MALARDALEN UNIVERSITY

Home exam
Organization, Innovation and EntrepreneurshipEFO 519
Nguyen Thi Kim Chung 3/30/2012

Author: Nguyen Kim Chung; Personal number: 9012288107; City: Vasteras

Question 1: Why has entrepreneurship become an increasingly important issue in terms of economic growth and business performance? Do you think this is a global phenomena and an issue concerning all types of industries or sectors of society, what lessons can be learnt from your own home country? (2 pages) Answer: Why has entrepreneurship become an increasingly important issue in terms of economic growth and business performance? Nowadays, the trendy process of international economic globalization and liberalization has brought about an almost boundaryless global economy as well as made competition become more and more fierce. This process, along with the fact that technology has been changing in a fast and remarkable way during recent years, implies an urgent need for companies to identify and develop its own competitive advantage in order to survive. Indeed, increasingly realized, constant change and innovations are simply a necessity (e.g. Kanter 1995 in Sweberg, 2000). Entrepreneurship, which is considered the main source of innovation, therefore, is acting as the primary and most important driving force in economic growth on a both national and international scale. As put by a historian of the entrepreneurial movement writer Entrepreneurial fervor in the 1980s became a worldwide movement, spreading countries, regardless of their level of development or even of their basic mentality or value orientation towards business activities (Alvarez 1996:192; cf in Sweberg, 2000). Not only in developed countries is entrepreneurship essential in securing and motivating competitiveness but it is also of utmost importance to developing countries in an attempt to gain a competitive advantage in the international market. In this context, the concept that fostering entrepreneurship means fostering competitiveness has proved itself to hold greater value than ever. A research has been conducted on the relationship between entrepreneurship and economic growth (Entrepreneurship and economic growth: the Empretec showcase, 2004), in which the author used the model of entrepreneurship of Carre and Thurik in analyzing how entrepreneurship originated at the individual level, and affect the macroeconomy. Innovations at individual level contribute to transforming entrepreneurial qualities and ambitions into actions. At a macro level, the sum of entrepreneurial activities constitutes competing experiment, new ideas and initiatives, which in turn leads to variety and change in the market. Entrepreneurial activities, therefore play a key role in enhancing and transforming the productive potential of the national economy by inducing higher productivity and an expansion of new niches and industries. (Caree and Thurik 2002, in Entrepreneurships and economic growth, 2004). From this model, the accumulative effects of entrepreneurship in fostering the development of the economic growth are undeniable. We are now living in a dynamic economy, which is always affected by a number of different and unpredicted elements, and thus continuously changing in an unexpected way. It can either go through blooms and prosperity or crisis and depression. To survive in such an economy, it requires business entities to have good background of knowledge, and flexibility to adapt and see the opportunities in depression. Entrepreneurship, which has flexibility and innovation at its core values, not only can get companies over hard time but also increase welfare in the long run.

Do you think this is a global phenomena and an issue concerning all types of industries or sectors of society? Entrepreneurship, is, in my opinion currently a global phenomena. Because of its increasing importance in economic growth and business practice, governments, society and organizations of all countries, sizes, politic parties want to encourage entrepreneurship for the sake of not only their national economy but the global economy as well. Entrepreneurship, either in the form of creating a complete new product or finding new ways to market old ones, entrepreneurial management has become a higly valued skills to be nurtured, developed and encouraged. Fostering entrepreneurship in all aspects of their teaching is probably one of the major challenges facing Business Schools in 21th century. (Paul Burns, 2008.p11) Entrepreneurship is of vital importance in business practices of not only high growth firms but also small firms, no matter whether it is a non-profit or profit organizations. For small firms who is constituting 95% of enterprises in European Community and thus having a significant impact on the global economy, Entrepreneurs create new technologies, products, processes, and services that become the next wave of new industries. (Paul Burns, 2008.p.5) Indeed, with the advantage of having more flexible operation and resources mobility, small firms can be more easily able to change quickly than big sized firms. As Paul Burns, 2008.p6 has put It is the entrepreneurial small firms that have been able to capitalize most on the turbulent world we face today. However, the focus is not only on small firms. High growth businesses are also desperate in finding ways to secure their sustainable competitive

