Intrapreneurship
Master Business Economics 2018 – 2019, KU Leuven
Prof. Walter Van Dyck
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,Inhoudsopgave
1. Introduction ....................................................................................................................... 4
Intrapreneurship: a definition ....................................................................................................... 4
Why is intrapreneurship important?.................................................................................................... 4
Successful companies are ‘ambidextrous’ ........................................................................................... 5
Management versus entrepreneurship ............................................................................................... 5
Ambidexterity: an empirical test ................................................................................................... 6
Horizons for growth framework .................................................................................................... 7
Reality: most development portfolios of large firms focus heavily on horizon 1 projects ................... 7
Processes to improve existing businesses can kill new entrepreneurial projects ................................ 8
The tyranny of technology roadmaps .................................................................................................. 8
Entrepreneurial orientation of firms ............................................................................................. 9
Entrepreneurial orientation: does it matter?..................................................................................... 10
Sources of entrepreneurship .............................................................................................................. 10
Going underground in firms: Bootlegging .................................................................................... 10
Bootlegging: a valuable activity?....................................................................................................... 10
The unique nature of intrapreneurship ....................................................................................... 11
The entrepreneurial personality ........................................................................................................ 11
Critical roles in intrapreneurship........................................................................................................ 11
Fact or myth? ..................................................................................................................................... 11
2. Building an environment for intrapreneurship .................................................................. 12
A framework ...................................................................................................................................... 12
Innovation leadership: installing willingness and ability to innovate ................................................ 12
Entrepreneurial environment ..................................................................................................... 13
1. Organizational structure and autonomy ................................................................................ 13
2. Management support ............................................................................................................. 13
Free-time for intrapreneurship .......................................................................................................... 16
HRM practices to stimulate intrapreneurship.................................................................................... 17
Job security and intrapreneurship ..................................................................................................... 18
Drivers of intrapreneurship: empirical study ............................................................................... 18
Successful companies are “ambidextrous” ........................................................................................ 20
4 types of organizational context ...................................................................................................... 20
Diagnosing an organizational context ............................................................................................... 20
Relationship context and ambidexterity ............................................................................................ 20
3. Searching for entrepreneurial opportunities ..................................................................... 21
Intrapreneurship: a process view ................................................................................................ 21
Inspiration .......................................................................................................................................... 21
Ideation .............................................................................................................................................. 22
Screening innovative ideas ................................................................................................................ 26
Internal and external sources of ideas ............................................................................................... 26
Design thinking .......................................................................................................................... 27
Open platform-based design thinking ............................................................................................... 27
Start-up engagement methods .......................................................................................................... 28
Platform offering: core and external solution.................................................................................... 29
Design of startup engagement program ........................................................................................... 31
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, Making use of the ‘pro-sumer’ ecosystem ......................................................................................... 31
Which collaboration model to choose? ............................................................................................. 32
Value of external ideas: can users compete with professionals in idea generation? ........................ 32
How to organize for external ideas? .................................................................................................. 33
4. Structuring for intrapreneurship ....................................................................................... 34
Where to execute new business ideas ............................................................................................... 35
4 different organizational designs ..................................................................................................... 37
How effective are ambidextrous designs? Empirical study by Tushman et al ................................... 39
Spatial ambidexterity: empirical test ................................................................................................. 42
A sensing network .............................................................................................................................. 42
How to respond to a new innovation? ............................................................................................... 44
Idea diffusion ..................................................................................................................................... 44
5. Corporate venturing ......................................................................................................... 45
When do firms engage in venturing?................................................................................................. 45
Does corporate venturing work? ....................................................................................................... 47
Direct and indirect corporate venturing ............................................................................................ 47
Corporate venturing success factors.................................................................................................. 48
New to venturing? Follow a step-wise process .................................................................................. 52
6. Testimonial: state-of-art research & best practices in intrapreneurship ............................. 54
The anatomy of a creative idea ................................................................................................... 54
What are creative ideas ..................................................................................................................... 54
The creative process........................................................................................................................... 54
(Fuzzy) front end methods ................................................................................................................. 55
Developing ideas is a process............................................................................................................. 56
How does team composition affect creative success? ....................................................................... 57
Feedback ............................................................................................................................................ 57
Innovation tournament funnel........................................................................................................... 58
What impacts idea success? .............................................................................................................. 58
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, 1.Introduction
− Topic that goes into the realm of managing innovation within an organization
− Intrapreneurship blends elements of entrepreneurship into an organizational context (the
intrapreneur is not self employed in contradiction to an entrepreneur)
− Why do we do this? Because an intrapreneur dares to take risks, but why would he be willing to do
that? To disrupt the market. There are enough problem solvers within a company, but you need
someone who does something fundamental, who can change the industry,
Intrapreneurship: a definition
Intrapreneurship are formal or informal activities aimed at creating new businesses in established companies
through product and process innovations and market developments. These activities may take place at
the corporate, division (business), functional or project levels, with the unifying objective of improving a
company’s competitive position and financial performance.
− Coming up with a new market for what you are doing now, is also innovation. It doesn’t have to be
product or process driven
− What to remember from the definition: the importance is in the tail of the definition.
