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Corporate Entrepreneurship - summary of all lectures, tutorials and articles - by Michel Dagli

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Good all-in summary of: - All lectures (+ guest lectures) - All answers from the tutorials - Summary of the mandatory articles - tested among 5 people and all achieved passing grades

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Voorbeeld van de inhoud

Summary of all lectures, tutorials and
articles
By Michel Dagli

,INHOUD

Week 1 Innovator’s dilemma .................................................................................................................................. 3
Lecture week 1 .................................................................................................................................................... 3
Christensen (2000), The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail ................. 5
Moore (2004), Darwin and the Demon ............................................................................................................... 9
Week 2 Ambidexterity .......................................................................................................................................... 12
Lecture week 2 .................................................................................................................................................. 12
Christensen and Overdorf (2000), Meeting the Challenge of Disruptive Change ............................................. 17
Birkinshaw and Gibson (2004), Building Ambidexterity into an Organization .................................................. 20
He and Wong (2004), Exploration vs Exploitation: An Empirical Test of the Ambidexterity Hypothesis.......... 23
Week 3 Managing Corporate Entrepreneurs ........................................................................................................ 25
Lecture week 3 .................................................................................................................................................. 25
Ling, Simsek, Lubatkin, and Veiga (2008), “Transformational Leadership’s Role in Promoting Corporate
Entrepreneurship: Examining the CEO-TMT Interface,” ................................................................................... 31
Manso (2017), “Creating Incentives for Innovation” ........................................................................................ 35
Podolny and Hansen (2020), “How Apple is Organized for Innovation” ........................................................... 39
Case: Agilent Technologies: Organizational Change (A). ................................................................................... 43
Week 4 .................................................................................................................................................................. 51
Lenning and Regt, Online Academic Education: What to Keep and What to Drop?, Chapter “Organizing for
innovation”........................................................................................................................................................ 51
Guest lecture: Disruptive innovation, Covid and TISEM ................................................................................... 53
Week 5 Internal Corporate Venturing................................................................................................................... 55
lecture week 5 ................................................................................................................................................... 55
Sethi and Iqbal (2008), “Stage-Gate Controls, Learning Failure, and Adverse Effect on Novel New Products” 65
Christensen, Kaufman, and Shih (2008), “Innovation Killers: How Financial Tools Destroy Your Capacity to Do
New Things” ...................................................................................................................................................... 70
Danneels (2002), “The Dynamics of Product Innovation and Firm Competences”, ......................................... 74
Week 6 – Sourcing External Knowledge ................................................................................................................ 79
Lecture week 6 .................................................................................................................................................. 79
Chesbrough (2003), The Era of Open Innovation .............................................................................................. 87
Chesbrough (2002), Making Sense of Corporate Venture Capital .................................................................... 91
Denning (2005), Why the Best and Brightest Approaches Don’t Solve the Innovator’s Dilemma.................... 95
Week 7 ................................................................................................................................................................ 101
Guest lecture Dura Vermeer ........................................................................................................................... 101

,WEEK 1 INNOVATOR’S DILEMMA

LECTURE WEEK 1




Disruptive innovation challenges a firm’s core competences and is the main reason why corporate
firms might lose their competitive advantage
- E.g. think of Nokia losing their market leader position due to the introduction of smart
phones – so disruptive innovation destroys the incumbents

Large firms losing out
Large firms missing the boat due to different typologies of technological change:
- Old vs. New
- Competence-enhancing vs. Competence-destroying
- Incremental (change with small steps) vs. Radical (change with big steps)
- Sustaining (duurzaam) vs. Disruptive (ontwrichtend)

It is especially the last types of change that large established firms have difficulties coping with.

Success Syndrome / Inertia
The reason why market leading, large firms lose their advantageous position, comes due to the
Success Syndrome.

