Hello
In this session, we're going to talk about
corporate entreprenuership
Corporate entrepreneurship is special type of entrepreneurship
So, why we care for corporate entreprenuership?
In order to understand corporate entreprenuership,
we need to understand history
and philosophical reason behind corporate entreprenuership
Let's go through philosophical and historical reasoning
why we care for corporate entreprenuership
Are you ready? Let's begin
Do you remember this guy?
He is very famous economist
His name is Schumpeter
He published one of the famous book in 1934 in english
The book is The theory of economic development
In his book, he emphasize entreprenuers
as the primary engines of innovation
He said that, entreprenuers
drive economic development by introducing innovations
Do you remember 5 different types of innovation?
For example, new product, new market,
new organization, new material, new method of production
According to him, key to success of economic development is
entrepreneur innovation
No argument
Everyone was impressed by his idea
Then, what happened?
Ten years later,
he published another book
which is Capitalism, Socialism, and Democracy
In his book, he argued that
large companies surpass entrepreneurs
in innovation capacity
Because large companies have
resources, money, manpower, and the others
So, he said that
corporations internalize R&D, financing, and management
So, the companies exploit economies of scale
Basically, he said that
big company generate innovation
Not entrepreneur company
It is totally opposite
Ten years ago, he argued
he emphasized on entrepreneurs' role
But 10 years later, he changed his mind
From my study, I'm wrong
According to my recent research,
I found that big corporations produce more innovations
There is two phases of his argument
Phase one, in early phase, he argued that entrepreneurs drive innovation
10 years later, phase two, he said that
large company dominate innovation
because they have money, knowledge, manpower, and resources
Small company cannot compete with large company
Look at this picture
In the middle, this guy is Lee Jae-yong
He is the CEO of Samsung Electronics
Left is former president, Moon Jae-in
Lee Jae-yong introduced new building to
president Moon Jae-in
And he said that
Look at this building
This building cost 3 times more than Incheon Airport
Samsung Electronics invested
tons of money to build up
new semi conduct building, factory
How much?
3 times expensive than Incheon Airport
Incheon Airport is really big airport
It's world-class airport
But Samsung Electronics spent 3 times more than Incheon Airport
Another one
This is the CEO of Hyundai Car Group, Hyundai Motors
Hyundai Motors announced to invest $16B
$16B in Korea's next generation mobilities
Where's the money coming from?
Hyundai Motor Group invest $16B to do something
How can we compete with this big corporation?
If you are startup owners,
if you are future startup founders,
can you compete with them?
And who produce innovation?
You or Hyundai Motor Groups or Samsung Electronics?
Of course, Samsung Electronics or Hyundai Motor Group will generate
much more innovation than you
Than just a small and no-named entrepreneur company
What do you think?
Let's go back to Schumpeter's change in his hypothesis
His change sparked decades of debate
Then later, we could expand our perspective
So, we got more nuanced realites
What is it?
Large companies dominate innovation
But these innovations are incremental innovation
On the other hand,
small companies excel in radical innovation
Basically, there are two different types of innovation
In most case,
large companies dominate innovations
But their innovations are based on
incremental innovation
But, sometimes,
small companies generate innovations
But these innovations are radical innovation
Radical innovation means a little bit like game changing innovation
So, it looks like this
There is David and Goliath
You know the David and Goliath
if you are Christian and you know the story
Although I'm not a Christian, I knew the story
Because it's pretty famous story
Anyway, Goliath, who is giant,
and David, who is a boy
Who won the game?
David won the game
because David
had unique weapon, which is rolling stone
With this stone,
David successfully killed Goliath
What do you think?
Goliath represents big companies
Big companies that dominate innovation
But these innovations are incremental innovations
But at the same time,
David is less likely to innovate the situation
But if he generate innovation,
this type of innovation would be radical innovation
Very dangerous and change the game
This is kind of relationship between
big company and small and entrepreneur company
Again, why do we care for
this relationship?
This is traditional watch
Traditional watch is run by spring
Then, in 1969, what happened?
One of the Japanese company invented new types of watches
This watch is called Quartz watch
Quartz watch is operated by
a battery
Inside a watch, there is battery
It's kind of electronic watches
Then what happened?
This Quartz watchs cost downd
It's very cheap
And mechanical watches were expensive
Switzerland watch industry collapsed
Dramatically
Later on, we call this Quartz Crisis
In Switzerland, employment of watch making
fell from 90,000 to 28,000 people
Also, Switzerland's global watch production shares
fell from 95% to 15%
80% were gone
So, U.S. brands like
Hamilton and Waltham collapsed
So, that's why we should care for
the relationship between big company and small company
And we should keep eye on
the behaviors of small company or entrepreneur innovation
Because this entrepreneur innovation
will be dangerous
and they will change the game
Hollywood studio
It's a movie
and also, there's a TV
Then, what happened?
Once TV was introduced in the market,
then, TV's adoption
was so fast
Movie industry wene in trouble
Box office receipts decreased by 45%
Half gone
50% gone
Because of TV
So, if there's new innovation, radical innovation,
then the existing company
suffer from those kind of radical innovation
I will give you another example
This is Kodak
Kodak was originally number one player in film industry
Kodak, number 1 filmmaker in the world
But this Kodak filed for bankruptcy in 2012
Look at this picture
Kodak announed the backruptcypan
and reporters are taking picture and look at this camera
All these cameras are made in Japan
First one is Fuji, Sony, Nikon, Canon,
and the last one is Samsung
It's Korean company
Anyway, these all camera is not film camera
It is digital camera
Why Kodak failed?
Because of digital camera technology
But ironically, who invented digital camera technology?