− The metaphor of fishing is often used: the company is a pond that has a lot of fish in it, you can try to
catch the fish (=ideas)
− The more radical an idea, the more it goes outside of the box, but the fewer people will like it (be
careful to not have core strengths turn into core rigidities) ↔ incremental ideas are welcome
− The traditional company is not oriented towards new radical ideas, so that’s why you need systems to
come up with these “crazy” (=far away from what we’re doing now) ideas, if you want them of course,
no all firms believe in intrapreneurship
− In order to stay competitive in the long run, you need to capture all the ideas (incremental as well as
radical)
− Intrapreneurship is the generation of innovations within a large organization, using existing resources
and employees. It can also be formulated as the creation of a new venture within an existing
organisation to benefit from opportunities and create economic and strategic value.
− It is important because it generates growth for the company
Why is intrapreneurship important?
− Firms operate in turbulent external environments:
• Technological environment (Dow companies, internet)
• Economic environment
• Competitive environment
• Labour environment
• Customer environment (requirements, expectations)
• Legal and regulatory environment (ban of cadmium)
• Resource environment (scarce resources like oil, find other ways)
− To survive in the long-run, companies have to embrace (reactively and proactively) environmental
change
− In a way, it’s about coping with change. This is why a large corporation might be interested in
intrapreneurship to cope with this radical change
− Environmental change: in the Dow chemicals case it was the dotcom bubble
− Embracing the change makes your company adaptive to change, this is a necessary thing
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,Intrapreneurship at Google
− Does this prototype mean that Google is going to move into the car
industry? Prof thinks no, so why do they do this? Maybe they’re not really
interested in the car, but in the data it generates. But why? In the long
term, the search platform they have is based on the data that is available.
We see an evolution of the platform where you get your data from, it’s
not computers anymore, it’s more and more other platforms that are
providing you with data
− Intrapreneurship is about exploring trends
− Value proposition of autonomous cars: safety
Intrapreneurship at Nestlé: Nespresso
− 1987: first patents of Nespresso
− Nespresso: a lot of these initiatives from intrapreneurs are reported directly to the higher
management, so high up in the hierarchy
− Why is George Clooney the face of Nespresso? Because it has been proven that women buy the
coffee, but men drink it. So by picking George Clooney, they hope to have the customers (=women)
pick their brand
− In Asia they did the normal approach: attractive woman to promote the brand, however, they did
choose someone with a western look, because a lot of Asian women aspire to look more western
(larger eyes,…)
− Intrapreneurship changed the company: from high volume, pushing firm to more pull based (order
coffee at home), they want to understand how the customer thinks and they build their entire model
around this. This was an idea that was being pushed into the organization using the intrapreneurship
model
− Nespresso coffee machine (10 years before senseo)
− Customers became more demanding, want more quality. So Nestlé invented this machine. Individual
portions, quality, convenient
Successful companies are ‘ambidextrous’
Exploration of new businesses <-> Exploitation of existing businesses
− If a firm is not ambidextrous, but only focused on standardization, what is the cost? It’s lunch or be
lunch, without being ambidextrous, a firm is lunch. No ambidexterity means only
incremental innovation,
− Exploration of new businesses is where intrapreneurship comes in
− Exploration = entrepreneurship
Exploitation = improving existing businesses to stay competitive (ex. decrease the cost)
− Ambidextrous: companies can do both, explore and exploit technologies
Both exploit their existing business where their cash on the short term is coming from
and do exploration of new businesses and opportunities for the future.
− If this approach is appropriate, you need two types of people; Managers and entrepreneurs. It is
important to stimulate both parties
Management versus entrepreneurship
− Risk: there is no immediate term business. You can start exploring the future, but if you don’t have
money coming in, it won’t last
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,Ambidexterity: an empirical test
This study tested: Are the ambidextrous firms on the long term better then firms that only focus on one of the
two activities? And, vice versa, are successful companies ambidextrous?
Hypothesis
= Best performing firms have a balanced portfolio of exploration and exploitation activities
− Inverted U-relationship between the share of technology exploration activities and firms’ long-term
financial performance
Empirical approach
− Panel data (1996-2003) on 168 US, EU and Japanese firms in five sectors (pharma, chemicals, IT
hardware, (non-)electrical machinery
− Exploration share = % of firm patents in new technology domains
− Financial performance = Tobin’s Q (market value/book value)
− Control variables = R&D expenses, patent stock, prior performance
− Which firms perform well?
• Firms who invest more in R&D
• Who patent their innovations
• Firms that performed well in the past
− Y = ax + bx2
This to test wether the relationship is linear of not
− One is + and one is – so the relationship is inverted-U-shaped! (zie exploration share)
→ 87% of sample firms under-invest in exploration
− 9/10 underinvest in exploration, but firms should invest more
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,Horizons for growth framework
− Firms should do activities (portfolio of projects) with different growth horizons.
