KIBABII UNIVERSITY

SCHOOL OF BUSINESS AND ECONOMICS

COURSE OUTLINE

BCE 456E: CORPORATE ENTREPRENUERSHIP

Instructor: Asena Muganda David

Course Aims & Purpose

The aim of this course is to emphasize on skills needed to promote and manage corporate
entrepreneurship including opportunity recognition, selling an idea and conflict management in
large firms.
Expected Learning Outcome:

By the end of the course unit the student should be able to:

i) Establish the historical relevance and concepts of corporate entrepreneurship;

ii) Identify the elements of corporate culture that either inhibit or support the process if
Intrapreneurship;
iii) Identify the synergy necessary between leadership corporate culture and
organizational dynamics to drive successful Intrapreneurship; and
iv) Apply corporate entrepreneurship skills and knowledge acquired to construct a
personal model of Intrepreneurial activities to be used as reference tool in career
development.

Course Content:
1. Introduction to Corporate Entrepreneurship
 Define Corporate Entrepreneurship
 The objectives of Corporate Entrepreneurship
 Characteristics and components of corporate entrepreneurship
 Factors influencing corporate entrepreneurship
 Limitations and barriers of corporate entrepreneurship
 Institutional organizational activities associated with corporate
entrepreneurship
2. Entrepreneurial Organizational Structures
 Define the processes of differentiation and integration
 Dimensions of organizational design
 Entrepreneurial structural configurations according to Mitzerberg
  Forces that are reshaping organizations structure today.
 Nature of emerging organizational structures
 Symptoms of structural weakness and five unhealthy personality—
organization combinations.
3. Corporate Entrepreneurship Conceptual Models
 Domain Model for corporate entrepreneurship
 Conceptual Model of firm behavior
 Organizational model for internally developed venture
 An interactive model of corporate entrepreneurship processes
 A model of sustained corporate entrepreneurship
 A strategic integrative framework

4. Entrepreneurship Orientation
 Define the term entrepreneurship orientation
 Dimensions of entrepreneurship orientation
 The ways firms approach:
 Autonomy;
 Pro-activeness;
 Innovativeness;
 Competitive Aggressiveness and
 Risk taking
5. Corporate Entrepreneurship and Innovation
 The main types of innovation
 Innovation throughout the Life Cycle
 Role of technology in Innovation
 Explain the characteristics and roles of disruptive innovation
 Challenges in managing corporate innovation
 Benefits of Innovation in Corporate Entrepreneurship
6. Entrepreneurship Control System
 Management control systems in medium-sized and growing entrepreneurial
organizations.
 Empirically studying managers’ use of these systems, and their motives for
using – and not using them.
 Balancing framework of management control.
 Analyzing and interpreting the use of management control systems in
accordance with the framework

Teaching and Learning Methodology

Lectures, Presentation by Members of the Class, Assignments, Continuous Assessment Tests

Instructional Materials

Course text, Handouts, White Board Presentations and Journals

Assessment;

CATs and Assignments 30%

End of Semester Examinations 70%
Total 100%

Main Text

1. Morris, M., Kuratko D. & Covin, J. (2007). Corporate Entrepreneurship and Innovation 3rd
Edition. Natorp Boulevard: Cengage Thomson-South Western Publishing.
Other support materials
2. Jennings, D.F. (1994). Multiple Perspectives of Entrepreneurship: Text Readings and Cases.
Cincinnati, Ohio: College Division: South-Western Publishing Company.
3. Pinchot, G. & Perlman, R. (1999). Intrapreneuring in Action. Berrett: Koehler Publishers
4. Timmons, J.A.F. & Spinelli, S., (2004). New Venture Creation: Entrepreneurship for the
21st
Century, 6th Edition. Boston: McGraw Hill Irwin.
5. Drucker, P. (1985). Innovation and Entrepreneurship. New York: Harper and Row

THE NATURE OF CORPORATE ENTREPRENEURSHIP

Corporate Entrepreneurship refers to a process that goes on inside an existing organization,
regardless of its size, and leads not only to new business ventures, but also to innovative
activities and orientations such as developments of new products, services, technologies,
administrative techniques, strategies and competitive postures.
It refers to entrepreneurial activities that occur within an existing organization. It refers not only
to the creation of new business ventures, but also to other innovative activities and orientations
such as development of new products, services, technologies, administrative techniques,
strategies and competitive postures. It also refers to the process whereby the firms engage in
diversification through internal development. Such diversification requires new resource
combinations to extend the firm’s activities in areas unrelated, or marginally related, to its
current domain of competence and corresponding opportunity set
Defining Corporate Entrepreneurship
The concept of corporate entrepreneurship is generally believed to refer to the development of
new ideas and opportunities within large or established businesses, directly leading to the
improvement of organizational profitability and an enhancement of competitive position or the
strategic renewal of an existing business.
“Corporate Entrepreneurship is the process whereby an individual or a group of
individuals, in association with an existing business, creates a new business or instigates
renewal or innovation within the organization”.
Corporate entrepreneurship (also known as intrapreneurship) is defined by Guth and Ginsburg as
“The birth of new business within existing organizations, that is, internal innovation or
venturing; and the transformation of organizations through the renewal of the key ideas on which
they are built, that is, strategic renewal.”
 Strategic Renewal: “corporate entrepreneurial efforts that result in significant
changes in an organization's strategy and structure”
Strategic renewal involves the creation of new wealth through new combinations of
resources.
 Corporate Venturing: (also known as corporate venture capital) is the practice of
directly investing corporate funds into external startup companies. This is usually
done by large companies who wish to invest small but innovative startup firms.
 “corporate entrepreneurial efforts that lead to the creation of new business
organizations within the corporate organization”
A corporate venture is defined as a business marketing a product or service that the
parent company has not previously marketed, and that requires the parent company to
obtain new equipment or new people or new knowledge

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

Intrapreneurship refers to entrepreneurial activities that occur within an existing organization.

