ABSTRACT (2007 Thesis, Doctor of Business Administration, Macquarie University, Dr Sally Ernst: The Role of the Corporate Entrepreneur in the Radical Innovation Process)
Radical innovation is critical to sustaining growth in mature firms because of its capacity to successfully underpin enhanced profitability. Corporate entrepreneurship is related to the success of innovation, radical or otherwise. However, the role of the corporate entrepreneur driving this process has received little attention in the literature. The purpose of this research is to explore the role of the corporate entrepreneur in the radical innovation process. Particular attention is given to the tasks performed in that role. This research uses complete member researcher and grounded theory methodologies to explore the role of the corporate entrepreneur within a radical innovation in a direct internal venture setting. The findings illustrate the changing nature of the role of the corporate entrepreneur and how this role may be delineated into the following phases of tasks to be performed: researching, selling, building, delivering and transitioning. Key strategies for managing these tasks are found to be: communication, problem solving, executing to the objective and leverage of the parent firm, systems, relationships and information.
7.1 Key findings (excerpt)
The research in this thesis concerns the role of the corporate entrepreneur in the innovation process. The importance of this topic runs along three streams: i) the turbulent environment in which business operates, ii) the need for radical increases in profits by mature companies, and iii) the significant evidence of a clear gap in the existing literature concerning the role of corporate entrepreneur, and the strong need for this gap to be filled. Each of these areas is briefly recapitulated below.
First, the environment in which business is conducted constantly changing in terms of technological innovation, globalisation, accessible infrastructure and resources, society and culture, and political, regulatory and economic concerns. All of these factors underpin rapid shifts in market needs creating opportunities to be capitalised on and threats which need to be mitigated. Structurally, mature firms generally cannot be sufficiently flexible to respond quickly to these changes meaning an inability to pursue and maximise these opportunities. As a result the growth of mature firms is stymied, incremental or in decline.
Second, and related to the first point, due to the rapidly changing environment it is often the case that pursing these emerging market opportunities to achieve radical increases in profits, requires radical change. The complexity for mature firms is that they are risk averse in nature, with rigid systems and processes, and have a strong need to protect their status as a “cash cow” to maintain shareholder value. As a result mature firms are often not able to realise radical profits as they are not sufficiently agile to be competitive against other faster moving mature firms and smaller high growth firms which have the flexibility to pursue these opportunities. The synthesis of these first two points shows that radical innovation is critical to sustaining growth in mature firms because of its capacity to successfully underpin enhanced profitability.
Finally, there is an apparent gap in the literature concerning the role of the corporate entrepreneur. The review of the literature uncovered significant research in the area of corporate entrepreneurship. These areas concern: i) the key elements for an initiative to be considered entrepreneurship, ii) corporate structure and entrepreneurship, and iii) task performance versus traits and behaviours as fundamental characterisations of entrepreneurship and entrepreneurs. These areas are briefly summarised below.
First, the literature holds three schools of thought as to the initiatives that may be defined as entrepreneurship. These schools of thought consider whether innovation needs to be radical or can be incremental in nature, and whether the role of the corporate entrepreneur can be formal or informal. The three conflicting schools of thought see the requisite combinations of these elements as either: i) the innovation can be incremental and the role of the corporate entrepreneur can be informal ii) the innovation can be incremental and the role of the corporate entrepreneur must be formal, or iii) the innovation must be radical and the role of the corporate entrepreneur must be formal. The case used in this thesis concerns the latter. That is the role of the corporate entrepreneur was studied in the context of a radical innovation where the role of the corporate entrepreneur had been formalised.
The second area the literature covers comprehensively is corporate structure. Two forms of structure for corporate ventures were identified: i) internal to the parent firm, such as a wholly owned subsidiary, or ii) external to the parent firm, such as a joint venture or “spin off”. The literature suggests that the more related the new venture’s offering to the parent firm’s the more integrated their corporate structures should be. The corporate structure of the case used in this research was the former and, in line with the literature, the new venture’s offering was closely related to the parent firm’s.
