ENTR 3012 Intrapreneurship Test 1 (Cabral)

The Entrepreneurial Process

Step 3: Assessing the resource requirements This is about more than money... Relationships, intellectual property, location, team and supply chains will all matter greatly

Why do we care about Intrapreneurship?

most new ideas and products come from established companies and not starups.

Sustained competitive advantage traditionally achieved by:

Lower costs Higher quality Better performance Selection Customer service ^ these are all Increasingly difficult to sustain. Items in external environment make them more imitable

matchmaking represents

radical innovation in the advertising space because companies match content providers/advertisers to consumers

Google X's purpose

- "Moonshot" ideas completely unrelated to Google's core operations - Pursuing invention (basic science) without the pressures of profit or application (applied science)

What do air balloons, fiber optics, self driving cars or renewable energy have to do with Google?

- A tradeoff exists between freedom to experiment for the sake of experimentation and experimentation to serve the core business's objectives - Would Google, and the world, be better served with someone else doing this experimentation?

What makes matchmaking so radical?

- Data driven insights - who, what, how much, what next... - New technology enables better targeting and tracking - Decreases consumer's search efforts

Structures and culture exist that

- Encourage experimentation/risk taking Accept failure - Treat innovation as a business function

Culture?

- Encourages and rewards failure - start with the hardest part to see if it will be a failure faster (Monkeyfirst)

Internal Environments

- Everything happening within the organization to support entrepreneurship - Processes, systems, structure, culture

External environment

- Everything outside the organization that restricts or enables entrepreneurial action - Competitors, customers, technology, legal, etc - constantly changing: technology, labor, resources, customers

Problems with organic growth

- Facebook provides more value added advertising - Lots of investment in startups / acquisitions

Management qualities

- Focused on improving current operations - Plan, coordinate, lead, control - accountability - Efficiency - doing things better (improve input to output yield) - Effectiveness - doing the right thing; choosing appropriate objective and course of action

entrepreneurship qualities

- Not concerned with current operations, but instead envisions what could be - Analyze patterns and look for emerging opportunities - Identify innovative ways to seize those opportunities - Gathers and leverages resources, accepts but mitigates risk, perseveres

Two important byproducts of this culture

-People are engaged, excited and creative - maximizes returns from human capital -Facilitates radical thinking and hopefully innovative outputs

Sustained Competitive Advantage

- ability to provide goods or services that are superior to the customer's other options Examples: Apple (creativity and functionality), Honda (engines), Southwest (Low cost but highly efficient) But... a one time or short term competitive advantage is insufficient - need sustained competitive advantage to endure

intrapreneurship

- entrepreneurial activity and innovation within large corporations - more resources, less risk - must be a company wide endeaver, not individual - innovation must be its own department (like marketing or accounting) with discovery, development, incubation, acceleration, and sealing

forms of entrepreneurship

- innovation - corporate venturing(create new business units within an org) - strategic renewal (reinventing the company through major structural/strategic change; rare - expensive and risky)

external environment changes - customers

- less loyal - fragmented and specialized - increasing fast demand and individualized attention

external environment changes - resources

- population grwoth - scarcity - waste - specialization

However... successful innovation is also a function of matching

- products/services to the external environment Context considerations: Technological Societal Competitors Legal (many others...)

external environment changes - labor:

- scarcity (supply and demand) - expensive (salary and benefits) - mobility/loyalty (decreasing) - contracting

google is focused on

- strategic patience - innovation - taste for failure - data driven analytics

A new set of determinants for Sustained Competitive Advantage

-Adaptability: adjusting to the external environment -Flexibility: strategize and operate to satisfy multiple stakeholders -Speed: make operational decisions and seize opportunities quickly -Aggressiveness: a focus on beating competitors, serving customers and growing the firm -Innovativeness: prioritize developing and launching new products, processes or markets

Success of the iPod and iPhone gave Apple:

-Important knowledge about customer desires -Technical ability to satisfy those desires -Influence to shape customer expectations about functionality and experience

Two of the goals of the class are:

-Improving your ability to spot opportunities in the marketplace -Providing ways for you to alter your organization so that it is well situated to seize those opportunities

Incremental and radical (breakthrough) innovation

-Neither is "better" - both are necessary -Radical is exciting and valuable but... -Incremental allows companies to reap reward from radical innovations and finance the next radical innovations -Incremental also allows companies to develop capabilities, brand, customer insights and market influence that improve probability of the next radical innovation ex: apple computer -> ipod -> iphone -> ipad

Structure?