It refers not only to the creation of new business ventures, but also to other innovative activities
and orientations such as development of new products, services, technologies, administrative
techniques, strategies and competitive postures.
Intrapreneurship is a process that goes on inside an existing firm, regardless of its size, and
leads not only to new business ventures but also to other innovative activities and orientations
such as development of new products, services, technologies, administrative techniques,
strategies and competitive postures.
Internal (or intra-corporate) entrepreneurship refers to all formalized entrepreneurial
activities within existing business organizations. Formalized internal entrepreneurial activities
are those which receive explicit organisational sanction and resource commitment for the
purpose of innovative corporate endeavors – new product developments, product improvements,
new methods or procedures
 Internal CE refers to entrepreneurial behaviour within one firm
External corporate entrepreneurship can be defined as the first phenomenon that comprises
the process of combining resources dispersed in the environment by individual entrepreneurs
with their own unique resources to create a new resource combination independent of all others.
External efforts entail mergers, joint ventures, corporate venture, venture nurturing, venture spin-
offs and others.
Organisational rejuvenation refers to the corporate entrepreneurship phenomenon whereby the
businesses seek to sustain or improve its competitive standing by altering its internal processes,
structures and/or capabilities. Businesses need to change their strategies in order to be
entrepreneurial. Corporate entrepreneurship may involve efforts to sustain or increase
competitiveness through the improved execution of particular, pre-existing business strategies.
Domain redefinition refers to the corporate entrepreneurship phenomenon whereby the business
proactively creates a new product-market arena that others have not recognized or actively
sought to exploit. By engaging in domain redefinition the business, in effect, takes the
competition to a new arena where its first or early mover status is hoped to create some basis for
sustainable competitive advantage. Through domain redefinition, businesses often seek to
imprint the early structure of an industry. In such a scenario, the entrepreneurial business may be
able to create the industry standard or define the benchmark against which later entrants are
judged.

Why should established organizations consider corporate entrepreneurship?

Corporate entrepreneurship is especially crucial for large companies. Enabling these
organizations that are traditionally averse to risk-taking – to innovate, driving leaders and teams
toward an increased level of corporate enterprising. In addition to the obvious benefits obtained
through innovation. This approach also provides the organizational benefit of setting the stage
for leadership continuity.

Corporate entrepreneurship can also consider a means of organizational renewal. In addition, it

focuses on innovation. There also exists an equal drive toward venturing. These two work in
unison as the company undertakes innovations across the entire organizational spectrum, from
product and process to technology and administration. In addition, venturing is a primary
component in the process, pushing larger companies to enhance their overall competitiveness in
the marketplace by taking bigger risks. Examples of these risks, as seen in a large-scale
organization, may include the redefinition of the business concept, reorganization, and the
introduction of system-wide changes for innovation.
NOTE: Businesses that instil corporate entrepreneurship can gain and sustain competitive
advantage at all levels of the business; rejuvenate and revitalize the existing business; develop
new products, services and processes; pursue entrepreneurial opportunities; create new
businesses within existing businesses; foster strategic renewal of existing operations; improve
growth and profitability; sustain corporate competitiveness; increase financial performance;
and create new value.

A corporate entrepreneur is a person who focuses on innovation and creativity to transform

dreams into profitable reality.
Characteristics of a Corporate Entrepreneur
 He/she is a charismatic leader in a company instills an entrepreneurial philosophy in the
employees in an organization.
 He/she must have leadership characteristics i.e. must be visionary and flexible.
 Corporate entrepreneur encourages teamwork and builds the coalition of support. For the
team, performance entrepreneur understands the organization environment they persist
continuously trying to give their best.
Factors in the emergence of the entrepreneurial economy:
 The rapid evolution of knowledge and technology promoted high-tech entrepreneurial
start-ups.
 Demographic trends adding fuel to the proliferation of newly developing ventures.
 The venture capital market became an effective funding mechanism.
Steps that will help innovative people to develop an entrepreneurial mindset:
 Set explicit goals.
 Create a system of feedback and positive reinforcement.
 Emphasize individual responsibility.
 Give rewards based on results.
 Do not punish failures.
Steps to help restructure corporate thinking and encourage an entrepreneurial
environment:
 Early identification of potential intrapreneurship
 Top management sponsorship of intrapreneurship projects
 Creation of both diversity and order in strategic activities
 Promotion of intrapreneurship through experimentation
 Development of collaboration between intrapreneurship participants and the
organization at large
Benefits of an Entrepreneurial Philosophy
 Leads to the development of new products and services and helps the organization
expand and grow.
 Creates a work force that can help the enterprise maintain its competitive posture.
 Promotes a climate conducive to high achievers and helps the enterprise motivate and
keep its best people
 Businesses that instil corporate entrepreneurship can gain and sustain competitive
advantage at all levels of the business;
 Rejuvenate and revitalize the existing business;
 Develop new products, services and processes;
 Pursue entrepreneurial opportunities;
 Create new businesses within existing businesses;
 Foster strategic renewal of existing operations;
 Improve growth and profitability
 Sustain corporate competitiveness;
 Increase financial performance; and
 Create new value.
The Need for Corporate Entrepreneurship .i.e. Reasons for large organizations embracing
corporate entrepreneurship include:
a) Rapid growth in the number of new and sophisticated competitors
b) Sense of distrust in the traditional methods of corporate management
 c) An exodus of some of the best and brightest people from corporations to become
small business entrepreneurs .i.e. development of individuals potential,
d) International competition and overcoming competition
e) Downsizing of major corporations
f) An overall desire to improve efficiency and productivity
g) The search for greater creativity,
h) Innovation development and initiative-taking,
i) Organizational renewal/rejuvenation
j) Better use of technology,
k) Venture into new markets,
l) Learning processes linked to situations, approaches and unusual business practices.
Emphasis is sometimes put on the individual (the champion, the intrapreneur), on
activities or business units, or the firm as a whole.
Constraints/Limitations of Corporate Entrepreneurship
1. Systems prevailing in the organization
 Misdirected reward and evaluation systems
 Oppressive control systems
 Inflexible budgeting systems
 Arbitrary cost allocation systems
 Overly rigid, formal planning systems
2. Structures
 Too many hierarchical levels
 Overly narrow span of control
 Top-down management
 Lack of accountability
 Restricted communication channels
 Lack of accountability for innovation and change
3. Strategic Direction
 Absence of innovation goals
 No formal strategy for entrepreneurship
 No vision from the top
  Lack of commitment from senior executives
 No entrepreneurial role model at the top
4. Policies and Procedures
 Long, complex approval cycles
 Extensive red tape and documentation requirements
 Extensive documentation requirements
 Overreliance on established rules of the thumb
 Unrealistic performance criteria
5. People
 Fear of failure
 Resistance to change
 Parochial bias
 “Turf” protection
 Complacency
 Short-term orientation
 Inappropriate skills and talents for managing entrepreneurial change.
6. Culture
 Ill-defined values,
 Lack of consensus over value and norm priorities
 Values that conflict with entrepreneurial requirements like innovativeness etc.
 Lack of fit of values with current competitive context

Setting up the corporate entrepreneurship environment

In modern business, one of the primary tasks of the business leader is to foster an environment in
which entrepreneurial thinking is encouraged and readily takes places. Promoting this culture by
freely encouraging creativity (and thereby innovation). Also, business leaders motivated toward
corporate entrepreneurship must continuously strive to exude and build trust. Embracing the risk
to fail and inspiring those around them to take similar calculated risks.