advantage by putting great efforts in changing and adapting to constantly changing environment. Though possessing significant advantages financial resources, creditability with stake holders, established routes to market, large companies face the challenges of being less flexible and more vulnerable to unexpected changes and innovation in the market. Unless developing entrepreneurial competence, they just cant survive in the highly globalized and intensified market competition. Not only in profit organization but even non-profit organization need to acquire entrepreneurial competence to some extent in order to survive and prosper (Swedberg, 2000, p.26). Non-profit organizations operating in a nonmarket economy still have to compete not only from other nonprofits, but also from for-profit firms and government (Non-profit vs for-profit entrepreneurship: an institutional analysis, 2002). In this type of organization, the entrepreneurship begins when the company realized the need to fulfill its provider and customer gaps. However, Paul Burns, 2008.p12 also pointed out that entrepreneurship needs to be the appropriate response to the environment the organization faces. Not all industrial sectors face turbulence and changes these were broad generalizations. Not all firms need to encourage innovation. Out of an appropriate context, entrepreneurship is an inappropriate response. The reasonable degree of entrepreneurship differs between sectors of society, between industries, between firms, between grow stages, subsidiaries, divisions, units, departments and geographic areas in one firm. For example, in a stable or hospitable environment (little direct competition or margins are high, technology rarely change), entrepreneurship is unlikely to flourish. What lessons can be learnt from your own home country? Vietnam is a developing country with a very unstable economy. Despite the high growth rate in GDP in recent years, Vietnam also has a very high inflation rate (second highest in the world and highest in Asia) There are a lots of customers gaps especially in the service industry. Furthermore, because of being developing economy, its very difficult for us to get any competitive advantage in the world market. Therefore by encouraging entrepreneurship we can have chance to secure competitiveness in international transactions. Furthermore, the unstable developing environment along with the fact that Vietnamese are quite open to new ideas and new service will be a good condition to foster and develop entrepreneurship.

2. Entrepreneurial management is an important aspect of organizing entrepreneurship (particularly

in larger organizations). Describe and discuss how entrepreneurial management can be understood and analyzed. Use and refer to an empirical example of your own choice. (1,5 page) Despite the fact that entrepreneurial management plays a vital role in organizing entrepreneurship, especially in larger organizations, entrepreneurial organizations have never been easy to mange. Compared with small and medium sized companies, where it is much more easily to adapt to change and exercise entrepreneurship due to resources mobility and flexibility, large companies need much more entrepreneurial management skills in order to cope with changes and instability. Large firms possess lots of advantages when it comes to business practices, the most important one being richer financial resources, more creditability with stakeholders, established routes to market, more trusted brand, and larger work-force. However, managing such fast growing firms with so many layers, divisions also is quite a big challenge.

