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Unformatted text preview: Chapter 13 Assessing Entrepreneurial Performance
Copyright (c) 2007 by Donald F. Kuratko All rights reserved. E
I n today's increasingly entrepreneurial corporate environment, managers must assess and track entrepreneurial activity and outcomes Attention must be devoted to evaluate individual projects as well as the organization as a whole Assessing Entrepreneurial Activity in Companies
M anagers need to assess both: Cognition (way of thinking) Behavior (way of acting) E Additionally, performance outcomes (profits, revenue growth rate, etc.) that result from entrepreneurial actions within a firm need measured.
"There is extensive evidence of strong, statistically significant relationships between levels of entrepreneurship within a firm and a number of performance outcomes" A Systematic Approach: The Entrepreneurial Health Audit
Before a strategy for entrepreneurship can be formulated or the internal environment can be properly designed, senior executives must have an accurate understanding of the firm's current level of entrepreneurial intensity
M easurement at the individual level helps managers: Examine and refine their own leadership styles M easurement at the organizational level: M ark and track company-wide entrepreneurial performance, establish norms and draw industry comparisons E A Systematic Approach: The Entrepreneurial Health Audit
A three stage Entrepreneurial Health Audit, developed by I reland, Kuratko, and Morris, attempts to measure entrepreneurship within a company E A Systematic Approach: The Entrepreneurial Health Audit
Step 1: Assessing the Firm's E Entrepreneurial I ntensity (EI )
Table 13-1 includes a proven measurement instrument for assessing EI within a firm A Systematic Approach: The Entrepreneurial Health Audit Step 2: Diagnosing the Climate for Corporate Entrepreneurship The Corporate Entrepreneurship Climate E I nstrument (CECI ) Table 13-2, developed by Kuratko, Montagno, and Hornsby, is a diagnostic tool for assessing, evaluating, and managing the internal environment of the firm in a manner that supports entrepreneurship. A Systematic Approach: The Entrepreneurial Health Audit The Corporate Entrepreneurship Climate E I nstrument (CECI ) Table 13-2. The Elements: 1. M anagement support 2. Work discretion/autonomy 3. Reinforcement 4. Time availability 5. Organizational boundaries A Systematic Approach: The Entrepreneurial Health Audit Step 3: Create an Organization-wide Understanding of the CE/I nnovation Process I ntroduction to entrepreneurship Entrepreneurial breakthroughs Creative thinking I dea development process Barriers, facilitators, and triggers to entrepreneurial thinking Venture planning: the intra-plan E Assessing Individual Entrepreneurial Projects The New product or service development process usually does not evolve neatly However, there are key steps that generally must be accomplished to produce a commercially viable new product, service, or process
Idea Generation Concept testing Technical feasibility assessment Product testing Financial assessment Test marketing Launch Life cycle management E Assessing Individual Entrepreneurial Projects Another effective approach to the innovation process "Stage-gate system"
Definition Stage Production Stage Commercialization Stage E GATE 1 Business case checkpoint GATE 2 Project plan checkpoint GATE 3 Deployment checkpoint Functional Teaming parallel processes parallel processes Functional Teaming Functional Teaming fragmented fragmented fragmented parallel processes Assessing Individual Entrepreneurial Projects Two more additional metrics for assessing E entrepreneurial projects include: A sample format for setting innovation objectives Table 13-3 M easures for assessing innovative performance Table 13-4 E
Assessing Individual Entrepreneurial Projects Some examples for assessing innovative performance Table 13-4
Survival Rate (3 years) Success/hit rate (3 years) R&D innovation effectiveness ratio Number of commercialized new products still on the market + Total number of new products commercialized Number of new products exceeding three-year original revenue forecasts + Total number of new products commercialized Cumulative three-year gross profits from commercialized new products + Cumulative three-year R&D expenditures allocated solely to new products E Individual Entrepreneurial Projects Assessing Companies can become overwhelmed with too many metrics. However, the more typical problem is too few performance measures The Yellow Light Variables Approach developed by Balachandra, identifies 14 variables that were critical in all "go/no go" decisions by managers 1. Number of Projects in Portfolio 2. Profitability of Company 3. Time of Anticipated Completion 4. Smoothness of Technological Route 5. Pressure on Project Leader 6. Probability of Commercial Success 7. Number of End Users 8. Top Management Support 9. Project Workers' Commitment 10.Occurrence of a Chance Event with Positive Impact 11.Product in Infancy Stage in Life Cycle 12.Favorable Internal Competition 13.Emergence of Product Champion 14.Research Manager is Product Champion E Individual Entrepreneurial Projects Assessing Refer to Table 13-5 for the Question Format for the "Yellow Light" Variables Has the technological route for the project been smooth? Has the probability of commercial success increased or remained the same? Has the number of end users remained the same or decreased? Is the new product out of the infancy stage in its life cycle? Did an external chance event with a positive impact on the project occur since the last review? Is it likely that a competing firm is bringing out a similar product in the near future (around the tome this product is planned to be introduced)? Does a complementary project whose outcome may be beneficial to this project exist within the firm? Assessing Individual Entrepreneurial Projects Table 13-5, the Question Format for the E "Yellow Light" Variables
1. Has the pressure on the project leader from top management and R&D management remained the same or decreased? 2. Has top management support increased or remained the same? 3. Has project workers' commitment increased or remained the same? 4. Is there a project champion? 5. Is the R&D manager the project champion? 6. Has the profitability of the company increased or remained he same? 7. Has the number of projects in the development portfolio decreased or remained the same? E Discovery-Driven Planning A systematic way to challenge the underlying assumptions upon which many new projects are based has been developed by M cGrath and M acM illan: Reverse income statement Pro forma operations Key assumptions checklist Milestone planning chart E Developing a Comprehensive Corporate
Venture Plan An effective corporate venture plan will: Describe every aspect of a particular venture Include a marketing plan Clarify and outline financial needs Identify potential obstacles and alternative solution Establish milestones for continuous and timely evaluations Serve as a communication tool for all assessments purposes E Developing a Comprehensive Corporate
Table 13-6 lists several helpful hints for developing a corporate venture plan
Table 13-7 lists the components of a comprehensive corporate venture plan Developing a Comprehensive Corporate Venture Plan Table 13-6
Financial Segment Give actual estimated statements. Describe the needed sources for your funds and the uses you intend for the money. Develop and present a budget. Create stages of financing for purposes of allowing evaluation by investors at various points. E Marketing Segment Convince executives that sales projections and competition can be met. Use and disclose market studies. Identify target market, market position and market share. Evaluate all competition and specifically cover why and how you will be better than your competitors. Identify all market sources and assistance used for this segment. Demonstrate pricing strategy since your price must penetrate and maintain a market share to produce profits. Thus the lowest price is not necessarily the best price. Sustainable Entrepreneurship: A Dual Focus
Companies can approach improvement in E one of two ways Constant incremental improvement Radical innovation Table 13-8 provides a comparison between the two ...
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- Spring '08