But there is more to an environment of corporate entrepreneurship than simply inciting

inspiration. It also relies heavily on a system of continuous analysis and feedback, potentially
including the following two steps:
 Step 1. Set a broad direction for achievement, re-evaluating it periodically for any new
information. That may have surfaced in regard to changes in the business environment.
Including competitive products and markets in which the firm is operating. Constant
evaluation is essential at this stage as even the most finely-tuned direction can still lead to
catastrophic failure if the approach is no longer working.
Step 2. Reinforce efforts across the entire organization that coincide with the current plan
for achievement. The task of a leader or senior manager is often that of the analyst.
Continuously promoting strategy while making adjustments based on their beliefs related
to organizational goals and the feedback they receive from business units. As these
business units continue to experiment with existing products and services. As well as,
innovate and develop new ones, senior executives can magnify the stated goals to
reinforce those business unit initiatives and thereby achieve the highest degree of success

ENTREPREURSHIP ORIENTATION
Entrepreneurial orientation emerges from a strategic-choice perspective which asserts that new-
entry opportunities can be successfully undertaken by purposeful performance. Entrepreneurial
orientation involves the intentions and actions of key players functioning in a dynamic
generative process aimed at new venture creation.

Entrepreneurial mindsets are the attitudes, values and beliefs that orient a person or a group
towards pursuing entrepreneurial activities. This basically refers to an inclination, or spirit, of
enterprising that favors growth and leads organizations to investigate opportunity when
expansion is neither pressing nor particularly obvious. As such we clearly differentiate our
understanding of entrepreneurial orientation as a measure for entrepreneurial mindsets and
attitudes from actual entrepreneurial performance, which is measured in terms of the sum of an
organization’s innovation, renewal and venturing efforts.
Entrepreneurial orientation, according to Child (1972) in Lumpkin and Dess (1996:136),
refers to processes, practices and decision-making activities that lead to new entry where
new entry is ‘the act of launching a new venture’.
Entrepreneurial organizations tend to engage in strategy making characterized by an active
stance in pursuing opportunities, taking risks and innovation. At the firm level an entrepreneurial
firm is ‘one that engages in product market innovation, undertakes somewhat risky ventures, and
is first to come up with proactive innovations, beating competitors to the punch’. This definition
singles out three dimensions, risk taking, innovativeness and pro-activeness as the core
dimensions of EO.
Dimensions of Entrepreneurship Orientation
Corporate entrepreneurship is clearly a multidimensional concept and is best seen as an umbrella
term for different aspects, levels or stages of activities and processes through which established
organizations act entrepreneurially, as well as the outcomes of such activities and processes.

Miller (1983:771) provided a useful starting point for the specific dimensions of entrepreneurial
orientation. Miller suggested that an entrepreneurial business is one that engages in product
market innovations, undertakes somewhat risky ventures, and is first to come up with pro-
activeness to characterize and test entrepreneurship. Dess and Lumpkin (2005:148) added to the
research originally conducted by Miller (1983) and identified five dimensions of entrepreneurial
orientation:
1) Autonomy (independent action by an individual or team aimed at bringing forth a
business concept or vision and carrying it through to completion);
2) Innovativeness (the willingness to introduce newness and novelty through
experimentation and creative processes aimed at developing new products and services as
well as new processes);
3) Pro-activeness (a forward-looking perspective characteristic of a marketplace leader that
has the foresight to seize opportunities in anticipation of future demand);
4) Competitive aggressiveness (an intense effort to outperform industry rivals, characterized
by a combative posture or an aggressive response aimed at improving position or
overcoming a threat in a competitive marketplace), and
5) Risk-taking (making decisions and taking action without certain knowledge of probable
outcomes. Some undertakings may also involve making substantial resource
commitments in the process of venturing forward).
Corporate Entrepreneurship and Innovation
McFadzean, O’Loughlin and Shaw (2005:356) combine corporate entrepreneurship and
innovation and state that “corporate entrepreneurship can be defined as the effort of promoting
innovation in an uncertain environment.”
Innovation is a process that provides added value and novelty to the business, its suppliers and
customers through the development of new procedures, solutions, products and services as well
as new methods of commercialization.

The principal roles of the corporate entrepreneur are to challenge bureaucracy, to assess new
opportunities, to align and exploit resources and to move the innovation process forward. The
corporate entrepreneur’s management of the innovation process will lead to greater benefits for
the business.

Schumpeter (1934) was among the first to emphasize the role of innovation in the entrepreneurial
process. According to Schumpeter, innovation includes:
1) The introduction of a new good – that is, with which consumers are not yet familiar, – or
of a new quality of a good;
2) The introduction of a new method of production, one not yet tested by experience in the
branch or manufacture concerned, which needs by no means to be founded on a scientific
new discovery, and can exist in a new way of handling a commodity commercially;
3) the opening of a new market, that is a market of the country in question into which the
particular branch or manufacture has not previously entered, whether or not this market
has existed before;
4) The conquest of a new source of supply of raw materials or half-manufactured goods,
again regardless of whether this source already exists or whether it first has to be created,
and
5) The carrying out of the new business or any industry, such as the creation of a monopoly
position or the breaking up of a monopoly position.
Johnson (2001:139) indicates that corporate entrepreneurship relates to innovation and identifies
various forms of innovation:

1) Any change in the product or service range a business takes to market;

2) Any change in the application of a product or service away from its original purpose;
3) any change in the market to which a product or service is applied away from the
originally identified market;
4) Any change in the way a product or service is developed and delivered away from the
original operational and logistical design; and
 5) There is always a special category of innovation that focuses upon a business’s
development of its core business model away from its current or previous business
model.
Innovation throughout the Life Cycle
Customers expect continual improvements in the overall product or service offer throughout its
lifetime in order to maintain their interest and loyalty to the organization. The fundamental
principle of the product life cycle is that most brands, ideas, products, services, processes and
technology follow a life cycle similar to stages of introduction, growth, maturity and finally,
decline, as new brands, products, services, processes or technology replaces existing offerings.

