Solvay Summer School 2010 - Part 2: Entrepreneurial management

Solvay European Summer School 2010

ENTREPRENEURSHIPEffectuation and Intrapreneurship

Olivier Witmeur

Bernheim Chair of Entrepreneurship

Solvay Summer School 2010 - Olivier Witmeur| 2

DESIRED OUTCOMES OF THIS SESSION

• Challenge traditional strategic thinking with the concept of effectuation• Come back on the difference between ‘managers’ and ‘entrepreneurs’• Introduce the challenge of Intrapreneurship

Introduction to Effectuation

Managerial Thinking Causal ReasonningSelecting between given means to achieve a predefined goal

Solvay Summer School 2010 - Olivier Witmeur4 |

Strategic Thinking Creative Causal ReasoningGenerating new means to achieve pre-determined goals


Entrepreneurial Thinking Effectual ReasoningImagining possible new ends using a given set of means


INTRODUCING CAUSAL AND EFFECTUAL LOGICS

The word effectual is the inverse of causal.

In general, in MBA programs across the world, students are taught causal or predictive reasoning in every functional area of business.

Saras Sarasvathy in ‘What makes entrepreneurs entrepreneurial?’


• Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually.

• They believe in a yet-to-be-made future that can substantially be shaped by human action; and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it.

• In fact, to the extent that the future is shaped by human action, it is not much use trying to predict it. It is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence.

Saras Sarasvathy in ‘What makes entrepreneurs entrepreneurial?’


WHAT IS EFFECTUATION?How do you control a future you cannot predict?


CausalLogic

VisionaryLogic

AdaptiveLogic

Low

High

Low High

PREDICTION

CONTROL

= Non-predictive

control

CAUSATION vs EFFECTUATION


Causal Logic:

• To the extent we can predict the future, we can control it

• Useful when:– The future is uncertain, but

knowable– Goals are clear, but ways to

achieve them are not so– The environment is reasonably

well-structured, but largely outside our control

Effectual Logic:

• To the extent we can work with things within our control, we don’t need to predict the future

• Useful when:– The future is not only uncertain,

but also unknowable

(Knightian Uncertainty)– Goals are ambiguous, but means

are clear and limited– The environment is unstructured,

but subject to shaping by human action


CAUSAL

EFFECTUAL

THE FIVE PRINCIPLES OF EFFECTUATION

• Bird in hand principle:– Start with who you are, What you know and

Whom you know … Not with pre-set goals• Affordable loss principle:

– Invest what you can afford to lose

(extreme case = 0€) …Not expected return• Crazy Quilt principle:

– Build a network of self-selected

stakeholders …Not competitive analysis• Lemonade principle:

– Embrace and leverage surprises …Not avoid them• Pilot-in-the-plane principle:

– The future comes from what people do …No inevitable trends


THE EFFECTUAL DYNAMIC AND THE BUILDING THE EFFECTUAL NETWORK


Who I amWhat I know

Whom I know

What can I do? (Affordable

loss)

Effectual stakeholder

commitments

Interactions with other

people

CO-CREATION

DYNAMICS OF THE EFFECTUAL NETWORK


Who I amWhat I know

Whom I know

What canI do?

(Affordableloss)

Effectual stakeholder

commitments

Interactions with other

people

New means

New goals

Expanding cycle of resources

Actual Means

Converging cycle of constraints

Actual courses ofAction possible

New market / new firm

Cognitive Distribution ofManagerial and Entrepreneurial Thinking

Effectual

CausalLow

Low High

High ExpertEntrepreneurs

ExperiencedVCs

Angels

OrganicGrowthLeaders

EntrepreneurialLarge Firms

CorporateManagers

NoviceVCs

NoviceEntrepreneurs

15 | Solvay Summer School 2010 - Olivier Witmeur

FROM CAUSATION TO EFFECTUATION ……AND VICE-VERSA


TIME AND EXPERIENCE

LOGIC

Causal

Effectual

Novice entrepreneur

Expert entrepreneur

Start-upfirm

Largefirm

Shift in logic necessitated byfirm growth

Entrepreneurs do not always manage to bridge this gap

Moderating effect of

resources

Entrepreneurs vs Managers?Introduction to Intrapreneurship

ENTREPRENEURS vs MANAGERS: ENTREPRENEURSHIP AS A BEHAVIORAL PHENEMENON (Adapted from H. Stevenson)

