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Corporate Entrepreneurship

Salvatore Sciascia

23/05/2003

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Section 1: The concept of

Corporate Entrepreneurship

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C.E. as action: Entrepreneurship within existing organizations

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The field of Entrepreneurship

“The scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated and exploited.

Consequently the field involves the study of

• sources of opportunities;

• the process of discovery, evaluation and exploitation of opportunities;

• and the set of individuals who discover, evaluate and exploit them”

(Shane and Venkatamaran, 2000)

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Corporate Entrepreneurship• Strategic Renewal: “corporate entrepreneurial

efforts that result in significant changes in an organization's strategy and structure”

• Corporate Venturing: “corporate entrepreneurial efforts that lead to the creation of new business organizations within the corporate organization”

• The concepts both suggest changes in the strategy and structure of an existing corporation, which may involve innovation for the industry.

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Independent Entrepreneurship(strictu sensu)

Strategic RenewalStart-up

New for the market

Old for the market

Whithin an existing organization

Outside any existing organization

Corporate Entrepreneurship (latu sensu)

Internal Venturing

Strategic Renewal

Internal Venturing

CONTEXT

INITIATIVEI II

IIIIV

Independent Entrepreneurship (latu sensu)

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Designs for Internal Venturing

Special Business Unit

Independent Business Unit

Complete Spin off

New Department

New Venture Division

Contracting

IntegrationMicro

new venture department

Nurturing and Contracting

Operational Relatedness

Strategic Importance(Burgelman, 1983)

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Types of Strategic Renewal

Rejuvenating Innovation

Leadership Innovation

Catch up Change Kaizen

Degree of Industry Change

Degree of Internal Change(Baden-Fuller, 1995)

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The capacity to change

Time

Capacity tochange

Catch up

Rejuvenating

Leadership

(Baden-Fuller, 1995)

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C.E. as strategic management approach

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Between two fields

SM

E

i)SM

E

ii) CE as management approach

CE as action: Strategic Renewal CE as

action: Internal Venturing

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Competition has a new meaning

• Competition as positioning (outside-in)

• Competition as dominating (inside-out)

• Competition as innovating

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The entrepreneurial orientation

(Miller, 1983)

Innovation

Risk taking

Proactiveness

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The entrepreneurial continuum

Promoter Trustee

Strategic Orientation Driven by perception ofopportunities

Driven by controlledresources

Commitment to Opportunities Revolutionary Evolutionary

Commitment of Resources Many stages Single stage

Control of Resources Episodic use or rent Ownership and employment

Management Structure Flat Hierarchical

(Stevenson & Gumpert, 1985)

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Promoter Vs Trustee in Strategic Orientation

• Where is the opportunity?

• What resources do I need to capitalize on it?

• What structure is appropriate?

• What resources do I control?

• What structure determines our organization’s relationship to its mkt?

• What opportunity is appropriate?

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A contextual model

Autonomousstrategicbehavior

Inducedstrategicbehavior

Strategiccontext

determination

Structuralcontext

determination

Conceptof

strategy

Strong influence

Weak influence(Burgelman, 1983)

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A new Business Idea

Firm’s structure Offered perspectives/required contributions

Stakeholders

Competitive system

Product system

Suppliers

Substitutes

Competitors

New entrants

Clients

Normann’s Business Idea

Niche/segment

consonance

consonance

cons

onan

ce

WHO

WHAT HOW

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Behind the Business Idea...

ScopePursued quality

development

Time horizon

Pursued dimensional

growth

Meaning of profit

Role in competitive

arena

Role towards main stakeholders

Managerial and organizational ‘philosophy’

Firm’s structure Offered perspectives/required contributions

Stakeholders

Competitive system

Product system

Suppliers

Substitutes

Competitors

New entrants

Clients

Normann’s Business Idea

Niche/segment

consonance

consonance

cons

onan

ce

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…the Underlying Strategic Orientation

ScopePursued quality

development

Time horizon

Pursued dimensional

growth

Meaning of profit

Role in competitive

arena

Role towards main stakeholders

Managerial and organizational ‘philosophy’

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Section 2: Cases

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Modafil - Bottega Verde

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Case discussion

• Wich are the main events in the history of Modafil?

• Describe Bottega Verde B.I. before and after the acquisition by Modafil.

• What is Modafil U.S.O.?• Which were the tension determinants that

brought Modafil to grow?• Which role has the knowledge played within

the entrepreneurial process?

