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seeds versus weeds innovation dilemma

The number of companies with similar venturing programs has more than tripled in the past three years. Firms such as Lucent, AT&T, CMGI, and Hewlett Packard are creating separate entrepreneurial organizations in order to streamline the management of new product concepts. Some of these companies have “spun-off” specific products or technologies as stand alone companies. Examples include AT&T’s creation of Lucent Technologies, Hewlett Packard’s formation of Agilent Technologies, and 3Com’s spin-off of Palm Pilot. These spinoffs are attempts to provide major product groups with the flexibility, incentive, and management structure to meet the needs of a particular marketplace.

Sharma found in his study that managers of innovative projects within large firms “were severely taxed, since virtually every staff position that was created within the ventures required extensive justification in terms of technical need and economic viability.” This process naturally included presenting new opportunities to personnel from other divisions in compliance with internal HR policies.

Partners and advisors at XTV provided an initial vehicle to support founders with critical management processes in accounting, control, purchasing, recruiting, marketing, and other areas such as presentation skills. This enabled founders to concentrate on moving their product to the marketplace. The new firms used the Xerox identity in their literature, providing credibility to an unknown firm.

Incremental vs. Pre-emptive Launch

Capital budgeting processes certainly play a role in the reluctance of firms to pursue emerging markets. A company may decline a new venture when management is driven primarily by ROI concepts, due to the perceived demand for funding and technical talent. Corporate venturing, however, provides a vehicle for management to minimize investment and risk while positioning the firm to pursue new opportunities. More importantly, the parent organization may realize much higher valuations from their new ventures than they would if these same ventures were integrated in their current income statements. For example, Palm Pilot, a spin-off, is valued higher than the parent company 3Com.

XTV turned a $30 million dollar fund into a $500 million dollar valuation in seven years. It provided Xerox a vehicle to recognize a significant return on its internally developed products which, otherwise, were “orphans” in the total corporate product strategy. In 1997 Xerox formed Xerox New Enterprises (XNE) as a new management paradigm within the company to manage and grow innovative businesses formed outside the corporation’s core strengths.

Partnering can expose firms to new knowledge, organizational structures, or cultural characteristics that are essential in serving an emerging market. Firms that partnered with XTV brought new perspectives and modes of operation that made the ventures more competitive. The parent company was even able to selectively adopt these insights into its existing operations.

New organizational models can help a firm commercialize ideas that would otherwise languish.

12 12 – 12 Challenges of Innovation Experience versus initiative -Deciding who will lead an innovation project Senior managers -Have experience and credibility -Tend to be more risk averse Midlevel employees -May be the innovators themselves -May have more enthusiasm

14 12 – 14 Challenges of Innovation Building capabilities versus collaborating -Innovation projects often require building new sets of skills Firms can seek help -Other departments -Partner with other companies that bring resources and experience Partnerships -Create dependencies and inhibit internal skills development -Sharing benefits of innovation may create conflict

Presentation on theme: “12 Managing Innovation and Fostering Corporate Entrepreneurship Professor John Coy.”— Presentation transcript:

32 12 – 32 Entrepreneurial Orientation Autonomy -Two techniques often used to promote autonomy Using skunkworks to foster entrepreneurial thinking Designing organization structures that support independent action Innovativeness -Two methods used to enhance competitive position through innovativeness Fostering creativity and experimentation Investing in new technology, R&D, and continuous improvement

30 12 – 30 Entrepreneurial Orientation DimensionDefinition AutonomyIndependent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion. Innovativeness A willingness to introduce novelty through experimentation and creative processes aimed at developing new products and services as well as new processes. ProactivenessA forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand. Source: J. G. Covin and D. P. Sleving, “A conceptual Model of Entrepreneurship As Firm Behavior,” Entrepreneurship Theory & Practice, Fall 1991, pp. 7-25; G. T. Lumpkin and G. G. Dess, “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance,” Academy of Management Review 21, no. 1 (1996), pp. 135-72; D. Miller, “The Correlates of Entrepreneurship in Three Types of Firms,” Management Science 29 (1983), pp. 770-91. Adapted from Exhibit 12.3 Dimensions of Entrepreneurial Orientation

7 12 – 7 Types of Innovation Degree of innovativeness -Radical innovation -Fundamental changes and breakthroughs -Evoke major departures from existing practices -Can be highly disruptive -Can transform or revolutionize a whole industry -Incremental innovation -Enhance existing practices -Small improvements in products and processes -Evolutionary applications within existing paradigms