Module 5

Question 1

What are “liabilities of newness”?

Answer 1

Challenges new firms face, such as lack of reputation and established processes.

• roles and tasks have to be assigned (takes time, creates inefficiencies and conflicts)
• new organizations lack reputation and experience
• exchange relationships with various actors have to be established
• new firms have to rely on interactions among “strangers”

Question 2

Name an advantage of newness in organizations.

Answer 2

• No path-dependence
  − can create business from scratch
  − thus, more willing to pursue completely new approaches
• Less “inertia“
  − company structure more flexible
  − more open and flexible culture

Question 3

What are “liabilities of smallness”?

Answer 3

• limited resources (financial, personnel, …)
• low variety of skills in the firm; some critical skills may be lacking
• no buffer to survive times of crisis
• disadvantage on the job market (as an employer)
• low market power
• little organizational slack available for innovation, training etc.

Question 4

What is one organizational advantage of small firms?

Answer 4

• more flexible processes
• company structure easier to identify, clearly laid out
• short ways, direct communication
• fast decision-making
• job satisfaction typically higher

Question 5

What does “liability of aging” refer to?

Answer 5

• Inertia and inflexibility often found in older firms.
• Path-dependence

Question 6

What is centralization in firm structure?

Answer 6

The degree to which decision-making authority is kept at top levels of the firm OR the degree to which activities are performed at a central location.

Question 7

What is standardization?

Answer 7

The degree to which activities are performed in a uniform manner.

Question 8

What does formalization refer to?

Answer 8

The degree to which the firm utilizes rules and procedures to structure the behavior of individuals or groups.

Question 9

What is centralized R&D integration?

Answer 9

All R&D tasks are assigned to a centralized unit, the R&D dept., and are managed by one responsible person

Question 10

What is decentralized R&D integration?

Answer 10

R&D tasks are distributed to several divisions; each of these divisions is managed individually by a division head.

Question 11

What is a hybrid R&D structure?

Answer 11

Long-term tasks and tasks that are relevant for several departments are assigned to a centralized department, other tasks are assigned to decentralized units.

Question 12

What is corporate culture?

Answer 12

• Patterns of common beliefs in values and norms
• Influencing the decisions and activities of employees by favoring certain ways of thinking and behaving

Question 13

How is corporate culture developed?

Answer 13

• Long-term development – basic patterns however already set with the foundation of the company
• Management with key role in developing a culture
  − Gives orientation and should serve as a role model
  − Often high importance of the founder’s vision
• Living values – Definition and enforcement of corporate values

Question 14

What are the benefits of a strong corporate culture?

Answer 14

• Processes of coordination are easier through a common orientation
• Fast agreement and decision processes are possible
• Control mechanisms might be dispensable
• Team spirit – higher motivation and individual performance

Question 15

What does a strong corporate culture lead to?

Answer 15

Increase in efficiency

Question 16

What is a risk of strong corporate culture?

Answer 16

Innovations might be prevented

Question 17

What are the potential issues of a strong corporate culture?

Answer 17

• Corporate culture “rules” the company
• Conformity pressure is too high
• Culture as a closed system

Question 18

What role does management play in corporate culture?

Answer 18

Acts as a role model and defines values.

Question 19

Why is tolerance for failure important in innovation?

Answer 19

It encourages experimentation and learning.

Question 20

What is meant by “Silicon Valley inside a company”?

Answer 20

Creating internal systems that mimic Silicon Valley’s innovation environment.

Question 21

In-house Silicon Valley to foster innovation consists of ?

Answer 21

• Internal market for ideas
• Internal market for capital
• Internal market for talents

Question 22

What is an internal market for ideas?

Answer 22

Employees can pitch and develop innovative ideas internally.

Question 23

What is an internal market for capital?

Answer 23

Funding is allocated internally to promising innovation projects.

Question 24

What is an internal market for talent?

Answer 24

Employees can move between projects or departments based on fit and interest.

Question 25

Name a company that uses an internal venture model.

Answer 25

SAP (internal ventures program).

Question 26

What is the purpose of Nestlé’s accelerator program?

Answer 26

To support internal idea development and innovation. Make everybody responsible

Question 27

What firm size is typically associated with innovation efficiency?

Answer 27

Smaller firms, due to fewer bureaucratic barriers.

Question 28

Why might small firms struggle during a crisis?

Answer 28

They lack buffers such as cash reserves and diversified revenue streams.

Question 29

What’s a key role of the founder in shaping culture?

Answer 29

Setting core values and long-term vision.

Question 30

What is the status quo in many big companies for internal market for ideas?

Answer 30

* risk-reward trade-off - unfavorable * one place to pitch an idea - up the chain of command * strategy - in the province of senior management

Question 31

What are the propositions to develop internal market for ideas?

Answer 31

* chances for personal wealth creation (bonuses, competitions) * broader decision board * make everybody responsible for strategic thinking (3M, SAP, Nestle)

Question 32

What is the status quo in many big companies for internal market for capital?

Answer 32

* assumption = everything non-incremental is high risk * traditional financial screens * capital-budgeting process - too slow & inflexible * expectation that every idea succeeds

Question 33

What are the propositions to develop internal market for capital?

Answer 33

* allow for opportunities inconsistent with the business strategy * capital separated from the traditional capital-budgeting process * smaller experiments - spin them up if they take off * portfolio of ideas

Question 34

What is the status quo in many big companies for internal market for talent?

Answer 34

* **loss of talent** due to lack of attractive options and low flexibility * **few incentives to take risks** * **low mobility** of personnel

Question 35

What are the propositions to develop internal market for talent?

Answer 35

* create exciting opportunities (15% rule at Google) * "make breaking the ground a career coup" - incentives to take risk (Culture at Disney) * lower barriers to employee mobility (Monsanto global leadership program)