Hitt M.A., Ireland R.D., Hoskisson R.E. Strategic Management: Competitiveness and Globalization: Concepts

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Studying this chapter should provide you with the strategic

management knowledge needed to:

1. Deﬁ ne strategic entrepreneurship and corporate entrepreneurship.

2. Deﬁ ne entrepreneurship and entrepreneurial opportunities and explain

their importance.

3. Deﬁ ne invention, innovation, and imitation, and describe the relationship

among them.

4. Describe entrepreneurs and the entrepreneurial mind-set.

5. Explain international entrepreneurship and its importance.

6. Describe how ﬁ rms internally develop innovations.

7. Explain how ﬁ rms use cooperative strategies to innovate.

8. Describe how ﬁ rms use acquisitions as a means of innovation.

9. Explain how strategic entrepreneurship helps ﬁ rms create value.

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CHAPTER 13

Strategic

Entrepreneurship

Jeff Bezos led the Internet retailing revolution

with his entry into the book retail market

in 1995. Since that time, Amazon.com has

signiﬁ cantly expanded its product lines and

implemented several innovations, especially in

processes and approaches to marketing their products. Recently, Bezos and Amazon are

leading a potential revolution in the book market with the Kindle, which provides easy access

to store and read many e-books. Let’s be clear—Amazon did not create the digital book.

E-books have been available for several years, but access to and use of e-books has not been

necessarily easy. But, with the development of the Kindle e-reader, access to and ease of

reading e-books has been simpliﬁ ed and it is predicted to revolutionize the book publishing

business within the next ﬁ ve years.

The Kindle was ﬁ rst introduced in

2007, and two newer and improved

versions were introduced in 2009. The

Kindle 2 was introduced in February

2009 and according to market analysts,

it literally “ﬂ ew off the shelves” at a

time when consumers were curtailing

purchases of most other products. Then

in May 2009, Amazon introduced a

large-screen version of the Kindle 2, the

Kindle DX, which has a 9.7-inch screen.

While the DX appears to be a little

cumbersome, it provides larger screen

access to graphics-heavy publications

common in college textbooks. The Kindle

currently can be used to download any of

the 285,000 e-books available in

Amazon’s inventory. Amazon’s new

Kindles are thinner than a pencil and

offer a feature allowing text to be

translated into voice. This means that

it can read to you! Bezos demonstrated this feature at the introduction by having the

computer-generated voice read the Gettysburg Address.

Amazon’s success in the ﬁ rst quarter of 2009 (e.g., a 24 percent increase in earnings

from the ﬁ rst quarter 2008) was largely attributed to the Kindle. It is predicted to be wildly

successful. Barclays Capital has predicted that it will reach annual sales of $3.7 billion in

2012 with a proﬁ t of $840 million. This amount would account for approximately 20 percent

of Amazon’s predicted sales that year. Amazon also earns a return by selling content for use

on the Kindle in the form of e-books and other electronic content. For example, Amazon

sells subscriptions to 37 different newspapers for the Kindle at $10 per month. This set

includes such respected newspapers as the New York Times, Boston Globe, and Washington

Post. It also has an agreement for a pilot program at ﬁ ve major universities, hoping that

students will soon be carrying all of their textbooks on the Kindle in their backpacks.

Clearly, Amazon’s biggest potential challenge may come from competitors. The Kindle

technology is likely imitable and Sony already has a competitor e-reader on the market.

Thus, Amazon must entrench the Kindle quickly and continue to enrich its features (the

Kindle currently only provides “black-and-white” content even though it is said to provide

better resolution than can be obtained in print copies). While the Kindle may help Amazon

become the Apple of the e-reader market, the Kindle is likely to revolutionize all publishing

industries (e.g., book publishers, newspapers).

