Managing Innovation and Entrepreneurship

Robert D. Hisrich, Claudine Kearney

• Publisher: SAGE Publications, Inc
• Year: 2013
• ISBN:
  9781483322667
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The first book to look at innovation/entrepreneurship from an international perspective, this new text provides a step-by-step process for managing innovation and entrepreneurship in an organization in both turbulent and stable economic times. Authors Robert D. Hisrich and Claudine Kearney demonstrate how to manage innovation on a day-to-day basis—using a wide range of real world scenarios, theories, principles, best practices, case studies, and modern examples. The book provides detailed coverage of each aspect of the process of innovation required to achieve success, including what it takes to build an innovative and entrepreneurial organization, how to develop innovation and entrepreneurship in both individuals and teams, how to manage and operationalize innovation and entrepreneurship, how to develop a global business plan, and more.

Section 1 Discovering the Origins of Innovation and Entrepreneurship

Chapter 1 The Entrepreneurial/Innovative Economy

What is meant by the term entrepreneurship? What is innovation, and why is it important? What is the link between entrepreneurship and innovation? How does entrepreneurship and innovation improve organizational performance? What is the contribution of entrepreneurship and innovation to an economy?

Scenario: Facebook

Mark Zuckerberg is the CEO and cofounder of Facebook. He was born on May 14th, 1984, in New York. Zuckerberg is a computer programmer and Internet entrepreneur. In February 2004 from a dorm room at Harvard College, he cofounded Facebook with roommates and fellow students Eduardo Saverin, Dustin Moskovitz, and Chris Hughes. Initially, Facebook limited membership to students at Harvard, but later this expanded to other universities such as MIT, Yale, Princeton, and Stanford. Membership became available to students at other universities then to high school students. In September 2006, membership was open to anyone ages 13 and over with an e-mail address, resulting in 50,000 new users a day joining Facebook.

Zuckerberg dropped out of Harvard after his sophomore year, moving Facebook to Palo Alto, California. Since Facebook was growing rapidly, Zuckerberg needed investment money, so he made contact with Silicon Valley venture capitalists, receiving his first investment of $500,000. By the end of 2004, Facebook had reached 1 million users; it reached 5 million users in 2005. In May 2005, Facebook received a major investment of $12.7 million from a venture capital firm, Accel Partners. In April 2006, Facebook raised $27.5 million from Greylock Partners, Meritech Capital Partners, and others. Soon, other companies wanted to buy the entire business. In 2006, Zuckerberg refused a $1 billion offer from Yahoo. In 2007, Microsoft offered $15 billion, and once again Zuckerberg refused.

Zuckerberg's core focus was on developing the site, opening the project to external developers, and adding additional features. Investors bought into Facebook without too much concern about how the company was going to make a profit. In October 2007, Facebook and Microsoft developed an advertising arrangement to cover international markets with Microsoft taking a $240 million equity stake in the company. By 2008, with over 100 million users, it was time to think about developing a profitable business model. To achieve this, Zuckerberg hired one of Google's star executives Sheryl Sandberg (as chief operating officer). She knew exactly how to build a company from the start-up phase to development. As Facebook grew, Zuckerberg continued to use the same energy and flexibility of a start-up with an unofficial motto of “Move Fast and Break Things.” He was still closely involved in the details. Everyone at Facebook was expected to move fast with new programmers having a chance to write computer code that contributed to the site within their first days of employment.

Zuckerberg is recognized as a new type of entrepreneur. Since its formation in 2004, Facebook has found its way into the personal lives of 800 million people. Once in a while a breakthrough innovation and/or a business comes along that transforms an era by doing something very new and very big. Zuckerberg did this and turned social needs into a multibil-lion-dollar business. Facebook has changed the way hundreds of millions of people communicate and talk to each other. It has created not just a business but an entirely new culture.

In 2010, Time magazine named Zuckerberg their “Person of the Year”; Vanity Fair placed him at the top of their New Establishment list; and Forbes ranked him at No. 35—surpassing the late Steve Jobs, former Apple CEO, on their Forbes 400 list. In 2011, his personal wealth was estimated to be $17.5 billion. Facebook has astronomically grown to 901 million active users as of April 2012. More people have signed up on Facebook than live in the United States and European Union combined, with 30 million registered users in Britain alone.

