Essay on Entrepreneurship and Corporate Governance
by James Brown
In order to succeed on the market place companies have to find new ways to attract customers, increase profit and compete on the market. Innovation is an urgent need for every company that indicates its position on the market and successful performance. In general, the process of innovation can be described as adoption of a new idea, but in practice, innovation is affected by a number of factors that determine the level of success and innovation change.
Innovation and Entrepreneurship
Entrepreneurship is enjoying a great deal of attention in many countries today. It can be described as the process of bringing together creative and innovative ideas and coupling these with management and organizational skills in order to combine people, money and resources to meet an identified need and thereby create wealth. According to Burns “Entrepreneurs use innovation to exploit or create change and opportunity for the purpose of making profit” (Burns 2001: 5). Burns explains that the process of innovation takes its roots in the process of change and can modify technology, materials, prices and demographics. The process may be undertaken by one person or a group. Inventors are innovative and creative but not all are able to use management and organiza¬tional skills to produce and market goods or services successfully. Creativity and management strengths do not usually reside in one person, so entrepreneurship is often found in groups which combine their strengths.
Background of the Companies
The companies under analysis, Proctor & Gambler and Philips, are the market leaders in their industries. They applied innovation to traditional business models creating a unique mixture of technological, material innovations and demographic factors. P&G is a global company which operates in 160 countries around the world with a global turnover of over $35 billion. Its main activity includes manufacturing of consumer, pharmaceutical and household products for diverse target audience (The Procter & Gamble Company. 2004).
Philips is a global leader in telecommunication, digital media and digital convergence technologies with 2003 parent company sales of US$36.4 billion and net income of US$5.0 billion. Recognized as one of the fastest growing global brands, Philips is the world’s largest producer of color monitors, color TVs, memory chips, TFT-LCDs and VCRs (Philips, 2006).
Innovations in Proctor and Gamble and Philips
Some companies, particularly multinational companies, often do not develop a product for their domestic market, but do so in response to opportunities in world markets. Consequently the company must select a strategy for the diffusion of the product from point of development to the market (O’Donnel, 2004).
The traditional marketing organization, which operated with a standard set of distribution, promotion, and sales policies applied uniformly to all product lines, was increasingly ineffective in dealing with the large-volume chains that dominated the retail markets (Poh-Lin Yeoh, Insik Jeong, 1995). Philips reorganized the structure of its consumer electronics marketing division based on an analysis of changes in its product line and a growing concentration in its distribution channels.
To cope with these problems, Philips abolished its uniform structure and organized the marketing department into three groups: an advanced-system, group for technologically sophisticated, high-margin products such as compact disk players; a mainstay group for high-volume mature products (color TVs and VCRs); and in mass merchandizing group for older, declining products (such as portable cassette players). Meanwhile, increasing concentration in the distribution channels and a growing need for distinct marketing approaches for different products became manifest throughout Europe. The new model for the marketing organization developed by the British subsidiary was clearly appropriate for other subsidiaries. Despite initial resistance, the innovation was soon transferred to most other international organizations.
Proctor and Gamble
For Proctor and Gamble, the innovation meant something new. When applied to a product, “new” meant different things. One of the best examples of product innovation was the way in which Proctor & Gamble developed a global liquid detergent (Hammer, Champy, 1993).
Despite the success or liquid laundry detergents in the United States, all attempts to create a heavy-duty liquid detergent category in Europe had failed due to different washing practices and the superior performance of European powder detergents. which contained enzymes, bleach, and phosphates at levels not permitted in the United States. But P&G’s European scientists were convinced that the liquid detergent’s performance could be enhanced to match local powdery (P&G. History, 2003).
After several years of work, they developed a bleach substitute as well as a means to give enzymes stability in liquid form. Meanwhile, researchers in the United States were working on a new liquid better able to deal with the high clay soil content in dirty clothes in the United States, the company”-International Technology Coordination Group was working with P&G scientists in Japan to develop a more robust surfactant (the ingredient that removes greasy stains) to make the liquid more effective in the cold-water washes common in Japan. Joint effort on the part of all groups ultimately lee to the launch of Liquid Tide in the United States, Liquid Cheer in Japan, and Liquid Ariel in Europe.
Each product incorporated the best developments created in response to European, US, and Japanese market needs. Relatively speaking, however, a product already introduced in one market may be an innovation elsewhere because it is new and different for the targeted market.
What the Difference?
