Entrepreneurship and Innovation

There are a number of theory and frameworks used in the analysis of any company or venture. We can gain insight into some of the current thinking that applies to start-ups in the full commercialisation cycle, and provide for concepts of strategy, innovation and entrepreneurship, linking the three into the act of commercialisation.

Entrepreneurship

An intrinsic part of the commercialisation process is the notion of entrepreneurship and innovation. Differences emerge between nations and geographic locations. In Australia, innovation is treated as a separate concept to entrepreneurship ( and entrepreneurism). In fact there is very little data linking entrepreneurship to innovation and in turn to commercialisation. The importance of such links though is paramount.

Innovation is an act of commercialisation and Schumpeter, as early as 1911, linked the concept of innovation to the definition of entrepreneurship (Stevenson 1999).

If entrepreneurship can be defined as a value creating process, then clearly all types of organisations can participate in the entrepreneurial process. Entrepreneurship is not just about starting businesses and Stevenson (1999) goes further in stating that ‘entrepreneurship is a process by which individuals or organisations pursue opportunities without regard to the resources they control’. It is in essence a management process. The emphasis is not so much on what resources one has but on the opportunity itself.

There are clear differences between having an entrepreneurial focus and an organisation (or individual) having a more administrative focus. These differences will result in very different outcomes for the organisation. The way in which each views resources and opportunities is best demonstrated by figure 3-1 below.

A number of conceptual dimensions are treated in very different ways. The entrepreneurial mindset is geared up to achieve very different outcomes to the administrative manager. These dimensions relate to very different values and attitudes towards strategy, risk, rewards, opportunities, and resources.

Innovation

Innovation is perhaps the most crucial component linked to strategy as Hamel (2000) has argued, however innovation is not just a process of invention or creation but one of value actualisation. Innovation is considered as a necessary part of strategy in order to compete effectively in markets. There is a very strong relationship between innovation and entrepreneurship. The entrepreneurial approach often places great emphasis on innovation. Innovation however varies between incremental and ground breaking, radical innovation.

The latter is considered essential in order to create the most value, unfortunately this aspect of innovation is not often considered by policy makers. Innovation (radical) is a process which creates commercial value, and it involves the matching of new ideas to market needs (Hindle 2002), hence it is an act of commercialisation.

It goes beyond products to include processes and new business concepts. Furthermore it requires the entrepreneurial capability described above and it deserves a bigger focus in the Australian government’s innovation policy, “Backing Australia’s Ability”.

Innovation in this sense can never take place without its main protagonist, the educated entrepreneur. The conceptual dimensions of entrepreneurs discussed previously are attributes which make it possible to deal with the realities of this type of innovation.  Australia has some of the best R&D and science in the world, but that is of little consequence without the extra step to transform this knowledge into commercial and valuable outcomes. Innovation is the act of commercialisation performed by entrepreneurs.

In contrast, the US has a long history of bringing together all the elements required for commercialisation, clearly segmenting the process of innovation in terms of relationships between technical, market, and business steps. Identifying along the way the resources and people required along that process, primarily that of entrepreneurs dealing with the realities of commercialisation. Business development represents the strategy and structure of the innovation process.

Strategy

There are a number of conceptual models around strategy which are static. Strategy is anything but static, and in the space where innovation, commercialisation and opportunities exist, require a flexible strategy process that can change and adapt fast and is a natural fit. The intended strategy, as below demonstrates, is not always the realised strategy.

Fig 3-2 Emergent strategy process

Strategic management (David 2001) leads an organisation to formulate and implement decisions across functional units such as marketing, finance, operations, and R&D in order to meet its stated objectives in pursuit of its mission. This model begins with a mission and vision statement, and flows on to the development of long term objectives, developed after internal and external audits.

Before you begin, know your terrain.

Clearly if one was to begin a strategy process, one would take stock of their external environment and trends, evaluate own strengths and weaknesses (internal) to evaluate the best way to proceed forward. However this may not be sufficient for start-ups in the medical devices segment. For start-ups, David’s (2001) model is a starting point. The sequential process implied is anything but sequential nor is it typical in real life and start-ups are anything but typical (Mintzberg 2003).

