Question 1

Process innovations are often associated with a low-cost leadership strategy.

Accepted Answer

Process innovations are more likely to occur in the later stages of the industry life cycle as companies seek ways to remain viable in markets where demand has flattened out and competition is more intense. As a result, process innovations are often associated with overall cost leader strategies because the aim of many process improvements is to lower the costs of operations.

Question 2

Business incubators are designed to support fledgling entrepreneurial ventures until they can operate as stand-alone businesses.

Accepted Answer

Business incubators are designed to hatch new businesses. They have a specialized purpose:to support and nurture fledgling entrepreneurial ventures until they can thrive on their own as stand-alone businesses.

Question 3

Product innovations are commonly associated with a differentiation strategy.

Accepted Answer

Product innovations tend to be more common during the earlier stages of the life cycle of the industry. Product innovations are also commonly associated with a differentiation strategy. Firms that differentiate by providing customers with new products or services that offer unique features or quality enhancements often engage in product innovation.

Question 4

Radical innovations are evolutionary applications of novel ideas within existing paradigms.

Accepted Answer

Radical innovations produce fundamental changes by evoking major departures from existing practices. They tend to be highly disruptive and can transform a company or revolutionize a whole industry. Incremental innovations enhance existing practices or make small improvements in products and processes. They may represent evolutionary applications within existing paradigms of earlier, more radical innovations.

Question 5

Business risk taking refers to the risk associated with entering untested markets or committing to unproven technologies.

Accepted Answer

Business risk taking involves venturing into the unknown without knowing the probability of success. This is the risk associated with entering untested markets or committing to unproven technologies.

Question 6

Financial risk taking involves the risk an executive assumes in taking a stand in favor of a strategic course of action.

Accepted Answer

Personal risk taking refers to the risks that an executive assumes in taking a stand in favor of a strategic course of action. Executives who take such risks stand to influence the course of their whole company, and their decisions also can have significant implications for their careers. Financial risk taking requires that a company borrow heavily or commit a large portion of its resources in order to grow. In this context, risk is used to refer to the risk-return trade-off that is familiar in financial analysis.

Question 7

Intel uses option contracts for the right to purchase key pieces of equipment at a specific future date.They simulate the likelihood that they will need to purchase a specific piece of equipment and then create the options contracts to reduce risk and potentially save money.

Accepted Answer

Intel has figured out a way to limit the risk it faces by using option contracts. Intel pays an up-front fee for the right to purchase key pieces of equipment at a specific future date. At that point, Intel either purchases the equipment or releases the supplier from the contract. In these cases, the supplier is then free to sell the equipment to someone else. Where there is significant uncertainty about the need for equipment, they use the simulation results to identify the specific equipment for which they need option contracts and the value of those options to Intel. This helps with the pricing.

Question 8

Dispersed approaches to corporate entrepreneurship are often found in organizations with a strong spirit of entrepreneurship.

Accepted Answer

Three related aspects of dispersed entrepreneurship include entrepreneurial cultures that have an overarching commitment to corporate entrepreneurship activities, resource allotments to support entrepreneurial actions, and the use of product champions in promoting entrepreneurial behaviors.

Question 9

Proctor and Gamble has centralized 20 to 30 percent of its research efforts in a new corporate-level business creation and innovation unit.They believe that this will assist them only with developing incremental innovations that will help the overall bottom line.

Accepted Answer

Having a corporate effort at innovation separates the budget for product development from divisional profit numbers, enhancing willingness of the firm to invest in long-term product development efforts. Also, the corporate unit will be able to foster collaboration between units to develop blockbuster products.

Question 10

Research indicates that leaders of innovative firms spend 50 percent more time on discovery activities than the leaders of less innovative firms.

Accepted Answer

The leaders of innovative firms have exhibited discovery skill that allow them to see the potential in innovations and to move the organization forward in leveraging the value of those innovations. These leaders spend 50 percent more time on these discovery activities than the leaders of less innovative firms.