• Exploitation: horizon 1
• Exploration: horizon 2 (intrapreneurship) and 3
− Horizon 1: immediate results
− Horizon 2: it will take longer before you see effect on the market (does depend on the sector, e.g.:
software is 2-3 years, pharmaceutical: 10 years)
− Horizon 3: takes even longer before it is operational, e.g. the Google car
− Intrapreneurship is typically not used in horizon 1&2, only in 3. Horizon 1&2 are seen as a kind of
roadmap, it’s usually just exploitation (horizon 2 has a little exploration), horizon 3 is fully exploration,
in Nestle terms: 1 = making the coffee in a more cost effective way, 2 = add chocolate or banana flavor
to the assortment, 3 = Nespresso
Reality: most development portfolios of large firms focus heavily on horizon 1 projects
Why do firms underinvest in horizon 2 and 3?
− Focus on ST
• Publically listed (shareholders want return asap)
• Companies don’t stimulate E to be
entrepreneurial
• Focus on existing customers
• Focus on existing revenues, on ST profit
• Too risky
• Fear to cannibalize existing products
− Established large firms have strict processes for all
their activities, this makes them agile (less able to
react) – eg. roadmap
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,Processes to improve existing businesses can kill new entrepreneurial projects
− Roadmap: the direction the company wants to go in, the strategy, this makes the firms more efficient
Technology roadmap from Intel
− Roadmap (horizon 1&2): intrapreneurship (horizon 3)
doesn’t really fit in the roadmap
− Banks don’t have roadmaps, they do have intra- and
extrapreneurial teams, but they don’t have an entire
department/unit focused on innovation. These
intrapreneurs are typically the marketeers.
− You need intrapreneurship as a complement to the
roadmaps
The tyranny of technology roadmaps
− Roadmaps are blueprints that explain how an organization wants to improve its
businesses/technologies over time
− Designed to reduce variation and diversity of the innovation possibilities that a firm pursues; therefore
it provides focus and brings efficiency into firms’ activities
− However, convergence on technologies and platform architecture knocks diversity out of the gene
pool
o Ideas ‘outside roadmaps’ are likely not considered relevant
→ ! Roadmaps can blind sight firms for new business opportunities and threats outside the roadmap scope
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,Intrapreneurship at Kodak
− Intrapreneurship serves strategy, it serves its robustness
− Kodak went bankrupt, why? Business model was to sell metres of film, then there was environmental
change: people stopped taking pictures with these types of cameras → Kodak did have digital cameras;
however, they weren’t able to transform their organization.
− The case is not complete if you don’t compare it with Fuji. Fuji also had people looking into this trend of
digitalization. Then a question: shall we as a company transform ourselves towards this trend? So going
from a chemical to a digital company. Kodak did hire people to transform the organization, but it didn’t
work. What did Fuji do? They said, we are not an electronics company and we will never be a technology
company, we will always remain a chemical company, e.g.: the anti-scratch layer on phones is Fuji, they
made film so they knew something about this and used it. They retained their core strengths,
respecialized and succeeded. They used film based technology but for other applications.
− Intrapreneurship is an element of strategic learning, you learn from a certain trend and either transform
your organization in favor of it, or use it to your advantage.
− Their business model was selling their analogue camaras relatively cheap and to make their biggest
profit on the camara-rolls that were needed for the camera. If they would move to digital cameras, their
most important source of income would fall out. This is why they desided not to invest in this new
technology.
− What could they have done differently?
• They could have reacted sooner
• Investing more agressively in the technology
• They could have diversified their core competence in the chemical industry to leverage this
capability. E.g.: move to cosmethics etc. (they had a lot of knowledge in the chemical industry
because of their camera rolls).
− Because they didn’t react correctly, their share price dropped to a very low level and they are not active
on the B2C market anymore.
− You can, however, still buy Kodac cameras but they are not made by them anymore. This is done through
licensing.
Entrepreneurial orientation of firms
How to check this?
− Innovativeness via patents
− Rest via annual reports – and check how many times these words are used…
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, Entrepreneurial orientation: does it matter?
− Overall, correlation of 24% between the two concepts → Yes, entrepreneurship is important
− These 51 studies are split up in two groups. The correlation is higher for companies in high-tech
sectors
− High-tech sector, more turbulent environment
− Important in both
Sources of entrepreneurship
− Top-down initiatives of visionary CEO’s
Intrapreneurship at Apple Inc (Steve Jobs does not really equal intrapreneurship)
− Bottom-up initiatives of employees
Fortis, Icare: health insurance for pets, this is what you use intrapreneurship for: new market, price
sensitivity is low, non-standardized, but low volume
Going underground in firms: Bootlegging
Bootlegging refers to R&D activities in which motivated individuals secretly engage in bottom-up, non-
programmed innovation efforts not officially authorized by management, but which are for the benefit of the
company (Augsdörfer, 2005)
Bootlegging: a valuable activity?
Study on the value of bootlegging
Hypothesis: individuals’ bootlegging activities are positively related to their innovation performance
Study set-up
− Activities of technical staff (n=238) in one large technology-intensive multinational firms (“Neptune”)
− Innovation performance = rating by managers
− Bootlegging = measured by the level of engagement in “unofficial” pet projects (info not shared with
mgmt.)
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