreneurship 3 M Nucor Steel Wendy’s Low Degree of Entrepreneurship High

E Applying the Grid at the Level of the Individual Manager The entrepreneurial grid can serve as a usefu means for diagnosing entrepreneurial management profiles

E Applying the Grid at the Level of the Individual Manager High Rich De. Vos (Amyway Household Products) Frequency of Entrepreneurship Richard Branson (Virgin) Ted Turner (CNN) Akio Morito (Sony) Ray Kroc (Mc. Donald’s) Bill Gates (Microsoft) Sachiro Honda (Honda Motors) Herb Kellehner (Southwest Airways) Howard Head (Head Skis, Prince Tennis Racquets) Steven Jobs (Apple, Ne. XT and Pixar) Low Degree of Entrepreneurship High

E Things We Know and Don’t Know about Entrepreneurial Intensity v. Research is embryonic v. Ideal point is industry and market specific specifi

E Things We Know and Don’t Know about Entrepreneurial Intensity There is also much we do not know. For example, to what extent does the relative importance of degree frequency vary depending on such strategic factor the pace of technological change in an industry, th levels of competitive intensity, or the heterogeneit market demand? Under what conditions is degree frequency the strongest contributor to company performance?

EThings We Know and Don’t Know about Entrepreneurial Intensity v It is also necessary to determine if frequency and degree contribute equally to short-term as opposed to long-term performance. v Another critical question concerns the types and amount costs associated with Entrepreneurial Intensity (EI). v Finally, it is not clear that high levels of entrepreneurial intensity are sustainable.