Product and price are right = fit → success → growth (size and age)
a firm starts to build a history (back in the day we did this and that
which made us successful) → inertia (=traagheid) due to a set
culture within the company and company structure due to size →
success in stable market though failure when markets shift.
Inertia (structural or cultural) makes a large company vulnerable in
times of radical, disruptive innovations.
- Structural inertia: Also, because you have grown so large
with a firm, you are confident that what you are doing is the right thing, making you less
incentive to be innovative
- Cultural inertia: Inertia can be cultural when a company doesn’t want to change because it
has grown big because of something and doesn’t want to let go of it.

,BUT, is inertia Always Bad?
No, it is also what keeps a company going and focused instead of changing all the time with every
small trend which is coming and going, which results in more efficiency.

Inertia may result from accountability and reliability in order to keep everything in control. This
might be a good thing, but also makes for less innovativeness and more vulnerability in times of
disruptive innovation. Thus, slow innovation.

Now, how to protect the traditional successful business and to engage in radical
innovation at the same time?
- protect the business which made you what you are (past) but also think
about the future

The Innovator’s Dilemma
According to Clayton Christensen, failure to adapt to disruptive innovation is not the result of bad
management, but a result of good management.
Why? Large companies depend on their existing customers and investors for resources.
They listen closely to these customers and investors and kill ideas for which there is little need.




*Be aware that in general the line of the disruptive technology is much steeper

You can see when listening to you customer base (recall: good management), there seems to be a
higher need for your product (A) than for the disruptive technology innovation (C). However, this
disruptive innovation might grow significantly faster than your own technology and become on par
with your own technology in due time (D). Point B is the most premium product you can offer for
which high-end customers still want to pay, if you develop your product even further, you are
overshooting (e.g. keep adding more and more cameras to an iPhone).

Disruptive technologies typically have (at least initially):
- Lower profit margins
- Small markets
- No reliable market statistics

Thus: your customers and investors won’t be keen of investing into this technology, e.g. you follow
good management by focusing on your initial technology, however in the end you might still lose due
to a disruptive technology taking over.

,CHRISTENSEN (2000), THE INNOVATOR’S DILEMMA: WHEN NEW TECHNOLOGIES CAUSE
GREAT FIRMS TO FAIL
According to Clayton Christensen, failure to adapt to disruptive innovation is not the result of
bad management, but a result of good management. Key question in this article: “Why do well managed
companies often fail in spite of doing the right thing – i.e., meet their customer needs?

Introduction
Why do well-managed companies that have their competitive antennae up, listen to their customers and invest
aggressively in new technologies still lose marker dominance? A common recurring theme is that these failing
companies, at the point of failing, are among the best companies in the world.

Good management was the most powerful reason why they failed to stay atop their industries. Precisely
because
- these firms listened to their customers
- invested heavily in new technologies that provide their customers more and better products of the
sort they wanted, and
- because they carefully studied market trends and systematically allocated invested capital to
innovations that promised the best returns, they lost their position of leadership.

What this implies at a deeper level is that many of what are now widely accepted principles of good
management are, in fact, only situationally appropriate. There are times at which it is right not to listen to
customers, right to invest in developing lower-performance product with lower margins, and right to
aggressively pursue small, rather than substantial, markets.

The Dilemma
The innovator’s dilemma: the logical, competent (skilled) decisions of management that are critical to the
success of their companies are also the reason why they lose their position of leadership.

Figure 1 shows the observation that technologies can progress faster than
market demand. This means that in the efforts of firms to provide better
products than their competitors and earn higher prices and margins, suppliers
often “overshoot” their market: they give customers more than they need or
ultimately are willing to pay for. And more importantly, it means that disruptive
technologies that may underperform today (C), relative to what users in the
market demand, may be fully performance-competitive in that same market
tomorrow.

There are two dash lines in the figure 1.
- Performance demanded at the high end of the market
o For example: If you are making bikes and you are targeting professional cyclists, you will want
to have bikes that are as light as possible, carbon bikes with all the fanciest technologies, kind
of the highest specifications that are demanded by the market.
- Performance demanded at the low end of the market
o This line refers to kind of what the lowest spectrum of customers wants. For example: Your
grandma wants a bike but does not really care about fancy features. She only wants a
working, cheap bike.