There has been a significant shift in the way strategy is defined. Traditionally beginning with mission and vision statements and objectives, it has evolved into a more holistic approach, recognising that strategy is much more about people and the environment (however chaotic) and less about the accuracy of the compass needle fixed on a pre-selected course or destination. Mintzberg (2003) recognises David’s strategic management model as one of many definitions of strategy, and implies that strategy is a plan, a course of action and destination.

Strategy is not only a plan, but also may consist of:

  • A perspective; much in the way a company;s culture perceives the external world.
  • A position; where the company see themselves in that world.
  • A pattern; recognizing that strategies are not always planned or intended but may emerge.

You must have the ability to recognise patterns quickly and identify breaks in those patterns.

This last aspect of strategy is pertinent indeed as strategy is not always clear, nor is it followed to the letter by executives. Looking at patterns will reveal the true strategy behind the organisation. If one is to analyse and determine strategy where it matters most for highly innovative and emergent industries, one needs to enter the zone of complexity an area naturally avoided by administrators.

This is an area at the edge of chaos and uncertainty and it is an area where entrepreneurial and innovative firms are found. Complexity theory deals with open-ended environments, and the routine way of doing things largely become irrelevant. Here the role of strategic management is one of facilitation rather than control, thus allowing a process to emerge.

Complexity theory portrays a significant aspect of uncertainty or unpredictability. This has implications for strategy and management decisions. This drives the need for strategy to be emergent as discussed earlier and not set in stone. The road to success for many lies in as much experimental, trial and error as it does careful planning, standards, and guidelines.

This area of complexity is where one finds the highest turbulence, and one must be adept with the symbols and language in a highly turbulent world.

Depending on where one sits, it calls for a different style of management or leadership and a different set of decisions. The model implies that complex interactions between components of a system often screen or bury the connections between actions and long-term outcomes.

Organisations are complex adaptive systems and this model has much relevance in strategic planning, innovation and entrepreneurship. The long term development of some organisations may in fact be a self-organising process (hence emergent) calling for a learning culture rather than an administrative one.

Leaders in the zone of complexity often act as facilitators, empowering others, raising tough questions, allowing and exploring contradictions and promoting diversity. In most cases, organisations fall into the bottom left corner of the model in fig 3-3. This is an area where decisions are based on known facts, leaders are experts or represent authority and power vests in a few. Predictability is the preferred currency one may not always have, and direction is achieved by design.

Fig 3-3 Business strategy and emergence complexity

The forces of strategy

Strategies do not exist without strategists, and strategists do not just have an ability to see into the horizon. They have an ability to see different perspectives, and different patterns. They are not limited by any one view or frame of thinking, and thus the first force of strategy is cognition (Mintzberg 2003). Each of the six forces below has an impact on strategy, and if understood well can be put to work on one’s own strategy process.

  • Cognition

How people may think and perceive strategy is an important factor in the strategy process. If strategy is about doing something different (Hamel 2002) then one has to think outside the parameters of their organisation. Literally think outside the box and develop a way of framing, and reframing various perspectives to gain new insight (Bolman & Deal 1997). Individual cognition however is fraught with biases which can be positive and negative to any decision making process. A self administered SWOT (strengths, weaknesses, opportunities, threats) analysis may highlight the strengths and ignore one’s weaknesses. But allowing the cognitive process to take shape through metaphors and exploration will result in a richness of possibilities.

  • Organisation

The organisational structure is critical to the strategy of the organisation. Strategy may have to be designed according to the existing structure. Conversely, the structure may have to change to accommodate the new strategy. Part of the internal audit will be to focus on your strengths and weaknesses, and this will drive the strategy process. Mintzberg (2003) contends that there are many types of organisation structures, and that matching strategy to the type of structure is crucial, if that organisation is to support any strategy. Authors Bolman & Deal (1997) in Reframing organisations and Gareth Morgan (1996) in Images of Organisation eloquently demonstrate the importance of organisations and structure to strategy. These authors use the concept of metaphor in organisational analysis, useful in analysing your organisation. Bolman & Deal (1997) offer a four frame model consisting of structural, human resource, political, and symbolic. In each frame, metaphors come into play facilitating the analysis. These metaphors describe an organisation in terms of a factory or machine, a family, a jungle, or a theatre. Morgan (1996) in turn provides for an almost infinite way of looking at organisations, once again through metaphor an organisation is compared to machines, political systems, biological organisms, cultures. Viewing yourself or organisation through various metaphors, it was possible to appreciate a number of perspectives in which the you operate, the way your organisation is managed, and is seen by stakeholders. Analysis thus can go beyond the traps placed by the immediate evidence, to identify the membership or customer base as the ‘real’ organisationand not as merely paying customers as a traditional demand-supply model would imply, but more like shareholders of a company (Hanich, A 2004).