-Specifically set outside of Google - Foundry exists to incubate ideas as business models are developed -Successful ideas get spun off into their own subsidiaries - Why? -Recycles talent into the pipeline

Culture

-Trusts and emboldens the employees -20% "free time" encourages experimentation; But also...skill building, creativity, and commitment -Encourages failure - "fail quickly and often" ------Plant many seeds and a few may grow

Cannibalizing and Automobiles

A key question for auto makers is will electric/autonomous cars lead to more sales Chevy getting a "new" customer to buy a volt is attractive But if they were going to buy a Chevy Malibu and bought a Chevy Volt instead... Autonomous could mean less sales for all

Structure (company and external environment):

As the matchmaker platform: -A lot of the content/development is handled by other parties -Google still gets to view of all the flowing information -Google can conduct experiments -This data can inform internal innovation efforts -Removed traditional roles and teams -"Campus" community encourages people to stay at office -This encourages communication/interaction across groups spurs "outside the box" thinking

Path Dependence

Blue vs Red Ocean Blue: no one near you, safe from competitors Red: lots of competition and "blood loss" Without the burden of path dependence Tesla could employ a revolutionary strategy Problem: large economies of scale in auto and new technologies Solution: Start high end to refine tech and bring down cost per unit, then make affordable

Path Dependence

Circumstances and decisions made in the past "lock-in" the company to a specific direction, strategy or technology Due to lock-in, it is tough for organizations to make changes in the short term This is part of the reason why large organizations have trouble reacting to opportunities as quickly as startups With no "history" the startup hasn't been locked in to any specific trajectory

Corporate Entrepreneurship

Corporate entrepreneurs face two additional constraints that the startup entrepreneur does not: Cannibalization Path dependence

Aspects of Entrepreneurship

Difference 1: Risk Entrepreneur High Person bears the risk Personal wealth and future tied to endeavor Low salary Corporate Entrepreneur Low to Moderate Company bears the risk Will likely still get paid following failure Comfortable income

Aspects of Entrepreneurship

Difference 2: Reward Entrepreneur High High ownership % Nearly unlimited upside Corporate Entrepreneur Low Minimal ownership My receive a bonus May actual risk future bonuses

Aspects of Entrepreneurship

Difference 3: Control Entrepreneur High Own the idea, concept Large influence over what happens Entrepreneur "did it" Corporate Entrepreneur Low Company owns idea Company can/will alter concept Shared accomplishment

Aspects of Entrepreneurship

Difference 4: Availability of resources Entrepreneur Low Corporate Entrepreneur High Remember, it's often about more than money! Buffer during trial and error Trade-off: corporate priorities may shift

Aspects of Entrepreneurship

Difference 5: Ability to scale Entrepreneur Low A function of organic growth rate Corporate Entrepreneur High Entire company's arsenal at your disposal Especially important in markets with first mover advantage or no established dominant design

Dimension #1 - Innovativeness

Dilemma 1: does increases to innovation activity increase the success rate as well? Learning opportunities? But if it's truly novel, how much can/will be leveraged to/from other experiences Don't overlook the value of minimizing the cost of failures This can be learned from experience May actually be more important for competitiveness

Dimension #1 - Innovativeness

Dilemma 2: does being a first mover provide an advantage in the marketplace? Often yes, especially when network effects exist Also grants influence over the direction of market evolution - think back to our iPhone discussions However, second or third entrants can learn from the mistakes of pioneers At the same time, they benefit from not incurring risk and cost of "legitimizing" the new marketplace

Tesla Woes - Theory 2

Elon's a problem: overpromises and under delivers Visionary leader vs accountability Twitter rants and public whining He's spread too thin Can't profitably make an "affordable" car Are they more like Toyota or like Porsche? This has major implications for their true value