Sources: S. Stein, 2009, Old, real book vs. Kindle alternative: Which will win? CNET.com, http://www.cnet.com,

June 12; J. M. O’Brien, 2009, Amazon’s next revolution, Fortune, June 8, 68–76; B. Stone & M. Rich, 2009,

Amazon introduces big-screen Kindle, New York Times, http://www.nytimes.com, May 7; D. MacMillan, 2009,

Amazon’s widescreen Kindle DX: Winners and losers, BusinessWeek, http://businessweek.com, May 7; C.

Dannen, 2009, Amazon CEO Jeff Bezos unveils Kindle DX in New York, Fast Company, http://www.fastcompany.

com, May 6; D. Darlin, 2009, First impressions of the new Kindle DX, New York Times, http://www.gadgetwise.

blogs.nytimes.com, May 6; C. Gallo, 2009, How Amazon’s Bezos sparked demand for Kindle 2, BusinessWeek,

http://businessweek.com, February, 24.

THE CONTINUING

INNOVATION REVOLUTION

AT AMAZON: THE

KINDLE AND E-BOOKS

The new Kindle 2 electronic reader “flew off the

shelves” at a time when consumers were curtailing

purchases of most other products.

AP Photo/Mark Lennihan

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In Chapter 1, we indicated that organizational culture refers to the complex set of ideologies,

symbols, and core values that are shared throughout the firm and that influence how the

firm conducts business. Thus, culture is the social energy that drives—or fails to drive—

the organization. The Opening Case explains Amazon’s new innovation, the Kindle,

that is expected to revolutionize the publishing industries (any businesses which provide

products printed with ink on paper). Increasingly, a firm’s ability to engage in innovation

makes the difference in gaining and maintaining a competitive advantage and achieving

performance targets.

Amazon is clearly an entrepreneurial and innovative company. Amazon is the lead-

ing Internet retailer in the world and also consistently produces innovations. Not all of

them are successful, but the Kindle appears to be on the verge of being highly successful.

From reading this chapter, you will understand that Amazon’s ability to innovate shows

that it successfully practices strategic entrepreneurship.

Strategic entrepreneurship is taking entrepreneurial actions using a strategic per-

spective. In this process, the firm tries to find opportunities in its external environ-

ment that it can try to exploit through innovations. Identifying opportunities to exploit

through innovations is the entrepreneurship dimension of strategic entrepreneurship,

while determining the best way to manage the firm’s innovation efforts is the strategic

dimension. Thus, firms engaging in strategic entrepreneurship integrate their actions

to find opportunities and to successfully innovate in order to pursue them.

In the

twenty-first–century competitive landscape, firm survival and success depend on a

firm’s ability to continuously find new opportunities and quickly produce innovations to

pursue them.

To examine strategic entrepreneurship, we consider several topics in this chapter.

First, we examine entrepreneurship and innovation in a strategic context. Definitions

of entrepreneurship, entrepreneurial opportunities, and entrepreneurs as those who

engage in entrepreneurship to pursue entrepreneurial opportunities are presented. We

then describe international entrepreneurship, a phenomenon reflecting the increased

use of entrepreneurship in economies throughout the world. After this discussion,

the chapter shifts to descriptions of the three ways firms innovate. Internally, firms

innovate through either autonomous or induced strategic behavior. We then describe

actions firms take to implement the innovations resulting from those two types of

strategic behaviors.

In addition to innovating within the firm, firms can develop innovations by using

cooperative strategies, such as strategic alliances, and by acquiring other companies to

gain access to their innovations and innovative capabilities.

Most large, complex firms

use all three methods to innovate. The chapter closes with summary comments about how

firms use strategic entrepreneurship to create value and earn above-average returns.

As emphasized in this chapter, innovation and entrepreneurship are vital for young

and old and for large and small firms, for service companies as well as manufacturing

firms, and for high-technology ventures.

In the global competitive landscape, the long-

term success of new ventures and established firms is a function of their ability to meld

entrepreneurship with strategic management.

