Session 1:
Nature and Scope of
Entrepreneurial Management
Dr. Tori Huang
P14T27: Entrepreneurial Management
Module Introduction
Provide a practical perspective on the task of creating an entrepreneurial firm, managing the firm’s growth, development of a strategic plan for the firm, and managing people.
Bias to take action and take decisions under conditions of high uncertainty.
Appreciate that it is possible to manage entrepreneurship across a variety of settings.
There is no one ‘best way’ when it comes to creating a firm and developing a strategy to generate growth.
Module Aims
Encourage a predisposition to take action and act to take decisions under uncertainty.
Help students to understand how entrepreneurs think about and approach the challenge of venture creation.
Identify the major managerial issues entrepreneurs face when growing their business.
Help students to understand how to develop a strategic plan for entrepreneurial firms and its value to a firm.
Illustrate the critical role played by collaboration among entrepreneurs and participation in active learning, decision-making, and collaboration.
Help students to look introspectively at whether and how they want entrepreneurship to play a role in their careers.
Module Outcomes
Successful completion of this module will enable students to:
Develop a decision-making capability to makes decisions under highly uncertain conditions.
Appraise the challenge of venture creation and formulate ways forward to create a powerful, fast growing, and sustainable firm.
Appreciate the broader context of entrepreneurship and manage entrepreneurship in different settings.
Make decisions for growing businesses based on sound entrepreneurial thinking, strategic thinking, and business principles.
Develop a strategic plan to grow the firm and understand how to exploit it to drive growth and performance.
Assessment (1)
50% 2-hour Examination.
Discussion-type questions.
Free choice of 2 to answer from 5 questions.
Exam tips in last session.
Assessment (2)
50% Individual Assignment (Strategic Plan) (2200 words):
Each student will pick one case firm from several offered by the module convenor. Each student must then assess the case firm and then analyze it, identify a growth strategy for the company, and develop a strategic plan to meet it. Students can approach this task in groups if they wish; however, each student must form and submit their own plan.
Due on 21st December 2012 (one week after we finish the module)
Coursework should be submitted in two forms: 1) electronic copy uploaded to Moodle; 2) hard copy handed in to the Faculty Office by 4pm on the deadline day.
Important points about the module
Exercises and case studies are used throughout the module. Please bring the textbook as we will be using cases from it.
Please read and prepare notes on pre-assigned case studies. Don’t assume you will remember every detail.
Please bring your laptop or other mobile devices that will allow you to search for information on the internet.
You must contribute to class discussions.
Reading
Core textbook
Barringer, B. and Ireland, . (2010), Entrepreneurship: Successfully Launching New Ventures, 3rd Edition. Pearson Prentice Hall.
List of recommended reading is provided. Some journal papers will be uploaded to Moodle.
Today’s session:
Nature and Scope of EM
Explore the meaning of entrepreneurial management.
Outline the features of entrepreneurial management.
Explain the nature of entrepreneurial management in relation to a firm framework.
Collaborative approach to entrepreneurship.
What is entrepreneurial management?
What is entrepreneurship?
The process view: the process by which individuals pursue opportunities without regard to resources they currently control
The outcome view: new venture creation; Innovation; Job creation
From a practioner’s point of view…
What is Entrepreneurial Management?
Change… Opportunities… Threats…
(managing entrepreneurially and managing entrepreneurship)
Innovation (radical vs. incremental); being ‘creative’.
Proactive vs. reactive; rel. to competition.
Execution intelligence. But… (consider next slide)
“Ideas are worthless without execution”
Scott Wilson, Founder of MINIMAL and former Global Creative Director for Nike Watches
Managing entrepreneurship…
Entrepreneurship is a process by which individuals pursue opportunities without regard to the resources they currently control (Barringer and Ireland, 2010).
WHY?
Features:
Passion
Tenacity
Product/market/customer focus
Execution intelligence = how to turn an idea into business
(business models, leadership, managing teams, establishing partnerships)
Why entrepreneurial management? (UK)
% of firms in UK are SMEs, account for 55% of employment and GDP.
But about 69% are sole traders.
1% of firms are large but account for half of the economy!
Almost 75% of start-ups fail in first year; 40% to 50% of firms fail within 3 years.
What might cause this?
What does this tell us about why we need EM?
Source: Government Action Plan for Small Business (BERR, 2007).
