Intrapreneurship
Lecture 1
How established firms can create new businesses – very important to keep
growth
Definition of Intrapreneurship: both formal and informal activities aimed at
creating new businesses in established companies through (innovation) new
products/services or via market development (new geographical area you’re not
active in so far) these activities can take place at different levels in the company
(corporate, division, functional,..) with the ultimate goal to improve the
competitive position and financial performance of the firm
- Firms want to grow and be relevant in the LT, they have to renew
themselves
Why is intrapreneurship important: because firms operate in very turbulent
business environments -> many things change constantly (tech, customers,
competition, regulations, resource availability,…) these changes force firms to
change themselves. If you don’t embrace the change you could lose
competitiveness.
- Could be done in reactive way, or be more proactive and be the change
agent (firstmover advantage)
Few examples: senseo coffee machines for at home, nintendo mobile games, lego
targeting adult market, amazon key example!
Successful companies are ambidextrous -> they have to be good at 2 things
(which is not easy): 1. In exploiting, refining, and improving their existing
businesses -> they determine the profitability today.
- You need processes, structure,… to make existing business more efficient
2. Start exploring new business to be relevant in the LT
Emprical evidence (research by professor) that the best performing firms are
ambidextrous: dataset of largest US, EU and Japanese firms in largest sectors ->
focus on firms being active in both technology exploitation (improve existing
technologies), tech exploration (active in research on new technologies).
Hypothesis: best performing firms have a balanced
portfolio of exploration and exploitation activities, -> there is an inverted U-
relationship between the share of technology exploration activities and firms’
long-term financial performance
Results? Via % of patents in new tech domains. with as control variables R&D
expenses, patent stock, past performance -> calculating the exploration share in
% - best firms have an exploration share of around 20-30%. Measuring financial
performance via Tobin’s Q index = LT indicator, future oriented (Market
value/book value). Then look at relation between Tobin’s Q and exploration share.
- Exploration share is first positive and weakly significant
, - When looking at exploration share squared it become negative and
significant, proving that it is indeed an inverted U-relationship => too
much exploration hurts performance
Relationship looks like:
not arguing that optimal is 50%, rather around 30% of R&D should go to
exploring new technologies, 70% to refining (exploitation). Why does such a large
part underinvest? Because focused on being profitable today, and not on
surviving in the LT
successful firms address all growth horizons -> healthy firms should undertake
activities that address the 3 growth horizons:
1. Horizon 1 (Short term)
-> exploitation
2. Horizon 2 (Long term)
-> develop existing technologies that are not yet used, or go into existing
market in which you’re not active
3. Horizon 3 (Long term)
-> doing really different technology or very different markets than what you’re
familiar with, new technology, new market
Horizon 1 drives profitability today, but firms also have to be forward looking!
Firms are obsessed with horizon 1! Why? Because management bonusses are
often tied to profitability today -> risky because you might become obsolete
when not investing in Horizon 2 and 3
Extreme example: Kodak reacting too late to change to digital cameras from
analog cameras
Entrepreneurial orientation of firms: Larger when they undertake a lot of
entrepreneurial events/activities = innovative activities often requires taking risk,
and are proactive (ahead of the market)
If firms want to be active in the LT they need to have an entrepreneurial
orientation. Research about relation entrepreneurial orientation and firm
performance “does it matter?”
- Originally via survey, more recently via datamining/text analysis of firms
explaining their strategy
, - Finding significant relation of R = .24 -> gets higher when looking at high-
tech firms vs non-high-tech firms
Entrepreneurial orientation has a positive effect on firm performance, thus
Intrapreneurship is an important driver of competitiveness of firms.
Sources of Intrapreneurship
Top-down: visionary CEOs -> eg Steve Jobs for Apple.
Bottom-up: initiatives of employees -> try to get funding, achieve it, and build up
a new business => eg: Alcatel R&D employee finding a way to transfer data via
copper wiring. More recent example: Fortis, local branch manager with passion
for dogs, realized not a lot of medical support for pets on holidays, also no
insurance for pets.
More often bottom-up
Often intrapreneurs start in a secret way = underground innovation / bootlegging
Bootlegging = activities in which motivated individuals secretly engage in
bottom-up, non-programmed efforts not officially authorized by management, but
are for the benefit of the company
Why? Because they want to build a credible case before going to management
for funding
- Eg VW gti = sport version of VW golf. The reason makes it rational
A research of this phenomenon:
First quote shows how underground innovation process works, can go far (even
checking with customers) before asking for approval. 2 nd quote illustrates that
innovation is also an unpredictable process.
Survey done at Ford showed that almost half of R&D employees have worked on
projects without a manager’s consent
Why do people do this? 3 types of underground innovators and motivations:
1. Missionary (eg VW) = believes in potential of a new product and its value for
the company, they are motivated in getting support for the idea, and want the
organization to fund it and implement
They try to involve as many people as possible, impact of idea is often very high.
2. User innovators = no big vision, they have a personal problem -> work with an
inefficient tool or process and come up with a better tool -> solve a personal
issue in their day-to-day job.
Don’t involve a lot of people, don’t ask resources, low effort (next to day to day
job), impact is very local (only their tasks). Not incentivized to involve
management and make it a standardized process in the company
3. Explorer = technical people that like to explore to learn new things,
experimenting in their off-work time.