The life cycle concept suggests that businesses should be constantly innovating to ensure that
new introductions are ready when replacements are needed, to further ensure a constant and
growing revenue stream. It might be that products and services need to be revitalized to extend
their life or replaced when they have become obsolete. For some sectors, such as high
technology, it is possible for experts to accurately predict when a product will have reached the
decline phase of its life and will be replaced by a new product, because they know that new
scientific or technological inventions are already in the pipeline.
You might consider how long you think it will be before your mobile phone, TV, and
audio and video recording equipment will need to be replaced as new, better designed,
more functional, possibly cheaper replacements become available.
The Innovation Response to Different Life Cycle Situations
Categories of Innovation in terms of Different Life Cycle Situations in terms of the
products, processes, technologies, administrative routines and structures
1) Discontinuous innovation; a breakthrough innovation
2) Dynamically continuous innovation; a dramatic improvement over the existing
product/service solutions
3) Continuous innovation; step-at-a-time innovation
4) Imitation copying/adapting the innovation of other companies
The strategic response to different life cycle situations is through innovation in different aspects
of the organization’s operation and marketing.
The introduction stage of a product life cycle involves a ‘break through’ innovation and a
product, service or process that is entirely new to the market. Small- scale innovations that create
incremental improvements to the product, service or process maintain the organization’s
competitive position through the growth phase and into the mature phases of the life cycle. These
innovations might include new improved versions, brand and line extensions, or lower-cost
versions that maintain the customer’s interest and loyalty.

When a market reaches maturity and is on the point of decline, either more significant
innovations are required to revive the product or to create an entirely new offer to the market.
Sometimes architectural innovations enable organizations to break into an adjacent market or
target a new customer segment; for example, supplying home users rather than business users of
office equipment may not require different technology but may require product or business
model adaptations.
To maintain growth and to extend the life cycle it is necessary to introduce a stream of small-
scale innovations in every function of the business that will help to improve efficiency, lower
cost and add customer value through improved features and benefits. The stage of the life cycle
that a product has reached may be different in different markets and this requires adaptations

Robertson (1967) identified three categories of innovations according to the disruption they
cause to customers’ buying and usage patterns and thus the amount of customer education and
promotion that might be needed. The suggestion is that the more disruption, even if the result is
greater benefit to customers, the more education and persuasion is needed. The problem is that
providing high levels of customer education can be very expensive and sometimes beyond the
means of some smaller organizations that have limited resources and limited capability in many
business functions.
Continuous innovations require little change to the purchase and consumption behavior in
customers. Consumers are becoming more knowledgeable and demanding however, and, with
pressure groups raising questions, they are more likely to question certain types of continuous
innovations. The introduction of genetically modified (GM) foods has raised fears in consumers’
minds and made them reluctant to purchase the products without greater proof of their safety.

Dynamically Continuous Innovations has a more disruptive effect on the way that the products
and services are used.
 For example, the introduction of the DVD recorder required some changes in routine to
ensure that it is used effectively but it operates in a very similar way to previous
recording formats.

If the innovation is dynamically continuous it can be difficult to explain to customers the

advantages compared to existing products or services, especially if the price is much higher.

Discontinuous innovations has a highly disruptive effect upon usage and purchasing patterns
and these innovations require a high level of marketing to explain the benefits and to educate the
consumers about how the product should be used. Microwave ovens had a significant effect on
customer lifestyles but it was necessary to explain to customers that the invention was safe; that
there were convenience benefits; and that a change in cooking methodology was possible. MP3
players for music downloaded from the Internet have a more disruptive effect on purchasing and
usage behaviour of customers as they require different customer skills and knowledge.

NOTE: “Continuous innovation (in terms of products, processes, technologies, administrative

routines and structures) and an ability to compete proactively in global markets are the key skills
that will determine corporate performance in the twenty-first century. Entrepreneurial attitudes
and behaviors are necessary for businesses of all sizes to prosper and flourish. The challenge to
managers is one of creating an internal marketplace for ideas within their businesses and
encouraging employees to act on these ideas” (Morris, et al., 2008: iv).

Role of Technology in Innovation

Technology is not an essential element of innovation but it often plays a key role in facilitating
change. Tidd, Bessant and Pavitt (2005) explain that the eighteenth-century economist Joseph
Schumpeter suggested that entrepreneurs use technological innovation to get strategic advantage
and for a while this allows them to make a lot of money (monopoly profits). This step change or
discontinuous innovation, according to Schumpeter, involves creative destruction. Step change
innovation can be thought of as doing things differently. It usually follows a period of market
stability and the innovation will cause substantial disruption. There is likely to be considerably
greater uncertainty and unpredictability in the technical success, customer acceptance and
competitor response. However, other entrepreneurs will imitate this and, as a result, other
innovations (incremental innovations) will emerge, resulting in many new ideas that chip away at
the ‘monopoly profits’ until equilibrium is reached and the process starts all over again.

Technological Discontinuities
Investment in product, service and process development results in a stream of small performance
improvements that add customer value. However, at the top of the ‘S’ curve, when the mature
phase of the life cycle has been reached, even for quite large research and development
investment made there is little further improvement in performance.
For example, analogue TVs reached this point and even substantial additional investment
could not achieve further small improvements in customer satisfaction. As digital TVs
have become affordable, so the demand for the old products has declined quickly. This
pattern follows a similar breakpoint and progression from black and white to coloured
televisions.
The Vicious Circle of Technology Evolution
The entrepreneurial organizations that successfully embrace a new technology and find a
practical application, for example by creating a new product, service or a new route to market
will gain a new source of competitive advantage. This usually results in new standards being set
for the industry sector and leads to competitors having also to meet these standards if they wish
to compete in the market in the future. All competitors in the sector then embrace the new
technology. Consequently, the innovator firms have to find a new innovation or technological
advance that allows them to get ahead of the competition again. This cycle of technological
development in the sector leads to creative new ideas, not just in the products and services of the
‘for profits’ sector. For example, it is just as important for a charity to use the latest
communications methods to compete in fund-raising.

