Summary
Corporate entrepreneurship and innovation – Paul Burns (2020)
Chapter 1: Introduction: Entrepreneurship – thriving in chaos
The new age of change and uncertainty
- Change – continuous and unpredictable, often turbulent and disruptive – has so far
characterized the 21st century
o Difficult to predict and manage
- Monopoly = the exclusive possession or control of the supply of or trade in a commodity or
service by a company or group of companies
o Dominating markets
- Customers = those people who buy your product or service
- Underpinning this volatility is the development of globalization and global connectivity an
increasingly complex world full of interconnections formed by a truly global marketplace
linked by new technologies that allow instant communication with almost anywhere
o Social networks and media = communication hosted on the internet or on
smartphones, such as texting, tweeting or blogging, included social networking sites
such as Facebook, Twitter and YouTube
o Echo chambers = a metaphor describing a situation where beliefs are amplified or
reinforced by communication and repetition inside a closed system such as news or
social media
▪ Blurred boundaries between ‘truth’ and ‘lie’, ‘fact’ and ‘fiction’
- Bankruptcy = when you are unable to pay your debts and a court order is obtained by
creditors to have your affairs placed in the hand of an official receiver
- This new globalization has meant that no business is safe from the chill winds of competition.
Commercial opportunities remain, but competition in now as much about survival as growth
- The internet has caused disruption, generating as many threats and opportunities
- As global competition continues to increase, sources of real competitive advantage (= the
advantage a firm has over its competitors, allowing it to generate higher sales or profit
margins and/or retain more customers than its competitors) are proving increasingly difficult
to sustain over any period of time
o At the same time as seeking new sources of competitive advantage, companies must
continue to manage existing businesses; they must find ways of managing to achieve
cost efficiencies whilst at the same time differentiating themselves from the
competition; they must find ways to innovate at the same time as managing
products at the mature stage of their life-cycle (= stages of life – can refer to a –
product, market or industry)
- Gig economy = workers seeking temporary, short-term work ‘gigs’ or projects
o ‘gig workers’; self-employed people
The challenge of entrepreneurship
- Gazelles = young, high-growth firms & unicorns = a high-growth private company valued at
over $1 billion
o Have a large impact on a country’s economic well-being
o Usually extremely innovative, shaking up and disrupting markets and industries; they
create new jobs and wealth
, - Entrepreneurs = a person who creates and/or exploits change for profit, by innovating,
accepting risk and moving resources to areas of higher return
o Vital part of economic wealth generation
o Heroes of the business world; vision, freedom of spirit, creativity
o Have the courage, self-belief and commitment to turn dreams into realities
o Big companies often struggle with entrepreneurship
Can big companies survive?
- Big companies increasingly find it difficult to deal with this new age of uncertainty and super-
competition
▪ The often react by down-sizing, concentrating on their core activities and
subcontracting many of their other activities to smaller firms
▪ Many go out of business as well
o Start-ups and smaller ventures seem to find opportunities in the changes that these
larger, more established firms find threatening
▪ They react by innovating to better meet customer needs
- Economies of scale = the cost advantages obtained due to the scale of operation, where cost
per unit decreases with increasing scale
- Research: corporations become less effective as they grow bigger; the larger the company
became, the lower the revenues per employee and the lower the profits as a percentage of
sales
- Initial public offerings = the stock market launch of a company, where shares are sold to
institutional and usually also retail investors
- The notion that firms become less entrepreneurial and more bureaucratic as they grow is far
from new
o Greiner (1972): each phase of
growth is followed by a crisis
that necessitates a change in the
way the founder manages the
business. If the crisis cannot be
overcome, then the business
risks failure. The length it takes
to go through each phase
depends on the industry. In fast-
growing industries the growth
periods are relatively short, in
slow-growing growth industries
they tend to be longer
▪ Each evolutionary phase requires a particular management style or emphasis
to achieve growth
▪ Greiner’s model predicts four crises: leadership, autonomy, control and
finally bureaucracy
▪ The model shows these crises together with the changes in the emphasis
needed by the founder (figure 1.2)
o Whilst few experts would dispute the need to avoid too much bureaucracy and the
importance of continuing innovation, it is worth noting two things:
, 1. The same degree of bureaucracy (or lack of it) may not be appropriate for all
firms. At the same time, not all firms may require or be able to innovate to
the same extent
2. Whilst accepting that companies might have a natural life span, they may
also have spawned new offspring during that time – e.g. ventures.
