Academic journal article Competition Forum

The Weaknesses of the Intrapreneurial and Venture Capitalist Approaches to Disruptive Innovation: An Opportunity for Angel Investors

Academic journal article Competition Forum

The Weaknesses of the Intrapreneurial and Venture Capitalist Approaches to Disruptive Innovation: An Opportunity for Angel Investors

Article excerpt

INTRODUCTION

While working as an engineer at Toshiba in the 1980s, Fujio Masuoka on his own initiative invented flash memory, a semiconductor technology used today in everything from hard drives to smartphones, but one would not know it based on the reaction he received from Toshiba. Instead of being recognized for his groundbreaking achievement, Dr. Masuoka belatedly received a bonus of only a few hundred dollars, was labeled insubordinate and not a team player, and ultimately marginalized (Fulford, 2002). Toshiba chose not to pursue flash memory because at the time it was a much smaller market that did not dovetail with its flagship product, another type of semiconductor technology known as DRAM. Toshiba made a critical decision to focus on incrementally improving its existing product line rather than taking a gamble on an untested product. Much to the chagrin of Toshiba, Intel would go on to develop flash memory and it would become a multi-billion dollar market, competing with and eventually overtaking sales of DRAM (McGrath, 2012).

Toshiba's experience with flash memory is undoubtedly a cautionary tale but one that plays out with alarming regularity when it comes to disruptive innovation. Unlike other types of innovation, disruptive innovation stands apart in that it begi ns life as an inferior technology, one typified by lower margins, that does not meet the needs of the mainstream market but steadily improves over a period of years or decades to meet those needs and eventually displace incumbents. As such, disruptive innovation is distinctive precisely because it is disarming, following an atypical trajectory that causes established players to overlook it as a threat. Examples of disruptive innovation, in addition to flash memory, include personal computers displacing mainframes, LCD monitors displacing CRT monitors, digital photography displacing chemical photography, LEDs displacing incandescent light bulbs, and hydraulic excavators displacing cable-operated excavators.

Against this backdrop, the objectives of this paper are three-fold: (i) to explain why large corporations, even those with established intrapreneurial programs, are ill-equipped to discover and develop disruptive innovation; (ii) to explain why the same holds true for venture capitalists; and (iii) to reveal why angel investors, the often-overlooked cousins of venture capitalists, are likelier than intrapreneurial corporations and venture capitalists to succeed at identifying and capitalizin g on disruptive innovation.

THE INTRAPRENEURIAL CORPORATION

It is not hard to understand the intrinsic appeal of the intrapreneurial corporation for those in search of disruptive innovation. In many respects, it embodies the best of both worlds, allowing entrepreneurship to flourish within the relatively safer confines of an established corporation where brand visibility is better, resources are more abundant, and the ever-present threat of failure is considerably blunted. According to Pinchot (1985) who pioneered the concept, the key to the intrapreneurial corporation is its ability to identify innovative employees and give them time away from their day-to-day duties to experiment with new ideas and projects. In this respect, 3M's "permitted bootlegging" program is often held up as an example of a successful intrapreneur-driven program, one that allowed employees to devote up to 15% of their time to independent pursuits and, perhaps most notably, resulted in the invention of Post-It Notes (Kuratko, Montagno, & Hornsby, 1990). Another often-cited example is the "skunk works" that Lockheed Martin established in the 1940s, consisting of a small semi-autonomous unit of engineers, accountable to nobody except the most senior of Lockheed management, that enjoyed substantial success developing warplanes for the United States military (Valéry, 1999).

Drawing inspiration from these examples, considerable effort has been directed towards distilling intrapreneurship into its core components in the hopes that, by doing so, it will be easier to create the conditions necessary for disruptive innovatio n to grow out of it. …

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