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Chapter 6: Fostering Entrepreneurial Firms: Recognizing and Adapting Radical Innovation through Corporate Venture Capital Investments
6 Fostering entrepreneurial ﬁrms: recognizing and adapting radical innovation through corporate venture capital investments Behrend Freese, Thomas Keil and Thorsten Teichert Introduction Technological change is often an incremental, cumulative process punctuated by short revolutionary periods in the form of discontinuities (Tushman and Anderson, 1986). Some of these discontinuities are major technological and market shifts that are so signiﬁcant that no change in scale, eﬃciency or design can keep existing technologies and business models competitive (Anderson and Tushman, 1990; Tushman and Anderson, 1986), thus rending the competitive advantages of incumbents obsolete and challenging them to develop new competencies to retain their market lead. Such radical innovations frequently arise from outside an incumbent’s industry (Tushman and Anderson, 1986) or are initiated by start-ups created to capitalize on rival technological paradigms (Shane, 2001). Faced with radical innovation, incumbents often do not recognize and adapt to the changes taking place on the fringes of their industries (Henderson, 1993; Henderson and Clark, 1990). These problems arise from incumbents’ inability to recognize emerging technologies in a timely fashion and to develop (or acquire) the skills necessary to create and exploit these technologies. To improve their ability to recognize and adopt technological change incumbents have reverted to a variety of mechanisms ranging from internal R&D activities, corporate venturing, joining alliances and technology development consortia, to acquiring other companies that control rival technologies. More recently, some incumbents have also made use of corporate venture capital (CVC) investments to monitor radical technological change in and outside...
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