A major portion of the material in this chapter is on innovation and entrepreneur-

ship within established organizations. This phenomenon is called corporate entre-

preneurship

, which is the use or application of entrepreneurship within an established

firm.

Corporate entrepreneurship has become critical to the survival and success of

established organizations.

Indeed, established firms use entrepreneurship to strengthen

their performance and to enhance growth opportunities.

Of course, innovation and

entrepreneurship play a critical role in the degree of success achieved by startup entre-

preneurial ventures as well. Much of the content examined in this chapter is equally

important in entrepreneurial ventures (sometimes called “startups”) and established

organizations.

380

Strategic

entrepreneurship

taking entrepreneurial

actions using a strategic

perspective.

Corporate

entrepreneurship is

the use or application of

entrepreneurship within an

established ﬁ rm.

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Chapter 13: Strategic Entrepreneurship

Entrepreneurship and Entrepreneurial

Opportunities

Entrepreneurship is the process by which individuals, teams, or organizations identify

and pursue entrepreneurial opportunities without being immediately constrained by

the resources they currently control.

Entrepreneurial opportunities are conditions in

which new goods or services can satisfy a need in the market. These opportunities exist

because of competitive imperfections in markets and among the factors of production

used to produce them or because they were independently developed by entrepreneurs.

Entrepreneurial opportunities come in many forms such as the chance to develop and

sell a new product and the chance to sell an existing product in a new market.

Firms

should be receptive to pursuing entrepreneurial opportunities whenever and wherever

they may surface.

As these two definitions suggest, the essence of entrepreneurship is to identify and

exploit entrepreneurial opportunities—that is, opportunities others do not see or for

which they do not recognize the commercial potential.

As a process, entrepreneurship

results in the “creative destruction” of existing products (goods or services) or methods

of producing them and replaces them with new products and production methods.

Thus, firms engaging in entrepreneurship place high value on individual innovations as

well as the ability to continuously innovate across time.

We study entrepreneurship at the level of the individual firm. However, evidence

suggests that entrepreneurship is the economic engine driving many nations’ econo-

mies in the global competitive landscape.

Thus, entrepreneurship, and the innovation it

spawns, is important for companies competing in the global economy and for countries

seeking to stimulate economic climates with the potential to enhance the living standard

of their citizens.

A recent study conducted by the Boston Consulting Group and the

Small Business Division of Intuit found that 10 million people in the United States were

considering starting a new business. About one-third of those who do will expand into

international markets. The study suggested that by 2017 the number of entrepreneurs

will increase, and the entrepreneurs will be younger and include more women and immi-

grants. Thus, even though the importance of entrepreneurship continues to grow, the

“face” of those who start new ventures is also changing.

Innovation

Peter Drucker argued that “innovation is the specific function of entrepreneurship,

whether in an existing business, a public service institution, or a new venture started

by a lone individual.”

Moreover, Drucker suggested that innovation is “the means by

which the entrepreneur either creates new wealth-producing resources or endows exist-

ing resources with enhanced potential for creating wealth.”

Thus, entrepreneurship

and the innovation resulting from it are critically important for all firms. The realities

of competition in the competitive landscape of the twenty-first century suggest that to

be market leaders, companies must regularly develop innovative products desired by

customers. This means that innovation should be an intrinsic part of virtually all of a

firm’s activities.

Innovation is a key outcome firms seek through entrepreneurship and is often the

source of competitive success, especially in turbulent, highly competitive environments.

For example, research results show that firms competing in global industries that invest

more in innovation also achieve the highest returns.

In fact, investors often react posi-

tively to the introduction of a new product, thereby increasing the price of a firm’s stock.

Furthermore, “innovation may be required to maintain or achieve competitive parity,

Entrepreneurship is

the process by which

individuals, teams,

or organizations

identify and pursue

entrepreneurial

opportunities without

being immediately

constrained by

the resources they

currently control.

Entrepreneurial

opportunities

are

conditions in which

new goods or services

can satisfy a need in

the market.