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1960. Modafil is established as traditional wool mill

1965. Modafil starts mail-order of knitting wool

1967. Euronova is established as mail-order company with a catalogue of miscellaneous products

1971-78. Euronova holds a catalogue of cosmetic products: Miss Beauté

1973. Modafil abandons wool production, to focus on mail-order sale of knitting wool

1987. Mondoffice is established, focusing on mail-order sale of office furniture

1989-92. Euronova is sold to the German group Otto Versand. Non-competition agreement excluding cosmetics.

1991. Within Modafil, a catalogue with household linen is started (Ricami Esclusivi)

1992. Bottega Verde is bought from Mr. Morriconi. It is active in mail-order sale of cosmetics, purchased from outside contractors.

1994. Bottega Verde buys a cosmetics plant, hence starting to obtain its products internally.1997-99. Mondoffice is

sold to a foreign multinational

Main events

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Structure

Product system

Competitive system

•“Randomly-developed” addresses file•Outsourcing of production (2-3 small suppliers)•Product-formulas developed by suppliers•In-house made catalogues•Store in Pienza•3 employees for packaging

1 store salesperson•Casual help from the 2 children

•Increase of sales in volume•Predominance of traditional distribution channels•General tendency towards “complex” cosmetics •Absence of competitors in mail-order distribution channel•Small, weak Italian competitors (e.g., L’Erbolario)•Few large European competitors (e.g., Yves Rocher)•Common practice of outsourcing production

•Average quality (compared to competitors)•“Natural-products”, “Herborist-like” image•Average/high price (compared to competitors)•Risk of stock-breaks•Absence of promotions and discounts •“Old fashioned” catalogues

WHO

WHAT

HOW

1st B.I. (1)

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Offered perspectives/ required contributions

Stakeholders

Limited growth and development perspectives, due to a business idea stemming from the mere need to “survive” and have fun

Unspecific required contribution Flexibility, due to hectic business activity and chaotic organization

•Relatives (1 son, 1 daughter)•Bank•4 Employees

Structure (1981-92)

1st B.I. (2)

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Structure

Product system

Competitive system

•Addresses file (built in 30 years )• In-house made catalogues •R&D laboratory•Employees experienced in mail-order sales•Naj-Oleari brand (for “kickers”, i.e., gifts)•Call center in Pienza (75 part-time employees)•Consultants (product development, raw materials, quality control, plant layout, information system, MKTG policies)

•Pavia University (Doctor Berardesca, dermathologist): consultants for ‘live’ dermatological tests.

•Substantial financial resources (from Euronova sell-off)

After 1994•Chemistry and micro-biology laboratories•Property production plant

•Average quality (compared to competitors)•Chemically and dermatologically tested products•Low price (compared to competitors)•Customer-tailored promotions•Frequent addition of new products•Reliable delivery (no stock-breaks)•On-line service•Frequent discounts•Good-image/low-quality “kickers” (i.e., gifts)•“Natural-products”, “Herborist-like” image•“Modern”, professional catalogues

•Stagnation of sales in volume•“Democratization” of cosmetic products•Tendency towards “natural” cosmetics•Increase in modern-distribution market share•Decline or stagnation of some traditional distribution channels•Increasing request for quality-control in production•Absence of competitors in mail-order distribution channel•Small, weak Italian competitors (e.g., L’Erbolario)•Few large European competitors (e.g., Yves Rocher)•Common practice of outsourcing production

2nd B.I. (1)

WHO

WHAT

HOW

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Offered perspectives/required contributions

Stakeholders

Diversified, growing firm, making use of advanced managerial tools. Responsibility position in growing, managerially-sophisticated firms (for family members). Secure job (for employees and local community) High debt/equity ratio, but considerable cash-flows from operations (for banks)

Work activities coherent with entrepreneur’s vision Willingness to work in a partially informal, unstructured setting Willingness to learn (both from internal and external sources, i.e., consultants) Work experience in mail-order business (from higher-rank employees)

•Relatives (wife, 2 sons, 1 daughter, in-laws)•Employees•Banks•Local community (Biella province)

2nd B.I. (2)

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Scope. • Mail-order. • “Traditional”, “natural”

image (when appropriate).

• Location reinforcing image (when appropriate).

• Broadest targeted market

Growth. Primary objective

Quality. Stable, average quality level (appropriate to targeted segments)

Time. Long-term, i.e., future generations of successors

Stakeholders.• Securing a future to successors• Offering a secure job to

employees• Employing people from local

communities• Developing entrepreneurship

Role in Competition.Gradually but aggressively dominating entered competitive arenas

Profit.• Long term objective for

the family• Short term profits

systematically reinvested

Managerial philosophy.• Sophisticated managerial tools• External consultants• ‘Closed’ governance structure• ‘Autocratic’ managerial style• Informal organizational structure• Incremental commitment of internal

resources• High propensity towards using

external resources• High propensity towards

‘calculated’ risk

U.S.O.