Incremental and Architectural Innovation

Step change innovation occurs not just because of technology changes but as a result of
groundbreaking, creative ideas throughout the organization. Step change innovations involve
greater uncertainty but if the organization has experience, expertise, and a track record of
innovation and adopts a learning approach, it is likely to be able to predict the outcome of
projects with a higher degree of certainty.
Incremental innovation covers all the small-scale improvements that occur on a daily basis
throughout the organization e.g. Toyota. Incremental innovation also involves considering all the
technological alternatives, and in necessity invention, e.g. old technology can be applied to solve
current problems, sometimes being integrated with new technology.
Architectural innovation:- Tushman and Anderson (2004: 6) explain that architectural
innovation are the changes in the subsystems and linking mechanisms that are necessary to
obtain the best benefit from minor technological changes.
Honda adjusted its business model to market small motorcycles by selling through
bicycle shops in the USA rather than motorcycle dealerships. In the 1990s IBM failed to
respond to the implications of disk drive technology moving from use in mainframe
computers to PCs. Competitors were faster at seeing the opportunity, made the
architectural change to their businesses and took a high market share, with the result
that IBM suffered considerable losses.
Tushman and Anderson (2004: 92) suggest that the best firms are ‘ambidextrous’ and can
effectively manage incremental innovation, architectural innovation and technological
discontinuities. They are continually learning and acquiring detailed knowledge of specific
technologies, markets, customers or competitors, reflecting on the combined areas of knowledge,
re-evaluating the new knowledge against the background of the current situation, and
reformulating the organization’s mix of activities to exploit the new opportunities. Innovation
can therefore be understood as a knowledge-based process.
Grassroots innovation
There are many necessity inventors around the world who are developing low-technology
solutions to solve day to- day problems.
In Gujarat, India, Mansukhbhai Jagani has developed a field cultivator, which was
developed by replacing the rear wheel of an Enfield Bullett motorcycle. Whereas a
tractor costs $6000, the modification costs $450. He has also developed a seed and
fertilizer dispenser and a bicycle-mounted sprayer.
Another inventor added a lever to the pulley used for drawing water from wells. It stops
the bucket from falling back when the pulley operator stops to catch a breath.
The problem for individual inventors of this type is a lack of funds to develop the ideas into
marketable products.

The more disruptive the innovation is to customers’ normal purchasing, consumption, and
disposal patterns the greater the investment that is needed to educate these customers in respect
of why they need the innovation, how they will benefit from it and how they should use it (and
not use it).If the innovation is disruptive it might require a radical change in the firm’s
management processes such as manufacturing, distribution and marketing. It might even need a
complete re-invention of the firm’s business model and practices.
One example of this is the introduction of digital photography, which has not only had a
huge effect on the major film and camera manufacturers but also on smaller
organizations, including for example, those involved in film processing.
Disruptive Technology
Christensen (1997) introduced the concept of disruptive technology. In the ‘S’ curve the
performance of a new technology is usually inferior to that of the old technology. Often, because
the new technology appears to be creating a new market, it is not taken sufficiently seriously by
the existing players in the established market. For example, the first mobile phones were
cumbersome and performed much worse than fixed line phones. By the time the fixed line
players started to become interested in the new market, the new entrepreneurial mobile phone
suppliers were already strong competitors. Christensen suggests that contrary to popular belief
large firms are aware of new disruptive technologies but their customers are resistant to change
and continue pressing for improvements in existing products and would react adversely to being
offered a product that was based on a radical technological change.

Characteristics of Disruptive Technology

This includes:
 A new disruptive technology initially underperforms the dominant one along the
dimensions mainstream customers in major markets have historically valued.
 Products based on disruptive technologies are typically (b) cheaper, (c) simpler, (d)
smaller, or (e) more convenient than those established on the dominant technology.
  The leading firms’ most profitable customers generally do not want and indeed initially
cannot use products based on disruptive technologies.
 Therefore disruptive technologies are first commercialized in emerging or insignificant
markets where incumbents conclude that investing in disruptive technologies is not a
rational financial decision for them.
 The new disruptive technology (a) steadily improves in performance until it meets the
standards of performance demanded by the mainstream market.
 Finally the new (disruptive) technology displaces the dominant one and the new entrant
displaces the dominant incumbent(s) in the mainstream market.
Creative Destruction
As a result of these discontinuities industries are characterized by creative destruction, or waves
of new firm creation and failures, often referred to as ‘shake outs’. Less entrepreneurial
organizations find it difficult to switch resources to new opportunities and, instead, continue to
invest heavily in existing products, and become committed to and dependent on them, even when
they are in decline. Because such firms have considerable assets tied to a particular process they
may be reluctant to change to a new technology or process and unwilling to aggressively seek a
replacement that might require huge investment in new development and marketing to support it.

Schumpeter (1934) identified five principal sources of what he referred to as ‘creative

destruction’ that often underpin innovation:
 Introduction of a new good (or a significant improvement in the quality of an existing
good)
 Introduction of a new method of production (i.e. innovation in processes);
 The opening of a new market (in particular an export market in a new territory);
 The ‘conquest of a new source of supply of raw materials or half-manufactured goods’;
 The creation of a new type of industrial organization (i.e. an administrative innovation).
The 4 Ps of innovation identified by Utterback (1994), which describe the space in which
the innovation takes place.
1) Product innovation: changes in the products and services the organization offers
2) Process innovation: changes in the way products and services are created and delivered;
for example, online banking and betting.
 3) Position innovation: changes in the context in which products and services are
introduced. For example, it was originally thought that older people would want to buy
cars specially designed for easy access, economy, and high levels of safety, and with
equipment to cope with increasing disability. In practice an increasing number of older
people appear to be buying high performance sports cars to relive their youth!
4) Paradigm innovation: Changes in the underlying mental models which frame what the
organization does.
Over many years a number of researchers have studied innovation performance and concluded
that the most successful organizations have developed innovation processes in order to address a
number of challenges:
1) The need for market and technological scanning to obtain early information about
new opportunities and developments;
2) The high cost and the need to manage finance and other resource issues;
3) The uncertainty and unpredictability of the outcomes in trying to do things differently
or better;
4) The need to coordinate the contributions of various departments (such as research and
development, operations, marketing and finance);
5) The need to get the time of the launch of the new product right;
6) The need to plan to allow staff the time away from their day-today responsibilities
and the scope to carry out developments.
Models of innovation process
1) Technology push
Often, high-technology science- and engineering-based firms pursue scientific
exploration unhampered by the consideration of specific customer and market
requirements. For example, small bioscience companies carry out chemistry research in
the expectation of eventually producing a chemical compound that might ultimately
become a commercially exploitable drug. In the early stages of development the
therapeutic outcomes and actual customer benefits cannot be precisely predicted.
2) Market pull
In some organizations the innovation is focused solely on meeting carefully defined
customer needs. For example, a company supplying supermarkets with own-label
 products relies on the supermarket to forecast consumer demand. It will carry out only
the development work that is necessary to satisfy the needs of the supermarket, defined in
terms of a precise product specification and maximum price it is prepared to pay.
Challenges in Managing Innovation
Whether the organization is large or small there are a number of practical challenges in
generating new products, services and processes and in managing innovation generally,
including:
 Picking the winners from the many ideas that might be suggested;
 Developing appropriate organizations, structures or teams capable of effectively
exploiting new ideas;
 Developing stimulating climates in the organization to encourage innovation and
avoid a ‘blame’ culture;
 Accessing finance and deciding how much to spend;
 Deciding when to terminate projects;
 Meeting timescales during the process and being first to market;
 Handling the interface between the business functions and departments and handling
the conflict that sometimes arises;
 Working out how to cope with uncertain technologies and unpredictable outcomes;
 Deciding when to employ external technological and business expertise and learning
how to manage it;
 Communicating internally and externally the strategies and support available and the
successes achieved;
 Ensuring that top management are committed to and lead innovation as a corporate-
wide task;
 Giving individuals more responsibility for new product development.
Core abilities in Managing Innovation.
 New innovations can cause significant disruption for the customer purchasing and usage
patterns and for the organization’s operations and this must be recognized in the
innovation strategy.
 Effective and efficient management of innovation is improved by following a process and
‘practicing’ innovation.
  Organizations must decide what innovation stance to adopt and ensure that it fits with
their situation and objectives.
 Critical to an organization’s approach to innovation is a culture in which there is:
a) A fundamental and sustained commitment to innovation
b) A willingness to accept risks
c) An ability and willingness to commit resources
d) A degree of flexibility
e) Top management commitment.

