How Corporate Entrepreneurship Practices Impact Innovation—A Pilot Study

Keywords::

• Corporate entrepreneurship
• Transformational innovation
• Disruptive innovation
• Corporate venturing
• Strategic renewal

Corporate entrepreneurship, initially identified in 1971 (Peterson and Berger 1971; Sakhdari 2016), has received increased attention from practitioners and researchers, especially since its emergence as a separate area of innovation in the 1980s (Glinyanova et al. 2021). Corporate innovators have become increasingly interested in disruptive innovation, yet its core principles are not well understood (Christensen et al. 2018). Our research focused on the intersection of corporate entrepreneurship and disruptive innovation. With our own histories and experiences in corporate entrepreneurship rooted in incremental innovation, we were particularly interested in disruptive or transformational innovation. We investigated how established industrial organizations perceive and use corporate entrepreneurship activities for various types of innovation—particularly disruptive or transformational—and how these firms organize their efforts and resources accordingly.

Our aim was to determine how established industrial companies practice corporate entrepreneurship to advance innovation. To focus our research scope, we developed four key questions:

1. What models or approaches do organizations use for corporate entrepreneurship and to catalyze disruptive innovation?

2. What are the corporate entrepreneurship strategic profiles?

3. How are organizations structured to stimulate corporate entrepreneurship and catalyze disruptive innovation?

4. What is the usage and effectiveness of corporate venturing and strategic renewal approaches?

Literature Review

We conducted a literature review about corporate entrepreneurship and innovation. We identified 13 relevant research articles, 2 of which became critical to further develop our study. From Nagji and Tuff (2012), we identified our staging model for innovation. Theorizing that many organizations use similar terminology, and yet may not have standardized the meanings of those terms, we used the Nagji and Tuff model as a leveling factor in creating an innovation vocabulary. Our intent in using this model was to develop a common understanding of the meanings of these terms among our participants. We used Nagji and Tuff’s Innovation Ambition Matrix to characterize the stages of innovation which includes core, adjacent, and transformational innovation. As depicted in the Innovation Ambition Matrix, core innovations stay true to one’s current business and develop innovation around already existing products for current customers. Adjacent transformation takes a step away from the current business and expands into “new to the company” areas of innovation. Transformational innovations are breakthroughs designed for markets not currently in existence. Since we were interested in innovation areas outside the core, we simplified the model we presented to participants by indicating that both adjacent and transformational innovation were “Outside the core” (Figure 1).

Figure 1. Innovation Ambition Matrix (adapted from Nagji and Tuff 2012)

Sakhdari (2016) was our second benchmark article. It presents the Corporate Entrepreneurship Model, which we used to describe and measure the activity in each of three areas of corporate entrepreneurship as originally defined by Guth and Ginsberg (1990): R&D, corporate venturing, and strategic renewal. We expanded upon the model by aligning the various corporate venturing activities with their associated areas. We did this by identifying specific activities, such as corporate venture capital, as outside-in, and others like divestitures, as inside-out. Sakhdari and Guth and Ginsberg had identified these elements but had not aligned them in the Corporate Entrepreneurship Model. We brought more clarity to these activities by organizing them as either “inside-out” or “outside-in” (Figure 2).

Figure 2. Corporate Entrepreneurship Model

Study

This pilot study used a mixed methods approach, with qualitative interviews followed by a quantitative survey. Because the study focused on established industrial organizations, we engaged primarily with Innovation Research Interchange (IRI) members for both the qualitative and quantitative phases. We conducted eight qualitative one-hour interviews. Five of the respondents were recruited from IRI member volunteers, and the others were subject matter experts on innovation from academia and industry (Table 1). From the learnings in the qualitative phase and literature review, we developed an online survey, which consisted of 84 closed-ended questions. We launched the survey to IRI member volunteers in October 2020 and recruited potential participants through January 2021. We offered participants anonymity but no incentives to participate. Because of the length of the survey, it was difficult to obtain completed responses. We ended recruitment and began analysis in February 2021. While the sample size was small (n = 9), each participant provided rich responses in the detailed survey.

