Chapter 14: Innovation and Entrepreneurship

4. Describe the three key elements of the entrepreneurship process.

-Opportunity (market) -Entrepreneurial Team (competencies and characteristics) -Resources (money and time)

Explanation of the continuous improvement philosophy suggests 10 essential elements that lead to meaningful incremental innovation:

1. define quality and customer value 2. develop a customer orientation 3. focus on the company's business processes 4. Develop customer and supplier partnerships 5. Take a preventative approach 6. adopt an error-free attitude 7. Get the facts first 8. Encourage every manager and employee to participate 9. create an atmosphere of total involvement 10. strive for continuous improvement

Summary - Innovation

A central goal with any strategy is the survival, growth, and improved competitive position of the company in the future. Executives seek ways to make their organizations innovative and entrepreneurial because these are increasingly seen as essential capabilities for survival, growth, and relevance. Incremental innovation—where companies increasingly, in concert with their customers, seek to steadily refine and improve their products, services, and processes—has proven to be a very effective approach to innovation. The continuous improvement philosophy, and programs such as CCC21 and Six Sigma, are key ways firms make incremental innovation a central part of their organization's ongoing work activities.

Six Sigma

A continuous improvement program adopted by many companies in the last two decades that takes a very rigorous and analytical approach to quality and continuous improvement with an objective to improve profits through defect reduction, yield improvement, improved customer satisfaction, and best-in-class performance.

Disruptive Innovation

A term to characterize breakthrough innovation popularized by Harvard Professor Clayton Christensen; usually shakes up or revolutionizes industries with which they are associated even though they often come from totally different origins or industry settings than the industry they "disrupt."

CCC21

A world-famous, cost-oriented continuous improvement program at Toyota (Construction of Cost Competitiveness for the 21st Century).

Administrators

Administrators, the good ones, develop strong management skills, specific business know-how, and the ability to organize people. They usually take pride in overseeing the smooth, efficient functioning of operations largely as they are. Their administrative talents are focused on creating and maintaining efficient routines and organization—creative and innovative behavior may actually be counterproductive within the organizations they operate.

Breakthrough Innovation

An innovation in a product, process, technology, or the cost associated with it that represents a quantum leap forward in one or more of these ways.

Summary - breakthrough vs incremental

Breakthrough innovation involves far more risk than the incremental approach yet brings high reward when successful. Firms with this approach need a total commitment and are often going against mainstream markets in the process. Large, well-known global companies are increasingly embracing "open" approaches to innovation, including breakthrough innovation, in ways that would have been unthinkable 20 years ago. They have embraced the outsourcing of much product design innovation in recent years and are rapidly adopting Web-enabled forums for tapping expertise located around the globe to gain assistance and collaboration in generating breakthrough innovation. They also increasingly look to innovate by acquiring small, entrepreneurial firms that often generate breakthrough innovations because they have a narrow focus, tolerate risks, have a passion for what they are doing, and benefit greatly if they succeed.

Summary - Entrepreneurship

Entrepreneurship is central to making businesses innovative and fresh. New-venture entrepreneurship is the source of much innovation, and it is really a process involving opportunity, resources, and key people. Opportunity is focusing intensely on solving problems and benefits to customers rather than product or service ideas someone just dreams up. Resources involve money and time. Key people, the entrepreneurial team, need to bring technical skill, business skill, and key characteristics to the new venture endeavor for it to succeed.

Friendly Sources

Friendly sources are prevalent early in many new ventures—friends, family, wealthy individuals who know the entrepreneur.

1. Summarize the difference between incremental and continuous improvement

Incremental innovation refers to simple changes or adjustments in existing products, services, or processes. There is growing evidence that companies seeking to increase the payoff from innovation investments best do so by focusing on incremental innovations. Continuous improvement, what in Japanese is called kaizen, is the process of relentlessly trying to find ways to improve and enhance a company's products and processes from design through assembly, sales, and service. This approach, or really an operating philosophy, seeks to always find slight improvements or refinements in every aspect of what a company does so that it will result in lower costs, higher quality and speed, or more rapid response to customer needs.

Informal Venture

Informal venture investors, usually wealthy individuals, or what are now called "angel" investors (for obvious reasons), are increasingly active and accessible as possible equity investors.

3. Summarize the risks associated with an incremental versus a breakthrough approach to innovation.

Inherent in their analysis is the presence of two key risks associated with innovation: Market risks come from uncertainty with regard to the presence of a market, its size, and its growth rate for the product or service in question: do customers exist and will they buy it? Technology risks derive from uncertainty about how the technology will evolve and the complexity through which technical standards and dominant designs or approaches emerge: will it work?

5. Explain intrapreneurship and how to enable it to thrive.

Intrapreneurship - A term associated with entrepreneurship in large, established companies; the process of attempting to identify, encourage, enable, and assist entrepreneurship within a large, established company so as to create new products, processes, services, or improvements that become major new revenue streams and/or sources of cost savings for the company enabled by 10 freedom factors.

Intraprenearship

Intrapreneurship is entrepreneurship in large organizations. Many firms now claim that they seek to encourage intrapreneurship. For intrapreneurship to work, individual intrapreneurs need freedom and support to pursue perceived opportunities, be allowed to fail, and do more of the same more easily if they succeed.

Inventors

Inventors are exceptional for their technical talents, insights, and creativity. But their creations and inventions often are unsuccessful in becoming commercial or organizational realities because their interests and skills are lacking in terms of reading a market and bringing products or services to creation and then marketing and selling them effectively.

