Intrapreneurship
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Intrapreneurship
Professor - Jack Raiton
What is Intrapreneurship?
z
“Integration of entrepreneurial skills into a large corporation’s strategic vision that nurtures a climate of radical or incremental innovation.”
More on Intrapreneurship z z z z
Entrepreneurship within an existing business Internal business units within which produce innovative products, services or processes An opportunity for corporate managers to take initiative and try new ideas. An internal corporate venture
Nature of Intrapreneurship
z
Intrapreneurship is allowing an atmosphere of INNOVATION to prosper.
Successful Innovators Have.. z z z z z z
Atmosphere and vision Orientation to the market Small, flat organizations Multiple approaches Interactive learning Skunkworks
Innovation activities of a company should be managed as a mixture of internally embedded innovation and externally managed innovation
“Innovation management within the processes of the core business.”
Innovation Management
Internal Innovation Management Idea Management
Innovation Management Framework Resource Management
“Innovation management taken outside of the processes of the core business.”
External Innovation Management Partnering
Intrapreneurship Framework Monitoring & Controlling
Kanter’s “Rules for stifling innovation” z z z z z z z z z z
Regard new ideas with suspicion Enforce cumbersome approval mechanisms, rules, regulations Pit departments and individuals against one another Express criticism, withhold praise Treat problem identification as signs of failure Control everything carefully Plan reorganizations in secret Keep tight control of information Delegate unpleasant duties to inferiors Assume that you, the higher-ups, know everything important about the business
Internal innovation often has several limitations regarding strategic direction, time-frame, budget, corporate culture and incentive scenarios Traditional Innovation Management: •Creates only operative costs, does not include equity participation
Strengths
•Is generally low on risk •Direct control over approach, process, progress, results and intellectual capital created •Is limited by company culture, bureaucracy and rules •Financial risk of large innovation projects is difficult to diversify
Weaknesses
•Does not generally include idea flows from external sources •Potentially limits motivation due to low attractiveness for the individual •When corporate strategy is based on cost leadership
When to use?
•When the stream of internal ideas is sufficient for reaching organic growth targets •In stabile, relatively mature industries
Externalized innovation activities exhibit “freedom of innovation” and they provide the possibility of rapidly limiting or diversifying the investment risk Corporate Venturing:
•Enables innovation and intelligence from external sources •External sources of financing are more easily accessible
Strengths
•Enable creation of individual innovation units with own culture, incentive scenarios and business models •Often highly motivating for involved individuals
Weaknesses
•Requires investments in form of equity participation, which can be high on risk if not diversified •Requires management overheads such as the set-up of venture management and network for deal-flow •Mother company is not in complete control over the innovation
When to use?
•When corporate strategy is based on innovation leadership and/or diversification •When company’s base market and/or technologies are dynamic in their nature
Intrapreneurship can be seen as structured management of innovation and as a portfolio of ventures with defined innovation targets and resources
Business Model of Intrapreneurship External ideas/ ventures
Internal ideas/ ventures
Screening Criteria Strategically incompatible ideas / ventures
Exit from strategically incompatible ventures
Established company
Incubation in a venture pool
(Re)integration or knowledge transfer
Comparing Entrepreneurial and Intrapreneurial Contexts Entrepreneurial Characteristics Freedom Goal oriented self-reliant
5-10 year horizon
Motives
Time orientation
Freedom Access to resources self-motivated
Seek incremental achievements
3-15 year horizon Urgency in meeting deadline