The emerging discipline of entrepreneurial management the ability to lead and manage this larger entrepreneurial organization is about encouraging opportunity seeking and innovation in a systematic manner throughout the organization, always questioning the established order, seeking ways to improve and create competitive advantage (Paul Burns, 2008.p14-15). Managing an entrepreneurial organization isnt building a hierarchy with lots of orders given and taken but a process of turning from traditional to fairly newer and different management attitudes and learning to adopt a lots of traditional management techniques. A good manager must know how to create and manage the network of relational contracts within, and around his organization, its employees, suppliers, customers and networks. Entrepreneurial management need to allow and encourage flexibility to changes and opportunities by creating a suitable corporate culture with routines and consistent principles, which is a sustainable competitive advantage for the company. Unlike products or any tangible assets, which can be copied quite easily by other competitors, the advantage created by management and corporate culture is an intangible asset in helping a company to differentiate itself and stand firm in the fierce market competition. However, though culture and guiding lines can be different from company to company, the critical point in management method must remain the same: to reflect the entrepreneurial characteristics of the managers in responding quickly and effectively to opportunities or challenges in the market place (Paul Burns, 2008.p15). Moreover, its worth noting that managing an entrepreneurial is not an individual, but a group activity. Conceiving of the entrepreneur as an individual falls into the modernist trap of thinking in terms of the self-identities of such entities rather than the less obvious working interactions which constitute and support them (Managing the entrepreneurial firm, 2003). An example of entrepreneurial management: Jyske Banks Group is managed and operated as a business. They delivered customers very unique experience, and is ranked the top bank in Denmark for customer satisfaction. Customers coming to Jyske Bank always had the relaxing feelings as if they were at a coffee shop or at home, being served by an account teams who were assigned to a specific customer (customized service). Service responsiveness is very good with very short time of customers waiting for their problems to be solved. This is achieved through a smart strategy in management, in which there was a high decentralization of decision making authority, and employees at each brands are empowered to deal with customers at their wills and in a flexible way, with no need to ask for decision from upper authority in every situations. They were also very careful in recruiting policy, only employ those who have compatible characteristics with the culture of the group. Employees are asked to work in teams and solve the problems of customers together, and a high flexibility is allowed as long as they still conform with the company rules.

Strategy

Entrepreneur ship

Leadership

Knowledge management

Entrepreneurial Management

Learning organization

Innovation and creativity

Culture

Marketing

Question3: Joseph Schumpeter has contributed to the field of study and research in entrepreneurship. Describe the central aspects of his theory and make a critical analysis of how his theory can be developed further. Discuss an example of an innovation according to Schumpeters definition. (1 page) Joseph Schumpeter (1883-1950) was one of the first and the most famous non- Marxist economists who had substantially contributed to the study of innovation, entrepreneurship as endogenous forces in creating economic development. Schumpeters studies can be divided into two periods, the first one (until 1940) mainly focusing on the development of his perception of entrepreneurship and relating it to the changing, dynamic economic system. During his last decade he mainly looked at the sociological aspects of entrepreneurship and also tried to sketch a research program in entrepreneurship for economic history. (Sweberg, 2000.p13) Schumpeter suggests the adoption of a new dynamic approach in replacement of the old static method, when it comes to study the economic movement, followed by the development of the concept of circular flow. I find this approach closely related to what Schumpeter later defined as entrepreneur and development. Therere constant internal changes in the economy, which slowly work themselves through the economic system, in form of a business cycle. These changes are set off by entrepreneurs, and entrepreneurship is defined by Schumpeter as the making of a new combination of already existing materials and forces. Schumpeter also formulated as to who are called entrepreneurs: he the Man of Action takes pleasures in social power position and in creating (Schumpeter, 1911, p138). Schumpeter