Top level managers in the Entrepreneurial organization

Senior level managers are critically important in providing the following responsibilities

 Compelling vision
 Well-designed company structure
 Right personnel
 Protect disruptive innovations
 Nourish entrepreneurial capability
 Take advantage of opportunities
 Link entrepreneurship and Business strategy

Managers must also create a favorable entrepreneurial climate and culture within the
organization.

Climate for Intrapreneurship

 Organization must embrace technology

 New ideas are encouraged
 Trial and error encouraged - Failures are allowed
 No opportunity parameters – no ceiling on opportunity exploration
 Availability and accessibility to resources
 Multi-disciplinary teamwork approach
 Long time horizon
 Volunteer programs
  Appropriate reward system
 Availability of sponsors, champions and mentors
 Support of top management.

How entrepreneurial culture can be enhanced in an organization.

 People and empowerment focused
 Value creation through innovation and change
 Rewards for innovations
 Attention to the basics
 Learning from failure
 Collaboration and teamwork
 Hands-on management
 Doing the right things
 Freedom to grow and fail
 Commitment and personal responsibility
 Emphasis on future as matter of urgency
 Emphasis on constant improvement

The key elements in developing successful innovation are:

1) Creativity that challenges the taken-for-granted assumptions and unsettles the status quo;
2) Entrepreneurial capability that will drive the commercialization of the idea;
3) Management of the process, the staff and other resources, both from within and outside
the organization;
4) The motivation and ambition of the individuals to identify and exploit the opportunities
Benefits of Innovation
Customer benefits from innovation
If opportunities are successfully exploited, the recipients (consumers, customers, clients, etc.) of
the organization’s products, services, processes and ideas should receive additional value that
will ultimately provide greater satisfaction than before, through the combination of tangible and
intangible benefits that they receive from the new offering.

Innovation might increase the tangible benefits of the product or service that appeal to the
recipients’ senses, in the form of better value; perhaps a product with a larger range of functions,
better durability, or better design, is easier to use or is lower priced than the competition for a
similar specification.

The intangible benefits take the form of a better designed or functioning product or service,
efficient customer service, a better experience, and a feeling of greater satisfaction or enjoyment
from the purchasing and usage process. The value of intangible benefits becomes obvious as
products that appear to be physically the same may be perceived differently by customers if they
carry a well-known brand or are supplied by a company with a positive reputation. The
customers may be prepared to pay a premium price or remain loyal to the supplier if they
perceive that the brand offers extra intangible value.

For example: a shirt made from the same material to the same specification in the same
factory might be sold at a higher price if it carries a fashion label;

Providing these benefits requires the organization to configure its business model in a way that
delivers them more effectively and efficiently than can the competitors. This requires
establishing strong links across a range of functions. For example, it does not only require
financial resources for R&D, but it needs appropriately skilled staff to be recruited and trained, it
needs marketing to analyze changing customer needs, and it needs operations to deliver
efficiently.

Organization benefits from innovation

Success for most organizations is determined by the degree of customer satisfaction that is
delivered, but clearly this must not be ‘at any cost’ and so central to innovation is the concept of
exchange and providing customer benefits in a way that the supplier organization can sustain.

In a private sector business the benefit for the owners of the organization might be in the form of
increased wealth, which comes from the development of more profitable products and more
efficient use of assets. For public or not-for-profit organizations the benefit will be in the form of
being more effective (securing more impact for the same investment) or more efficient
deployment of resources (lowering the cost of delivery without lowering quality or reducing
outputs).
 CORPORATE ENTREPRENUERSHIP MANAGEMENT CONTROL SYSTEMS
This is the process of evaluating, monitoring and controlling the various sub-units of the
organization so that there is effective and efficient allocation and utilization of resources in
achieving the predetermined goals. A management control system is a logical integration of
management accounting tools to gather and report data and to evaluate performance.

Simmons (1995) defines management control system as the formal information based routines
and procedures that managers use to maintain or change patterns in organizations activities

Purpose of Management Control Systems

 Clearly communicate the organizations systems

 Ensure everyone in the organization understands their specific actions for achievement of
organizational goals
 Communication of actions across the organization
 Ensure the MCS adjusts to changes in the environment
 Gives direction to employees in working towards organizational goals
 Assists in alignment of employees personal motivations/objectives to organizational
goals

Examples of frequently used management control systems

1. Budgets
 Budgets are business plans that are stated in quantitative terms and are usually based
on estimations. These plans aid an organization in the successful execution of
strategies. Due to the uncertainties in the business environment and / or due to wrong
estimation, there may be significant deviations between the actual and the plans.
Budgeting as a control tool, provides an action plan for the organization to ensure
least deviations. Budgets are used to give an overview of the organization and its
operations. They are useful in resource allocation whereby resources are allocated in
such a way that the processes which are expected to give the highest returns are given
priority.
  Budgets are also used as forecast tools and make the organization better prepared to
adapt to changes in the environment. Budgets act as a means to verify the progress of
the various activities undertaken to achieve the planned objectives. The verification is
done by comparing the actual against standards

 They help in the delegation of authority and allocation of responsibility and

accountability to more people in an organization.

2. Organization Structure
This includes organization design, distribution of responsibilities and processes of decision-
making. Every unit or department must be responsible for their performance

3. Cultural Controls
These are built in shared traditions, norms, beliefs, values, ideologies, attitudes, behavior etc.,
which is reflected in both the written and unwritten rules that influence employee behavior. An
organizations culture influences people’s decision-making, communication, it creates
purposefulness, motivation and structure.