382

much less a competitive advantage in many global markets.”

Investing in the develop-

ment of new technologies can increase the performance of firms that operate in different

but related product markets (refer to the discussion of related diversification in Chapter

6). In this way, the innovations can be used in multiple markets, and return on the invest-

ments is earned more quickly.

In his classic work, Schumpeter argued that firms engage in three types of innovative

activities.

Invention is the act of creating or developing a new product or process.

Innovation is the process of creating a commercial product from an invention.

Innovation begins after an invention is chosen for development.

Thus, an invention

brings something new into being, while an innovation brings something new into use.

Accordingly, technical criteria are used to determine the success of an invention, whereas

commercial criteria are used to determine the success of an innovation.

Finally, imitation

is the adoption of a similar innovation by different firms. Imitation usually leads to

product or process standardization, and products based on imitation often are offered

at lower prices, but without as many features. Entrepreneurship is critical to innovative

activity in that it acts as the linchpin between invention and innovation.

In the United States in particular, innovation is the most critical of the three types

of innovative activities. Many companies are able to create ideas that lead to inventions,

but commercializing those inventions has, at times, proved difficult.

This difficulty is

suggested by the fact that approximately 80 percent of R&D occurs in large firms, but

these same firms produce fewer than 50 percent of the patents.

Patents are a strategic

asset and the ability to regularly produce them can be an important source of competi-

tive advantage, especially for firms competing in knowledge-intensive industries (e.g.,

pharmaceuticals).

Entrepreneurs

Entrepreneurs are individuals, acting independently or as part of an organization, who

perceive an entrepreneurial opportunity and then take risks to develop an innovation

to pursue it. Entrepreneurs can be found throughout an organization—from top-level

managers to those working to produce a firm’s goods or services. Entrepreneurs are

found throughout Amazon, for example. Many Amazon employees must devote at least

a portion of their time to develop innovations. Entrepreneurs tend to demonstrate sev-

eral characteristics: They are highly motivated, willing to take responsibility for their

projects, self-confident, and often optimistic.

In addition, entrepreneurs tend to be pas-

sionate and emotional about the value and importance of their innovation-based ideas.

They are able to deal with uncertainty and are more alert to opportunities than others.

Interestingly, recent research found that genetic factors partly influence people to engage

in entrepreneurship.

To be successful, entrepreneurs often need to have good social

skills and to plan exceptionally well (e.g., to obtain venture capital).

Entrepreneurship

entails much hard work to be successful but it can also be highly satisfying. As noted by

Mary Kay Ash, founder of Mary Kay Cosmetics, “It is far better to be exhausted from

success than to be rested from failure.”

Evidence suggests that successful entrepreneurs have an entrepreneurial mind-set.

The person with an entrepreneurial mind-set values uncertainty in the marketplace

and seeks to continuously identify opportunities with the potential to lead to important

innovations.

Because it has the potential to lead to continuous innovations, an indi-

vidual’s entrepreneurial mind-set can be a source of competitive advantage for a firm.

Entrepreneurial mind-sets are fostered and supported when knowledge is readily avail-

able throughout a firm. Indeed, research has shown that units within firms are more

innovative when they have access to new knowledge.

Transferring knowledge, however,

can be difficult, often because the receiving party must have adequate absorptive capacity

(or the ability) to learn the knowledge.

Learning requires that the new knowledge be

Invention is the act of

creating or developing a

new product or process.

Innovation is the process

of creating a commercial

product from an invention.

Imitation is the adoption

of a similar innovation by

different ﬁ rms.

Entrepreneurs are

individuals, acting

independently or as

part of an organization,

who perceive an

entrepreneurial

opportunity and then

take risks to develop an

innovation to exploit it.

The person with an

entrepreneurial mind-

set values uncertainty

in the marketplace and

seeks to continuously

identify opportunities with

the potential to lead to

important innovations.