Table 1. Interviewee participant profiles

Organization	Title	Industry	Revenue (billions)	Employees
Corporation A	Manager, Corporate Innovation	Chemicals, IT, Medical Devices, Life Sciences	Private	8,000
Corporation B	Director, Partnerships	Plastics and Rubber	$24b	124,000
Corporation C	Principal Investigator–Value Chain Innovation	Packaging	$5.5b	16,500
Corporation D	Sr. Manager, Tech Scouting	Chemicals	$80b	111,000
Corporation E	Director, Technology	Healthcare	$155b	350,000
Corporation F	VP, Head of Global Digital Marketing and Tail Product Strategy	Healthcare	$18b	38,000
University A	Associate Professor of Business
University B	PhD Researcher, Corporate Entrepreneurship

We analyzed the qualitative interviews by reviewing detailed notes taken during each session and theming sections of those notes according to our four key research questions. In our theming activity, we followed the practices of social researchers (Bryman 2012). We identified categories of topics and connected them to each of our research questions. From this theming exercise we developed a contextual, qualitative understanding of the data. The quantitative survey findings were analyzed using descriptive statistical approaches using IBM SPSS.

Results

We present the findings of our identified key questions, including both the quantitative and qualitative data.

Innovation Models Used by Organizations

Our first question investigated the innovation models large industrial organizations use. We introduced the topic in both the qualitative and quantitative phases using the revised Nagji and Tuff Innovation Ambition Matrix and its core, adjacent, and transformational innovation types. We found that none of the organizations represented by respondents in the study relied completely on published models. One respondent, a director of technology at a large healthcare organization, said, “The academic models didn’t have rigor around them, and there was misalignment and misunderstanding of what works with architecture teams.” Another respondent, a global head of product strategy at a large healthcare corporation, described how organizations handle what they consider to be misalignments with academic models: “Every organization has different tools and nomenclature. I’ve seen three or four of them.”

Focusing on the specific nomenclature in the Nagji and Tuff model, in the quantitative survey we asked respondents if there was clarity in their organizations regarding “transformational innovation.” Our analysis indicated that 11.1 percent of respondents (n = 1) deemed it to be “very clear,” and another 33.3 percent (n = 3) believed it was “somewhat clear,” and all the others indicated it was unclear. One qualitative interview participant, a manager of corporate innovation in a global chemicals industry organization, emphasized this lack of clarity in terminology: “Transformational has a lot of different meanings to a lot of companies.” A director of partnerships in a global organization in the plastics and rubber products industry concurred, saying, “They keep talking about transformational innovation, but they don’t know what that is.”

Corporate Entrepreneurship Strategic Profiles

Our second research question centered on assessing the corporate entrepreneurship within organizations—that is, the split of activity between core, adjacent, and transformational innovation. By this, we meant the organizations’ efforts in each stage of the Innovation Ambition Matrix. Nagji and Tuff represented this profile across three different industries (Figure 3).

Figure 3. Corporate entrepreneurship profiles in three industries (adapted from Nagji and Tuff 2012)

In the quantitative phase, we asked respondents to identify each area of innovation according to the matrix and associate a percentage of their organization’s concentration of innovation in each. We depict their answers as an average of all their responses rather than delineating them by industry sector (Figure 4). A senior manager of tech scouting and business development for a global chemical producer indicated similar rates: “Overall, that would be 75 percent (core), 12.5 percent (adjacent), and 12.5 percent (transformational).” This profile of corporate entrepreneurship fits well with our quantitative research findings, given the sample construct of companies involved, which were large, industrial companies that tend to be more conservative in their approach. We heard qualitatively from others that different types of organizations, depending on industry, size, and maturity may vary in their profile. The VP of technology for a large healthcare organization said his organization was more aligned as 20 percent in core, 60 percent in adjacent, and 20 percent in transformational, which he said was “because we live in a large organization, and we have within arm’s reach the opportunity to leverage adjacent innovation.”