4. Personnel controls
This is reflected in effective personnel selection, training, job design, code of conduct,
performance measurements etc.

5. Reward systems
Used in employee motivation for effective work performance and employee retention. Reward
systems adopted by organizations may be financial or non-financial in nature.

Control of quality – this is meant to

 Meet customers specific requirements

 Maintain superior quality
 Use the TQM approach

Control of productivity

 Measures include labour costs as a % of sales, sales per employee, total labour costs per
hour etc.
Establishment of responsibility centers
A responsibility centre is an organization unit that is headed by manager who is responsible
for its activities. The key consideration in determining the responsibility centre is
i). Ability to control cost or revenue
ii). Determining the question of controllability
iii). Evaluation of responsibility centre as per predetermined criteria

The responsibility Centres may be classified as

a) Revenue Centres
 In a revenue centre, output (I.e., revenue) is measured in monetary terms, but no
formal attempt is made to relate input (I.e., expenses or cost) to output. The main
focus of management’s efforts will be on revenue generated by it e.g the sales
department where Sales budget are prepared for revenue centre and budgeted figures
are compared with actual sales.

b). Expense Centres

 It is the lowest level of responsibility centre in an organization.
 Its manager is basically responsible for production of a product or service; his
decision authority relates to how human resource, machinery and materials should be
used to produce the product or service.
 Expense centre manager has no control over revenues, profits, investment, marketing
decisions or investment decisions. Effectiveness of an expense centre manager will
depend on a host of non-financial parameters such as maintaining quality level of
output, compliance with production schedules and targets, maintaining morale of the
workers and so on.
 Separate reporting systems are used to report effectiveness while Efficiency is judged
in terms of financial performance. It is measured and reported by the responsibility
accounting system.
 Evaluation of the financial performance of an expense centre manager is by
comparing the actual expenses of the centre against the budgeted expenses.
c). Profit Centres
 A profit centre is an organizational unit responsible for both revenues and costs.
  Managers are concerned with both the efficient production and marketing of the
products. The center’s performance is measured in terms of profit gained.

d). Investment Centres.

 An investment centre is responsible for the production, marketing and investment
in the assets employed in the segment. An investment centre manager decides on
aspects such as the credit policies, inventory policies, and within broad
framework.
 Financial performance of the manager of the division is measured by comparing
the actual with projected rate of return on investments of the Centres.

Auditing

 Audit is the activity of examination and verification of records and other evidence by
an individual or a body of persons so as to confirm whether these records and
evidence present a true and fair picture of whatever they are supposed to reflect.
Audits are most commonly used in the accounting and finance functions.
 Audits can take the following forms: Financial statement audit, environmental audit,
internal audit, operational audit, information management audit and management
audit.

Benefits of Audits
 Identify opportunities for improvement
 Identify outdated strategies
 Increase management’s ability to address concerns
 Enhance teamwork
 Gives a true picture of what the organization is.
The Balanced Scorecard (BSC)
 In the rapidly changing world of business, considering only the financial measures of
performance gives an incomplete picture of the overall organizational performance. It
 has become increasingly necessary for organizations to simultaneously look at non-
financial measures for this purpose.
 Proposed by Robert Kaplan and David Norton in 1992 BSC, it addresses the four
perspectives on organizational performance – customer perspective, financial
perspective, internal business perspective and innovation/growth perspective.
 The balanced scorecard serves as a tool for strategic performance control by
clarifying the vision and strategy of the organization and articulating the top
management's expectations

MITZBERGS STRUCTURAL CONFIGURATION

Simple Structure
The simple structure has as its key part the strategic apex, uses direct supervision, and employs
vertical and horizontal centralization. Examples of simple structures are relatively small
corporations, new government departments, medium-sized retail stores, and small elementary
school districts.
The organization consists of the top manager and a few workers in the operative core. There is
no techno structure, and the support staff is small; workers perform overlapping tasks. Because
the organization is small, coordination is informal and maintained through direct supervision.
Moreover, this organization can adapt to environmental changes rapidly. Goals stress innovation
and long-term survival, although innovation may be difficult for very small rural school districts
because of the lack of resources.

Machine Bureaucracy
Machine bureaucracy has the techno structure as its key part, uses standardization of work
processes as its prime coordinating mechanism, and employs limited horizontal decentralization.
Machine bureaucracy has many of the characteristics of Weber’s (1947) ideal bureaucracy and
resembles Hage’s (1965) mechanistic organization.
It has a high degree of formalization and work specialization. Decisions are centralized. The span
of management is narrow, and the organization is tall—that is, many levels exist in the chain of
command from top management to the bottom of the organization.

Little horizontal or lateral coordination is needed. Furthermore, machine bureaucracy has a large
techno structure and support staff. The environment for a machine bureaucracy is typically
stable, and the goal is to achieve internal efficiency.

Professional Bureaucracy
Professional bureaucracy has the operating core as its key part, uses standardization of skills as
its prime coordinating mechanism, and employs vertical and horizontal decentralization.

The organization is relatively formalized but decentralized to provide autonomy to professionals.

Highly trained professionals provide non routine services to clients. Top management is small;
there are few middle managers; and the techno structure is generally small. However, the support
staff is typically large to provide clerical and maintenance support for the professional operating
core.

The goals of professional bureaucracies are to innovate and provide high-quality services.
Existing in complex but stable environments, they are generally moderate to large in size.
Coordination problems are common. Examples of this form of organization include universities,
hospitals, and large law firms.

Divisionalized Form
The divisionalized form has the middle line as its key part, uses standardization of output as it
prime coordinating mechanism, and employs limited vertical decentralization.

Decision making is decentralized at the divisional level. There is little coordination among the
separate divisions. Corporate-level personnel provide some coordination. Thus, each division
itself is relatively centralized and tends to resemble a machine bureaucracy.
The techno structure is located at corporate headquarters to provide to all divisions; support staff
is located within each division. Large corporations are likely to adopt the divisionalized form.
Adhocracy
The adhocracy has the support staff as its key part, uses mutual adjustment as a means of
coordination, and maintains selective patterns of decentralization.
The structure tends to be low in formalization and decentralization. The techno-structure is small
because technical specialists are involved in the organization’s operative core. The support staff
is large to support the complex structure. Adhocracies engage in non-routine tasks and use
sophisticated technology.

The primary goal is innovation and rapid adaptation to changing environments. Adhocracies
typically are medium sized, must be adaptable, and use resources efficiently. Examples of
adhocracies include aerospace and electronics industries, research and development firms, and
very innovative school districts.