Part 3: Strategic Actions: Strategy Implementation

383

Chapter 13: Strategic Entrepreneurship

linked to the existing knowledge. Thus, managers need to develop the capabilities of their

human capital to build on their current knowledge base while incrementally expanding

that knowledge.

Some companies are known for their entrepreneurial culture. For example, in 2008

Apple was ranked as the most innovative company for the fourth year in a row. The

rest of the top 10 most innovative companies were Google, Toyota, General Electric,

Microsoft, Tata Group, Nintendo, Procter & Gamble, Sony, and Nokia. Yet, there are

other companies known as the antithesis of innovative. For example, GM was known

for sacrificing innovation for profits. Of course, this approach eventually led to GM’s

demise.

International Entrepreneurship

International entrepreneurship is a process in which firms creatively discover and

exploit opportunities that are outside their domestic markets in order to develop a com-

petitive advantage.

As the practices suggested by this definition show, entrepreneurship

is a global phenomenon.

As noted earlier, approximately one-third of new ventures

move into international markets early in their life cycle. Most large established compa-

nies have significant foreign operations and often start new ventures in domestic and

international markets. Large multinational companies, for example, generate approxi-

mately 54 percent of their sales outside their domestic market, and more than 50 percent

of their employees work outside of the company’s home country.

A key reason that entrepreneurship has become a global phenomenon is that in gen-

eral, internationalization leads to improved firm performance.

Nonetheless, decision

makers should recognize that the decision to internationalize exposes their firms to vari-

ous risks, including those of unstable foreign currencies, problems with market efficien-

cies, insufficient infrastructures to support businesses, and limitations on market size.

Thus, the decision to engage in international entrepreneurship should be a product of

careful analysis.

Because of its positive benefits, entrepreneurship is at the top of public policy

agendas in many of the world’s countries, including Finland, Ireland, Israel, and the

United States. Entrepreneurship has become a particularly important public agenda

item with the global economic crisis, which began in late 2007. For example, the U.S.

government and the Michigan state government are emphasizing entrepreneurial

activity to revitalize the Detroit area hurt seriously by the loss of jobs due to the U.S.

auto companies’ decline.

Even though entrepreneurship is a global phenomenon, the rate of entrepreneur-

ship differs across countries. A study of 43 countries found that the percentage of adults

involved in entrepreneurial activity ranged from a high of more than 45 percent in Bolivia

to a low of approximately 4.4 percent in Russia. The United States had a rate of almost 19

percent. Importantly, this study also found a strong positive relationship between the rate

of entrepreneurial activity and economic development in a country.

Culture is one of the reasons for the differences in rates of entrepreneurship among

different countries. The research suggests that a balance between individual initiative

and a spirit of cooperation and group ownership of innovation is needed to encourage

entrepreneurial behavior. For firms to be entrepreneurial, they must provide appropriate

autonomy and incentives for individual initiative to surface, but also promote coop-

eration and group ownership of an innovation if it is to be implemented successfully.

Thus, international entrepreneurship often requires teams of people with unique skills

and resources, especially in cultures that highly value individualism or collectivism. In

addition to a balance of values for individual initiative and cooperative behaviors, firms

must build the capabilities to be innovative and acquire the resources needed to support

innovative activities.

International

entrepreneurship is a

process in which ﬁ rms

creatively discover and

exploit opportunities

that are outside their

domestic markets in

order to develop a

competitive advantage.

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Part 3: Strategic Actions: Strategy Implementation

The level of investment outside of the home country made by young ventures is

also an important dimension of international entrepreneurship. In fact, with increasing

globalization, a greater number of new ventures have been “born global.”

Research has

shown that new ventures that enter international markets increase their learning of new

technological knowledge and thereby enhance their performance.

The probability of entering international markets increases when the firm has top

executives with international experience, which increases the likelihood of the firm suc-

cessfully competing in those markets.