strongly emphasized on the role of an entrepreneur as the central person as well as the driving force in economic growth. Entrepreneur isnt a career, nor a social class, but more a network of many people who act as an economic function, continuously breaking the static equilibrium and move the market to a new one. This is how the dynamic economy based on disequilibrium work in Schumpeters theory. The major difference from earlier work is his understanding the importance of someone making decisions and taking chances in order for the sake of economic growth. His argument still proves its value in explaining the dynamic economic growth nowadays. Schumpeter didnt mention any specific steps as to how to become entrepreneurs, however, given the three difficulties an entrepreneur has to encounter when it comes to doing something: (1) the nature of tasks which have never been accomplished before; (2) the psyche of the businessman to feel reluctance to do something unfamiliar; (3) the social environments reaction against one who wishes to do something new; (Sweberd, 2000) it is a prerequisite for an entrepreneur to be initiative, authority, imaginative, and especially leadership. Indeed, what prevents people from making changes and development is other peoples static and hostile attitude and one selfs insecurity, reluctance to do something new, no matter if the real obstacles exist or not. When doing something new, the whole difference between swimming with the stream and against the stream is to be found here (Schumpeter, 1911.p121). Based on this perception, Schumpeter believed that the entrepreneur would gradually face a more hostile climate that does not understand the need for entrepreneurship (Ekonomisk Historia, n.d.) However, this prediction is still open to debate. What business should focus on is how to tackle the difficulties and continue to make changes and economic development. Ryan Air: According to Schumpeter theory, there are five combinations that can lead to an innovation: (1) the introduction of a new good; (2) the introduction of a new method of production; (3) the opening of a new market; (4) the conquest of a new source of supply of raw material; and (5) the creation of a new organization of an industry. In my opinion, Ryan Air can be a good example as the creation of a new organization in the industry. Indeed, flying service isnt a new business model, but Ryan Air has been very successful in detecting new market segmentation: price-conscious passengers, and offering them a new flying experience, still ensuring the core value of service (transportation) with low price. Ryan Airs success as the most famous and profitable low cost airline in European has been a evidence for its smart strategy. At the same time, it also created a new business method which is copied by many other companies like JetBlue (American).

Question 4: Use the case study on Ericsson and formulate your own research question and describe the theoretical framework that can be applied to analyze the question. What conclusion do you think you could come up with? (1,5 pages) 4.1 Research question With the theory of organizing new venture and a short analyzing, the study will concentrate on the curtain trend of corporate venture, merger and acquisitions, the positives and negatives that companies face when taking this action. And how do companies control the negative, and also capturing back the profit? 4.2 Theoretical framework Organizing new venture developments According to Garvin (1983), the flow of new venture ideas has started from intrapreneurs which raise the question of defining important strategies for developing business and how operationally related it is. Generally, the more important the development and operationally related it is, the more it is likely to be kept in-house. When there is little or no operational relatedness and less development or no strategic importance to the existing business, then it should be completely spun-off, with no ownership retained sell-off. Garvin argues that when new market segments develop opportunities for industries in the mature stage of their life cycle these industries are likely to generate spin-offs because of the information advantage of insiders (Paul Burns,2008. P165) Strategic importance Operational relatedness Unrelated Partly related Strongly related Very Important Special business unit New product business department Direct integration Uncertain Independent business unit New venture division Micro new business department Not Important Complete Spin-off Contracting Nurturing contracting and

Source: Adapted from Bergelman, 1984 Mergers and Acquisitions Bowman and Faulkner (1997) point out that any move into new markets or new products/services becomes riskier, the further the firm strays away from its core competency. Mergers and acquisitions are frequently used by entrepreneurs as a tool for achieving dynamic growth and also a shortcut to diversification. The reason for this tactic is the speed which it allows the entrepreneur to enter a new product/market area. Other reason might be that the firm is lack of resource, such as R&D or a customer base. However this tactic can be time-consuming, expensive and risky. By distracting management it can also damage short-term business performance. In fact, there is no evidence that commercial acquisitions or