o Big companies can certainly extend their lives – but only by innovation
- Innovation and its journey to the market is clearly a complex, collaborative process and one
in which large organizations still have an important part to play
Implications for big companies
- The ability to innovate is highly valued and the speed of response to changing market needs
is seen as essential
- Next to this, focus has shifted from existing and past value to future value
- There is an increased focus on risk minimization and a realization that companies need to
maximize their flexibility if they are to survive in this new, unpredictable age. Flexibility
increases shareholder value
o Strategic options = actions you might undertake if risks or opportunities materialize;
effective when you face either an unexpected downturn or upturn, even at the
expense of short-term profits; high liquidity and good cash flow are needed to make
the most of these options
- Economies of scope (or synergy) = the term used when less of a resource is used because it
is spread across multiple activities. Often referred to as ‘1+1=3’
o Can be more valuable than economies of scale, particularly when linked to a well-
known brand that can be extended over a range of products or services
- Corporate social responsibility = the combination of business ethics, social responsibility and
environmental sustainability
o Brands can be damaged by a lack of social responsibility of unethical actions
- Leadership = this is concerned with setting direction, communicating and motivating staff
o Traditional views of leadership as a command and control function seem increasingly
to be obsolete as people show they also have power
- Large companies increasingly have to prove themselves
The entrepreneurial mindset
- Management = this is concerned with handling complexity in organizational processes and
the execution of work
- How entrepreneurs approach business is their mindset – their character traits and their
approach to making decisions in a risky, uncertain environment
o Character traits of entrepreneurs:
▪ High drive & determination
• Motivated by their need for achievement and underpinned by
internal locus of control
▪ High need for autonomy and independence
• Doing things differently, control your own destiny
▪ High creativity, innovation & opportunism
• Creativity is focused on commercial opportunities
• Spot an opportunity and then use creativity and innovation to exploit
it
▪ High internal locus of control
, • Locus of control: a belief that they control their own density
• Create own density; high level of self-efficacy (self-confidence)
▪ Acceptance of measured risk & uncertainty
• Entrepreneurs are willing to take decision based upon incomplete
information (based upon their faith that they can influence the
outcome because of their locus of control and high self-efficacy)
• Intrapreneur = someone developing new products or businesses and
operating with a company that is not owned by them
▪ High need for achievement
• Recognition of their success
o Entrepreneurs may be born with some of these traits, but they are also formed
through life experiences – family background, education, job experience, culture, etc.
o The traits can be influence through the work environment
- Big Five model (Openness, extraversion, conscientiousness, agreeableness and neuroticism)
o Individual entrepreneurs can be defined high in openness, extraversion and
conscientiousness and low on agreeableness and neuroticism
o Openness is the trait that shows the strongest positive effect on creativity
o Low agreeableness shows that group-think is or dominant logic (= paradigms or
conventions that establish a status quo that is rarely questioned) of a group or an
organization is avoided → generate radical new ideas
Entrepreneurial management and leadership
- Entrepreneurs are often seen as being intuitive in their decision-making
1. Many entrepreneurs do not produce business plans = a formal document setting out
the business model for an organization
▪ They instinctively arrive at the right decision
2. Entrepreneurs often claim to have achieved their success through luck rather than
strategy. They believe that they can and will shape their own destinies
- The management style of entrepreneurs is typically based upon informal personal
relationships rather than authority
- Strong internal relationships create a heightened sense of identity, loyalty and solidarity
within the firm – a sense of an ‘in group’ working together for a common purpose
- Entrepreneurs build into an invaluable network of contacts and goodwill that can be used
whenever the firm needs to change or do something just a little more risky than the average
firm; this network is used to gain information and knowledge
- Successful entrepreneurs develop a strong vision = what the business might become
o The path for achieving this vision may not always be clear
o Strategic intent = a strong underlying vision of what a company might become
- Core competences = the skills, multiple resources and technologies that enable a company to
provide benefits to customers and distinguish them in the marketplace
o Entrepreneurial managers understand these competences
- Entrepreneurs do not like formal research and planning; use ‘gut feel’
o If one step works the second step is taken
o Decision-making is often seen as incremental and short-term
o Entrepreneurs learn by doing and make extensive use of cognitive heuristics =
simplifying strategies or approaches to decision-making, often based upon past
experiences. Not guaranteed to be optimal
, ▪ Entrepreneurial decisions are based upon these heuristics, past experiences