Figure 4. IRI research respondents’ corporate entrepreneurship profiles

Organizational Structure

The third question focused on the organizational structure companies use for innovation practices. We identified various internal groups—Corporate R&D, Business Unit (BU) R&D, corporate venturing, information technology (IT), marketing, and “other.” We asked respondents to depict the level of involvement of those groups in core, adjacent, or transformational innovation. Respondents identified corporate venturing using the definition provided by Sakhdari (2016). We depict the answers to this question with the percent of the sample who responded with each of the internal organizational groups mentioned (Figure 5). These responses are divided more broadly by the innovation stages of the Innovation Ambition Matrix.

Figure 5. Involvement of internal organization in three stages of innovation

Rick Stachel is an assistant professor of business and healthcare administration at Gannon University’s Dahlkemper School of Business.

Lou Musante is an adjunct professor of corporate entrepreneurship at the Carnegie Mellon University Tepper School of Business, Corporate Startup Lab.

Qualitatively, our analysis indicated that in most cases, R&D for core innovation was the responsibility of local business units. The manager of corporate innovation at the global chemicals company said, “Every business unit has their own R&D structure that supports the core.” Business units have their own R&D structure because organizations locate core innovation closer to their customers. By contrast, respondents indicated that corporate-level organizations had more involvement in transformational innovation than other groups. The same interviewee added, “There is a corporate innovation group. They have a VP of Innovation, and she is chief sustainability officer. The division she’s under is corporate innovation and sustainability. She manages the corporate innovation piece, and her colleague manages the sustainability piece.”

In addition to the types of groups involved in each stage of the matrix, we also asked about funding for innovation. In the quantitative study, participants identified two sources of funding for all areas of innovation: (1) internal sources, which 100 percent of respondents indicated occurs in their firms; and (2) federal government grants, which 29 percent of respondents indicated was a source of innovation financing. Since the qualitative round of interviews informed us that BU R&D had a larger role in core innovation, we decided to focus attention on budgeting for the other two stages: adjacent and transformational. We present our results to this question analyzed by the percentage of respondents who answered in each category according to budgetary source (Table 2).

Table 2. Internal budgetary sources for adjacent and transformational innovation

	Adjacent*	Transformational*
Corp R&D	33%	35%
Corporate Venturing	31%	25%
BU R&D	30%	17%
Other	13%	15%
Marketing	11%	5%
IT	7%	3%

* Note: “Adjacent” and “Transformational” columns add to more than 100 percent because respondents were permitted to choose more than one source.

Usage and Effectiveness of Corporate Venturing and Strategic Renewal

The fourth question focused on the corporate venturing and strategic renewal sections of Sakhdari’s (2016) model of corporate entrepreneurship. While the model depicts three sections, also including R&D, we felt that section had been covered substantially through our other areas of investigation, both qualitatively and quantitatively. Corporate venturing and strategic renewal remained under-investigated. When we considered strategic renewal, we divided activities between those that are inside-out (inside the organization to external groups) and outside-in (external groups to inside the organization). We also inquired about the usage of these approaches and their effectiveness. Regarding outside-in corporate venturing, we present all the approaches measured sorted by the percent of respondents who signified their organization used each (Table 3). That data are overlayed with the mean scores for effectiveness of each of the approaches. These were measured on a one-to-ten scale, with one labeled “Not at all” and ten labeled “Very.”

Table 3. Outside-in corporate venturing usage and effectiveness

	Usage Rate	Effectiveness
Mergers & Acquisitions	86%	8.2
University Contracts	71%	7.8
Joint Ventures	71%	6.2
IP In-Licensing	57%	3.8
R&D Consortia	57%	8.3
Idea Incubators (internal)	57%	8.5
Open Innovation and Crowdsourcing (internal)	57%	7.3
Divestures	43%	7.0
Business Accelerators (internal)	43%	6.3
IP Out-Licensing	29%	4.0
Corporate Venture Capital	29%	5.0
Business Accelerators (external)	29%	7.0
Open Innovation and Crowdsourcing (external)	29%	7.5
Idea Incubators (external)	14%	9.0
Corporate Spinoffs	14%	7.0
Reverse Innovation Pitches	0%	0.0

Similar to outside-in corporate venturing, we also measured inside-out corporate venturing both in usage of each approach and its effectiveness. These data use the same metrics, with the usage rate measured by the percentage of respondents who indicated their organization is using that approach (Table 4). We measured effectiveness using the same one-to-ten scale.

