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STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

 Chapter 12

Fostering
Corporate
Entrepreneurship
and New Venture
Creation

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 12-3
Learning After studying this chapter, you should have
Objectives a good understanding of:
• The importance of opportunity recognition in the venture
development process
• How strategic concepts contribute to the competitive advantages
of new ventures and small businesses
• The role of product champions and autonomous strategic
behaviors in internal corporate venturing
• How corporations can develop an internal environment that
promotes entrepreneurial development
• How an entrepreneurial orientation can enhance a firm’s efforts
• The pitfalls associated with new venture strategies and corporate
entrepreneurship

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

12-4
Entrepreneurship Includes:

• Start-ups and new businesses

• Small businesses (< 500 employees)

• Characteristics that distinguish

entrepreneurs from others

• New venture creation and development in

large businesses (Intrapreneurship)

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

 12-5
Exhibit 12.1 Techniques to Stimulate Creativity
(adapted)

Company Creative Technique

In-housing training include brainstorming and
Dupont avoiding creativity inhibitors. To create fresh
perspectives, a mix of employees – high tech
and low tech, management and staff– meet to
create new product proposals.
Encourages fun at work. Its New York City
DoubleClick office includes a miniature version of Central
Park and a rooftop basketball court where
employees and bosses compete. The annual
prize for the employee who brings in the most
referrals is a motorcycle.

Sources: Gundry, L.K., Kickul, J.R., & Prather, C.W. 1994. Buildingthe creative organization. Organization Dynamics: 22-37; Mackie, K. 1998. Ford RAPIDS helping UT departments streamline work
processes. On Campus, April 14. Yaqub, R.M. 2000. The play’s the thing. Worth, November: 116-123.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

 12-6
Exhibit 12.2 All Small Companies*, By Industry
Agricultural Services (2%) 115,000

Retail Trade (20%)

1,094,000

Services (40%)
2,215,000
Wholesale Trade (7.4%)
410,000

Transportation,
Communications, and
Public Utilities (4%)
217,000
Construction
(12%)
Source: SBA’s
Office of 662,000
Advocacy, based
on Data Provided
by the U.S. Mining (0.4%)
Finance, Insurance, and Real Estate (8%)
Census Bureau, 20,000
statistics of U.S. 457,000
Businesses.
(Percentages
don’t add to Manufacturing (6.%)
* Businesses with 500 or fewer employees
100% because of 329,000
rounding.) in 1997 (rounded)

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

12-7
Characteristics of Viable Opportunities

Attractive Potential market demand.

Achievable Practical and possible.

Durable A sufficiently long window of

opportunity exists.
Value Creating There will be profit to justify the
risk.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

12-8
Traditional Sources of Financing

• Self/family/friends/associates

• Bank loans (Debt)

• Bonds (Debt)

• Venture capitalists (Equity)

• I.P.O.s – Initial Public Offerings (Equity)

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

 12-9
Exhibit 12.3 Alternatives to Traditional Financing
METHOD DESCRIPTION

Leasing Reduces cash outflow, minimizes commitments to assets

that might need updating as the company grows (or shrinks).

A non-cash means of exchanging products or

Barter services.

Credit Cards While a fast-growing technique for financing,

high interest rates could make it risky.
Source:
Fraser, J. A.
1998. A
hitchhiker’s
guide to
Supplier Financing Suppliers that let you pay for goods or services in
capital
resources. 60 or 90 days rather than after only 10 to 30 days
Inc.
Magazine, are, in effect, financing your purchase.
February: 74-
82; Owens,
T. 1990.
Getting Factoring A method of raising cash by selling accounts
financing in
1990. Small receivables to a third party or financing against
Business
Reports,
June:
the value of receivables.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

12-10
Exemplars of Corporate Entrepreneurial
Success and Failure

Initially failed to recognize the

Motorola migration from analog to digital
technology.
Uses know-how to improve
Hewlett Packard people’s lives. Values
employees while encouraging
them to do better.
Created over 200 businesses
Virgin Group through a fun-loving, eclectic
culture.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

 12-11
Exhibit 12.4 3M’s Rules for Successful Innovation
RULE IMPLICATIONS
Don’t kill a Ideas can be kept alive by individuals who believe in a
project project, even if it can’t find a home in one division.
Tolerate Try and try again.. Encourage experimentation and risk
failure taking, even when the outcome is unclear.

Keep divisions small

Divisions have autonomy but are split up if too large.
Division managers know staffers by their first names.
Motivate product champions
Sources: Collins, J. Product champions are challenged and rewarded. If a
C., & Porras, J. I.
1997. Built to Last.
NewYork:
product takes off, its champion may run the product
HarperBusiness;
Graham, A. B. 1996.
group.
The Learning
Organization:
Managing Knowledge
Stay close to Customers are invited to brainstorm with researchers
for Business Success;
Mitchell, R. 1989.
customers and marketers.
Masters of innovation.

Share the Open communication helps everyone benefit from the

Business Week, April
10: 58-63; Osborn, T.
1988. The new product
champions: How 3M
manages for
wealth technological insights and breakthroughs of others.
innovation. Marketing
communications,
13(11): 17-22.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

 12-12
Exhibit 12.5 Dimensions of Entrepreneurial
Orientation
DIMENSION DEFINITION

Autonomy Independent action by an individual or team to

bring forth and implement a business concept.

Innovative- Through experimentation and creativity, develop

ness new and novel products, services, processes.

Proactive- A forward-looking perspective characteristic of

ness a market leader who has foresight.
Source: Covin, J. G., &
Slevin, D. P. 1991. A
conceptual model of
entrepreneurship as firm Competitive An intense effort to outperform rivals,
behavior.
Entrepreneurship Theory Aggressive- characterized by a combative posture or
& Practice, Fall: 7-25;
Lumpkin, G. G., & Dess,
ness aggressive response.
G. G. 1996. Clarifying

Making decisions and taking action without

the entrepreneurial
orientation construct and
linking it to performance.
Risk taking
Academy of Management
Review, 21(1): 135-172;
certain knowledge of probable outcomes.
Miller, D. 1983. The
correlates of
entrepreneurship in three
types of firms.
Management Science, 29:
770-791.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

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Types of Entrepreneurial Risk

Venturing without knowing the

Business probability of success, often due to
untested markets and technologies.
The risk/return trade-off. Includes
Financial heavy borrowing and large resource
commitments.
Risks to personal reputation, career,
Personal and the company that occur by
taking stands in favor of some
actions.

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin

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Exhibit 12.6 Continuum of Radical and Incremental
Innovations

Online
Fiber- optic Internet Auction Bubble
Browser Exchanges Wrap
Cable
RADICAL INCREMENTAL
INNOVATION INNOVATION

Laparoscopic Speech Polyester Enterprise Frozen

“Keyhole” Recognition Resource Yogurt
Surgery Software Planning
(ERP)

STRATEGIC MANAGEMENT  CHAPTER 12 Gregory G. Dess and G. T. Lumpkin