take over particularly in unrelated areas would add value to the firm. If a firm decides to undertake this high-risk strategy, it first needs to decide on the industry into which it is to diversify. If it is unrelated diversification then the industry should be one where the acquiring company has the key competencies required for success. The acquisitions that are most likely to succeed are those for which has ability to acquiring companys core competencies and the sectors required key competencies. In contrast, the major reason why mergers and acquisitions fail is because of failure of implementation (Paul Burns,2008. P264266) 4.3 Analyze In January 2007, the Swedish giant of telecom industry LM Ericsson announced its new business area of multimedia. The entrepreneurial behavior of this strategy for growth of LM Ericsson raises questions of effectively and profit. This work would analyze the important of strategies which LM Ericsson used with the tactic of merger and acquisition How do they organize new venture developments to archive profit? In the context of Multimedia Industry which arises from media, telecom and internet. The industry is consist of producing bundled customer offering of both products and services targeting end users. Hence the successful innovation is based on multimedia uses software system integrations and hardware combined. Capture the big opportunities, Ericsson keeps on develop the mobile network of broadband and follow the trend of growth both in Europe, Africa and Asia. The corporate strategy of technological leadership, economy of scale, operational excellence and consumer focus combined with decreased costs for customers are Ericsson competitive advantage among the telecom industry. However, the uncertainty is the doubt about if the resource allocation into multimedia should fit the companys corporate strategy was practically upon the deep technological understanding in multimedia. I believe that the lack of resource in a huge technology field of multimedia is the main reason for Ericsson working with acquisitions. For those companies which Ericsson choose to corporate, they seems to fulfill the requirement of having core competencies required for success such Sony in Asia (2002) and Marconi in UK (2005). However, with the tactic of merger and acquisition, it is no surprise when Ericsson has to encounter with risk and expense. It is wise decision of Ericsson to stop doing more acquisitions within multimedia business. Ericsson should start to concentrate in utilizing, integrating and controlling the acquired companies and uncertainty in ability to enable profit. The company growth rate of 21% in 2008 answered for the competence of acquisitions. Although, Ericssons executive agenda is still seems to be integrated in the company. 4.4 Conclusion Merger and acquisition is a curtain trend of international business, it helps company to acquire the key resource competencies and growth global. The company using this tactic faces with high risk and expense, in exchange, company can capture great profit when penetrate into new market or product/service. The solutions for Ericsson are acquired the right companies which have the expected key value and build up the right strategies in order to control and integrate resource.

Question 5: What is an entrepreneurial organization according to Burns (2008). What are the characteristic features of the industrial district and entrepreneurial networks in Silicon Valley? What type of business strategy do you think is promoted in Silicon Valley. (2 pages) 1. What is an entrepreneurial organization according to Burns (2008)? In his book, Corporate Entrepreneurship, 2008, Paul Burns pointed out that an entrepreneurial organization are defined by those characteristics: (1) entrepreneurial leadership; (2) entrepreneurial culture; (3) entrepreneurial structure; (4) intrapreneruship and corporate venturing. Indeed, entrepreneurial corporate must encourage innovation at all levels in an organizations, corporate, division, business units, functional or project team levels. 2. What are the characteristic features of the industrial district and entrepreneurial networks in Silicon Valley? As a result of significant advance in technology and the increasingly strong global competition, the traditional role of location in economic geography isnt as much important as before. However, cluster, or geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions in a particular field that compete but also cooperate (Michael E. Porter, 2008.p16) is till of utmost importance in the development of the economy, from regional to national level, and especially in advanced economies. One of the most typical clusters that may come to ones mind is Silicon Valley, which is not only a major industrial district but also a successful entrepreneurial network. Located in Northern California, the United States, however, Silicon Valley also shares many of the characteristic features of other successful European clusters, one of which is the appropriate cluster boundaries. As put by Stephen S. Cohen and Gary Fields, 1999, the main network of Silicon Valley is not densely comprised of civic engagement, but rather a carefully chosen and focused, productive interactions among specific social institutions and entities, including: (1) great research universities, Stanford, UC Berkely and UC San Francisco offering innovative research and excellent employees; (2) US Government policy, both as sponsor of university research and as lead user; (3) venture capital firms, source of early stage capital as well as locus of high tech investment expertise and godfather services to start-up companies; (4) law firms, providing source for locating key personnel, finance contact, corporate and intellectual property legal service; (5) the leading figures in university engineering departments, venture firms, law firms and operating firms in the valley, through frequent business and professional contact; (6) stock options; (7) the Valley labor market; (8) and finally the specific nature of the industrial activities. Among these entities there is a strong cooperative relationship which constitutes to the second characteristics of Silicon Valley specifically. AnnLee Saxenian, in Sweberg, 2008, identified that there exists a strong mutual dependence among companies in the valley for materials, equipments and service in order to create productivity and innovation when developing a product. By focusing its expertise and resources on what they do best, simultaneously acquiring the rest from other suppliers in the cluster, companies can develop its core capability, as the same time sharing the risk and cost of new product development with its suppliers. Intense competition among companies is always going on, and so is the process of learning about changing market and technology through formal collaboration forms like partnership, strategic alliance to informal communication, and common ties with the other entities in the network. Nowadays, as a result of the shared recognition of the need to insure the success of a final product, and to differentiate their products, Silicon