Table 4. Inside-out corporate venturing—usage and effectiveness

	Usage Rate	Effectiveness
Joint Ventures	86%	5.0
Corporate Spinoffs	43%	4.7
Divestures	43%	6.7
Idea Incubators (internal)	43%	8.3
IP Out-Licensing	29%	4.5
Open Innovation and Crowdsourcing (internal)	29%	9.0
Business Accelerators (internal)	14%	10.0

We also assessed strategic renewal activities, which included new business models and process re-engineering. Our survey indicated that 28.6 percent of respondents used new business model development, in which the mean score for effectiveness was 4.0. This result is quite low on a 1–10 scale and lower than all but 2 of the 23 activities tested in both inside-out and outside in corporate venturing. In addition,14.3 percent of respondents indicated their organizations used process re-engineering, and the effectiveness mean score was also 4.0.

Discussion

We sought to determine which approaches well-established, industrial organizations use for innovation, and particularly transformational innovation. We discuss our findings according to each key question.

Innovation Models Used by Organizations

Although we had small samples, what became apparent was that the organizations who participated in the study do not tend to rely on published or academic-influenced models for their innovation development practices. Instead, they develop their own models, which they also subsequently revise and revamp. Further, these revitalization efforts may not always be initiated to improve the process—rather they may be led by approaches adopted from merged organizations or from the preferences of new corporate leaders. While our respondents were familiar with innovation terminology, most had some level of agreement that terminology is not always well understood in their organizations and that a term such as “transformational” could have various meanings to individuals within the same organization.

Corporate Entrepreneurship Strategic Profiles

When we analyzed the data on the level of resource commitment to the various stages of innovation, the results aligned well with our expectations and the model we used. According to Nagji and Tuff (2012), diversified industrial companies have approximately 70 percent of their innovation in core, 20 percent in adjacent, and 10 percent in transformational. Our results indicated 72 percent of participants’ organizations focused on core, 16 percent in adjacent, and 11 percent in transformational. Our findings validate Nagji and Tuff’s analysis regarding diversified industrial companies, since these types of organizations comprised the sample in our quantitative research. Practitioners can use this as a benchmark to determine how their organizations compare with industry peers. We also discovered that outside large, industrial organizations, the corporate entrepreneurship strategic profile could differ depending on industry, size of the organization, and the organization’s maturity.

Organizational Structure

Our data indicate the sample organizations are decisive when considering the stages of innovation and where they occur. Core innovations, which stay most true to one’s current business, have more involvement from local business units. This finding makes sense since the local business units understand the local customer best. They are also responsible for day-to-day management of their own units; therefore, they are less likely to disrupt current patterns and stakeholders. The further one gets from core innovation the more involvement one witnesses from corporate entities, a fact that is evident not only in the level of involvement of either local business units or corporate groups but also in the budget sources for innovation outside the core.

Core innovations, which stay most true to one’s current business, have more involvement from local business units.

Usage and Effectiveness of Corporate Venturing and Strategic Renewal

Some of the methods used most frequently for corporate venturing were not those perceived as being most effective. For example, 86 percent of organizations used mergers and acquisitions, which was the most-used outside-in approach. It did have a fairly high effectiveness score (8.2); however, other highly used methods such as joint ventures and intellectual property (IP) in-licensing had lower effectiveness scores (6.2 and 3.8, respectively). The highest effective score of 9.0 was associated with external idea incubators, but only 14 percent of the organizations surveyed used them. These findings would indicate that the outside-in corporate venturing activities most frequently used are seen, at least internally, as being ineffective. The findings would also indicate that our respondents believe resources are not being used on the activities that could be the most beneficial in driving innovation.