and the information entrepreneurs are receiving through their network of
relationships as well as the opportunistic circumstances at the time
- Emergent strategy = strategy development that is characterized by reactive solutions to
existing problems
o Can only be developed through a process of continual strategizing = continuous
assessment of the options about how to make the most of opportunities or avoid
risks that arise
o Outcomes are uncertain, so the more
options available the better
- Rather than having only one style of strategy
development, entrepreneurs would seem to adopt
both emergent and deliberate strategy
- The well-documented process of growth to crisis to
consolidation parallels a process of emergent to
deliberate and back to emergent strategy formulation (figure 1.5)
- First-mover advantage = the competitive advantage gained by being the first into a market
- Lean start-up = the launch of a minimum viable product then using customer feedback in an
iterative fashion tailor it further to the specific needs of customers
o Minimum launch into the market and then learning from it
Complexity theory and managing in chaos
- Complexity theory seeks to explain how complex systems work; shows how truly adaptive
systems cope with the continuous and unpredictable environment
- Entrepreneurial organizations need to harness change and make it work for their own
advantage
- Complexity theory shows that there are three requirements to create effective self-
organization:
o A common identity and purpose: there must be a clear understanding of and belief in
the common good that permits a common sense-making process within the
organization
o A free flow of knowledge and information: the organization as a whole must work on
the same information in order to provide the possibility of synchronized behaviour
o Strong personal relationships: these relationships are the pathways through which
information is transmitted and then transformed into intelligent, coordinated action
- The complexity theory also gives an intellectual basis for the apparent dilemma of whether
to encourage incremental or radical change within an entrepreneurial organization
o The two are not mutually exclusive. Systems most likely to thrive in a turbulent
environment are those that have the capability of making both small-scale
adaptations as well as large-scale revolutions; systems exist at the ‘edge of chaos’,
adapting all the time but able to make the occasional radical leap
- Entrepreneurial organization: relationship with all stakeholders, harvests and uses
knowledge and information to seek out opportunities and mitigate risks, strong identity and
vision, character traits of the entrepreneur and approach to management
, Chapter 2: Corporate entrepreneurship
Entrepreneurial intensity
- Entrepreneurial intensity = an increase in both the degree (or scale)
and the frequency of the entrepreneurial activity within an
organization
o The degree (or scale) of entrepreneurial activity can range from
low/incremental to high/radical
o The frequency can range from low/infrequent to high/frequent
o By increasing the entrepreneurial intensity it is believed that an
organization will be better able to cope with change, to
innovate and therefore gain competitive advantage
- Culture = in an organization this is about the web of unspoken, prevalent norms, basic beliefs
and assumptions about the ‘right’ way to behave. Sometimes simply described as ‘how it is
around here’
- It is about maintaining and/or increasing competitive advantage and therefore profitability,
but for more bureaucratic organizations it may be about survival
- Big companies ought to be good at innovation – more resources, knowledge and experience.
However, newer and smaller businesses come up with (radical) innovations and seem to be
better able to cope with change
o Traditional management focuses on efficiency and effectiveness – control rather
than empowerment
- Synergy = economies of scope
Defining corporate entrepreneurship
- Entrepreneurial transformation, strategic renewal and strategic entrepreneurship are all
terms used to describe entrepreneurial activities within larger organizations
o They are evidenced by an entrepreneurial orientation within the organization
o Achieved through and entrepreneurial architecture – a strategic alignment of
corporate resources so as to encourage entrepreneurship and innovation on a
sustainable basis
- Strategic renewal = changing the strategic direction of the organization so as to better cope
with change and innovation. Often linked to a company attempting a turnaround
- Internal corporate venturing = organizational structures needed to encourage new
businesses to develop internally whilst aligning them with the company’s existing activities
o Particularly concerned with how companies can manage radical entrepreneurship
and/or disruptive innovation (= introducing radically new products or services into
existing markets)
o Innovation or venture teams = a group developing new products or businesses and
operating within a company that is not owned by them
o Organizational structures to encourage innovation, including spin-offs
- External corporate venturing = strategic partnerships, alliances, etc. and the investment and
acquisition by large companies in strategically important firms
o Acquisitions
o Strategic alliances, partnerships and joint ventures
- ‘Bringing the market inside’: structural changes needed to encourage entrepreneurial
behaviour within an organization, in particular adopting market-based approaches to internal
resource allocation such as spin-offs
