VII. SUMMARY
To remain competitive in today’s economy, established firms must find new avenues for
development and growth. This chapter has addressed how innovation and corporate
Innovation is one of the primary means by which corporations grow and strengthen their
strategic position. Innovations can take several forms ranging from radical breakthrough type
innovations to incremental improvement type innovations. Innovations are often used to update
We also discussed the role of corporate entrepreneurship in venture development and
strategic renewal. Corporations usually take either a focused or dispersed approach to corporate
venturing. Firms with a focused approach usually separate the corporate venturing activity from
the ongoing operations of the firm in order to foster independent thinking and encourage
Most entrepreneurial firms need to have an entrepreneurial orientation: the methods,
practices, and decision-making styles that strategic managers use to act entrepreneurially. Five
dimensions of entrepreneurial orientation are found in firms that pursue corporate venture
End of Chapter Teaching Notes
Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship
Summary Review Questions
1. What is meant by the concept of a continuum of radical and incremental innovations?
Response:
Innovations are the use of new knowledge to transform organizational processes or create
commercially viable products and services. Radical innovations fundamentally change existing
Some innovations are barely incremental, such as frozen yogurt, which is a bit different from ice
cream. More radical innovations include laparoscopic surgery, which radically changes the patient
(Note to instructor) It may be interesting to engage students on the question of the degree of
2. What are the dilemmas that organizations face when deciding what innovation projects
to pursue? What steps can organizations take to effectively manage the innovation process?
Response:
When firms pursue innovations, they have to make a number of choices that have uncertain
outcomes, and can affect the innovation’s likelihood of success. Five of these choices involve
critical tradeoffs and include:
Seeds versus weeds—or the choice between a likely successful innovation project (seed)
Experience versus initiative—or the choice in project manager between an experienced top
Internal versus external staffing—internal staffing will be closely connected with the
Building capabilities versus collaborating—internal development will minimize
organizational disruptions, but will cost time and money to learn the innovation.
Incremental versus preemptive launch—incremental launch is less costly and enables firms
Firms can use four methods to manage the innovation process and keep it from becoming too
expensive, taking too long, and/or incurring too much risk. First is defining the scope of the
innovation, which puts boundaries on the project to ensure that it does not develop into an area
3. What is the difference between focused and dispersed approaches to corporate
entrepreneurship?
Response:
Corporate entrepreneurship is the creation of new value for a corporation through investments
that create either new sources of competitive advantage or renewal of the value proposition.
4. How are business incubators used to foster internal corporate venturing?
Response:
Business incubators, a type of focused corporate entrepreneurship, are corporate new venture
groups that support and nurture fledgling entrepreneurial ventures until they can thrive on their
5. What is the role of the product champion in bringing a new product or service into
existence in a corporation? How can companies use product champions to enhance their
venture development efforts?
Response:
Product champions, a type of dispersed corporate entrepreneurship, are individuals working
within corporations who bring entrepreneurial ideas forward, identify what kind of markets exist
for the products or services, find resources to support the ventures, and promote the venture
Companies can use product champions to overcome reluctance or skepticism of innovative
ventures. Champions can contact potential customers, demonstrate the need for the product or
service, construct budgets, and contact a few sympathetic other managers. As a result, the
6. Explain the difference between proactiveness and competitive aggressiveness in terms of
achieving and sustaining competitive advantage.
Response:
Entrepreneurial orientation is the strategy-making practices that businesses use in identifying and
launching new ventures, consisting of autonomy, innovativeness, proactiveness, competitive
aggressiveness, and risk taking. Proactiveness is a forward-looking perspective characteristic of a
Proactiveness achieves and sustains competitive advantage through first mover advantages. It is a
response to market opportunities. First movers can establish brand identity with customers,
Competitive aggressiveness is directed at threats in the environment, namely competitors. Rather
than being forward-looking, competitive aggressiveness achieves and sustains competitive
With reference to SWOT analysis, proactiveness addresses the “O” part—opportunities.
Competitive aggressiveness addresses the “T” part—threats.
7. Describe how the entrepreneurial orientation (EO) dimensions of innovativeness,
proactiveness, and risk taking can be combined to create competitive advantages for
entrepreneurial firms.
Response:
Entrepreneurial orientation is the strategy-making practices that businesses use in identifying and
launching new ventures, consisting of autonomy, innovativeness, proactiveness, competitive
aggressiveness, and risk taking. Innovativeness is the willingness to introduce novelty through
Entrepreneurial firms can develop strategies of continuously developing new products and
innovations that anticipate consumer demands. The strategy is to exploit first mover advantages
This strategy is proactive because it is forward-looking and exploits opportunities in the
marketplace. It is innovative because the products are new, experimental, and different. It is risk-
Experiential Exercise
Select two different major corporations from two different industries (you might use
Fortune 500 companies to make your selection). Compare and contrast these organizations
in terms of their entrepreneurial orientation.
Response:
The table below is suggestive. There are no right and wrong answers to the question. But the
points are supported with examples.
Entrepreneurial
Orientation
Company A
(Wal-Mart)
Company B
(Google)
Autonomy Low—most operations are
High—independent divisions
Innovativeness Moderate—new products
frequently introduced,
High—cutting edge
technologies and services
Proactiveness Moderate—some
entrepreneurial activities are
High—Very forward-looking in
its approach to the industry.