Taking into account the information mentioned above it is possible to say that these firms used different type and source of innovation but achieve the highest result: they create a new idea that helped them to success on the market. In an absolute sense, once a product has been introduced anywhere in the world, it is no longer an innovation because it is no longer new to the world.
Taking into account the tools of entrepreneurship developed by Burns the source of opportunity for Proctor and Gamble was a know-how, liquid detergent. Proctor and Gamble successfully used the main tool of innovation: technology as a source of success (Burns, Chapter 3). In this case, the perceived relative advantage of a new product versus existing products was a major influence on the rate of adoption. If a product had a substantial relative advantage vis-a-vis the competition, it was likely to gain quick acceptance. In contract, Philips used another entrepreneurship tool namely demographics. This tool is seldom used as a source of opportunity by firms but Philips proved that innovative market and demographic segmentation could be a source of competitive advantage (Stokes, 2000).
The type of entrepreneurship can characterized as a process of taking responsibility for creating innovations and turning ideas into a “profitable reality”. New product development was initiated by urgent necessity to create an alternative solution to already existing types of detergents. In contrast, the type of Philips’s innovation was caused by inability to market goods using traditional channels *Vonderembse, White, 2003).
Change is Everything
For both firms change was the main source of innovation that allows them to create a unique approach and solve current problems. The role of an entrepreneurship was to reduce resistance to change and speed this process. Change was inevitable part of life which affected all spheres in Philips and Proctor and Gamble. For both of them change created opportunities that were used. Proctor and Gamble reacted to change initiated by internal environment, while Philips reacted to changed initiated by external environment. (Burns 2001, Chapter 3). External change drivers are caused by innovation rapid technological changes and innovations proposed by competitors within the industry. In a time of ever-shorter product life cycles, structure development often proceeds at a glacial pace. In an age of the customer, order fulfillment has high error rates and customer enquiries go unanswered for weeks. Philips proved that the usual methods of boosting performance – process rationalization does not work and innovation is the only possible to solve the problems.
Change in Proctor and Gamble dealt with the specification of goods which was considered in terms of their design features and performance characteristics. As the most important for entrepreneurs change is not a part of a natural process of ageing, but a risk they accept in order to compete on the market (Shaw, 1999). The remarkable feature of entrepreneurs is that “they welcome change because it creates opportunities that can be exploited and often create it through innovation” (Burns 2001: 6) Entrepreneurs in both companies used different methods and techniques to handle a change and avoid possible negative influences, but they accepted risk destroying the established process.
Lessons to be learnt
The example of Philips and Proctor and Gamble show that innovation is a major source of competitive advantage. Technological and demographic changes oc¬cur so radically as to constitute a discontinuity, a sharp break in in¬dustry practice that either enhances or destroys the competence of firms in an indus¬try. The role of entrepreneur is to accept the risk as an opportunity for further growth in order to exploit existing markets. The reasons for entrepreneurship is deemed to be in business for themselves and take risks in initiating change and needs freedom to pursue ideas. Entrepreneurial innovations have resulted in a product meeting existing market needs, and in the creation of new demands.
1. Burns, P. 2001. Entrepreneurship and Small Business. Palgrave. Chapter 1. pp. 1-24. Chapter 3, pp. 47-68.
2. Hammer, M, Champy, J. 1993. Re-engineering the Corporation. Nicholas Brearley, London,
3. O’Donnel, A. 2004. The nature of networking in small firms. Qualitative Market Research: An International Journal. Volume 7 Number 3. pp. 206-217
4. Philips. http://www.philips.uk/index.html
5. Poh-Lin Yeoh, Insik Jeong. 1995. Contingency relationships between entrepreneurship, export channel structure and environment. European Journal of Marketing. Volume 29 Number 8, pp. 95-115.
6. P&G. History. 2003. http://www.pg-ca.com
7. The Procter & Gamble Company. 2004. http://media.corporate-ir.net/media_files/ irol/10/104574/pdf/PG_1Q05.pdf
8. Stokes, D. 2000. Entrepreneurial marketing: a conceptualization from qualitative research. Qualitative Market Research: An international Joirnal. Vol. 3, No.1, pp. 47-54.
9. Shaw, E. 1999, “Networks and their relevance to the entrepreneurial/marketing interface: a review of the evidence”, Journal of Research in Marketing and Entrepreneurship, Vol. 1 No.1, pp.22-38.
10. Vonderembse, M. A., White G. P. 2003. Core concepts of operations management. Wiley.
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