Finally, the literature can be grouped into a i) task based approach to analysing corporate entrepreneurs, or ii) traits and behaviours approach. The task based approach looks at the constituent responsibilities and activities performed by the corporate entrepreneur. These tasks were more generally characterised as cross-functional, inherently complex, and multidisciplinary in nature. Of the tasks identified, the coverage in the literature of the acquisition of resources, particular leverage of parent firm resources, was found to be minimal. The traits and behaviours approach looks at how the corporate entrepreneur approaches these tasks, and what constitutes and drives entrepreneurial behaviour. The research in this thesis focused on the tasks the corporate entrepreneur performed as part of her role. Secondarily, it considered the traits and behaviours of the corporate entrepreneur as they emerged and were relevant to the performance of those tasks. Of significance in the review of the literature, with respect to a task based approach to analysis of the data, was that there were two schools of thought identified in the literature with regard to the task of acquiring resources. The extent of existing research in this area was minimal. These schools of thought considered whether parent firm resources should be leveraged from the parent firm (that is not owned directly by the new venture) or whether resources should be dedicated to the new venture (that is, owned by the new venture). The research in this thesis investigated this area in greater detail.
The third point demonstrating the importance of this research is that there is a clear gap in the literature concerning the role of the corporate entrepreneur. In Chapter 1 it was shown that, while highly important to the academic and practitioner communities, there is little known about the substance and process of corporate entrepreneurship. It was further identified that research into this area was important as the success of corporate venture a rests solely with the corporate entrepreneur. As such, many researchers support that research into this area would contribute to the increased success and frequency of corporate entrepreneurship.
Because corporate entrepreneurs start up new ventures as individuals, although supported to some greater or lesser extent, researchers suggest that the individual is the most logical area for entrepreneurship research and development of theory. They further suggest that new ways of conceptualising human phenomena in new venture creation and hypothesising, and testing those hypotheses, are needed. The method of research in this thesis uses previously unavailable data sources such as email which provides for rich, intricately detailed data for analysis. The task based lense this research has taken is also identified in the literature as important with researchers calling for a managerial approach to entrepreneurship with respect tasks by entrepreneurs to attain their goals, an area that lacks research.
In summary, there is clear and well supported evidence in the literature that there is currently no existing research into the role of the corporate entrepreneur in the radical innovation process. The need for this research is driven by the evidence that corporate entrepreneurship in mature firms is strongly related to the success of innovation, radical or otherwise. This likely underpins the support by many authors that the findings of research into this area would be a valuable contribution to management theory and practice. The purpose of this research, then, has been to explore the role of the corporate entrepreneur in the context of the radical innovation process.
In exploring the role of the corporate entrepreneur in the radical innovation process, it was found that the nature of the role changed over time. The changes were task based and could be clearly delineated into a sequential series of phases where a single task focus was evident in tandem with a combination of other tasks, characteristic of other phases. These phases were labeled in order of sequence: i) Research, ii) Sell, iii) Build, iv) Deliver, and v) Transition. Key strategies for managing these tasks were found to be: communication, problem solving, executing to the objective and leverage of the parent firm, systems, relationships and information. There was also a sixth phase identified, labeled the Intense phase where the combination of tasks performed in combination were simultaneously greater in number than at any other time and more demanding of the corporate entrepreneur’s attention. This period occurred toward the end of the Build phase until the middle of the Deliver phase.
The first phase, labeled the Research Phase, primarily involved i) researching the market, ii) positioning the new venture, iii) conceptualising its offerings, iv) understanding the capabilities that were to be built, v) how to resource building those capabilities, and vi) assessing the new venture’s financial viability based on these inputs. Research as a task focus continued for three months of the two year lifespan of the innovation process and so represents 13% of that time. Secondarily during the Research phase, the corporate entrepreneur was also subtly selling the new venture’s offering by having clients, the parent firm and the industry more generally investing their time and thoughts into the development of the services. There was also a small amount of activity around building prototype capabilities. This demonstrated the combination of Sell and Build phase activities that were performed but not as a focus of the Research phase.