Knows business well and can amass resources Skills and experiences Much like entrepreneur can also work within hierarchy
Intrapreneurial Characteristics
Focus on macro and micro environment Environment Much like entrepreneur must also deal with corporate environment
Comparing Entrepreneurial and Intrapreneurial Contexts (cont.) Entrepreneurial Characteristics Assembled and acquired from outside firm
Learn and pay for mistakes - public and visible
Follows vision Decisive Uncompromising
Resources
Failure and mistakes
Decisions
Sensitive to corporate attitude May try to hide errors
Seeks shared vision and consensus
Derived primarily from internal slack
Intrapreneurial Characteristics
Comparing Entrepreneurial and Intrapreneurial Contexts (cont.) Entrepreneurial Characteristics Impatience led to venture start-up Attitude to bureaucracy Learns to manage system
Moderate- money and reputation at stake
Accepts low status until venture succeeds
Risk preference
Moderate- career and job at stake
View of status Places low value on corporate symbols
Intrapreneurial Characteristics
Ventures are usually as independent units under either a venturing unit, venture capital subsidiary or a venture capital fund Basic models of venturing organization: Model 1: Intrapreneurial Unit
Corporate Center
Model 2: VC Subsidiary Corporate Center
Model 3: VC Fund Corporate Center
Intrapreneurial Unit
Venture
Business Unit
Venture Capital Subsidiary
•Intrapreneurial Unit
Venture
Venture
•Venture Capital Subsidiary
Venture Capital Fund
Venture Venture •Participation in Venture Capital Fund
Main challenges related to establishing Intrapreneurial units are lack of resources and commitment, cultural clashes and lack of a venturing strategy Challenges related to Intrapreneurial Units:
Intrapreneurial activities are often initiated without proper resources and proper sponsorship from the top management
Cultural clashes related to co-operation and strategic exchange of knowledge between the ventures and the established company are issues, which may occur if venture management is not prepared for coping with it
Often Intrapreneurship is done with an unclear mixture of financial and strategic goals, but without a true venturing strategy nor a strategic venture selection process
Corporate Investing in VC 120
Corporate Investing in VC 100 80 60 40
14% 4%
5%
8%
15% 12% 3%
7% $14Β Ann
20 0 1996 1997 1998 1999 2000 2001 2002 2003 YTD Corporate
Total Venture
Combining Forces
Venture Capitalists Neutrality Financial discipline Deep networks Structured for early stage
Corporations Brand Installed base Relationships Domain expertise
Start-Ups Entrepreneurial Nimbleness Risk/reward incentive High growth
Leading Corporations Use VC Companies that are active in VC investing z
“8/10 5yr EPS growth leaders have VC arms ” – Forbes
z z z z z z z z z
Intel Dupont Johnson and Johnson 3M UPS P&G Cargill Dell Cisco Nokia
Leveraging VC for Innovation Technology is increasingly being sourced from outside corporations 100 %
Corporate Venture Capital is an efficient source of corporate innovation 15%
15%
12%
12%
9%
9%
6%
6%
3%
3%
0%
0%
24% % of Total
52% 64% External sourcing
50 %
Internal R&D 0% 1980 s
1990 s
2000 s
Source: Monitor Group
VC as % of R&D Expense
VC generated Corporate Innovations
Source: Harvard
CREATING A CLIMATE FOR INTRAPRENEURSHIP z z z z z
Finding resources for ideas An effective reward system short term pay benefits An effective reward system long term pay benefits An effective reward system – education & health benefits An effective reward system promotion
BARRIERS TO INTRAPRENEURSHIP z z
z
z
Independence in decision-making is a primary motivation in entrepreneurship The mobility of managers within large organizations may lead to a lack of commitment to specific projects In many large organiZations, there are often inappropriate methods to compensate creative employees Many managers in a large organiZations are not capable of being successful intrapreneurs
INTRAPRENEURSHIP
Entrepreneurial organisation •accepts (even a need for) change •exploits opportunity
Established organisation •ability to consolidate around success •manages risk •control of resource flows
The intrapreneur achieves the synthesis between “established-entrepreneurial”.