Entrepreneurship flourishes where:

 Fewer layers of control or levels in the structure of a company

 Broader span of control
 More horizontal and less vertical
 Decentralization and empowerment with clear vision and strategic direction from the top.
 Flow of ideas from bottom to top dominant
An Entrepreneurial Structure and the Concept of Cycling- Covin and Slevin (1990) - added the
following elements:
 Managers allowed to freely vary their operating styles
 Authority that is assigned based on the expertise of the individual
 Free adaptation of the organization to changing circumstances
 An emphasis on results rather than processes or procedures
 Loose, informal controls with an emphasis on a norm of cooperation
 Flexible on-the-job behavior, shaped by requirements of situation and personality of
the employee
 Frequent use of group participation and group consensus
  Open channels of communication with free flow of information
Structures to Support New Product/Service Development Projects
 Organizing people around a new product or service development process requires a
structure that gets the right inputs into the process and also facilitates both creative
abrasion and cross- functional collaboration.

Five individual- organization related factors related to new product success:

1) A cross-functional new product development team;

2) A strong and responsible project leader;

3) A new product development team with responsibility for the entire project;

4) The commitment of the leader and the team members;

5) Intensive communication among team members during the new product development
process

DISCOVERY DRIVEN PLANNING

The core premise behind discovery driven planning is that companies need to be able to plan in
such a way that expenses are minimized and learning is maximized. Rather than asking whether
managers met projections, a discovery orientation asks whether they managed expenditures with
discipline, whether they were conscious about the assumptions they were making, and whether
they exhausted all possible ways to create new knowledge before making irreversible
commitments. The whole idea, in other words, is to project as far as possible given existing
knowledge.

DDP framework makes assumptions explicit, and converts assumptions into knowledge as the
strategic venture unfolds. The framework imposes a strict discipline on the planning process that
is different from that used is conventional planning.

The Assumption to Knowledge Ratio

In many cases we make decisions based on assumptions that we may be knowledgeable about or
not. This clearly does not guarantee the correctness of decisions made. You can think of this as
an assumption to knowledge ratio. The greater the proportion of assumptions relative to the
knowledge that you have, the more disciplined you need to be about making sure your
organization is learning which assumptions are valid and which need to be changed.

Manage uncertain initiatives with Discovery Driven Planning

Discovery Driven Planning (DDP) enables an entrepreneur to contain risks while pursuing
opportunities. Unlike the taken for granted assumption in conventional management practice
that good managers can predict outcomes, the discovery-driven approach begins with the
recognition that with uncertain projects you really can’t know the result beforehand i.e. the level
of success in the new project cannot be predicted with accuracy. Instead, the goal is to learn as
much as possible for as little cost as possible, always being prepared to redirect your activities as
new information is revealed. With discovery-driven projects, you invest small amounts of
money that you can afford to lose to generate the knowledge that you need to invest more
confidently. Discovery-driven growth begins by specifying a performance outcome (or the
unknown) that would make your growth efforts worthwhile—whether at a corporate level or a
strategic project level. You define success up front, as well as the guidelines for where and how
the organization will go after these goals. Thereafter, the rest of the discovery-driven tools are
used to approach closer and closer to that goal, containing risk and downside exposure until you
have reduced uncertainty to the point that you can confidently invest in capturing your targeted
growth, or shut down early and inexpensively if things don’t work out.

As your plan unfolds, you want to be reducing what we call the assumption-to-knowledge ratio.
When the assumption-to-knowledge ratio is high, there is a huge amount of uncertainty, and one
should prioritize learning, inexpensively and fast, at the lowest possible cost. As the ratio
shrinks, focus and resource commitments to increasingly hard outcomes replace learning as the
objective.

DISCIPLINES OF DDP.
These are five in number and include:
1. Framing
2. Benchmarking
3. Specification of deliverables
4. Testing assumptions
 5. Managing milestones

Step 1: Framing the challenge. For new projects one starts by framing the strategic
growth challenge for the organization as a whole, at the CEO or senior team level and define the
growth frame for the entire enterprise. The outcome of this process is a set of guidelines for
which types of initiatives will be pursued. As a result, everybody else in the company will be
clear about what kinds of opportunities are legitimate, and will therefore be supported because
they are a good strategic fit.

Step 2: Create an opportunity portfolio. Next you analyze how resources are
currently being allocated to projects and then consider how these allocations would need to
change, given the growth frame. We take a portfolio view of different kinds of growth
opportunities. How much profit and cash flow growth needs to come from the core business?
How much to expand into adjacencies? How much will go into low-cost, high potential
opportunities for future growth? In today’s market the typical portfolio of initiatives will contain
a mix of short term projects designed to enhance positive cash outflows and low cash drain, high
potential projects positioning you to rapidly go for growth when the upturn occurs. After
deciding what initiatives are needed to achieve the corporate goals, we take up the issue of
framing individual initiatives. We show you how to specify what success must look like in terms
of upside potential before you even consider making an investment, and how you would start a
discovery-driven plan for it.

Step 3: Managing Strategic Projects. First is the identification of a business unit that fits
the chosen business model. A unit of business is quite literally the unit of what you sell—what
the customer pays for. If the initial business unit does not work out, or does not deliver revenues
and profits in the way you wanted, or achieving goals in the way you initially thought may be
unrealistic, you may be forced to redefine it. Then you’ll need to think through what key
measures or metrics will ultimately drive success in your growth project, and how to compare
your key metrics for the project with those of potentially competitive organizations. This is often
a reality check for business planners, who make assumptions that might seem sensible in the
rarefied atmosphere of a planning office, but fail to conduct this competitive reality check.
 Step 4: Connect plans to financials. Then come the tools that help keep a discovery-
driven plan coherent and connected to reality. Among these are the reverse income statement and
the reverse balance sheet. This is a step that gives reality to plans, i.e whether the plan can
actually work

Step 5: Convert assumptions to knowledge. The last piece of discovery driven

planning is the identification, documentation and testing of assumptions as you develop your
operational plan. This involves operation specifications, developing an assumption checklist for
testing the assumptions, and the financial logic that underlies the business model. In case the
model cannot work or is prone to more risks than advantages, the knowledge gained enables one
to redirect the project. Companies that successfully use discovery-driven strategy frequently
redirect projects instead of trying to execute to an increasingly unrealistic original plan. What
you accomplish in terms of performance will remain the same, but redirection changes how you
accomplish that performance. In the event that the project is completely unsuccessful even after
redirection, disengagement is recommended to save the company from losses.