ENTREPRENEUR MANAGERS

Strategic Orientation

Driven by perception of opportunity

Driven by resources currently controlled

Commitment to opportunity

Revolutionary with short duration

Evolutionary of long duration

Commitment of resources

Multistaged with minimal exposure at each stage

Single-staged with complete commitment upon decision

Control of resources

Episodic use of rent of required resources

Ownership or employment of required resources

Management structure

Flat with multiple informal networks

Formalized hierarchy

Reward philosophy

Value-drivenPerformance-based

Team-oriented

Security-drivenResource-based

Promotion-oriented


ENTREPRENEURS AND INTRAPRENEURS


Owner-Managerin Small Firms

Managersin Large Firms

Entrepreneurs

LifestyleEntrepreneurs

Intrapreneurs

Entrepreneurs vs Intrapreneurs

ENTREPRENEUR INTRAPRENEUR

Ownership Yes No (employee)

Decision power Unlimited as long as shareholders agree

Hierarchy

Incentive Overall Limited: Bonus, SOP…

Risk Large, i.e. may include personal assets

Job reputation

Strategic Freedom Full To be aligned with the corporate agenda

Type of activity Ex-nihilo creation Strat with existing organizational support

Sponsors Stakeholders Corporate Management


• Adapted from Basso, 2004

CORPORATE ENTREPRENEURSHIP ISSUES

• Entrepreneurial culture / values• Recruit, Develop & Retain entrepreneurial people• Leadership skills

• Pace of change is accelerating Need to renew• Core vs non-core activities• Breakthrough innovation

• Develop an organization that is entrepreneurship friendly


CULTURE

STRATEGY(Vision)

ORGANIZATION(Tactics)

‘ENTREPRENEURIAL VALUES AND BEHAVIOURS’

• Adapted from Burns, 2008


Change is normal

‘Can do’

Trials & Errors

Opportunistic

‘Work is Fun’ Celebrate Success

CreatityInnovation

Self confidence

Network and Sharing

Learn frommistakes

Optimism

Long term impacts

AchievementMulti-

disciplinarityTeam

STRATEGY ENTREPRENEURIAL ORIENTATION

• Entrepreneurial Orientation (EO)– Risk Taking– Proactiveness– Innovativeness

• EO Performance

(even more true in turbulent environment)


ORGANIZATIONAL FRAMEWORK FOR INTERNAL VENTURING

Strategic Importance

Very important Uncertain Not important

Operational relatedness

Unrelated Special BU Special BU Spin-off

Partly related New department New department Contracting

Strongly related

Direct Integration

New department Contracting


Adapted from Burns, 2008

TYPICAL SUPPORT INITIATIVES

• Internal incubators Validation and seed financing

= isolated structure inside the firm• Spin-off creation• Internal Evangelists Promote entrepreneurship inside the firm without

any specific supporting structure• Corporate Initiatives Integrated inside the core value of the company

= Free time for innovation, multi projects,…• Corporate Venture Capital

= A way to learn from the outside



Q&A

[email protected]

Back-up on the Business Plan

Solvay Summer School 2010 - Olivier Witmeur

MAIN TARGETS OF A BUSINESS PLAN

• Prove the quality of the opportunity• Explain the business strategy• Define realistic and measurable targets• Convince potential partners• Create a benchmark for the management team in charge of

implementing the plan

• …and prove the quality of the entrepreneur who drew the plan

28 |


Opportunity Resources

Team

Communication

Creativity Conviction

Fits and gapsBUSINESS PLAN

From Jeffry A. Timmons – New Venture Creation


THE BUSINESS PLAN

A professional document

describing one business opportunity

and the way a team will start and manage a new firm

in order to demonstrate its feasibility

into a given period

BUSINESS PLAN STRUCTUREManagement Team

Business ModelVision

Production & Supply Chain

Sales & Marketing

Research & Development

Organization & Administration

Financial PlanFinancial Plan

Opportunity Market & Industry

Financing scheme


Sensibilityanalysis

MilestonesStages

Risk analysisPlan B

No predefined best structure

THE PERFECT BUSINESS PLAN

• A dream team: capable, experienced, committed, adaptable and trustworthy• A unique offering with a proof of concept• An in-depth market research section (i.e. incl. demand, industry and competition)• Focus on one niche market and a strong Sales & Marketing plan• Focus on the core business• Ambition and realism• Clear milestones• Ready for execution• Strong governance• Risks analysis and Plan B included• Financial plan based on a limited set of benchmarked assumptions• Keep it simple• VC will add:• Fast and scalable business model• Clear exit strategy


Solvay Summer School 2010 - Olivier Witmeur

DOCUMENTS vs PROCESS

BUSINESS PLAN

– A 20 pages document• WORD• POWERPOINT

– Professional layout

BUSINESS PLANNING

– A way to review all critical factors in (new) venture development

– A formalized business plan as potential outcome

33 |

Solvay Summer School 2010 - Part 2: Entrepreneurial management

Business

Transcript of Solvay Summer School 2010 - Part 2: Entrepreneurial management