Academic journal article Academy of Strategic Management Journal

Failing to Learn from Failure: An Exploratory Study of Corporate Entrepreneurship Outcomes

Academic journal article Academy of Strategic Management Journal

Failing to Learn from Failure: An Exploratory Study of Corporate Entrepreneurship Outcomes

Article excerpt

ABSTRACT

Firms that are able to react and respond to today's dynamic environment through market, process and product innovations--also called Corporate Entrepreneurship (CE)--are better able to gain and sustain a competitive advantage. In fact, business strategy can be described as a firm's "theory of competitive advantage" or a set of hypotheses about the firm's competencies and their relationship to external factors. This implies that CE initiatives can be thought of as "tests" of the firm's strategic "theory-in-use." Thus an innovation that is aligned with a firm's strategy and is successful confirms the existing strategy; an unsuccessful innovation indicates a change in strategy may be needed. In this paper we examine 54 new product development projects and assessed whether they were successful, whether they aligned with the business strategy, and whether the strategy was subsequently modified. We found that successful projects aligned with strategy did indeed confirm the strategy, but unsuccessful projects resulted in strategy modifications only 38% of the time. The lack of strategy modification when projects are unsuccessful indicates that firms are not learning as much as they might from their failures.

INTRODUCTION

In today's dynamic environment, static firms are not likely to endure. Rather, companies must adapt to their environments' varying conditions, react to their competitors' actions, and respond to their customers' changing requirements. To be successful, organizations must find ways "to redefine or rejuvenate themselves, their positions within markets and industries, or the competitive arenas in which they compete" (Covin & Miles, 1999). Based on their particular situations, some firms favor sustained regeneration, which "support and encourage a continuous stream of new product introductions in current markets as well as entries with existing products into new markets" (Dess, Ireland, Zahra, Floyd, Janney and Lane, 2003: 354), while others engage in strategic renewal, in which "the firm is seeking to change how it competes" (Dess, et al. 2003: 355).

In the academic literature, these activities are generally aggregated under the terms intrapreneurship or, more recently, corporate entrepreneurship. Corporate entrepreneurship (CE), has been defined as the "formal and informal activities aimed at creating new business in established companies through product and process innovations and market developments ... with the unifying objective of improving a company's competitive position and financial performance" (Zahra, 1991: 262). Research has found that CE initiatives can materially improve an existing organization's agility and are positively associated with financial performance (Zahra, 1991). Although these corporate entrepreneurship initiatives can "bubble-up" in informal, emergent manner from anywhere in the organization (Burgleman, 1983, Mintzberg & Waters, 1985), this study focused on the formal or deliberate entrepreneurial activities undertaken by existing firms to update or even radically change their strategy.

The underlying assumption of deliberate corporate entrepreneurship is that organization members--typically top managers--can accurately assess or predict what strategic changes are required by external events such as a new competitor entering its market space or the creation of a new technology. Importantly, deliberate CE also presumes that managers can accurately assess the implications of the outcomes that resulted from internal actions like successful implementation of a new process or the failed launch of a new product. Presumably, success would imply that the firm was on the right track, while failure would indicate a problem or issue.

Indeed, as Floyd and Lane (2000: 154) noted, "top management often must internalize, as part of the organizational knowledge base, information and initiatives that diverge from its view of strategy and must use these to shape new competencies. …

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