An important aspect is that the slope of the Product Performance lines mentioned above is not as steep as the
slope at which the technology goes up. That is one of the reasons why the Innovator’s dilemma takes place.
- A: Existing firm. A technology that you are currently offering. Your product performance. Meet
customer requirements at the low end of the market.
- B: If you keep adding to your technology, at some point you will reach what is even the most
expensive or rich customers are willing to pay for. You reach the ‘Performance demanded at the high
end of the market’. After that point in time, you start overshooting. You start adding extra features
that people don’t really care about.

, - C: Disruptive innovations typically start at lower levels of product performance. The technology is
maybe not completely ready yet. If you are at this point, the customers don’t want your product,
because it doesn’t give them what they want, it does not reach the Performance demanded at the low
end of the market.
- D: At this point, the company is serving the market. They are competing. They meet customer
demands at the low end of the market.
- E: Serve the high-end of the market.


Why Good Management Can Lead To Failure?

The failure framework is built upon three findings:

1. There is a strategically important distinction between sustaining technologies and disruptive
technologies;
2. The pace of technological progress can, and often does progress faster than market demand.
3. Customers and financial structures of successful firms strongly influence the types of investments that
appear attractive to them relative to certain types of entering firms.

Sustaining vs disruptive technologies
Sustaining technologies are new technologies that foster/drive improved product performance.
Disruptive technologies are innovations that result in worse product performance, at least in the near-term
(short-term). Disruptive technologies bring a very different value proposition to a market than had been
available previously. Generally, disruptive technologies underperform established products in mainstream
markets. Though, they offer other features that only a few customers value. Products based on disruptive
technologies are generally cheaper, simpler, smaller and frequently more convenient to use.

Trajectories of Market Need vs Technology Improvement
Technologies can progress faster than market demand. This means that in effort of providing better products
than a competitor and earn higher prices and margins, firms often ‘overshoot’ the market; they give customers
more than they need, or ultimately are willing to pay for. More importantly, this also means that disruptive
technologies may underperform today, relative to market demands, but may be fully competitive in that same
market tomorrow.
- Disruptive technology first underperforms, however due to sustaining technologies it grows quicker
than market needs, and quickly becomes competitive with old technologies. Sustaining technologies
for old technologies leads to overshooting.

Disruptive Technologies vs Rational Investments
Large firms don’t invest heavily in disruptive technologies for to three main reasons:
1. Disruptive products are simpler and cheaper; they generally promise lower margins, not greater
profits;
2. Disruptive technologies typically are first commercialized in emerging or insignificant, small markets;
3. Leadings firms’ most profitable customers generally don’t want, and initially can’t use, products
based on disruptive technologies.

,Principles of Disruptive Innovation (why not to invest?)

Principle 1: Companies depend on customers and investors for resources
Theory of resource dependence means that while managers may think they control the flow of resources, in
the end it is really the customers and investors who dictate how money will be spent; since if you don’t satisfy
them, you won’t survive. The highest-performing companies are the best in killing the ideas their customers
don’t want. However, once their customers do want them, they (companies) are too late to respond. The only
instances (cases) where firms were successful in establishing a position in a disruptive technology, were when
there was set-up an external organization with the responsibility to build new and independent businesses
around this disruptive technology. These companies focused on the customer who do want these disruptive
products. In other words, companies can succeed in disruptive technologies when their managers align their
organizations with the forces of resource dependence.

Principle 2: Small markets don’t solve the growth needs of large companies
The larger and more successful an organization becomes, the weaker the argument that emerging markets
remain useful engines for growth. (small emerging markets have no impact, if so then you are already too late)

Principle 3: Markets that don’t exist can’t be analyzed
Good management is characterized by sound market research, good planning, followed by execution according
to plan. When applied to sustaining technological innovation, these practices are pricelessly worthful.
However, when dealing with disruptive technologies which lead to new markets, market researchers and
business planners have a hard time trying to indicate the market.