Facebook's mission is to make the world more open and connected.

Zuckerberg practices what he preaches, sharing a lot about his personal life on his Facebook page, which is open for anyone to view. There have been questions about how people communicate on Facebook, about their privacy, and the sharing of information. Facebook asserts that it gives users full control over their privacy and what they choose to communicate. Zuckerberg believes that privacy is fundamental, but the big cultural change is that now more and more people are finding that they can build a reputation, disseminate interesting information, and be part of a new discovery process.

Facebook is not just a website; it is a platform. Software developers can write programs—apps—that then run on Facebook. These apps create a technology ecosystem with Facebook at the core. There are over 1 million different developers who have built things on Facebook. The question facing Facebook is this: How can they build all the things they want to? According to Zuckerberg, the answer was simply to build an ecosystem and make sure any developer from a student in a dorm to a small or large company can build things on the platform.

When Zuckerberg opened Facebook to developers, the biggest success was games. London is home to the second largest social gaming company. Kristian Sergerstrale, cofounder of Playfish, employs 350 people to make games for his 100 million regular players. Facebook has created an infrastructure for these and other games and social interactions. It is as much about that social interaction as it is about what is happening on the screen. This generates new revenue for Facebook, because game players pay money for virtual goods. They pay by sending money to Facebook to buy credits.

The creation of Facebook has led to lawsuits and accusations of privacy invasion; it has even inspired a Hollywood movie. The first legal dispute was filed in 2004 when Harvard students Cameron Winklevoss, Tyler Winklevoss, Divya Narendra, and others accused Zuckerberg of misleading them into thinking he would contribute to them developing a social network called HarvardConnection.com (which was later called ConnectU), while he was taking their ideas to develop a competitive product. The three issued a complaint to the Harvard Crimson, and an investigation was undertaken by the newspaper. The legal dispute resulted in an initial settlement of $65 million; however, the legal dispute over the issue proceeded into 2011 after Narendra and the Winklevosses claimed they were misguided about their stock value. Zuckerberg encountered another challenge in 2009 when the book The Accidental Billionaires, written by Ben Mezrich, was published. Mezrich was criticized for invented scenes, reimagined dialogue, and fictional characters of Zuckerberg's story. Mezrich sold the rights to screenwriter Aaron Sorkin, and the film The Social Network received eight Academy Award nominations. Zuckerberg had strong objection to the film's narrative and informed a reporter at The New Yorker that numerous details in the film were incorrect. In spite of these obstacles and challenges, Zuckerberg's dorm project has come a long way since 2004, not just as a piece of technology but as a change in the way many people relate to each other. Facebook is a massive online social world that runs parallel with the real world. Many users spend more time online with their Facebook friends than meeting their real friends. A lot of people who would have otherwise lost contact stay in touch through Facebook. The next step for Facebook, according to Zuckerberg, is to allow people to connect to anything they want in any way they want.

On Friday, May 18, 2012, Facebook went public, pricing its initial public offering (IPO) at $38 per share. Facebook shares rose 0.6% to $38.23 at the close of business on its first day of trading. Approximately 570 million shares were traded and 70 million just at the IPO. Zuckerberg retains 533 million shares and voting control over Facebook. Zuckerberg's net worth increased by $100 million to $19.4 billion; he is now 26th on the Bloomberg Billionaires Index. The company's valuation at that time was more than Amazon.com, Kraft, Walt Disney, Cisco, and McDonald's. Facebook is the biggest technology business to go public since Google. The company had net income of $205 million in the first three months of 2012 on revenue of $1.06 billion. However, reflecting back, the stock has lost half its value since its IPO. Through hard work and commitment, Zuckerberg is now focusing on how well Facebook can do in the next 3 to 5 years with mobile as a path to generate revenue for the company. Facebook is a very controversial company. Zuckerberg has recognized his mistakes, stating that his biggest mistake was betting too much on HTML5, rather than focusing on native applications. Just as a culture of innovation and entrepreneurship is fundamental, so is the ability to learn from mistakes. Rather than being inhibited by their mistakes, Facebook has created an environment where they are very self-critical, and failure is both tolerated and learned from.