The data for inside-out models of corporate venturing were even more striking. Here, the approaches used most had some of the lowest effectiveness scores—for example, joint ventures and corporate spinoffs had scores of 5.0 and 4.7, respectively. Similarly, the least used methods—open innovation and crowd sourcing, as well as business accelerators—had the highest effectiveness ratings (9 and 10, respectively). Similar to outside-in corporate venturing activities, the inside-out activities most frequently used are seen internally as ineffective. What’s more, the activities that innovation practitioners see as most promising are, in their opinions, the least used activities. This finding would indicate that managers should advocate and drive the use of activities such as internal business accelerators and open innovation and crowd sourcing.

Our research indicated that organizations under-use the strategic renewal activities of new business models and process re-engineering. Both had quite low effectiveness scores. We surmise they are less well understood, and therefore, established industrial organizations do not value them as highly or use them as frequently.

Managerial Implications

Our study has important implications for practitioners:

1. Organizations are using their own models for innovation rather than published or academic models. These models change within organizations, not necessarily because organizations are adopting best practices, but more due to influence from new corporate leaders.

2. The definitions of certain types of innovation, such as “transformational” are not well understood or agreed upon. It would behove organizations to popularize and communicate their approaches so they become understood throughout the organization.

3. Business units are more responsible for R&D at the core level and somewhat at the adjacent level, whereas corporate is more responsible for transformational innovation.

4. The organizations we surveyed are more conservative about growth opportunities and tend to follow an approach where approximately 70 percent of innovation is core, 20 percent is adjacent, and 10 percent is transformational. This percentage distribution could vary for companies in sectors other than large, industrial industries. The percentages associated with core, adjacent, and transformational innovation may vary according to the industry type, and the organization’s size and maturity.

5. There is little autonomy for business units outside of core innovations.

6. In corporate venturing, the activities used the most are not seen as the most effective. Some, especially inside-out, are seen as being effective in driving innovation, but they are not used much.

Practitioners can apply these lessons learned to assess their own organizations’ current innovation practices and investigate opportunities for improvement in areas that are underperforming, especially in regard to transformational innovation.

Future Research

This research was established as a pilot study in order to validate the survey instrument used in the quantitative data collection. We determined that we will include critical questions used in the instrument in subsequent research; however, others, not included in these findings, produced inconclusive results. Our future research will only use the critical questions we discussed here to increase response rates using a shorter survey and to make comparisons to this study’s results.

Conclusion

While practitioners and academics often reference corporate entrepreneurship and various stages of innovation, confusion exists regarding what the terms mean and their roles within organizations. Established industrial companies tend to be more conservative than other companies in that they tend to stick with employing innovation models that they have likely used in the past, even if they are seen as being less effective than other approaches. These companies also tend to stick to conventional approaches to advance their innovation efforts, whereby local business units are more responsible for core innovations. As a company’s innovation pathway diverges toward new customers or new products and services, the central organization becomes more involved.

Acknowledge

The authors would like to acknowledge Dave Mawhinney and Sean Ammirati at the Swartz Center for Entrepreneurship and The Corporate Startup Lab at Carnegie Mellon University.

Additional information

Notes on contributors

Rick Stachel

Rick Stachel is an assistant professor of business and healthcare administration and director of the Master of Healthcare Administration program at Gannon University’s Dahlkemper School of Business in Erie, PA. Prior to this role, he was director of market intelligence for a global medical device manufacturer and manager of market and competitive intelligence for medical device and bio tools companies. He earned a PhD in information systems and an MBA in international business. [email protected]

Lou Musante

Lou Musante is an adjunct professor of corporate entrepreneurship at the Carnegie Mellon University Tepper School of Business, Corporate Startup Lab. He has more than four decades of experience in health care and manufacturing with a focus on user research and market intelligence. He earned a bachelor’s degree in chemistry from Clarion University, a master of science degree in computer-aided drug design and information science from the University of Pittsburgh, and a master of library of science from the University of Pittsburgh. He specializes in customer listening, organizational development, the culture of transformational innovation, and integrated product development. He worked at the General Tire and Rubber Company Research Center, Arthur D. Little Inc., NASA, and A.C. Nielsen’s Tec-Data Business Unit. [email protected]