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Tension to growth

Availability of forty-years mail-order

sales experience.

Reduced growth

potential

Tension to grow

Tension to grow in the mail-order

sector

entrepreneur’s growth

orientation

Securing a responsibility

position in growing,

managerially sophisticated

firms

Strong will to grow

Stagnation of Modafil

market after sharp

decline

Sell-off of Euronova (1989-92)

Availability of address files

and data-analysis tools

and techniques

Existing growthpotential

Direct tension towards a specific

business area (i.e., cosmetics)

Non competition agreement

Previous experience (Miss

Beauté)

'Cultural' family tendency

towards 'natural' products

Tension to grow in the mail-order sale of

cosmetics

‘Direct tension’ determinants

‘Diffused tension’ determinants

Availability offinancial resources

1 2

3

4

5

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External context/Environment

Content.Entrepreneurial behavior:

Organizational context

Behavioral context/Past experiences

Strategic context

Growth orientation

Organizational and Governance

StructureAttitude towards

resource/knowledge combinations.Pursuit of entrepreneurial

opportunities, regardless of internal resources currently controlled

External resources/competencies

Internal resources/competencies

The role of knowledge

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Barilla - Mulino Bianco

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Barilla• It’s the largest pasta maker in Italy; it holds

one of the most appealing brands for the Italian consumers.

• This family-owned giant has revenues for 2 billions Euros, employs 8.500 persons, produces in 25 different plants (5 of them are abroad) and exports in more then 100 countries.

• Its Italian market share (in pasta) is 25%

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Mulino Bianco

• Mulino Bianco is a line of products that Barilla funded 25 years ago: under this umbrella-brand we find biscuits, cakes, sweet snacks, crackers and bread (the so called “bakery products”).

• In all these markets Mulino Bianco has a leading position in Italy.

• The division is growing so fast that MB sales count for about 50% of the Barilla’s group turnover

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• 1877 Pietro Barilla settles a pasta and bread shop in Parma:

• 1910 he settles the first plant: 80 employees produce 8000 kilos of pasta daily

• 1911 the famous corporate logo is created• 1936 the number of employees reaches 700• 1950 the Barillas visit the States: they come back to Italy

with new ideas to improve efficiency and customer satisfaction

• 1955 Barilla is the first company selling pasta in packs

A growing and innovating company (1)

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• 1960 The company become a PLC; it employees 1300 persons

• 1970 they build a plant in Pedrignano (it’s still the largest pasta plant in the world)

• 1971 W.R.Grace buys Barilla for over $70 million; they start diversification

• 1975 they fund Mulino Bianco• 1979 W.R.Grace sells the company to the Barillas for

$65 million; they build Barilla France, the first foreigner subsidiary

A growing and innovating company (2)

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• 1987 they structure their internationalization process and start focused advertising campaign in several foreign countries

• 1991 the Greek pasta leader Misko is taken over 1992 They take over Pavesi, well known biscuits producer

• 1996 On average they reduce prices by 15% to face the strong competition of Hard Discount and own label products; fresh pasta production starts

• 1999 They buy Wasa from Novartis• 2000 Barilla launchs the filled dried pasta• 2002 Barilla launchs the frozen pasta

A growing and innovating company (3)

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Tension to Corporate Entrepreneurship

• Mature pasta market

• Declining financial results

• Mono-business company (high risk)

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In which industry to diversify?

• growing market

• low competition

• good profitability

• possibility to innovate

• relatedness to pasta

Biscuits!WHO

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step by step they introduce other bakery products under the same umbrella-brand:

1976 stick bread and toasted bread slices, already produced by Barilla, are shifted under MB brand

1977 sweet snacks and Pan carrè 1983 cream filled biscuits: 1985 crackers 1986 fresh cakes

inside the same segment, they enlarge the range products.• this policy was implemented because, studying the customer

behavior, a need of change was found: after some months he is in need to change kind of biscuit.

The penetration strategy

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The business Idea

New Brand “Mulino Bianco”

Image of traditional, simple and

genuine pdt

Original shapes

Innovating packaging

Strong promotion and advertising

High price

Wide range

Investments in R&D

From external to internal

production

Accurate supplier selection

Synergy in distribution

Advanced information system

HOWWHAT

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Corporate Support

• Financial

• Organizational

• Bargaining power

• Brand reputation

• Efficiency culture

• Approach to the customer

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Conclusions

• Today competition means spotting entrepreneurial opportunities

• Innovation can be pursued in different ways (SR vs IV), requiring different organizational levers

• Corporate Entrepreneurship occurs with no regards to company size

• Develop an entrepreneurial orientation• The success of entrepreneurial development is

related mostly to immaterial factors