  • Technology

Advances in technology and the speed at which this occurs often contributes to new opportunities as it does to obsolescence. In any business arena technology has a part to play and has a direct impact on strategy. Technology can also change the way we do things and communicate.

  • Collaboration

Collaboration is an important aspect in the strategy process. Companies today clearly have to take on a collaborative strategy. This is a force at the forefront of some industries such as the biotechnology and medical device industries. Collaborative strategies may have several objectives for any one firm. It provides leverage, access to knowledge, links suppliers and customers, reduces the risk for radical initiatives and often it is used to reduce competitive pressures.

  • Globalisation

A myriad of drivers and parameters affect any global strategy. Many industries like Biotechnology have become a borderless phenomenon. Companies must look to global markets to reap any value out of their innovation process. A global strategy must be different to any domestic one. Assumptions may lead to the oversimplification and attempted replication of a business model abroad, resulting in failure. Given that a lot of companies see themselves as local, this aspect of strategy may not seem relevant. However it is an important aspect, as most economies are in one way or another a participant in an international ‘game’.

  • Values

Underlying a firm’s strategy are its values. Values are the drivers of human behaviour and there needs to be a degree of coherence between individuals’ values and that of the firm’s (Hanich, A 2004). Although values are not observable, behaviours are. An organisation’s behaviour depends on the type of leadership it has. Values, leadership, beliefs, and expectations are all linked into strategy. Operating values are therefore part of any strategy process.

Strategic tools

There are a number of strategic tools, methods, frameworks, and models available for strategic planning. A recent study by Curtin University (Frost 2003) revealed that most small and emerging organisations use a very small portion of tools available in their strategic planning.

Many firms recognise that a variety of tools are available, however most resort to the use of PEST, SWOT, and budgeting for most of their decision making. Given the changes in the way we do business and global markets, it is essential to understand the concept of strategy and the strategic process.

The purpose of using these tools is primarily to provide or present information through different perspectives or frames.  Tools are in effect instruments of communication, of complex issues affecting the organisation.

The absence of strategic planning and management will result in a short life span for any organisation.

In a regulated environment such as biotechnology and medical devices, Frost (2003) emphasizes that strategic planning is critical for a younger organisation. The cost of regulation can be prohibitive and strategic planning is an effective way for firms to compensate for these regulatory and compliance costs.

There are many reasons why small organisations do not fully utilise the range of tools and techniques available, which may include:

  • Focus on past events;
  • Lack of proper implementation;
  • Short-sightedness;
  • Human nature.

Failure in the past to implement the right tool in the right situation results in incorrect strategies. This in turn further fuels the false credence to the common statement “it’s been done before”.

Failure to recognise that techniques alone do not make strategy, further implementation is always required. The tools alone do not provide answers, but they are very useful in the process of getting the right answers. The tools essentially support the strategic management process (Frost 2003).

Strategy often fails due to poor implementation because the strategies devised are not completely understood by management or because management systems may be designed for operational and not strategic control. Strategy is long term and failure to recognise this, results in the development of solutions for the short-term. Most firms focus on cost containment, internal KPI and head count for a sound yearly profit. This often is at the expense of long-term returns, market-share and gains in intellectual capital. If strategy is measured in relation to a KPI which only reflect internal parameters or past performance only, then it will translate into a strategy that is internally driven, and will eventually result in an incomplete strategy.

Another factor contributing to the lack of tool usage is that managers are individuals and they often apply individual logic to problems in complex organisations (Bolman & Deal 1997).

Human nature, after all seeks out order and quick answers to problems, instead of focusing on exploration and idea generation. Managers tend to seek answers to problems from past experience and therefore may not be based on future trends or changes, and are therefore no longer relevant. It is interesting to note that according to Frost (2003) very little attention is focused on key success factors, the value chain, competitive position, market opportunity, and competitor analysis.

I hope this provides some readers with food for thought on the increasing complexity and turbulent world of business we are entering in 2020, and what it might take to stay in business longer than your competitors.

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