systems firms are more and more committed to truly collaborative and long term investments than short term procurement relationships. (AnnaLee Saxenian, in Sweberg 2008). However, it is essentially important to control the extent of dependence at a level that makes no party vulnerable (Its best to be in a preferred position with suppliers, but not an exclusive relationship). Whats more, the decentralization of production and reliance on network not only improves firms flexibility in developing sophisticated products faster but also laid the foundation for a typical culture of open information exchange and inter-firm mobility, which in turn, supports the new combinations of resources, leading to innovations and entrepreneurs in the industry. According to Michael Porter, 2008.p23, firms within a cluster are able to more clearly and rapidly perceive new buyer needs, as well as new technological, operating or delivery possibilities. Also, lower cost, competitive pressure, peer pressure, and constant comparison are motivating forces for the process of innovation and the emergence of entrepreneurial organizations. In her work, the Origins and Dynamics of Production Networks in Silicon Valley, 2008, AnnaLee Sexania conducted a research into how networks promote technological advance in Silicon Valley. She came to the conclusion that this collaborative relationship with suppliers was bringing new products with innovative feature and architectures to market rapidly, contributing the continued dynamism of Silicon Valley. 3. What type of business strategy do you think is promoted in Silicon Valley? I believe that innovation strategy is currently the most promoted strategy in Silicon Valley. Innovation is the key to success of high technology industry, and the entrepreneurial network of Silicon cluster plays a vital role in determining a companys survival. Its easily seen from the above argument that Silicon has a striking culture of innovation and an extensive and intensive network that foster the development of new product and new business formation. Entrepreneurs can easily come up with new combinations from the local readily available needed assets, skills, input, work force. The mobility of capital and open information flow, established relationships with important institutions in the cluster, along with lower entry barriers and lower perception of entry risk, which is the result of potential local customer existence, and many other success stories in the cluster, also act as an attractor to entrepreneurs. In addition to cooperation, the intense competition relationship within cluster is another driving force for companies to innovate products continuously with a view to surviving and making profit. Silicon Valley, with its advantage in new business formation can significantly contribute to the process of speeding up cluster innovation, through its spin-off companies. Michael Porter, 2008 observed that Its not uncommon to see larger companies in a cluster develop close relationships with innovative smaller ones, help establish them, and even acquire them if they become successful.

Michael E. Porter, 2008, Economic Development Quarterly, Sage Stephen S. Cohen and Gary Fields, Social Capital and Capital Gains, or Virtual Bowling in Silicon Valley, 1999 Annalee Saxenian, The Origins and Dynamics of Production Networks in Silicon Valley, in Sweberg R., 2000, Entrepreneurship, the social science view, Oxford University Press Inc Swedberg. R., 2000. Entrepreneurship: The Social Science View. New York: Oxford University Press Inc. Schumpeter, Joseph A.1911, The theory of economic development. Boston: Kluwer Entrepreneurship and economic growth: the Empretec showcase, 2004. United nations conference on trade and development. Geneva Non-profit vs for-profit entrepreneurship: an institutional analysis, 2002, Peter M.Frank Bergelman, R.A. (1984). Managing the Internal Corporate Venturing Process, Sloan Managerment Review, Winter. Managing the entrepreneurial firm, Lona Collins, Monder Ram, 2003,