© 2007 John Wiley & Sons Australia, Ltd

Chapter 16

Corporate entrepreneurship
 Chapter outline

• Dimensions of and rationale for corporate

entrepreneurship
• The new venture development process
• The key steps in developing
entrepreneurial spirit
 Learning objectives

• Define the concept of corporate

entrepreneurship and its different forms
• Explain the importance of corporate
entrepreneurship for established
businesses
 Learning objectives

• Discuss the process of new venture

development
• Identify the key steps in developing
entrepreneurial spirit in organisations
 Introduction

• Most established companies find it hard

to maintain the initial entrepreneurial spirit
that helped them to make it through
during the start-up stage.
• Corporations have traditionally faced a lot
of difficulties in identifying opportunities
and turning them into new product lines.
 Introduction

• Through corporate entrepreneurship,

established organisations attempt to
exploit their internal resources, but
provide an environment more conducive
to innovation.
 Dimensions of and rationale for
corporate entrepreneurship

• Within the realm of existing organisations,

entrepreneurship encompasses three
dimensions:
– corporate venturing
corporate entrepreneurial efforts that
lead to the creation of new business
ventures.
Dimensions of and rationale for
corporate entrepreneurship

– Strategic renewal
the new combinations of resources that
result in significant changes to an
organisation’s strategy or structure.

– Innovation
new combinations of resources that
usually lead to new products and
services.
 Rationale for corporate
entrepreneurship

Identifying and pursuing discontinuous

opportunities
• Within the terrain of new business
development, and especially new
business incubation, discontinuous
opportunities generate disproportionate
wealth.
 Rationale for corporate
entrepreneurship

• Discontinuous opportunities consist of

innovations that move beyond existing
business models to create new products
and enter new markets.
The new business development
arena
 Rationale for corporate
entrepreneurship

Reasons for corporate entrepreneurship

• To grow and diversify the business
• To satisfy and retain bright and motivated
staff
• To exploit under-utilised resources
in new ways
• To divest non-core activities
 The new venture
development process

• Successful companies have developed a

disciplined, milestone-focused approach
to screening and funding new ventures.
 The new venture
development process

• This process is comprised of five main

stages:
– idea generation
– concept development
– business plan development
– incubation and commercialisation
– value capture
 New venture development
process

Source: G. Neilson,
J. Albrinck, J. Hornery
et al., E-Business and
Beyond: Organizing for
Success in New
Ventures, Booz Allen &
Hamilton, New York,
2001, p. 10.
 Stage 1: Idea generation

• At this stage, quantity, rather than quality

matters. Innovative corporations are
those which systematically generate
ideas and do not let any idea slip away.
 Stage 1: Idea generation

• Companies can take the following steps

to unleash the creative potential present
in most people:
– Allow unofficial activity
– Encourage serendipity
– Create diverse stimuli
 Stage 2:
Concept development

• During this phase, a promising

one-sentence idea is transformed into a
two-page outline of the opportunity
covering such topics as:
 Stage 2:
Concept development

– concept description
– target market
– value for the customer
– competition
– potential business models
– opportunity size
 Stage 3:
Business plan development

• The new business is designed and

simulated at this stage, which can last
from 3 to 4 months.
• Effective business plans reflect both a
strong grasp of technology and a firm
understanding of the business and market
the new venture is tackling.
 Stage 3:
Business plan development

• Moreover, they are ‘reality-tested’ with

key constituencies, such as customers
and investors.
 Stage 4: Incubation
and commercialisation

• During the incubation phase, it is critical

that the technological feasibility of the
venture is fully tested (e.g. prototypes).
• Resources must also be acquired or
borrowed to establish the validity of the
business model and test its value
proposition.
 Stage 4: Incubation
and commercialisation

• Commercialisation marks the point at

which a business plan graduates from
theory into practice.
 Stage 5: Value capture

• Contrary to the traditional marketing

approach of product innovation, which
merely focuses on increasing sales or
market shares, the aim of corporate
entrepreneurship is to create value.
 Stage 5: Value capture

• The following mechanisms can be used:

– initial public offerings (IPO)
– selling to external bidder
– establishing joint ventures
 Stage 5: Value capture

– creating separate subsidiaries or

divisions
– integrating new ventures into the
parent company
Four steps for fostering
entrepreneurship
 Step 1: Develop a
vision and a strategy

• Members of senior-management change

teams must articulate in the fewest words
possible what they plan to do.
• Leaders of highly innovative
 Step 1: Develop a
vision and a strategy

• Executives, through their words and

actions, can help people to overcome
their fear of failure and, in the process,
create a culture of intelligent risk taking
that leads to sustained innovation.
 Step 2: Create a
culture of innovation

• Once the vision and the strategy have

been established, companies can start to
work on their corporate culture.
 Step 2: Create a
culture of innovation

• An entrepreneurial culture is essentially

one:
– which allows divergent thinking
– which develops supervisory
encouragement, and
– which tolerates failure
 Step 3: Develop
organisational support

• Three main structures are available to

capture the creativity of employees and
to help in the incubation of new
opportunities:
– traditional R&D departments
– new venture divisions
– venture capital funds
 Step 3: Develop
organisational support

• Choosing between these structures

consists fundamentally in balancing
partitioning and integration of new
activities.
 Step 4: Reward
according to results

• Traditional reward systems are rarely

strong motivators for corporate
entrepreneurs.
• Corporations need to:
– compensate creatively
– use a mix of financial and
non-financial rewards
– tailor rewards to employees
 Communication

• Communication is essential for top

management to share its vision, to
develop an entrepreneurial culture,
and to stimulate creativity and
innovation throughout the corporate
structure.
 Communication

• Communication should be first and

foremost about facts.
• It should target frontline supervisors and
other key role-players in the corporation.
• An open communication is crucial to
nurture ideas and capabilities.
 Summary

• Corporate entrepreneurship can

be defined as the process whereby an
individual or group of individuals, in
association with an existing organisation,
create a new organisation or instigate
renewal or innovation within that
organisation.
 Summary

• Through corporate entrepreneurship,

established organisations attempt to
exploit their internal resources in order
to pursue opportunities which will help to
grow and diversify their business.
 Summary

• Other reasons to develop corporate

entrepreneurship encompass:
– retaining and motivating the brightest
staff
– exploiting under-utilised resources, and
– divesting non-core activities.
 Summary

• Successful companies have developed a

disciplined, milestone-focused approach to
screening and funding new ventures that
usually encompasses five main stages:
– idea generation
– concept development
– business plan development
– incubation and commercialisation, and
– value capture
 Summary

• Developing an entrepreneurial spirit

inside an existing organisation requires
four main steps:
– develop a vision and a strategy
– create a culture of innovation
– establish appropriate organisational
systems and procedures, and
– reward effort accordingly.