The second phase, labeled the Sell phase, involved selling the new venture concept and offerings to various stakeholders important to its future success. First, the corporate entrepreneur sold the new venture concept to the board to raise capital. Second, the corporate entrepreneur actively sold the new venture’s concept and services externally to the market, industry and media to attract clients. Third, the corporate entrepreneur sold internally to rally and maintain board and parent firm support for the venture. This was critical to leveraging the parent firm’s resources and keeping the new venture viable. Selling as a task focus continued for nine months of the two year lifespan of the innovation process and so represents 38% of that time. Secondarily, during the Sell phase the corporate entrepreneur continued to research the market and continued a small amount of activity around building prototype capabilities. This demonstrated the combination of Research and Build phase activities that were performed but not as a focus of the Sell phase.
The third phase, labeled the Build phase, involved building the capabilities required in preparation for the delivery of the new venture’s services, which were now being successfully sold. Toward the middle of the Build phase, the corporate entrepreneur was still selling the new venture concept and services internally and externally. At the same time, she was also building capabilities, through mostly leveraged resources, and rapidly recruiting dedicated resources to resources two major implementations. This led to an intense amount of activity which lasted into the middle of the Deliver phase and so was characterised as the Intense phase. Building as a task focus continued for three months of the two year lifespan of the innovation process and so represents 13% of that time. Secondarily, during the Build phase the corporate entrepreneur as described above continued to research the market, sell the new venture’s services and also started to deliver services. This demonstrated the combination of Research, Sell and Deliver phase activities that were performed but not as a focus of the Build phase.
The fourth phase, labeled the Deliver phase, involved delivering the services sold using the capabilities built. As described earlier there was also an intense amount of activity occurring until the middle of this phase, characteristic of the Intense phase. Services delivery as a task focus continued for nine months of the two year lifespan of the innovation process and so represents 38% of that time. Secondarily, during the Deliver phase the corporate entrepreneur continued to research the market, sell the new venture’s services and build capabilities. This demonstrated the combination of Research, Sell and Build phase activities that were performed but not as a focus of the phase.
The final phase, labeled the Transition phase, was evidenced through i) an almost complete cessation of activity by the corporate entrepreneur and ii) the new venture achieving success as defined in the research phase and agreed by the board. That is, the new venture reached break even, over AUD$5m in revenues, an ARPU of AUD$32,000 per month, and successfully entered the gap in the market. Success, as a consequence also applied to i) the corporate entrepreneur with her role in driving the new venture to succeed and ii) the parent firm who then realised radical increases in profits and became a recognised player in the gap in the market.
Heavily influencing the action/ interaction strategies of researching, selling, building, delivering and transitioning were found to be the intervening conditions of i) leverage, ii) communications, iii) problem solving, and iv) executing to the objective. These conditions are summarised below and were evident to some greater or lesser extent throughout the innovation process, and simultaneously demanding in the Intense phase.
The concept of leverage involved the parent firm, systems and processes, relationships, and information. All aspects of the parent firm’s business system were shown to be leveraged to provide resources to the new venture either free of charge or at a marginal cost to the new venture. This was important in achieving profitability as to build those capabilities with resources that incurred their full cost to the new venture’s bottom line, would significantly risk the new venture’s viability. An important finding in this area was the use of “band-aid” systems which were sufficiently fit for the purpose of their use but not necessarily robust, long term or formalised. These band-aid systems were also important to achieving l) profitability due to their low cost, and ii) revenues due to their ability to be implemented quickly. It was also found that band-aid systems were effective but generally not efficient.
The corporate entrepreneur leveraged her own and other’s relationships throughout the innovation process. The findings show that relationships were leveraged extensively, particularly informal relationships, for attracting free resources from the parent firm and in making sales. In developing and leveraging relationships, the corporate entrepreneur also displayed what this thesis terms “chameleon-like” behaviour. This changing behaviour is characterised by the corporate entrepreneur interacting with a person or group of people based on what she perceived was appropriate to their personal taste and world view. Important findings with respect to relationships were the negotiation/ relationship continuum and the obstructive behaviour model. The negotiation/ relationship continuum models the finding that a strong relationship between two third parties with a negative relationship with the corporate entrepreneur was very powerful in obstructing her from achieving her goals. However, a weak direct relationship with a third party that was highly positive was very powerful in helping the corporate entrepreneur. In the case of the former, the corporate entrepreneur would employ the obstructive behaviour model. This involved leveraging relationship with other people to work around the obstruction.