Lecture 1
How established firms can create new businesses – very important to keep
growth
Definition of Intrapreneurship: both formal and informal activities aimed at
creating new businesses in established companies through (innovation) new
products/services or via market development (new geographical area you’re not
active in so far) these activities can take place at different levels in the company
(corporate, division, functional,..) with the ultimate goal to improve the
competitive position and financial performance of the firm
- Firms want to grow and be relevant in the LT, they have to renew
themselves
Why is intrapreneurship important: because firms operate in very turbulent
business environments -> many things change constantly (tech, customers,
competition, regulations, resource availability,…) these changes force firms to
change themselves. If you don’t embrace the change you could lose
competitiveness.
- Could be done in reactive way, or be more proactive and be the change
agent (firstmover advantage)
Few examples: senseo coffee machines for at home, nintendo mobile games, lego
targeting adult market, amazon key example!
Successful companies are ambidextrous -> they have to be good at 2 things
(which is not easy): 1. In exploiting, refining, and improving their existing
businesses -> they determine the profitability today.
- You need processes, structure,… to make existing business more efficient
2. Start exploring new business to be relevant in the LT
Emprical evidence (research by professor) that the best performing firms are
ambidextrous: dataset of largest US, EU and Japanese firms in largest sectors ->
focus on firms being active in both technology exploitation (improve existing
technologies), tech exploration (active in research on new technologies).
Hypothesis: best performing firms have a balanced
portfolio of exploration and exploitation activities, -> there is an inverted U-
relationship between the share of technology exploration activities and firms’
long-term financial performance
Results? Via % of patents in new tech domains. with as control variables R&D
expenses, patent stock, past performance -> calculating the exploration share in
% - best firms have an exploration share of around 20-30%. Measuring financial
performance via Tobin’s Q index = LT indicator, future oriented (Market
value/book value). Then look at relation between Tobin’s Q and exploration share.
- Exploration share is first positive and weakly significant
, - When looking at exploration share squared it become negative and
significant, proving that it is indeed an inverted U-relationship => too
much exploration hurts performance
Relationship looks like:
not arguing that optimal is 50%, rather around 30% of R&D should go to
exploring new technologies, 70% to refining (exploitation). Why does such a large
part underinvest? Because focused on being profitable today, and not on
surviving in the LT
successful firms address all growth horizons -> healthy firms should undertake
activities that address the 3 growth horizons:
1. Horizon 1 (Short term)
-> exploitation
2. Horizon 2 (Long term)
-> develop existing technologies that are not yet used, or go into existing
market in which you’re not active
3. Horizon 3 (Long term)
-> doing really different technology or very different markets than what you’re
familiar with, new technology, new market
Horizon 1 drives profitability today, but firms also have to be forward looking!
Firms are obsessed with horizon 1! Why? Because management bonusses are
often tied to profitability today -> risky because you might become obsolete
when not investing in Horizon 2 and 3
Extreme example: Kodak reacting too late to change to digital cameras from
analog cameras
Entrepreneurial orientation of firms: Larger when they undertake a lot of
entrepreneurial events/activities = innovative activities often requires taking risk,
and are proactive (ahead of the market)
If firms want to be active in the LT they need to have an entrepreneurial
orientation. Research about relation entrepreneurial orientation and firm
performance “does it matter?”
- Originally via survey, more recently via datamining/text analysis of firms
explaining their strategy
, - Finding significant relation of R = .24 -> gets higher when looking at high-
tech firms vs non-high-tech firms
Entrepreneurial orientation has a positive effect on firm performance, thus
Intrapreneurship is an important driver of competitiveness of firms.
Sources of Intrapreneurship
Top-down: visionary CEOs -> eg Steve Jobs for Apple.
Bottom-up: initiatives of employees -> try to get funding, achieve it, and build up
a new business => eg: Alcatel R&D employee finding a way to transfer data via
copper wiring. More recent example: Fortis, local branch manager with passion
for dogs, realized not a lot of medical support for pets on holidays, also no
insurance for pets.
More often bottom-up
Often intrapreneurs start in a secret way = underground innovation / bootlegging
Bootlegging = activities in which motivated individuals secretly engage in
bottom-up, non-programmed efforts not officially authorized by management, but
are for the benefit of the company
Why? Because they want to build a credible case before going to management
for funding
- Eg VW gti = sport version of VW golf. The reason makes it rational
A research of this phenomenon:
First quote shows how underground innovation process works, can go far (even
checking with customers) before asking for approval. 2 nd quote illustrates that
innovation is also an unpredictable process.
Survey done at Ford showed that almost half of R&D employees have worked on
projects without a manager’s consent
Why do people do this? 3 types of underground innovators and motivations:
1. Missionary (eg VW) = believes in potential of a new product and its value for
the company, they are motivated in getting support for the idea, and want the
organization to fund it and implement
They try to involve as many people as possible, impact of idea is often very high.
2. User innovators = no big vision, they have a personal problem -> work with an
inefficient tool or process and come up with a better tool -> solve a personal
issue in their day-to-day job.
Don’t involve a lot of people, don’t ask resources, low effort (next to day to day
job), impact is very local (only their tasks). Not incentivized to involve
management and make it a standardized process in the company
3. Explorer = technical people that like to explore to learn new things,
experimenting in their off-work time.