During the boom of the new economy in the 1990’s Intrapreneurial activities were financially motivated
Corporate Venturing in the 1990’s
Strategic Innovation
Short-term financial prospects
Intrapreneurship suffered serious setbacks as the bubble of the new economy burst and the prospects for short-term wins disappeared
z z
Many enterprises’ Intrapreneurial activities resulted in significant losses A significant number of enterprises reduced their Intrapreneurial activities and/or terminated them completely
Strategic objectives now dominate in Intrapreneurship z
z z
Almost half of all companies active in Intrapreneurship or planning to initiate it in the near future pursue mainly strategic objectives with it Only about one tenth pursue mainly financial objectives Pursuing purely financial objectives would have to be considered as being a form of corporate venture capitalism and not Intrepreurship
New competencies, new technologies and innovation capabilities, high-potential employees are the main strategic objectives when pursuing Intrapreneurial activities
Objectives: z z z z z z z z z
Develop new competencies Access to new technologies Strengthen your ability to innovate Retain or gain high potential employees Access to new markets Identify market trends Improve utilization of existing resources Support sales of your products Improvement of product quality/processes
Company should pursue Intrapreneurship with a strategic, innovation-oriented approach to boost growth and internal value creation Innovation • Goal is to strengthen own ability to innovate • Intrapreneurship as powerful supplement to own research/development • Special significance in technology-intensive industries (e.g. telecommunications, biotechnology )
Growth • Goal is the realization of growth outside the own core business •Development of new core competencies
Internal value creation • Goal is the enhanced utilization of existing but insufficiently used assets •Especially immaterial assets hold high potential (e.g. unused patents and employee knowledge)
Most common ways of supporting ventures are financial support, provision of a business network, availability of human resources and know-how Types of support z z z z z z z
Financial support Business network/contracts Availability of people Industrial know how Facilities/ infrastructure Utilization of R&D resources Availability of manufacturing facilities
Membership on the board, financial controls and membership on the executive management are seen as the most effective control instruments
z z z z z
Membership in the venture’s Board of Directors Financial controlling by the established company Membership in the venture’s Executive Management Regular meeting between venture and the appropriate business units Informal contacts between venture and established company
Several potential obstacles can hinder successful Intrapreneurship – these need to be eliminated before starting an Intrapreneurial initiative z z
By far the greatest obstacle is the lack of critical resources for venturing activity Other significant obstacles are -- Lack of top management commitment -- There is no clear venturing strategy -- Cultural clashes, exchange and cooperation between the established company and ventures
z
In summary, lack know-how is often a factor preventing successful Intrapreneruship -- Lack of a venturing strategy -- No systematic screening process -- Insufficient exchange of knowledge -- Lack of venture capital know-how
Limitations to intrapreneurship z
Entrepreneurs comfort: Entrepreneurs who have created the company must let go so that intrapreneurs can operate.
(It is about breaking rules which entrepreneurs have created (Young, 1999)
z
Decision-making control:Balance needed between freedom for the intrapreneur and maintaining the business on a constant strategic path.
Limitations to intrapreneurship z
Internal politics: Intrapreneurs must be able to predict and understand internal resistance to change. “Thrive on chaos” (Tom Peters, 1989)
z
Rewards: Can the organisation offer the same rewards as those expected by entrepreneurs? (economic, social and developmental). Moves to start own venture?
The most common reasons for exiting a venture investment are either not achieved milestones or insufficient return on investment
z z z z z z
Agreed upon milestones not achieved Insufficient return on investment Lack of strategic fit Good exit opportunity Objectives have been achieved Technological breakthrough cannot be achieved
Critical Success Factors z z z z z z
Senior management commitment Investment roadmap consistent with corporate and business strategy Flexibility for reactive and opportunistic option creation Institutionalized tool for growth and innovation Talent retention and continuity Capital to execute
Intrapreneurship is a significant strategic tool for boosting innovation – setting it up requires experience and commitment Conclusion: z z z
z
z
Intrapreneurship is an attractive strategic tool for established corporations The emphasis within Intrapreneurship is shifting back to strategic objectives – financial opportunities should currently be neglected Especially in economically difficult times, Intrapreneurship can be an excellent tool for breaking out of the trend through innovation, while minimizing the risks associated with it Intrapreneruship should be used as a strategic instrument for … -- creating innovations, -- accessing new technologies and markets, and -- creating new competencies. When setting up Intrapreneurial units one should … -- use a holistic framework, -- ensure existence of sufficient commitment and resources, -- start internally and only later extend to external, and -- ensure effective knowledge management between the established company and the ventures.
Summary: Venture matures (consolidation) Changes to : financial, strategic, structural and organisational dynamics
Chance to create a defendable competitive position Intrapreneurism offers the venture a way of combining the flexibility and responsiveness of the entrepreneurial with the market power and reduced risk of the established organisation
Professor - Jack Raiton
What is Intrapreneurship?
z
“Integration of entrepreneurial skills into a large corporation’s strategic vision that nurtures a climate of radical or incremental innovation.”