Implications of These Differences

Entrepreneurs in the two settings will have: Different motivating factors Acceptance of hierarchy/red tape Different transparency in terms of project "success" Unique aspects of the corporate entrepreneur to understand Often identify with the company as opposed to idea Project timelines won't necessarily line up with quarterly reporting or annual review timelines

The Entrepreneur

Entrepreneurship is about thinking and acting a certain way Thinking - recognizing opportunities, healthy skepticism/dissatisfaction of the status quo, embracing change, optimism Acting - taking calculated risks, overcoming hurdles, bootstrapping/reassembling resources

Path Dependence

Existing car companies face "problems" when trying to create electric cars and autonomous cars Lack expertise and relationships Example: Honda's sustainable competitive advantage comes specifically from their expertise in gas engines In new markets, who should you pair with?

Corporate entrepreneurship requires a concerted effort that must be nurtured and engrained into the company Generally involves giving employees the freedom to experiment/fail and removing bureaucracy and silos But it's a balancing act...

Experimentation for the sake of experimentation may not be appropriate Experimentation, refinement and commercialization are all required parts of a process for long term company success

Cannibalizing

Fighting changes to the external environment is a losing battle Need to accept and react to change, even if it decreases your performance The alternatives are likely worse Shrinking pie vs no pie

Dimension #1 - Innovativeness

How do we measure/assess innovativeness? Some metrics of interest: Number of concurrent projects How quickly projects are started, deployed or trimmed How much time is needed from idea to launch Innovation specific resource commitments: people, space, money, equipment Success rate?

Individuals increasingly sensitive about privacy

Impacts ability to mine data

Dimension #2 - Risk Taking

In our context of entrepreneurship, risk taking for the sake of risk taking is not "better" Instead, we want to see organizations (and individuals) take calculated risks and manage the risks where possible

Dimension #2 - Risk Taking

Infers that risk taking is optimized with a mix of small trials coupled with a few longshots Don't want to be waiting for the perfect concept Don't exclusively chase "dingers" (homeruns) Combine frequent, low risk market experiments with a few high risk options More "at bats" = testing and trial runs In addition to potential success from project, provides information that helps improve future decisions

The Entrepreneur - Some Myths

Myth #1/#3: Entrepreneurs are born, not made; There is a prototype Key traits do exist - motivation, creativity, tolerance for ambiguity, drive, etc

The Entrepreneur - Some Myths

Myth #10: Entrepreneurship is unstructured and chaotic This is true to a degree, but success comes from approaches that bring structure to the unknown Planning, timetables, budgets and constant testing aid in satisfying multiple stakeholders, meeting deadlines and responding to crisis

The Entrepreneur - Some Myths

Myth #2: Entrepreneurs must be inventors Changes to processes (and most elements of a business model) don't involve formal invention Often the opportunity involves rearranging the inventions of others

The Entrepreneur - Some Myths

Myth #4: All you need is luck It's more about preparation, determination, desire and knowledge This is why pre-industry experience is so valuable... as is experience in the startup "setting"

The Entrepreneur - Some Myths

Myth #5: Entrepreneurs are extreme risk takers

The Entrepreneur - Some Myths

Myth #5: Entrepreneurs are extreme risk takers Experience and analysis allows the individual to take calculated risks Planning and preparation are important tools to mitigate the risk

The Entrepreneur - Some Myths

Myth #7: All entrepreneurs need is money Money doesn't guarantee things are put together or opportunity is approached the "right" way Often most important things can't be purchased Lack of money often a symptom, not the cause

Corporate Entrepreneurship

Political savvy becomes particularly important within CE for three reasons: Gaining credibility/legitimacy as a business/product Obtaining resources Overcoming resistance to changing the status quo Need to be able to persuade, trade, excite Want to find underutilized assets and "get access"

Dimension #2 - Risk Taking

Presented a little differently, the type of innovation being pursued impacts riskiness Discontinuous (radical): creates a new product, service or market that did not exist before (ex: microwave ovens) Dynamically continuous: dramatic improvement over the status quo (ex: 3G cell phones) Continuous innovation: incremental efforts to improve products/services (ex: Microsoft Windows) Imitation: copying/adopting the innovations of competitor firms