Leadership in sustaining innovation, where information is known and for which plans can be made, is not
competitively important. In such cases, technology followers do about as well as technology leaders. It is
disruptive innovations, where we know least about the market, that there are strong first-mover advantages
(like others will not have the same information as you) to be obtained by the leader. This is the innovator’s
dilemma.

Principle 4: An organization’s capabilities define its disabilities
An organization’s capabilities reside in two places:
- The processes are the methods by which people transform inputs into outputs.
- The values are the criteria that managers and employees in the organizations use when making
prioritization decisions.
Precisely these two places, its processes and values, also define an organization’s disabilities. A process that is
effective at managing the design of a minicomputer, is ineffective at managing the design of a desktop personal
computer. Similarly, values that cause employees to prioritize projects to develop high-margin products,
cannot simultaneously accord priority to low-margin products. Thus, the processes and values that constitute
an organization’s capabilities in one context, define its disabilities in another context.

Principle 5: Technology supply may not equal market demand
Disruptive technologies, although they initially can only be used in small markets, are disruptive because they
subsequently can become fully performance competitive in mainstream markets. As stated before, this is
because technological progress in products exceeds the rate of performance improvement that mainstream
customers demand. As a consequence, products whose features and functionality closely match market needs
today, often follow a trajectory of improvement by which they overshoot mainstream market needs tomorrow.
The same goes for products that seriously underperform today, may become performance-competitive
tomorrow. A customer’s choice of product evolves from functionality to reliability, to convenience, and
ultimately to price. Firms try to stay ahead of competition by sustaining technologies and thus offering superior
products, moving up-market, eventually over-satisfying the needs of their original customers, racing the
competition toward higher-performance, higher-margin markets. In doing so, they create a vacuum (gap) at
lower price points into which competitors employing disruptive technologies can enter.

,TUTORIAL QUESTIONS

(1) What is the innovation dilemma?

The logical, competent decisions of management that are critical to the success of their companies are also the
reasons why they lose their positions of leadership




(2) How is the disruptive vs. sustaining distinction different from the radical vs. incremental distinction?

Incremental vs. radical change: size of the change
• Incremental = change in small steps
• Radical = change in big steps
Sustaining vs. disruptive: how does it relate to your current business?
• Sustaining enhances the performance of your current business
• Disruptive destroys your current business

Examples:
Type of innovation Incremental Radical
Sustaining New razor going from 3 to 4 blades Airfryer
Disruptive Ford’s model T: production-line Digital photography
process for car manufacturing


(3) Why do firms not invest in disruptive technologies?

1. Companies depend on customers and investors
2. Small markets don’t solve growth needs
3. Markets that don’t exist can’t be analyzed
4. An organization’s capabilities determine its disabilities
5. Technology supply ≠ market demand

,MOORE (2004), DARWIN AND THE DEMON
How can firms innovate and survive in the long term? What are the forces that firms must overcome?

- Darwin: Evolution, survival of the fittest.
- Demon: Inertia

Darwin vs. the demon:
- To overcome Darwinian selection processes, firms need to innovate
- The demon of inertia manifests itself in too much reliance on production innovation early on and
overshooting later on.