Why entrepreneurial management? (China)
% of population aged 18-64 starting a new business (GEM 2011)
Innovation output -> economic growth
Value creation vs. value capture
Over time…
Liabilities of newness
Liabilities
of adolescence
Liabilities
of
obsolescence
INCUMBENT’S CURSE…
Problem = resources and knowledge (more specifically their evolution…)
Reasons why we need EM
“Entrepreneur” has to be a manager of processes and activities.
Entrepreneur has to manage change strategically.
Entrepreneur has to innovate and renew revenue streams.
Entrepreneur has to take decisions and take action under significant uncertainty. This requires analytical tools and knowledge to make good decisions and develop realistic action plans.
Profit and competitive advantage can accrue to those who proactively manage their market environment…
NOTE: Good management does not mean stifling creativity and risk-taking.
Viewpoint 1
Stevenson’s Model of
Entrepreneurial Management
Entrepreneurial Management:
An Opportunity-Based View
Prof. Howard Stevenson, Harvard Business School.
“Promoter”
“Trustee”
ENTREPRENEURIAL
ADMINISTRATIVE
Continuum!
Diagnosing a firm
Stevenson’s conceptualization of entrepreneurial management
Entrepreneurial focus
(promoter)
Conceptual dimension
Administrative focus
(trustee)
Driven by perception of opportunity
← Strategic orientation →
Driven by controlled resources
Revolutionary with short duration
← Commitment to opportunity →
Evolutionary with long duration
Many stages with minimal exposure at each stage
← Commitment of resources →
A single stage with complete
commitment out of decision
Episodic use or rent of required resources
← Control of resources →
Ownership or employment of
required resources
Flat, with multiple informal networks
← Management structure →
Hierarchy
Based on value creation
← Reward philosophy →
Based on responsibility and
seniority
Rapid growth is top priority; risk accepted to achieve growth
← Growth orientation →
Safe, slow, steady
Promoting broad search for opportunities
← Entrepreneurial culture →
Opportunity search restricted by resources controlled; failure punished
Central Features of Stevenson’s Model
Promoter’s only intent is to pursue and exploit opportunities regardless of resources controlled.
Trustee strives to make the most efficient use of its resources pool (as “required” by fiduciary responsibility).
Certain business and environmental factors pull individuals and firms towards entrepreneurial behaviour or towards administrative behaviour.
See Brown, Davidsson, and Wiklund (2001), Strategic Management Journal
Thoughts from an entrepreneurial management perspective
…ownership of resources creates lock in but more opportunity to appropriate ‘value’…
…non-ownership offers flexibility but creates risk of reliability and reduces your share of the ‘value’…
The way you organise the business can give others entrepreneurial opportunities.
Does your structure help your competitive advantage?
Key Points
Entrepreneurial value creating processes can take place in any type of organization (Stevenson, 1983; Stevenson and Gumpert, 1985; Stevenson and Jarillo, 1986; 1990). BUT TIME IS A PROBLEM RE. EXECUTION INTELLIGENCE.
Entrepreneurship is largely a management question (we can design and shape firms to behave entrepreneurially without the need for the ‘iconic’ entrepreneur).
“Entrepreneurship is more than just starting new businesses… entrepreneurial management may be seen as a ‘mode of management’ different from traditional management” (Stevenson and Jarillo, 1990, ).
Echoes classical definitions such as Kirzner’s (1973) “alertness to opportunity” and to some extent the Cantillon and Say’s “art of superintendence and administration”… BUT DOESN’T APPRECIATE THEIR TWIN RELATIONSHIP.
Food for thought…
Can we manage exclusively as a ‘promoter’ or a ‘trustee’?
Bottom line: We need to marry our entrepreneurial ability with our capacity to execute!
Barbero, Casillas and Feldman (2011):
Human resources capabilities.
Organizational capabilities.
Marketing capabilities.
Financial capabilities.
The mix available changes feasible growth strategy options.
Boeker and Wiltbank (2005):
Exercise:
The “win-as-much-as-you-can” game
Objective: Maximize your individual absolute 10-round total, not your group total, your relative score etc.
Preparation: Mark one card X, the other Y.
Form group of 4 people.
Each round: Hold cards close to you. After facilitator announces “one, two, three… play”, throw down an X or Y card… at the same time as others play.
Whether you win or lose personally depends on whether you choose to play X or Y and on what others in the group choose to do.
10 rounds. 3 bonus rounds (rounds 5 [x3], 8 [x5], and 10 [x10]).