Because of the learning and economies of scale

and scope afforded by operating in international markets, both young and established

internationally diversified firms often are stronger competitors in their domestic market

as well. Additionally, as research has shown, internationally diversified firms are gener-

ally more innovative.

As explained in the Strategic Focus, innovation has become highly important in the

global competitive landscape. Thus, the ability of firms to gain and sustain a competitive

advantage may be based partly or largely on the capability to produce innovations. Thus,

we next discuss different types of innovations.

Internal Innovation

In established organizations, most innovation comes from efforts in research and devel-

opment (R&D). Effective R&D often leads to firms’ filing for patents to protect their

innovative work. Increasingly, successful R&D results from integrating the skills avail-

able in the global workforce. Thus, the ability to have a competitive advantage based on

innovation is more likely to accrue to firms capable of integrating the talent of human

capital from countries around the world.

Both Intel and Nokia have been innovative firms and market leaders. In 2009, they

announced an agreement to jointly develop new mobile computing products that pro-

vide functions beyond the current smartphones and netbooks. The new products likely

will integrate features of both phones and computers. Thus, the two companies can

combine and integrate their current knowledge and capabilities of both types of products

and the markets for them. While Intel has not yet “cracked” the smartphone market with

its memory chips, Nokia has been successful with smartphones but was caught off guard

when Apple introduced its now highly popular iPhone. Therefore, the marriage between

the two should help each to overcome its weaknesses by integrating their strengths. In

addition to the development of new products from their joint R&D efforts, they also plan

to develop software for devices using the Linux operating system.

Increasingly, it seems possible that in the twenty-first century competitive landscape,

R&D may be the most critical factor in gaining and sustaining a competitive advantage

in some industries, such as pharmaceuticals. Larger, established firms, certainly those

competing globally, often try to use their R&D labs to create competence-destroying new

technologies and products. Being able to innovate in this manner can create a competi-

tive advantage for firms in many industries.

Although critical to long-term corporate

success, the outcomes of R&D investments are uncertain and often not achieved in the

short term, meaning that patience is required as firms evaluate the outcomes of their

R&D efforts.

Incremental and Radical Innovation

Firms produce two types of internal innovations—incremental and radical innovations—

when using their R&D activities. Most innovations are incremental—that is, they build

on existing knowledge bases and provide small improvements in the current product

lines. Incremental innovations are evolutionary and linear in nature.

“The markets for

incremental innovations are well-defined, product characteristics are well understood,

profit margins tend to be lower, production technologies are efficient, and competition

In 2009, the United States continued to

be ranked as the most competitive nation.

This top ranking and those of some other

developed countries are based on the quality

of infrastructures, educational systems, and

laws regarding business operations. It is also due to their advanced levels of innovation over

the years. Yet, the major economic crisis beginning in late 2007 and early 2008 has shown

some “cracks” in the economic leadership of these countries. In the twenty-first century,

economic power has begun to shift to major emerging economies such as China and India.

However, the shift may be even more fundamental, as many believe that innovation is

the most critical factor in a nation’s competitiveness over time. In fact, the United States

competitiveness is likely based on the significant innovative capabilities and innovative output

of its businesses. While certain business leaders in the United States understand the impor-

tance of innovation (e.g., members of the U.S. Council on Competitiveness), the country is no

longer ranked as the most innovative nation. In fact, the United States ranked eighth in the

2009 International Innovation Index (among the 110 countries ranked). Singapore was ranked

first. In a report issued by the Information Technology and Innovation Foundation, the United

States was ranked sixth among 40 countries and regions around the world. Singapore was

also ranked first in this report. Singapore developed

a strategy to promote specific programs by invest-

ing heavily in attracting major technologies and

recruiting top scientists to develop more innovation.

That strategy is now paying substantial dividends.

Firms based in the United States have focused too

much on producing short-term returns, leading to

an overemphasis on incremental innovations. As a

result, the country is now in danger of losing its lead

in science and technology. Perhaps one of the most

prominent examples is Exxon-Mobil, which receives

approximately $756,000 in revenue per minute.