Dimension #3 - Proactiveness

Proactiveness: acting on rather than reacting to Concerned with the implementation of a concept Akin to our discussions of influencing an environment Manifestations Seeking new opportunities, some of which may not relate to current operations Launching products and markets before competitors Strategically pairing mature or dying operations

Assessing the Opportunity

Questions to ask: How big is the market? How entrenched are the competitors? How much improvement are we really providing? Are the customers willing to change their behavior? How long will the opportunity last? Is this the right time to launch? - too early or to late

Entrepreneurship - Key Takeaway

Represents a planned activity that can be actively managed and monitored and applied to any organizational context Although inherent differences are sure to exist, virtually anyone can "act" entrepreneurial This class is intended to give you tools and frameworks to facilitate your own entrepreneurial action

Dimension #2 - Risk Taking

Risk taking: willingness to pursue a course of action that has a reasonable likelihood of producing losses or which have a high variance in potential performance outcomes Things are riskier when either the probability of loss, or the size of the loss, are larger* * Note, this may be different than how risk is defined in your finance classes

While "obvious" in retrospect, these were products, business models and markets that did not exist! So how did Google identify and exploit these opportunities?

Shallow answer is that they had cash to "play with" Reality - Google employed structures and developed a culture that facilitated entrepreneurial activity

Dimension #2 - Risk Taking

Sinking the boat: when you pursue a concept that doesn't work out Missing the boat: passed up an opportunity that could have been profitable Total risk is function of both, which is why broad portfolio approach matters!

Cannibalizing

So why do companies do it? Remember that in new markets there's still unknowns When making the decision, don't know for sure if digital camera profits > camera and film profits If they don't, someone else may

Dimension #1 - Innovativeness

Some best practices Top management team involvement/commitment Recognition of innovation as a key part of success Often manifests in mission statements or press releases Specific programs for idea generation and problem solving Specific budgets and rewards for innovation Openness to change and openness to outside ideas Cross functional units and communication Customer engagement Infusing order through rules and processes

Cannibalizing

Some times a new product will "eat" away the sales/profits of the company's other existing products In essence you're not "growing" market share, you're just redistributing it This is especially problematic when the innovation will be less profitable

The Entrepreneurial Process

Step 1: Identify the Opportunity Opportunity: set of favorable circumstances that create a need or an opening for a new business concept or approach Just because it's "better" doesn't mean it's needed

The Entrepreneurial Process

Step 2: Defining the business concept Business concept: an innovative approach for capitalizing on an opportunity Examples New product or service New process or method for getting something done Method or process updates to areas such as marketing/production are particularly relevant in corporate entrepreneurship

The Entrepreneurial Process

Step 2: Defining the business concept Some useful elements of a business concept: Clear benefit to the user: a "value proposition" Unique and tough to imitate Feasibility (helps with gathering support) Benefits exceed costs (must have)

The Entrepreneurial Process

Step 3: Assessing the resource requirements In organizations, sponsorships by higher-ups takes on an important role, especially when proposing new businesses or markets

The Entrepreneurial Process

Step 4: Acquiring the required resources No matter where you're being entrepreneurial you need resources, and they're expensive and often controlled by others Be creative! Why buy or own if you can borrow or share? Being creative in acquiring resources lessens the financial outlay while increasing flexibility

The Entrepreneurial Process

Step 5: Implementing and managing the concept "Launching" is just the beginning, then the entrepreneur must learn on their feet Often there is no precedent or history to leverage Must overcome repeated resistance from those more comfortable with the status quo Remember to stay open minded: learning only occurs if new information is incorporated

The Entrepreneurial Process

Step 5: Implementing and managing the concept One way to manage the ambiguity is to build in smaller, intermediate steps toward the end goal Helps evaluate progress and establish learning opps

The Entrepreneurial Process

Step 6: Harvesting the venture Eventually, all concepts must be "exited" Need to determine three things: How will returns be realized When (and for how long) will these returns occur Exit route: spun out into stand alone, absorbed into another entity, replaced, eliminated, die, etc