NO TALKING BETWEEN ROUNDS EXCEPT IN THE BONUS ROUNDS!
Possible Payoffs
Group Choices
Individual Payoffs
4 Xs
Each player loses $1
3 Xs
1 Y
Each X player wins $1
Each Y player loses $3
2 Xs
2 Ys
Each X player wins $2
Each Y player loses $2
1 X
3 Ys
Each X player wins $3
Each Y player loses $1
4 Ys
Each Y player wins $1
Reflection points
Does the “you” in “Win As Much As You Can” mean you or the four of you as a group? How was your perspective on this issue revealed in your behavior during the activity?
What were the effects of competition in this game?
What were the effects of collaboration?
How does your group’s net score compare to the possible net score of 100?
Learning Points from the Game
Fallacy to believe that advancement of self-interest can only come at the expense of others or by ethical violations.
Entrepreneurship requires collaboration for long term gain.
So, what is entrepreneurial management again?
Entrepreneurship is not a zero sum game.
Entrepreneurial management cannot succeed without collaboration.
Let’s take a short break…
Viewpoint 2
Networking views of
entrepreneurial management
Reflection Point:
Why should firms collaborate?
“The image of atomistic actors competing for profits against each other in an impersonal marketplace is increasingly inadequate”
(Gulati et al., 2000)
Types of partnerships
for smaller companies
Smaller companies partnering with larger companies to bring their products to market (example: small biotech companies partnering with large pharma companies)
Smaller companies partnering with larger companies to produce, fulfill, and or ship their products (example: drop shipping)
Smaller companies outsourcing human resources management tasks (example: recruitment and accounting services)
Barringer and Ireland (2010)
But, why does collaboration break down?
1. Structure
Structure/rules of conduct (remember prisoner’s dilemma: gaining from collaborating; losing from failing to do so). Competition is inevitable but collaboration is a choice…
Rules vs. economic interest (norms and social capital can prevent bad behaviour but economic interest can incentivise deviance)…
Prisoners dilemma
Prisoner B Stays Silent
Prisoner B Betrays
Prisoner A Stays Silent
Each serves 6 months
Prisoner A: 10 years Prisoner B: goes free
Prisoner A Betrays
Prisoner A: goes free Prisoner B: 10 years
Each serves 5 years
2. People
Influence perceptions and expectations.
Communication: message sent vs. message received (signal theory)
Trust: reciprocity and compliance mechanisms.
Relationships (quantity and quality; who can you negotiate with?).
History/”Baggage”.
Signal Theory
Connelly, Certo, Ireland and Retzel (2011)
Context
Situational factors (opportunity for significant short-term gain versus slow long term gain).
Expectations (., rename as “The Wall Street Game” or as “The Community Game”…).
Winning
Act cooperatively, avoid needless provocation.
Make yourself trustworthy (people don’t forget).
Build a cooperative coalition.
Offer and seek clear agreement.
Avoid ambiguity.
Secure deal with compliance mechanisms (., if no reciprocity or get cheated, hit back and hit hard). Consequences must be clear.
But networking is not necessarily win-win
Risk of competitive behaviour (Gulati et al., 2000).
Value obtained from opportunities depends on how you behave re. degree of resource sharing and participation (Hughes, Ireland and Morgan, 2007).
In excess, networking can harm entrepreneurship of the firm (Hughes, Ireland and Morgan, 2007).
It is not separate to a competitive strategy (Hughes and Perrons, 2010).
Bottom line…
For high-value creation, incubating firms must embrace network relationships, but the value created still depends on the degree to which they use networking activities. It is insufficient to participate lightly in the activities; they must be applied extensively. Nonetheless, each incubation outcome has its merits. Because modern, complex, hostile competitive environments make it unlikely that young firms possess sufficient resources and knowledge to compete against established competitors, they must take some steps toward collaboration and accept its risks.
Hughes, Ireland and Morgan, 2007
EXAMPLE 1:
Enterprise Alliance
UofN/UNIEI-led networking initiative.
Approx. 100 people/businesses on average in each networking event.
Feedback: Poor networking opportunities…
Reasons cited: Wanted facility to share business cards…
Analysis: Entrepreneurs can be passive or active networkers…
Conclusion: Networking is not inevitable; people appear to behave according to their personality; value-creation is behaviour dependent.
