Solvay Summer School 2010 - Part 2: Entrepreneurial management

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Information about Solvay Summer School 2010 - Part 2: Entrepreneurial management
Business & Mgmt

Published on August 22, 2010

Author: olivierwitmeur

Source: slideshare.net

Solvay European Summer School 2010 ENTREPRENEURSHIP Effectuation and Intrapreneurship Olivier Witmeur Bernheim Chair of Entrepreneurship

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 Solvay Summer School 2010 - Olivier Witmeur |

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 Reasonning Selecting between given means to achieve a predefined goal Solvay Summer School 2010 - Olivier Witmeur |

Strategic Thinking  Creative Causal Reasoning Generating new means to achieve pre-determined goals Solvay Summer School 2010 - Olivier Witmeur |

Entrepreneurial Thinking  Effectual Reasoning Imagining possible new ends using a given set of means Solvay Summer School 2010 - Olivier Witmeur |

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?’ Solvay Summer School 2010 - Olivier Witmeur |

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?’ Solvay Summer School 2010 - Olivier Witmeur |

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? Solvay Summer School 2010 - Olivier Witmeur | Causal Logic Visionary Logic Adaptive Logic 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 Solvay Summer School 2010 - Olivier Witmeur |

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

Solvay Summer School 2010 - Olivier Witmeur | 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 Solvay Summer School 2010 - Olivier Witmeur |

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 Solvay Summer School 2010 - Olivier Witmeur | Who I am What 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 Solvay Summer School 2010 - Olivier Witmeur | Who I am What I know Whom I know What can I do? (Affordable loss) Effectual stakeholder commitments Interactions with other people New means New goals Expanding cycle of resources Actual Means Converging cycle of constraints Actual courses of Action possible New market / new firm

Cognitive Distribution of Managerial and Entrepreneurial Thinking Effectual Causal Low Low High High Expert Entrepreneurs Experienced VCs Angels Organic Growth Leaders Entrepreneurial Large Firms Corporate Managers Novice VCs Novice Entrepreneurs | Solvay Summer School 2010 - Olivier Witmeur

FROM CAUSATION TO EFFECTUATION … …AND VICE-VERSA Solvay Summer School 2010 - Olivier Witmeur | TIME AND EXPERIENCE LOGIC Causal Effectual Novice entrepreneur Expert entrepreneur Start-up firm Large firm Shift in logic necessitated by firm 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) | Solvay Summer School 2010 - Olivier Witmeur 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-driven Performance-based Team-oriented Security-driven Resource-based Promotion-oriented

ENTREPRENEURS AND INTRAPRENEURS Solvay Summer School 2010 - Olivier Witmeur | Lifestyle Entrepreneurs Intrapreneurs Owner-Manager in Small Firms Managers in Large Firms Entrepreneurs

Entrepreneurs vs Intrapreneurs Solvay Summer School 2010 - Olivier Witmeur | Adapted from Basso, 2004 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 Solvay Summer School 2010 - Olivier Witmeur | CULTURE STRATEGY (Vision) ORGANIZATION (Tactics)

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

‘ ENTREPRENEURIAL VALUES AND BEHAVIOURS’ Adapted from Burns, 2008 Solvay Summer School 2010 - Olivier Witmeur | Change is normal ‘ Can do’ Trials & Errors Opportunistic ‘ Work is Fun’ Celebrate Success Creatity Innovation Self confidence Network and Sharing Learn from mistakes Optimism Long term impacts Achievement Multi-disciplinarity Team

Adapted from Burns, 2008

STRATEGY  ENTREPRENEURIAL ORIENTATION Entrepreneurial Orientation (EO) Risk Taking Proactiveness Innovativeness EO  Performance (even more true in turbulent environment) Solvay Summer School 2010 - Olivier Witmeur |

Entrepreneurial Orientation (EO)

Risk Taking

Proactiveness

Innovativeness

EO  Performance

(even more true in turbulent environment)

ORGANIZATIONAL FRAMEWORK FOR INTERNAL VENTURING Solvay Summer School 2010 - Olivier Witmeur | Adapted from Burns, 2008 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

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 Solvay Summer School 2010 - Olivier Witmeur |

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

Solvay Summer School 2010 - Olivier Witmeur | Q&A [email_address] www.olivier-witmeur.net

Back-up on the Business Plan

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 Solvay Summer School 2010 - Olivier Witmeur |

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

Solvay Summer School 2010 - Olivier Witmeur | Fits and gaps BUSINESS PLAN From Jeffry A. Timmons – New Venture Creation Opportunity Resources Team Communication Creativity Conviction

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 Solvay Summer School 2010 - Olivier Witmeur |

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 STRUCTURE Management Team | Solvay Summer School 2010 - Olivier Witmeur Business Model Vision Production & Supply Chain Sales & Marketing Research & Development Organization & Administration Financial Plan Financial Plan Opportunity Market & Industry Financing scheme Sensibility analysis Milestones Stages Risk analysis Plan 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 |

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

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 Solvay Summer School 2010 - Olivier Witmeur |

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

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