The article discusses which type of innovation (product, process, marketing, business model) a business should
pursue, which depends on which market development life cycle the business is in. It discusses multiple types
of innovation, namely:

1. Disruptive innovation
Markets appear as if from nowhere, creating massive new sources of wealth. It tends to have its roots
in technological discontinuities.
2. Application innovation
Taking existing technologies into new market to serve new purposes.
3. Product innovation
Taking established offers in established markets to the next level. E.g. s when Intel releases a new
processor or Toyota a new car. The focus can be on performance increase, cost reduction, usability
improvements, or any other product enhancements.
4. Process innovation
Making processes for established offers in established markets more effective or efficient
5. Experiential innovation
Making surface modifications that improve customers’ experience of established products or
processes. These can take the form of delighters, satisfiers, or reassurers.
6. Marketing innovation
Improving customer-touching processes, whether in marketing communications or consumer
transactions.
7. Business model innovation
Reframing (more incremental) an established value proposition to the customer or a company’s
established role in the value chain, or both. E.g. Gillette moving from razors to razor blades, or Apple
entering consumer retailing)
8. Structural Innovation
Capitalizing (taking advantage) on disruption to restructure industry relationships.

Riding the life cycle (trick: ECBT-MMM-FE)

Different types of innovation are more useful at different times
of the market development life cycle. The early market is when
a new technology is introduced and attract the attention of
early adopters. The chasm (kloof) is the part where is
technology isn’t completely new anymore where visionaries
are no longer enthusiastic, and isn’t large enough to convince
the larger market, here the only way to get out of the chasm is
to target a niche market. The bowling alley is when the
technology is starting to gain acceptance in this niche. When
the technology has proven to be successful in this niche, it
becomes deemed as necessary and as the standard, this is called the tornado. The main street (early) is when
the hypergrowth phase of the tornado is over and the category keeps on growing nicely. The main street
(mature) is when the growth has flattened, and the technology has become a commodity. Once the category is
stagnant and the denominators aren’t willing to invest in it anymore, the main street becomes declining,
making room for new innovations. Now with the new innovation, the fault line becomes visible, showing the

, difference between what the company offers, and what the market desires, resulting in the inevitable end of
life of this technology as a new tornado is coming up. For information pre aspect - see control summary.

1. Early market
2. (the) Chasm
3. Bowling alley
4. Tornado
5. Main Street (early)
6. Main Street (mature)
7. Main street (declining)
8. Fault line
9. End of life

Innovation vs Market Life Cycle (trick: DAPPEMBS)

When you overlay the mentioned types of
innovation with the market life cycle, you see that
at each stage, management has different resources
to bring to the challenge of competing for revenues
and profit margins. The first three innovation types
(disruptive, application and product) dominate the
technology adoption life cycle (see in orange).

Once the market moves onto Main Street, however, these forms of innovation lose their
leverage. Any delta in competitive advantage they might produce wouldn’t be worth the resources
required. To put it another way, the marketplace is no longer willing to yield the revenue or margin
gains necessary to fund such efforts. (Investments in these types of innovation during the Main
Street phases of the market’s life have the effect of accelerating commoditization through a
process Clay Christensen has called overshooting.)

At this point in the market’s evolution, a second suite of innovation types comes to the fore – the group
consisting of process, experiential, and marketing. Again, the three types can interoperate, and thus they can
be used separately or together to create incremental improvements. Sooner or later, even these forms of
innovation lose their usefulness and the market moves into an inevitable decline, often with the further threat
of an obsoleting technology on the horizon. But companies still have two types of innovation left to exploit:
business model and structural.

Battling Inertia
The implication of the life-cycle model is that enterprises must mutate/change their core competences over
time to sustain attractive returns. But management's attempts to change direction are hindered by the inertia
that success creates. The deeper the enterprise is into the life cycle and the more successful it has been, the
greater its tendency to return to its former course.

Defeating the demon
To overcome inertia, management must introduce new types of innovation while deconstructing old processes
and organizations. You have to actively extract resources from the legacy processes and organizations and
repurpose them to the new innovation type (see life cycle above), and if that isn’t possible, take them out the
company altogether. Therefore management must follow a twofold path of constructing the new innovation
and deconstructing the old one.
- See the link with ambidexterity
- for example when the markets life cycle is in the maintaining main street, a company shouldn’t be
focused on product innovation anymore, but more on marketing innovation; here processes and
organizations around product innovation should be deconstructed, while there should be construction
for marketing innovation.

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