Introduction

As indicated in the scenario of Facebook, entrepreneurship and innovation do not just happen. It can be and in many cases is a risky and expensive investment to start a business and requires continuous investment and commitment in light of all the challenges and obstacles. This risk and expenses continue as established corporations continue to develop and implement entrepreneurial activity and innovation. Facebook's success indicates that it understood the importance of innovation, and even though it dealt with many challenges along the way, it has showed commitment, perseverance, and passion for pursuing entrepreneurial activity and innovation. To manage environmental complexity and uncertainty, firms become more entrepreneurial in order to identify and exploit new opportunities. Regardless of the economic climate, entrepreneurship and innovation is a dynamic process involving opportunities, individuals, organizations, risks, and resources.

Entrepreneurship and innovation is a topic of interest and research that has been developed over decades. Entrepreneurship is developing something new with value by dedicating the required time, commitment, and perseverance, undertaking the associated risks and rewards with the objective of achieving prosperity and wealth. This can be a new start-up organization or part of revitalizing an existing organization in response to an observed opportunity. The term entrepreneurship has traditionally been associated with starting a new business; however, more recently the term has been developed to incorporate social and political forms of entrepreneurial activity. Entrepreneurship is not only evident by new firms coming into the market but also by innovative and similar entries of existing firms into new markets. Entrepreneurship within a large organization it is referred to as intrapreneurship or corporate entrepreneurship (CE). Entrepreneurial activities vary significantly in relation to the type of organization and the level of creativity and innovation within the organization. Innovativeness is the first dimension that characterizes an entrepreneurial organization. Innovation creates more efficient and effective products, systems, services, technologies, or ideas that are accepted by markets, governments, and society.

This chapter provides the historic development of the core concepts of the evolution of entrepreneurship, historic development of key definitions of entrepreneurs, entrepreneurship and innovation as well as the link between them. Following this, there is a discussion on understanding an entrepreneurial and innovative economy—along with the core benefits of entrepreneurship and innovation to an economy. Entrepreneurship and innovation represent a unifying framework for successful management practice that can be attained by combining the key roles of managers and entrepreneurs. The chapter concludes by providing an overall framework of entrepreneurship and innovation that will serve as the foundation for the structure of this book.

Entrepreneurship—what it Means and why it is Important

There is no universally accepted definition of entrepreneurship; rather, entrepreneurship is a phenomenon with many components. It takes many forms such as private sector entrepreneurship, CE, public sector entrepreneurship (governpreneurship), and social entrepreneurship.

The Historic Development of Entrepreneurship

One of the first to be looked at as an entrepreneur was Marco Polo, who tried to set up trade routes to the Far East (Hisrich, Peters, and Shepherd, 2012). In the Middle Ages, the term entrepreneur was associated with an actor and an individual who managed large production projects—for example, an individual who manages architectural works such as castles, public buildings, or cathedrals. In major projects, the individual did not take risk but rather he/she managed the project utilizing the resources that the government usually provided. In the 17th century, an entrepreneur was an individual who entered into a contractual arrangement with the government to carry out a service or provide acquired products—for example, John Law, a Frenchman, was allowed to establish a royal bank. One of the earliest definitions of entrepreneurship was that of Richard Cantillion (1755), an economist, who described the entrepreneur as a rational decision maker who assumed the risk and provided management for the firm. He was the first to acknowledge that there is an entrepreneurial function within the economic system. In the 18th century, the entrepreneur was differentiated from what is today known as the venture capitalist. This different...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Preface
• Acknowledgements
• Section 1 Discovering the Origins of Innovation and Entrepreneurship
• Chapter 1 The Entrepreneurial/Innovative Economy
• Chapter 2 Creativity and Innovation
• Chapter 3 Innovation and Entrepreneurship in Context
• Section 2 Managing Innovation and Entrepreneurship
• Chapter 4 Building an Innovative and Entrepreneurial Organization
• Chapter 5 Developing Innovation and Entrepreneurship in Both Individuals and Teams
• Chapter 6 Design Thinking and Innovation
• Section 3 Operationalizing Innovation and Entrepreneurship
• Chapter 7 Developing New Products, Services, and Ventures
• Chapter 8 The Global Business Plan
• Section 4 Making it All Happen: The Future of Innovation and Entrepreneurship
• Chapter 9 International Opportunities for Innovation and Entrepreneurship
• Chapter 10 The Future Impact of Innovation on Consumers, Business, and Government
• Index
• About the Authors