EXAMPLE 2
INTERVENTIONS ONLY WORK WHEN FIRMS CAPITALIZE ON NETWORK OPPORTUNTIES
Strategic Network Involvement
Resource Pooling Activity
Extensive
Extensive
Narrow
Narrow
Dynamic Incubation
Community Incubation
Specialised Incubation
Enclosed Incubation
Low value potential
High value potential
Hughes, Ireland, and Morgan (2007)
Lessons: Analyze the Structure, People, and Context
of all Negotiations
The past can cast a long shadow: “Today’s move is tomorrow’s history”.
Short-term gain can lead to long-term losses.
TRUST: Hard to earn, easy to lose, tough to recover.
Inconsistent behaviour and fluctuations in participation can undermine!
Be forthcoming, provocable, forgiving and clear.
Outstanding results can come from cooperation: trust relationships and ethical principles - internally and externally!
BUT, we need to think about TYPES of networks
KEY PAPER: Hite and Hesterly (2001).
Networks of emerging firms evolve to adapt to changing resource needs and resource challenges.
As firms emerge: network consist primarily of socially embedded ties drawn from dense, cohesive sets of connections (basic resources, early finance) (identity-based networking).
As moving into early growth stage: network evolves toward ties based on calculation of economic cost and benefits (resources and knowledge needed for growth) (calculative networking).
Hite and Hesterly (2001) continued…
[Features: Early stage growth/later stage]
Socially embedded ties to balance of embedded and arm’s length relations.
Cohesion exploiting “structural holes”.
Path dependent intentionally managed.
Ad hoc strategic.
Access to resources is critical BUT firms also perform the majority of their learning through their networks.
Networking as a Business Strategy
Developing and maintaining networks, Birley and Cromie (1988):
Time must be spent by entrepreneurs to find new ties, build and maintain relationships with customers and others… these are investment costs that can distract you from other activities (., spotting opportunities and threats).
Growing, sustaining and changing networks, Hughes and Perrons (2011):
Networks in time may need to be consolidated (reduced), adding in new ties while sacrificing less valuable ones… time and resource investment greater under consolidation due to danger of losing trust and confidence.
Hughes and Perrons (2011)
Hughes and Perrons (2011)
Critical factors in building trust and confidence
Embeddedness
The extent to which a firm is entrenched, or deeply rooted, into a web of relationships.
Increases exposure to knowledge and resources.
Social Capital
The equity, goodwill or bond created between an ‘actor’ (., the entrepreneur or entrepreneurial firm) and another which unlocks opportunities for value to be created. Consists of a structural, relational and cognitive component. It serves as a signal of your quality as a potential partner.
Increases access to knowledge and resources.
Conclusions and Takeaways
Collaboration is a route to overcoming liabilities and preventing obsolescence if it allows you to pursue new project beyond your own capability.
It is a way of managing in any firm – small and large, early and established.
Self-Study Questions
Critically examine Stevenson’s theory of entrepreneurial management.
Critically examine the networking perspective of entrepreneurial management.
Discuss the role of entrepreneurial management in small-to-medium firms as well as large firms. To what extent is it a persuasive management agenda?
Recommended Reading 1
Barringer and Ireland (2010) book: chapters 1, 2 and 6 (this chapter relates to class 5 but begins the process of linking partnerships to business growth).
Brown, ., Davidsson, P. and Wiklund, J. (2001), “An operationalization of Stevenson's conceptualization of entrepreneurship as opportunity-based firm behavior”, Strategic Management Journal, 22, -968.
Stevenson, . and Jarillo, . (1990), “A paradigm of entrepreneurship: entrepreneurial management”, Strategic Management Journal, 11, -27.
Stevenson, . and Gumpert, . (1985), “The Heart of Entrepreneurship”, Harvard Business Review, 63 (2), -94.
Recommended Reading 2
Gulati, R., N. Nohria and A. Zaheer (2000), “Strategic networks”, Strategic Management Journal, 21, 203-215.
Hughes, M. . Ireland and . Morgan (2007), “Stimulating Dynamic Value: Social Capital and Business Incubation as a Pathway to Competitive Success”, Long Range Planning, 40, 154-177.
Hughes, M. and . Perrons (2011), “Shaping and re-shaping social capital in buyer–supplier relationships”, Journal of Business Research.
Hite, . and Hesterly, . (2001), “The Evolution of Firm Networks: From Emergence to Early Growth of the Firm”, Strategic Management Journal, 22, -286.
Preparation for Session 2
ScriptPad case ( textbook)
Airbnb case ()
Zipcar ()
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