More on Intrapreneurship z z z z
Entrepreneurship within an existing business Internal business units within which produce innovative products, services or processes An opportunity for corporate managers to take initiative and try new ideas. An internal corporate venture
Nature of Intrapreneurship
z
Intrapreneurship is allowing an atmosphere of INNOVATION to prosper.
Successful Innovators Have.. z z z z z z
Atmosphere and vision Orientation to the market Small, flat organizations Multiple approaches Interactive learning Skunkworks
Innovation activities of a company should be managed as a mixture of internally embedded innovation and externally managed innovation
“Innovation management within the processes of the core business.”
Innovation Management
Internal Innovation Management Idea Management
Innovation Management Framework Resource Management
“Innovation management taken outside of the processes of the core business.”
External Innovation Management Partnering
Intrapreneurship Framework Monitoring & Controlling
Kanter’s “Rules for stifling innovation” z z z z z z z z z z
Regard new ideas with suspicion Enforce cumbersome approval mechanisms, rules, regulations Pit departments and individuals against one another Express criticism, withhold praise Treat problem identification as signs of failure Control everything carefully Plan reorganizations in secret Keep tight control of information Delegate unpleasant duties to inferiors Assume that you, the higher-ups, know everything important about the business
Internal innovation often has several limitations regarding strategic direction, time-frame, budget, corporate culture and incentive scenarios Traditional Innovation Management: •Creates only operative costs, does not include equity participation
Strengths
•Is generally low on risk •Direct control over approach, process, progress, results and intellectual capital created •Is limited by company culture, bureaucracy and rules •Financial risk of large innovation projects is difficult to diversify
Weaknesses
•Does not generally include idea flows from external sources •Potentially limits motivation due to low attractiveness for the individual •When corporate strategy is based on cost leadership
When to use?
•When the stream of internal ideas is sufficient for reaching organic growth targets •In stabile, relatively mature industries
Externalized innovation activities exhibit “freedom of innovation” and they provide the possibility of rapidly limiting or diversifying the investment risk Corporate Venturing:
•Enables innovation and intelligence from external sources •External sources of financing are more easily accessible
Strengths
•Enable creation of individual innovation units with own culture, incentive scenarios and business models •Often highly motivating for involved individuals
Weaknesses
•Requires investments in form of equity participation, which can be high on risk if not diversified •Requires management overheads such as the set-up of venture management and network for deal-flow •Mother company is not in complete control over the innovation
When to use?
•When corporate strategy is based on innovation leadership and/or diversification •When company’s base market and/or technologies are dynamic in their nature
Intrapreneurship can be seen as structured management of innovation and as a portfolio of ventures with defined innovation targets and resources
Business Model of Intrapreneurship External ideas/ ventures
Internal ideas/ ventures
Screening Criteria Strategically incompatible ideas / ventures
Exit from strategically incompatible ventures
Established company
Incubation in a venture pool
(Re)integration or knowledge transfer
Comparing Entrepreneurial and Intrapreneurial Contexts Entrepreneurial Characteristics Freedom Goal oriented self-reliant
5-10 year horizon
Motives
Time orientation
Freedom Access to resources self-motivated
Seek incremental achievements
3-15 year horizon Urgency in meeting deadline
Knows business well and can amass resources Skills and experiences Much like entrepreneur can also work within hierarchy
Intrapreneurial Characteristics