Finally, the corporate entrepreneur leveraged information. Information was both incoming and outgoing. Incoming information the corporate entrepreneur leveraged included: i) industry media to recognise opportunities, and ii) parent firm communications to coordinate staff, understand parent firm issues that may affect the new venture, and recognise opportunities within the parent firm to obtain clients whose needs were not being met. Outgoing information the corporate entrepreneur leveraged included parent firm marketing pieces such as press releases and newsletters. She also leveraged the media and parent firm directly to propagate her desired messages about the new venture to key stakeholders.
The second intervening condition uncovered was communication. The theme of communication was structured into its purpose, mode, and medium, where the two most important were purpose and medium. All of these variables, and the context in which the communication occurred, changed across each of the phases. The main medium of communication appeared to be email however face to face meetings were used if there was an issue to be resolved or a relationship to be built. The purpose of any single communication was found to be, in many cases, used for a dual or more purpose, such as technical updates being used as a marketing tool. The corporate entrepreneur was found to ensure clear and consistent messages. She was also found to communicate incremental wins or issues in a way which may have over-represented its actual significance.
The third intervening condition of problem solving concerned the significant amount of time the corporate entrepreneur spent problem solving obstructions to the achievement of her goals. Through problem solving, she was able to turn issues into opportunities, effectively manage crises, and create new capabilities. Some of the approaches to problem solving included conflict resolution and negotiation, effected through formal and informal relationships or via the obstructive behaviour model.
The final intervening condition was found to be the corporate entrepreneur’s focus on, and ability to, execute to her objectives. As the corporate entrepreneur could not do everything herself, she needed to gain momentum by collective influence to get things done. To achieve this, the corporate entrepreneur leveraged her relationships and accessible resources such as capital, people and infrastructure. The outcome of her focused and goal oriented execution through these collective resources was to reduce cost and build capabilities to deliver and market the new venture’s services, all of which culminated in achieving her profitability, revenue and capability goals.
TABLE OF CONTENTS (For further information, please email email@example.com)
Chapter 1 9
1.1 Problem statement 9
1.2 Background 13
1.2.1 The parent firm 13
1.2.2 The new venture 14
1.2.3 The corporate entrepreneur 15
1.3 Statement of purpose 16
1.4 Research questions 17
1.4.1 Definitions 18
1.5 Methodology 18
1.6 Structure of the thesis 20
1.7 Summary 22
Chapter 2 24
Literature review 24
2.1 Introduction 24
2.2 Corporate entrepreneurship 28
2.2.1. Formal and informal roles of the corporate entrepreneur 28
2.2.2. Organisational structure 30
2.3 The corporate entrepreneur 32
2.3.1 Characteristic traits and behaviours 34
2.3.2 Relationships and resources 39
2.4 Tasks of the corporate entrepreneur 42
2.4.1 Raising and utilising capital 45
2.4.2 Risk management and knowledge creation 48
2.4.3 Strategic decision making 52
2.4.4 Managing administrative managers in the parent firm 54
2.4.6 Technology and production 59
2.4.7 Sales and marketing 60
2.4.8 Product management 62
2.4.9 Human resource management 63
2.5 Transition 63
2.6 Summary 65
Chapter 3 68
3.1 Justification for the paradigm and methodology 68
3.1.1 Grounded theory 69
3.1.2 Complete member researcher 72
3.2 A Study of a single case 79
3.3 Research procedures 80
3.4 Interviews 83
3.5 Email as research data 87
3.6 Coding and memoing 88
3.7 Ethical considerations 90
3.8 Conclusion 91
Chapter 4 94
Findings – the corporate entrepreneur’s role 94