Dimension #1 - Innovativeness

The intangible nature and adoption of technology in services makes it easier for imitation by competitors - reason why the sector exhibits continuous and frequent improvement In processes, the value of an innovation comes from doing something cheaper, quicker, at a better quality or with a better customer experience

Path Dependence

The lock-in is being causes by many things outside of their control: Customers associate the company with specific attributes or amongst specific peer groups within the industry Supply chain relationships Employee skill sets Capital commitments "tie up" resources Ecosystems exist

Corporate Entrepreneurship

Type 1: Traditional R&D (internal) Organizational unit with technically skilled staff improving or producing new products Often focuses on overcome technical challenges Note that this is different than the market challenges Closely tied to current strategic direction

Corporate Entrepreneurship

Type 2: Ad-hoc venture teams (internal) Cross functional group of individuals put together with a specific innovation goal Clear objectives and budgets Removed from corporate mainstream Drawback: One hit wonders vs sustainability

Corporate Entrepreneurship

Type 3: New venture divisions (internal) Individual team division with goal of creating breakthrough innovation and new markets Formal, removed and "permanent" Focus on innovation that moves away from core capabilities and strategy Tradeoff: find it difficult to get buy in from other units when products are ready for testing/launch

Corporate Entrepreneurship

Type 4: Champions and the mainstream (internal) Champions: the entrepreneurship advocating for their ideas and opportunities Perseveres and keeps people engaged and excited about their idea and activities Sponsor: higher level advocate

Corporate Entrepreneurship

Type 5: Acquisitions (market based) The concerns with this approach: Not clear if it is a sustainable model While technology risk is lower since things have been proven there is a huge integration risk What are you buying and is it portable?

Corporate Entrepreneurship

Type 5: Acquisitions (market based) The organization purchases other companies to incorporate their innovative ideas Want access to technology, products or people Reinforces the company's current strategy or competencies

Corporate Entrepreneurship

Type 6: Outsource (market based) Contracting someone to do your innovative products for you Saves money/time required to build innovation infrastructure Key concerns Sustainability How important is the function or technology to your future strategy?

Summary of CE Types

Understand that the various approaches have different levels (and types) of resource requirements and vary in their sustainability Most organizations employing a hybrid (mix) The first four types are about how things occur internally, the last two leverage market based solutions

Tesla Woes - Theory 1

When challenging the status quo, many people will not see things like you do This is why it is an opportunity! Unfortunately, as a public company you have to answer to these very skeptics Especially problematic given the amount of time it takes to change/create markets

The Entrepreneurial Process

While these six steps exist in all entrepreneurial activity, there are unique aspects of corporate entrepreneurship that we must understand Five main themes - risk, reward, control, availability of resources and scaling time Considerably different from "traditional" entrepreneurship Most are interrelated and feed off of one and other

immediate problems of corporate entrepreneurship

balancing management and entrepreneurship - companies struggle with restricing roles v taking away creativity - Really tough to do concurrently as an organization - Even tougher to do concurrently as an individual

Other matchmaker platform examples?

eBay, airbnb, über etc. Google and Facebook are different types of platforms because they are not matching tangible products or services to users...

google started with search algorithm and "pay per click" but evolves into...

google, google maps, youtube, android store, gmail, chrome, google play. - Helps content creators and advertisers know more about specific users as well as trends in the market

Google's business model:

matchmaker platform - It connects two distinct groups together that each have value to one and other, Google takes a share of this value that is created

Incremental Innovation

minor enhancements to existing products, services or markets -Cheaper, less risky, easier -But...also less valuable -Tends to maintain the status quo of marketplaces in terms of companies, solutions and technology ex: iphone -> iphone ii-> iphone x

Entrepreneurship

the process of creating value by bringing together a unique combination of resources to exploit an opportunity

These attributes create two important results

to adjust to dynamic, complex and threatening environment and proactively create change

Deliberate decisions are made by

top management and clear visions are implemented

Radical (breakthrough) Innovation

using either new technology or business model to create a new market -Expensive and uncertain -Lots of failure -Can be very valuable for company and society -Tends to "rewrites the rules" of technology, companies etc ex: netflix DVD -> online instant streaming regular cell phone -> smart phone