Resources

Money - A vital ingredient for any business venture is the capital necessary to acquire equipment, facilities, people, and capabilities to pursue the targeted opportunity. Time - time of the entrepreneur(s) and key players in the business venture's chance for success.

Equity Financing

Money provided to the venture that entitles the provider to rights or ownership in the venture and which is not expected to be repaid. It entitles the source to some form of ownership in the venture, for which the source usually expects some future return or gain on that investment. Equity financing is usually obtained from one or more of three sources: friendly sources, informal venture investors, or professional venture capitalists.

Debt Financing

Money provided to the venture that must be repaid at some point in time. The obligation to pay is usually secured by property or equipment bought by the business, or by the entrepreneur's personal assets.

Good Opportunity Criterion

Opportunity - The most frequent cause of failure of new ventures is lack of sales; the second is competitive weakness. Both causes stem from the lack of appreciation of the necessity for a market orientation as the basis of any new venture. 1. The venture team can clearly identify its customers and the market segment(s) it plans to capture. 2. A minimum market as large as $250 million. 3. A market growing at a rate of 30 to 50 percent. 4. High gross margins (selling price less direct, variable costs) that are durable. 5. There is no dominant competitor in the market segments representing the venture opportunity. 6. A significant response time, or lead time, in terms of technical superiority, proprietary protection, distribution, or capacity. 7. An experienced entrepreneur or team capable of enthusiastically and professionally building a company to exploit the profitable opportunity.

Professional Venture

Professional venture capitalists seek investment in the truly high-growth potential ventures.

Promoters

Promoters are in some way just the opposite—clever at devising schemes or programs to push a product or service, but aimed more at a quick payoff than a profitable, business building endeavor for the longer term.

2. Explain what is meant by continuous improvement and how it contributes to incremental innovation.

Quality, efficiency, and responsiveness are not one-time programs of competitive response because they create a new standard to measure up to. Organizations quickly find that continually improving quality, efficiency, and responsiveness in their processes, products, and services is not just good business; it's an excellent means to identify incremental innovations that become foundations for long-term survival.

How the Six Sigma Statistical Concept Works

Six Sigma means a failure rate of 3.4 parts per million or 99.9997 percent. At the sixth standard deviation from the mean under a normal distribution, 99.9996 percent of the population is under the curve with not more than 3.4 parts per million defective. The higher the sigma value, the less likely a process will produce defects as excellence is approached. If you played 100 rounds of golf per year and played at: 2 Sigma: You'd miss 6 putts per round. 3 Sigma: You'd miss 1 putt per round. 4 Sigma: You'd miss 1 putt every 9 rounds. 5 Sigma: You'd miss 1 putt every 2.33 years. 6 Sigma: You'd miss 1 putt every 163 years!

Entrepreneurial Teams Competencies & Characteristics

Successful entrepreneurs and entrepreneurial teams bring several competencies and characteristics to their new ventures. • Technical competence • Business management skills • Endless commitment and determination • A strong desire to achieve • Orientation toward opportunities and goals • An internal locus of control • Tolerance for ambiguity and stress • Skills in taking calculated risks • Little need for status and power • Problem solvers • A high need for feedback • Ability to deal with failure • Boundless energy, good health, and emotional stability • Creativity and innovativeness • High intelligence and conceptual ability • Vision and the capacity to inspire

Intrapreneurship freedom factors

Ten characteristics identified by Dr. Gorden Pinchot and elaborated upon by others that need to be present in large companies seeking to encourage and increase the level of intrapreneurship within their company. 1. Self-selection 2. No hand-offs 3. The doer decides 4. Corporate "slack" 5. End the "home run"philosophy. 6. Tolerance of risk, failure, and mistakes. 7. Patient money. 8. Freedom from turfness. 9. Cross-functional teams. 10. Multiple options.

Entrepreneurship

The process of bringing together the creative and innovative ideas and actions with the management and organizational skills necessary to mobilize the appropriate people, money, and operating resources to meet an identifiable need and create wealth in the process.

Ideagoras

Web-enabled, virtual marketplaces which connect people with unique ideas, talents, resources, or capabilities with companies seeking to address problems or potential innovations in a quick, competent manner.

DMAIC Six Sigma Approach

define, measure, analyze, improve, and control

Difference between incremental vs breakthrough innovation

the distinction is "sustaining" technologies, which are incremental innovations that improve product or process performance, and "disruptive" technologies, which revolutionize industries and create new ones.

Innovation Approaches

• Joint ventures with other firms that have an interest in the possible innovation share the costs and risks associated with the effort. • Cooperation with lead users is increasingly used in both types of innovation. • "Do it yourself" innovation allows a company to work directly with key existing or expected customers, further allowing these customers to play a lead role in developing a product, service, or process—not just get a sense of their reaction to developments. • Acquiring innovation has become a major way larger companies bring innovation into their firm while mitigating the risk/reward trade-off in the process. • Outsourcing innovation, particularly product design, has become a major part of the "modular" organizational structure of today's global technology companies.

5 characteristics of successful innovation

• Moderately new to the marketplace. • Based on tried and tested technology. • Saved money for users of the innovation. • Reportedly met customer needs. • Supported existing practices.

6 Idea Factors (Idea factors were concerned with how the idea for the innovation originated)

• Need spotting—actively looking for an answer to a known problem. • Solution spotting—finding a new way of using an existing technology. • Mental inventions—things dreamed up in the head with little reference to the outside world. • Random events—serendipitous moments when innovators stumbled on something they were not looking for but immediately recognized its significance. • Market research—traditional market research techniques to find ideas. • Trend following—following demographic and other broad trends and trying to develop ideas that may be relevant and useful.