Rather than focus on developing new sources of

energy, it seeks to enhance its ability to gain access to

and extract with greater efficiency black gold or oil.

According to a 2009 report in BusinessWeek,

technological breakthroughs in a number of fields have

been few in number since 1998 (e.g., medical science,

drugs, information technology, etc.). The leadership

in these fields is largely represented by firms based in the United States. However, future

technological breakthroughs in these fields are likely to be produced by firms based in other

countries. Regaining this lead will require a major change in mind-set, investments, and promo-

tion of entrepreneurial endeavors. Efforts have been implemented to encourage and develop

more entrepreneurial activities in a number of industries and geographic regions to stop the

economic decline and facilitate economic growth in the United States. It is unclear if these

efforts will be successful in the short or long term.

Sources: M. Mandel, 2009, Innovation interrupted, BusinessWeek, June 15, 034-040; 2009, International innovation index,

Wikipedia, http://www.answers.com, June 13; B. Ott, 2009, Top companies can tame bear markets, Yahoo News, http://www

.yahoo.com, June 11; A. S. Choi, 2009, Can entrepreneurs save this town? BusinessWeek, http://www.businessweek.com,

June 5; M. Scott, 2009, Competitiveness: The U.S. and Europe are tops, BusinessWeek, http://www.businessweek.com, May

19; M. Richtel & J. Wortham, 2009, Weary of looking for work, some create their own, New York Times, http://www.nytimes

.com, March 14; S. Lohr, 2009, In innovation, U.S. said to be losing competitive edge, New York Times, http://www.nytimes

.com, February 25; J. Rae-Dupree, 2009, Innovation should mean more jobs, not less, New York Times, http://www.nytimes

.com, January 4; R. Empson, 2008, Encouraging innovation: How can we do it better? Fast Company, http://www

. fastcompany.com, August 1.

COMPETITIVENESS

AND INNOVATION: ARE

WE EXPERIENCING A

PARADIGM SHIFT?

With forward-thinking investments in the

recruitment of top scientists and

attraction of key technologies, Singapore

is the world leader in innovation.

Corbis/PhotoLibrary

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Part 3: Strategic Actions: Strategy Implementation

is primarily on the basis of price.”

Adding a different kind of whitening agent to a soap

detergent is an example of an incremental innovation, as are improvements in televisions

over the last few decades. Companies launch far more incremental innovations than

radical innovations because they are cheaper, easier and faster to produce, and involve

less risk.

In contrast to incremental innovations, radical innovations usually provide signifi-

cant technological breakthroughs and create new knowledge.

Radical innovations,

which are revolutionary and nonlinear in nature, typically use new technologies to serve

newly created markets. The development of the original personal computer (PC) was a

radical innovation at the time. Reinventing the computer by developing a “radically new

computer-brain chip” (e.g., with the capability to process a trillion calculations per sec-

ond) is an example of a radical innovation. Obviously, such a radical innovation would

seem to have the capacity to revolutionize the tasks computers could perform. Perhaps

some of the new products to be produced by the joint venture between Intel and Nokia

integrating smartphones and computers will be considered to be radical innovations.

Because they establish new functionalities for users, radical innovations have strong

potential to lead to significant growth in revenue and profits.

Developing new processes

is a critical part of producing radical innovations. Both types of innovations can create

value, meaning that firms should determine when it is appropriate to emphasize either

incremental or radical innovation. However, radical innovations have the potential to

contribute more significantly to a firm’s efforts to earn above-average returns.

Radical innovations are rare because of the difficulty and risk involved in developing

them. The value of the technology and the market opportunities are highly uncertain.

Because radical innovation creates new knowledge and uses only some or little of a firm’s

current product or technological knowledge, creativity is required. However, creativity

does not produce something from nothing. Rather, creativity discovers, combines, or

synthesizes current knowledge, often from diverse areas.