4.1 Introduction and overview of findings 94
4.2 Central theme 97
4.2.1 The role of the corporate entrepreneur changes over time 97
4.2.2 Combination of phase types 105
4.3 Causal conditions 119
4.3.1 Introduction 119
4.3.2 Definition of success 122
4.3.3 Innovation process 130
4.4 Contextual conditions 133
4.4.1 Gap in the market 134
4.4.2 Parent firm support 137
4.4.3 New venture structure 141
4.5 Conclusion 142
Chapter 5 145
Findings – action/interaction strategies 145
5.1 Introduction 145
5.2 Milestone 0 – Research 145
5.2.1 Market research 146
5.2.2 Product management 156
5.2.3 Technical requirements 160
5.2.4 Viability screening 163
5.3 Milestone 1 – Sell 165
5.3.1 Transition from Research to Sell phase 165
5.3.2 Churning parent firm customers 169
5.3.3 Personal selling 170
5.3.4 Marketing 172
5.3.5 Building new venture credibility 177
5.3.6 Building a client base 182
5.3.7 Financial management 183
5.4 Milestone 2 – Build 184
5.4.1 Transition from Sell to Build phase 184
5.4.2 Financial management 188
5.4.3 Legal considerations 192
5.4.4 Delegation of tasks 193
5.4.5 Suppliers 199
5.4.6 Building capabilities 201
5.4.7 Focus on effectiveness (rather than efficiency) 205
5.4.8 Coaching 207
5.4.9 Hire the right people 209
5.4.10 Continued Sell phase activities 212
5.4.11 Transition from the Build phase to the Deliver phase 214
5.5 Milestone 3 – Deliver 215
5.5.1 Doing the right thing versus doing things right 215
5.5.2 Motivating staff 218
5.5.3 Obstructive behaviour 220
5.5.4 Financial management 222
5.5.5 Legal considerations 225
5.5.6 Continued Research phase activities 225
5.5.7 Continued Sell phase activities 227
5.5.8 Continued Build phase activities 228
5.5.9 Switch to Transition phase 232
5.6 Milestone 4 – Transition 233
5.6.1 Transition from a new venture to a going concern 233
5.6.2 Corporatisation and the exit of the corporate entrepreneur 234
5.7 Conclusion 235
Chapter 6 241
Findings – intervening conditions 241
6.1 Leverage – systems and processes 241
6.1.1 New systems and processes adoption 246
6.1.2 New systems and processes break/fix 248
6.1.3 Manual and band-aid solutions 252
6.1.4 Conclusion – leveraging systems and processes 254
6.2 Leverage – Information 255
6.2.1 Focus of information by phase type 255
6.2.2 Information sources 257
6.2.3 Financial management 259
6.2.4 Conclusion – leveraging information 260
6.3 Leverage – the parent firm 261
6.3.1 Resources 261
6.3.2 Motivating leveraged resources 262
6.3.3 Authority 265
6.3.4 Conclusion – leveraging the parent firm 268
6.4 Leverage – relationships 269
6.4.1 Supplier relationships 269
6.4.2 Client relationships 273
6.4.3 Networking 274
6.4.4 Dealing with relationship issues 275
6.4.5 Relationships with influencers 276
6.4.6 Informal relationships 277
6.4.7 Transitioning relationships 280
6.4.8 Corporate entrepreneur persuasiveness 281
6.4.9 Chameleon-like relationship building 282
6.4.10 Conclusion – leveraging relationships 284
6.6 Communication 286
6.6.1 The purpose of communications 286
6.6.2 Communication medium 291
6.6.3 Leveraged communications channels 293
6.6.4 Bias and heuristics 297
6.7 Problem solving 298
6.7.1 Problem solving approach 298
6.7.2 Creating new venture services 298
6.7.3 Hands-on problem resolution 299
6.7.4 Problem prevention – managing risk 300
6.7.5 Negotiation 303
6.7.6 Conflict resolution 305
6.7.7 Lateral and tangential thinking 306
6.8 Executing to the objective 307
6.8.1 Focus on the objective 307
6.8.2 Controlling 309
6.8.3 Hands-on and hands-off management 310
6.8.4 Continuous follow up 313
6.8.5 Leading 315
6.8.6 Coordination of activities 316
6.8.7 Do the right thing (versus doing things right) 317
6.8.8 Obstructive behaviour 318
6.9 Consequences – success 319
6.9.1 Success of the new venture 319
6.9.2 Success of the parent firm 320
6.9.3 Success of the corporate entrepreneur 320
6.10 Conclusion 321
Chapter 7 327
Discussion and implications 327
7.1 Key findings 327
7.2 Strengths and verification 339
7.3 Limitations 340
7.4 Contribution to theory 345
7.5 Implications for theory – further research 355
7.6 Implications for management practice 358
7.7 Conclusion 361
Appendix A 379