15.369 Corporate Entrepreneurship Professor Olenka .

15.369 Corporate EntrepreneurshipProfessor Olenka KacperczykProfessor Charlie KieferOctober 20151

Agenda for Today What is Corporate Entrepreneurship? Why Aren’t Large Firms More Entrepreneurial? The Logic of Entrepreneurial Thought andAction Class Logistics2

Agenda for Today What is Corporate Entrepreneurship? Why Aren’t Large Firms More Entrepreneurial? The Logic of Entrepreneurial Thought andAction Class Logistics3

What is Corporate Entrepreneurship?4

Do you agree that corporate entrepreneurshipis about a continuous, sustainable, wholeorganization transformation?5

What is Corporate Entrepreneurship? CE involves the broad plan of action set up by thegeneral management of a firm that allows to exploreand exploit a novel economic opportunity within anestablished firm CE has been traditionally thought as a creation ofnew business within established firms (often in theform of a profit center, strategic business unit, division,or subsidiary). But CE may also occur whenever a firm or individualventures into unfamiliar area (“away from the core”)in which success is uncertain CE ultimately serves to improve organizationalprofitability and enhance a firm’s competitive position6

Agenda for Today What is Corporate Entrepreneurship? Why Aren’t Large Firms More Entrepreneurial? The Logic of Entrepreneurial Thought andAction Class Logistics7

What are the chances that if you are in theFortune 500 this year, you will be in 15 years?8

Corporate mortality is very irmisaround45yearsOut of the top Fortune 25in 2010, only 18 remainedfrom the year 2000 andonly 6 from the year ize,inJapanandmuchofEurope,isonly12.5yearsOf the top 500 firms inthe U.S. in 1980, only 202had survived by the year2000.The firms on the original 1920s U.S. S&P 90 list stayedthere for an average of 65 years. By 1998, the averagetenure of a firm on the expanded S&P 500 was 10 years.Only 16% of firms listedon the 195 S&P 500remained on the 200 list1j3rd of the Fortune500 listed in 19 0,had disappeared by1983 a uired,merged or bro en topie es.Only 5% of U firms created from s rat h sin e 1980 made it to the 1000 biggest Ufirms by mar et cap. The e uivalent number in U.S. in 22%.Source: Fortune, S&P, and others9

Even success can be a problem“Today's companies face a paradox. Thecreation of a radical innovation brings with itsuccess, market dominance, and profits. Butthat very success generates complacency andarrogance, which blind the firm to the next biginnovation. Indeed, firms are in greatest dangerof failing when they are at the peak of theirsuccess.”Gerard J. Tellis, Author of "UnrelentingInnovation"10

Why Aren’t Large Firms MoreEntrepreneurial?11

Not simply a failure to recognize new opportunities butmultiple organizational barriers limit change Whole scale changes tostructure and process arevery disruptive:Two years of lost time? ToWhom?Strong cultures & deeplyrooted mental models areextraordinarily resistantto changeLeadership& StrategyStructure &ProcessIncentivesCulture &Mental Models12Individuals becomeInvested in old approachesStrategic/competitiveposition provides an excusefor inertiaExisting incentives often workagainst significant change, andnew incentives take time andwork. Who benefits from thenew technology?

In the earliest stages, disruptive technology does notenhance competitive advantage. Instead, the newtechnology cannibalizes sales from existingcustomers and serves low-margin customer segmentsCustomerValueEstablished technologyMainstream customer needsDisruptiveTechnologyNiche customer needsTimeChristensen, 199913

Why Aren’t Large Firms MoreEntrepreneurial? Organizational Inertia––– Threat of Cannibalization:––– New businesses face pushback from corporate and other units whoare unwilling to change the existing practices.Managers leading business building efforts inside the firm abandonthem due to career risks.Established Firms do not anticipate changes in the environment (?)Firms have a tendency to invest resources in businesses in whichthey have proven track records; resources are thus not available fornew businesses.Firms are reluctant to cannibalize existing businesses because newtechnology is often unproven and riskyNew technology emerges in small insignificant markets or productsthat customers do not wantWHAT CAN BE DONE about it?14

In a volatile, uncertain environment whatadvantages might a large organization haveover the small (startup) firm?15

Conclusion: Why Is CorporateEntrepreneurship Important? Corporate entrepreneurship is important for twobig reasons: GROWTH AND SURVIVAL.–– Without growing and adapting, firm performancesuffers and firms ultimately die.This is not trivial – only 14% of the original F500companies in 1955 are still alive today!A third reason: YOUR CAREER–Successfully building a new business inside yourfirm can fast track your career (or derail it if you arenot careful!).16

Agenda for Today What is Corporate Entrepreneurship? Why Aren’t Large Firms More Entrepreneurial? The Logic of Entrepreneurial Thought andAction Class Logistics17

Agenda for Today What is Corporate Entrepreneurship? Why Aren’t Large Firms More Entrepreneurial? The Logic of Entrepreneurial Thought andAction Class Logistics18

Challenges arise for four mainreasons1.Initiating new ventures inside the firm2.Designing the entrepreneurial organization3.Accelerating new business growth4.Managing corporate entrepreneurialism19

Corporate EntrepreneurshipCourse OverviewInitiating new ventures inside the firm1.When do employees come up and pursue new ideas? How tomanage and reward such employees? Designing the entrepreneurial organization2.What systems and processes at the organizational levelencourage corporate entrepreneurship? Accelerating new business growth3. What kinds of firm-level tools (e.g., spin-offs, open innovation)can be used to accelerate new venture growth?Managing corporate entrepreneurialism4. How to manage culture and architecture of the entrepreneurialfirm.20

Critical Role of DifferentStakeholders Entrepreneur Inside: Managers: Executives: Consultants:21

Critical Role of DifferentStakeholders Entrepreneur Inside:– Managers:– What can you as a manager do to be effective in motivatinginternal entrepreneurs?Executives:– How do you as an entrepreneur navigate a corporatearchitecture that is not friendly to entrepreneurial actionHow do you as an executive lead and sponsor CE?Consultants:–How do you as an organizational advisor help client diagnoseand implement efforts to foster CE?22

Approach:Frameworks, Exercises and Cases Lectures: Highlight the core “tools” of CorporateEntrepreneurship Case discussions: Leveraging tools and youranalytical capabilities to evaluate complex choices ofcorporate entrepreneurs and establishedentrepreneurial firms. Speakers: Learning about challenges andapproaches from relevant guest speakers (3M;Clorox, GE) Group exercises and assignments: Working with asmall team to develop analytical skills, make keydecisions that are at the heart of being an effectivecorporate entrepreneur23

What to remember from today’s class Corporate entrepreneurship is essential for thegrowth and survival of firms.But it often fails due to issues in design,implementation, acceleration and leadership.Course will focus on how to avoid failure andthe role that you can play in the process.24

Thank You!25

MIT OpenCourseWarehttp://ocw.mit.edu15.369 Seminar in Corporate EntrepreneurshipFall 2015For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms .

1j3. rd. of the Fortune 500 listed in 19 0, had disappeared by 1983 a uired, merged or bro en to pie es. Out of the top Fortune 25 in 2010, only 18 remained