Competitive Aggressiveness High—Near fanatic devotion
Moderate—aggressive in
Risk Taking High—New ventures are
Moderate—Perhaps because
uncertain, it is difficult to
Based on Your Comparison:
1. How is the corporation’s entrepreneurial orientation reflected in its strategy?
Response:
In both cases, strategy does fit with EO. Wal-Mart is a cost-cutter, so it emphasized
(Note to instructor) We suggest you first establish the degree of entrepreneurial orientation in each
2. Which corporation would you say has the stronger entrepreneurial orientation?
Response:
Google seems to be the more entrepreneurial firm. It is more reliant on a stream of new
(Note to instructor) After the student answers this question, ask which of the EO strategy-
3. Is the corporation with the stronger entrepreneurial orientation also stronger in
terms of financial performance?
Response:
No. Wal-Mart is much larger in terms of revenue and size of profits. It’s probably invalid
(Note to instructor) The purpose of this question is to ask students to investigate the link between
entrepreneurial orientation and financial performance. After hearing students’ answers to the question, ask
them to identify the competitive advantages that generate each firm’s financial performance. For the more
question). Then ask about the costs of the new ventures. (Usually, costs for new ventures exceed revenues
early on, and only after a couple of years or so do new ventures generate profits.) Will the new ventures
generate more profits in future years?
Application Questions and Exercises
1. Select a firm known for its corporate entrepreneurship activities. Research the company
and discuss how it has positioned itself relative to its close competitors. Does it have a
unique strategic advantage? Disadvantage? Explain.
Response:
(Note to instructor) Students should be able to tell if the firm has lower prices, higher quality
products, brand equity, and first mover advantage. This competitive position will allow students to
infer the firm’s entrepreneurial orientation, and the extent to which it exploits innovativeness,
2. Explain the difference between product innovations and process innovations. Provide
examples of firms that have recently introduced each type of innovation. What are the
types of innovations related to the strategies of each firm?
Response:
Product innovations result in improvements to the product such as new features, new design,
incorporation of new materials, or new functionality. These innovations are observable to
Product improvements associate with proactiveness. As a market leader, a proactive firm will be
forward looking and offer the market improved products. Process improvements associate with
Competitive aggressiveness can also pertain to product improvements, as another way to compete
3. Using the Internet, select a company that is listed on the NASDAQ or New York Stock
Exchange. Research the extent to which the company has an entrepreneurial culture. Does
the company use product champions? Does it have a corporate venture capital fund? Do
you believe its entrepreneurial efforts are sufficient to generate sustainable advantages?
Response:
(Note to instructor) In the discussion regarding product champions, ask the student how he or she
identified the product champion? What products have benefited from product champions? What
The question on corporate venture fund refers to business incubators. If the student identifies a
corporate venture fund, ask about its activities. How many ventures and what types of ventures
have been “hatched” by the fund? What other types of support has the firm provided, such as
physical space, business services, mentoring, and networking.
As for sustainable advantages, it might be useful to investigate three types, low cost, product
quality (including perceived quality), and first mover advantages. For low cost, the advantage is
not likely to be sustainable unless the firm can achieve and maintain greater market share than the
First mover advantages have a different assessment. Entrepreneurial firms can generate new
products and exploit first mover advantages such as (a) build a reputation, (b) control scarce
resources, (c) patent innovations, (d) exploit experience curve effects, and (e) set industry
4. How can an established firm use an entrepreneurial orientation to enhance its overall
strategic position? Provide examples.
Response:
An entrepreneurial orientation is designed to generate a stream of innovations. These innovations
can support a number of strategies. To illustrate, we can look at the three generic strategies of
overall cost leadership, differentiation, and focus. For overall cost leadership strategies, an
An entrepreneurial orientation can facilitate product innovation and exploring new markets. For
focus strategies, an entrepreneurial orientation can facilitate both product and process innovations
(Note to instructor) The above discussion is structured by generic strategies. It may be useful to
structure by the five dimensions of entrepreneurial orientation. The objective of the question is to
Ethics Questions
1. Innovation activities are often aimed at making a discovery or commercializing a
technology ahead of the competition. What are some of the unethical practices that
companies could engage in during the innovation process? What are the potential long-
term consequences of such actions?
Response:
Possible unethical practices related to innovation activities include violation of others’ intellectual
property rights, pirating other companies’ personnel, inadequately developing an innovation to
ensure that it is safe, and neglecting productive personnel. Violating others’ intellectual property
rights means that the innovation incorporates patents, copyrights, trademarks, or trade secrets
The potential long-term consequences of these unethical actions are generally a reduction in the
firm’s ability to innovate in the future. Legal action from patent and trade secret infringement can
be very costly and result in injunctions, corporate restructuring, and any action that courts think
2. Discuss the ethical implications of using entrepreneurial policies and practices to pursue
corporate social responsibility goals. Are these efforts authentic and genuine or just an
attempt to attract more customers?
Response:
Best Buy can be used as an example. It has three entrepreneurial corporate social responsibility
programs. First is recycling of old electronics equipment. Second is auditing suppliers to ensure
On the one hand, these policies have a business side. The recycling program generates traffic for
Other examples of entrepreneurial policies and practices that pursue corporate social
responsibility goals include Whirlpool’s development of energy-conserving appliances and
Utilities have also been accused of falsely promoting green power, or starting programs aimed at
energy conservation or renewable energy, but that do not fulfill promises. In some cases,
The ethical implications of firms making token social responsibility efforts include loss of
reputation. There are savvy environmental groups and ethical authorities, such as Business Ethics