This knowledge is then used

to develop new products that can be used in an entrepreneurial manner to move into new

markets, capture new customers, and gain access to new resources.

Such innovations

are often developed in separate business units that start internal ventures.

Internally developed incremental and radical innovations result from deliberate

efforts. These deliberate efforts are called internal corporate venturing, which is the set

of activities firms use to develop internal inventions and especially innovations.

shown in Figure 13.1, autonomous and induced strategic behaviors are the two types

of internal corporate venturing. Each venturing type facilitates incremental and radical

innovations. However, a larger number of radical innovations spring from autonomous

strategic behavior while the greatest percentage of incremental innovations come from

induced strategic behavior.

Autonomous Strategic Behavior

Autonomous strategic behavior is a bottom-up process in which product champions pur-

sue new ideas, often through a political process, by means of which they develop and

coordinate the commercialization of a new good or service until it achieves success in the

marketplace. A product champion is an organizational member with an entrepreneurial

vision of a new good or service who seeks to create support for its commercialization.

Product champions play critical roles in moving innovations forward. Indeed, in many

corporations, “Champions are widely acknowledged as pivotal to innovation speed and

success.”

Champions are vital to sell the ideas to others in the organization so that the

innovations will be commercialized. Commonly, product champions use their social cap-

ital to develop informal networks within the firm. As progress is made, these networks

become more formal as a means of pushing an innovation to the point of successful com-

mercialization.

Internal innovations springing from autonomous strategic behavior

frequently differ from the firm’s current strategy, taking it into new markets and perhaps

new ways of creating value for customers and other stakeholders.

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Chapter 13: Strategic Entrepreneurship

Concept of corporate strategy

Structural contextStrategic context

Autonomous

strategic

behavior

Induced

strategic

behavior

Figure 13.1 Model of Internal Corporate Venturing

Source: Adapted from R. A. Burgelman, 1983, A model of the interactions of strategic behavior, corporate context, and

the concept of strategy, Academy of Management Review, 8: 65.

Autonomous strategic behavior is based on a firm’s wellspring of knowledge and

resources that are the sources of the firm’s innovation. Thus, a firm’s technological capa-

bilities and competencies are the basis for new products and processes.

As described

in the Strategic Focus, Exxon-Mobil does not appear to use autonomous strategic

behavior to identify new technologies and products that can better serve its customers.

Alternatively, the iPod likely resulted from autonomous strategic behavior in Apple,

though the development of the iPhone was more the result of induced strategic behavior

discussed in the next section.

Changing the concept of corporate-level strategy through autonomous strategic

behavior results when a product is championed within strategic and structural contexts

(see Figure 13.1). Such a transformation occurred with the development of the iPod and

introduction of iTunes at Apple. The strategic context is the process used to arrive at

strategic decisions (often requiring political processes to gain acceptance). The best firms

keep changing their strategic context and strategies because of the continuous changes in

the current competitive landscape. Thus, some believe that the most competitively suc-

cessful firms reinvent their industry or develop a completely new one across time as they

compete with current and future rivals.

To be effective, an autonomous process for developing new products requires that

new knowledge be continuously diffused throughout the firm. In particular, the diffu-

sion of tacit knowledge is important for development of more effective new products.

Interestingly, some of the processes important for the promotion of autonomous new

product development behavior vary by the environment and country in which a firm

operates. For example, the Japanese culture is high on uncertainty avoidance. As such,

research has found that Japanese firms are more likely to engage in autonomous behav-

iors under conditions of low uncertainty.

Induced Strategic Behavior

The second of the two forms of internal corporate venturing, induced strategic behavior, is

a top-down process whereby the firm’s current strategy and structure foster innovations

that are closely associated with that strategy and structure.

In this form of venturing, the

strategy in place is filtered through a matching structural hierarchy. In essence, induced

strategic behavior results in internal innovations that are highly consistent with the firm’s