Focus on macro and micro environment Environment Much like entrepreneur must also deal with corporate environment
Comparing Entrepreneurial and Intrapreneurial Contexts (cont.) Entrepreneurial Characteristics Assembled and acquired from outside firm
Learn and pay for mistakes - public and visible
Follows vision Decisive Uncompromising
Resources
Failure and mistakes
Decisions
Sensitive to corporate attitude May try to hide errors
Seeks shared vision and consensus
Derived primarily from internal slack
Intrapreneurial Characteristics
Comparing Entrepreneurial and Intrapreneurial Contexts (cont.) Entrepreneurial Characteristics Impatience led to venture start-up Attitude to bureaucracy Learns to manage system
Moderate- money and reputation at stake
Accepts low status until venture succeeds
Risk preference
Moderate- career and job at stake
View of status Places low value on corporate symbols
Intrapreneurial Characteristics
Ventures are usually as independent units under either a venturing unit, venture capital subsidiary or a venture capital fund Basic models of venturing organization: Model 1: Intrapreneurial Unit
Corporate Center
Model 2: VC Subsidiary Corporate Center
Model 3: VC Fund Corporate Center
Intrapreneurial Unit
Venture
Business Unit
Venture Capital Subsidiary
•Intrapreneurial Unit
Venture
Venture
•Venture Capital Subsidiary
Venture Capital Fund
Venture Venture •Participation in Venture Capital Fund
Main challenges related to establishing Intrapreneurial units are lack of resources and commitment, cultural clashes and lack of a venturing strategy Challenges related to Intrapreneurial Units:
Intrapreneurial activities are often initiated without proper resources and proper sponsorship from the top management
Cultural clashes related to co-operation and strategic exchange of knowledge between the ventures and the established company are issues, which may occur if venture management is not prepared for coping with it
Often Intrapreneurship is done with an unclear mixture of financial and strategic goals, but without a true venturing strategy nor a strategic venture selection process
Corporate Investing in VC 120
Corporate Investing in VC 100 80 60 40
14% 4%
5%
8%
15% 12% 3%
7% $14Β Ann
20 0 1996 1997 1998 1999 2000 2001 2002 2003 YTD Corporate
Total Venture
Combining Forces
Venture Capitalists Neutrality Financial discipline Deep networks Structured for early stage
Corporations Brand Installed base Relationships Domain expertise
Start-Ups Entrepreneurial Nimbleness Risk/reward incentive High growth
Leading Corporations Use VC Companies that are active in VC investing z
“8/10 5yr EPS growth leaders have VC arms ” – Forbes
z z z z z z z z z
Intel Dupont Johnson and Johnson 3M UPS P&G Cargill Dell Cisco Nokia
Leveraging VC for Innovation Technology is increasingly being sourced from outside corporations 100 %
Corporate Venture Capital is an efficient source of corporate innovation 15%
15%
12%
12%
9%
9%
6%
6%
3%
3%
0%
0%
24% % of Total
52% 64% External sourcing
50 %
Internal R&D 0% 1980 s
1990 s
2000 s
Source: Monitor Group
VC as % of R&D Expense
VC generated Corporate Innovations
Source: Harvard
CREATING A CLIMATE FOR INTRAPRENEURSHIP z z z z z
Finding resources for ideas An effective reward system short term pay benefits An effective reward system long term pay benefits An effective reward system – education & health benefits An effective reward system promotion
BARRIERS TO INTRAPRENEURSHIP z z
z
z
Independence in decision-making is a primary motivation in entrepreneurship The mobility of managers within large organizations may lead to a lack of commitment to specific projects In many large organiZations, there are often inappropriate methods to compensate creative employees Many managers in a large organiZations are not capable of being successful intrapreneurs
INTRAPRENEURSHIP
Entrepreneurial organisation •accepts (even a need for) change •exploits opportunity
Established organisation •ability to consolidate around success •manages risk •control of resource flows
The intrapreneur achieves the synthesis between “established-entrepreneurial”.