Question 11

The Kraft Heinz Company makes MiO Drops.This is an example of a high-tech source of innovation.

Accepted Answer

Innovation involves introducing or changing to something new, but technology is not the only source of innovations. There can be innovations in human resources, firm infrastructure, marketing, service, or many other value-adding areas that have little to do with anything high-tech. Although the MiO product is a relatively incremental innovation, with it, Kraft Heinz created an entirely new beverage category, liquid water enhancers.

Question 12

Only about 50 percent of corporate venturing efforts reach profitability within six years of their launch.

Accepted Answer

Not all corporate venturing efforts are financially rewarding. In terms of financial performance, slightly more than 50 percent of corporate venturing efforts reach profitability (measured by ROI) within six years of their launch.

Question 13

The term strategic envelope refers to the scope of innovation efforts of a firm.

Accepted Answer

Firms must have a means to focus their innovation efforts. By defining the strategic envelope, the scope of innovation efforts of a firm, firms ensure that their innovation efforts are not wasted on projects that are outside the domain of interest of the firm. Strategic enveloping defines the range of acceptable projects.

Question 14

For innovation team members to work enthusiastically on innovation projects,it is important to separate the performance of individual team members from the performance of the innovation itself.

Accepted Answer

Strategy experts Rita Gunther McGrath and Thomas Keil researched the types of human resource management practices that effective firms use to capture value from their innovation efforts. One practice that is especially important is to separate the performance of individuals from the performance of the innovation; otherwise, strong players may feel stigmatized if the innovation effort they worked on fails.

Question 15

One of the potential pitfalls of real options analysis is that managers may have the incentive and know-how to game the system.

Accepted Answer

Managers using ROA may have an incentive and the know-how to game the system. If managers know that a certain option value must be met in order for the proposal to get approved, they can back-solve the model to find a variance estimate needed to arrive at the answer that upper management desires.

Question 16

Focused corporate venturing permeates all parts of the organization and involves every member of the organization.

Accepted Answer

Two distinct approaches to corporate venturing are found among firms that pursue entrepreneurial aims. The first is focused corporate venturing, in which CE activities are isolated from existing operations of the firm and worked on by independent work units. The second approach is dispersed, in which all parts of the organization and every organization member are engaged in intrapreneurial activities.

Question 17

Exit champions are often reluctant to gather hard data about a venture because it might kill the project.

Accepted Answer

One way to avoid costly and discouraging defeats is to support exit champions, a key role in the corporate entrepreneurship process. In contrast to product champions and other entrepreneurial enthusiasts within the corporation, exit champions are willing to question the viability of a venture project. By demanding hard evidence and challenging the belief system that is carrying an idea forward, exit champions hold the line on ventures that appear shaky.

Question 18

One of the important questions the corporation must address in assessing the effectiveness of its venturing initiatives is that of the sustainability of its basis of competitive advantage.

Accepted Answer

Three questions should be used to assess the effectiveness of the corporation venturing initiatives:(1) are the products or services offered by the venture accepted in the marketplace; (2) are the contributions of the venture to the internal competencies and experience of the corporation valuable; and (3) is the venture able to sustain its basis of competitive advantage.

Question 19

First movers in an industry often capture above-average profits but usually find it difficult to maintain early market share gains.

Accepted Answer

First movers have several advantages. They often capture unusually high profits because there are no competitors to drive prices down. First movers that establish brand recognition are usually able to retain their image and hold on to the market share gained by being first. Generally, first movers have an advantage that can be sustained until the maturity phase of the industry life cycle.

Question 20

Corporate ventures that use real options logic in decision making tend to keep total investment low in order to minimize the downside risk of a project.

Accepted Answer

The real options logic process of evaluating ideas separates winning ideas from losing ones in a way that keeps investments low. Using real options logic to advance the development process is a key way that firms reduce uncertainty and minimize innovation-related failures.

Quiz 12: Managing Innovation and Fostering Corporate Entrepreneurship