During the boom of the new economy in the 1990’s Intrapreneurial activities were financially motivated
Corporate Venturing in the 1990’s
Strategic Innovation
Short-term financial prospects
Intrapreneurship suffered serious setbacks as the bubble of the new economy burst and the prospects for short-term wins disappeared
z z
Many enterprises’ Intrapreneurial activities resulted in significant losses A significant number of enterprises reduced their Intrapreneurial activities and/or terminated them completely
Strategic objectives now dominate in Intrapreneurship z
z z
Almost half of all companies active in Intrapreneurship or planning to initiate it in the near future pursue mainly strategic objectives with it Only about one tenth pursue mainly financial objectives Pursuing purely financial objectives would have to be considered as being a form of corporate venture capitalism and not Intrepreurship
New competencies, new technologies and innovation capabilities, high-potential employees are the main strategic objectives when pursuing Intrapreneurial activities
Objectives: z z z z z z z z z
Develop new competencies Access to new technologies Strengthen your ability to innovate Retain or gain high potential employees Access to new markets Identify market trends Improve utilization of existing resources Support sales of your products Improvement of product quality/processes
Company should pursue Intrapreneurship with a strategic, innovation-oriented approach to boost growth and internal value creation Innovation • Goal is to strengthen own ability to innovate • Intrapreneurship as powerful supplement to own research/development • Special significance in technology-intensive industries (e.g. telecommunications, biotechnology )
Growth • Goal is the realization of growth outside the own core business •Development of new core competencies
Internal value creation • Goal is the enhanced utilization of existing but insufficiently used assets •Especially immaterial assets hold high potential (e.g. unused patents and employee knowledge)
Most common ways of supporting ventures are financial support, provision of a business network, availability of human resources and know-how Types of support z z z z z z z
Financial support Business network/contracts Availability of people Industrial know how Facilities/ infrastructure Utilization of R&D resources Availability of manufacturing facilities
Membership on the board, financial controls and membership on the executive management are seen as the most effective control instruments
z z z z z
Membership in the venture’s Board of Directors Financial controlling by the established company Membership in the venture’s Executive Management Regular meeting between venture and the appropriate business units Informal contacts between venture and established company
Several potential obstacles can hinder successful Intrapreneurship – these need to be eliminated before starting an Intrapreneurial initiative z z
By far the greatest obstacle is the lack of critical resources for venturing activity Other significant obstacles are -- Lack of top management commitment -- There is no clear venturing strategy -- Cultural clashes, exchange and cooperation between the established company and ventures
z
In summary, lack know-how is often a factor preventing successful Intrapreneruship -- Lack of a venturing strategy -- No systematic screening process -- Insufficient exchange of knowledge -- Lack of venture capital know-how
Limitations to intrapreneurship z
Entrepreneurs comfort: Entrepreneurs who have created the company must let go so that intrapreneurs can operate.
(It is about breaking rules which entrepreneurs have created (Young, 1999)
z
Decision-making control:Balance needed between freedom for the intrapreneur and maintaining the business on a constant strategic path.
Limitations to intrapreneurship z
Internal politics: Intrapreneurs must be able to predict and understand internal resistance to change. “Thrive on chaos” (Tom Peters, 1989)
z
Rewards: Can the organisation offer the same rewards as those expected by entrepreneurs? (economic, social and developmental). Moves to start own venture?
The most common reasons for exiting a venture investment are either not achieved milestones or insufficient return on investment
z z z z z z
Agreed upon milestones not achieved Insufficient return on investment Lack of strategic fit Good exit opportunity Objectives have been achieved Technological breakthrough cannot be achieved
Critical Success Factors z z z z z z
Senior management commitment Investment roadmap consistent with corporate and business strategy Flexibility for reactive and opportunistic option creation Institutionalized tool for growth and innovation Talent retention and continuity Capital to execute
Intrapreneurship is a significant strategic tool for boosting innovation – setting it up requires experience and commitment Conclusion: z z z
z
z
Intrapreneurship is an attractive strategic tool for established corporations The emphasis within Intrapreneurship is shifting back to strategic objectives – financial opportunities should currently be neglected Especially in economically difficult times, Intrapreneurship can be an excellent tool for breaking out of the trend through innovation, while minimizing the risks associated with it Intrapreneruship should be used as a strategic instrument for … -- creating innovations, -- accessing new technologies and markets, and -- creating new competencies. When setting up Intrapreneurial units one should … -- use a holistic framework, -- ensure existence of sufficient commitment and resources, -- start internally and only later extend to external, and -- ensure effective knowledge management between the established company and the ventures.
Summary: Venture matures (consolidation) Changes to : financial, strategic, structural and organisational dynamics
Chance to create a defendable competitive position Intrapreneurism offers the venture a way of combining the flexibility and responsiveness of the entrepreneurial with the market power and reduced risk of the established organisation
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