Kodak invented digital camera technology
But the problem was Kodak executives
tried to keep it secret about this invention
Because
they felt fear of cannibalization
So, at that time,
that's why they didn't use the digital camera technology
and they tried to keep it secret
Then what happened?
Kodak licensed some of its digital camera technologies
to Japanese company
And then, Japanese company took the technology,
then made a new type of camera, which is digital camera
For the first time, Sony released the Mavica,
which is the first commercial digital camera in 1981
Then Kodak went bankruptcy
Look at this
This is Mavica
First digital camera in the world in 1981
Instead of using analog film,
this camera use some thumb drive
Probably, you don't know what it is
That is floppy disk
It's very similar to thumb drive
Then, this digital camera
made Kodak disappeared
There's another example
Do you remember the relationship between Netfilx and Blockbuster?
Netflix started with DVD-by-mail service in 1998
At that time, Blockbuster had more than 6,000 stores all over the world
Then, Netflix introduced streaming service in 2007
and in 2009, Netflix stream service
overtook DVD shipments
Then later, what happened?
Nobody used Blockbuster store
So, Blockbuster went on bankruptcy
That's why we should care for startup's innovation
And we should keep eye on startup's innovation
Because their innovations sometimes are very dangerous
He is Dr. Chirstensen
Although he passed away, he left very insightful idea
He said that
Successful companies that did everything right
still lose their market leadership
If they ignore disrupted innovation
Disrupted innovation
from mostly startup and small company
So, if big company ignore those kind of innovation,
they could be dangerous
His idea was,
disruptive innovation arrives in the form of
minor threats, so we ignore them
It is easy for us to ignore this minor threats
According to him, there are two different types of disruptors
The first disruptor
take a low-end market of existing industry
or second disruptor create entirely new market
Then try to steal the consumers
away from the existing companies
Again, they create a new market,
and steal the consumers away from the existing companies
So, there are two different types of disruptors
The first disruptor, we say Low-end disruptor
Again, this low-end disruptor arrived in the market at the bottom
I want to give you an example
There are two different types of steel making companyl
The first company is integrated mil
This company is based on traditional method of steel making
Basically, this company boil down the soil
and put additional stuff, such as coal and iron ore
Then, they get the steel
We say it's integrated mill
Another type of steel making is mini-mill, on the right side
Instead of boiling down the soil,
this mini-mill use electricity
They melt down existing steel
So, they reuse existing steel
This is kind of recycling
First one is traditional method
and this second one is alternative method
Of course, traditional method produced high-quality steel
On the other hand, alternative method produced low-quality steel
What is the good think about mini-mill?
Mini-mill can cost down the steel production
This steel is 20% lower cost
Now, you understand the relationship
There are two different types of steel making
First one, integrated mill and second one, mini-mill
In order to understand these two companies' relationship very well,
you need to understand industry style
Inside, the steel making industry there are 4 different types of products
The first one is Rebar
Probably, you couldn't see rebar
because rebar can be used for building your house
Inside the building, there are lots of rebars
Second one is Angle Iron
Third one is Structural Steel
and last one is Panel Steel
Panel steel is pretty thin
We can use this panel steel for making
refrigerator, car and others
It's daily used steel
The quality of the steel, rebar
has a low quality
and panel steel has a high quality
So, we say panel steel is high-end product,
and rebar is low-end product
Gross margin is different
Rebar's gross margin is just 7%,
angle iron 12%,
and panel steel has bigger gross margin,
which is 25 to 30%
So, of course, existing steel makers just focused on
production of panel steel
They wanted to produce more panel steel
rather than rebar
Because rebar's gross margin is much lower than panel steel
This is production ratio
Just 4% and 8% and 55%
So, the existing integrated mill just focused on
panel steel production
Then later, what happened?
Mini-mill arrived in the bottom of the market, industry,
which is rebar market
They just focused on rebar market
And then, quality of the steel mini-mill produce is low
So, they just entered rebar market with much lower prices
How much? 20% discounted prices
Then, integrated mill were really happy to exit rebar market
Because they don't care about rebar market
They don't have any incentive to protect this rebar market
And integrated mill let the mini-mill to do
whatever they want in the rebar market
They gave up rebar market
Instead, we will produce more high quality product
So, they gave up rebar market
They just focused on angle iron, structural steel, and panel steel
Then later, what happened?
Mini-mill made a lot of money from rebar market
They saved the money
and they upgraded the quality of production
They produced high-quality product
and they entered angle iron market
Then mini-mills entered angle iron market
Then, integrated mill decided to
give up angle iron market, too
Then, they decided to focus more on
structural steel and panel steel
Because they expect better gross margin
Then what happened?
Mini-mill saved the money,
upgraded their quality, and entered another market
Angle iron market, structural steel market, and panel steel market
They entered panel steel market, too
Later, what happened?
Mini-mill's production increased
and integrated mill's production decreased
So their market shares became opposite
Look at this graph
There's another type of disruptor
We say it is creative disruptor
Do you remember the creative disruptor?
This type of disruptor create new market that never existed
Then later, attempt to steal consumers away from existing company
I want to give you an example
There is a radio
This is a traditional radio
Traditional radio used vacuum tube
Vacuum tube is pretty thick,
so that's why traditional radio
is heavy and big
Consumers' considered this traditional radio as the furniture
Then, what happened?
One of the Japanese company
took the technology of transistor
and tried to make a portable radio
This is transistor radio
Then what happened?
In 1950s and 1960s, the market for transistor radios exploded
And there were about 12M transistor radios in use by 1959
What about the response from transistor radio company?
Existing radio company
just ignored the transistor radio
because the sound quality of transistor radio was really terrible
That's why established existing radio company
just focued on SOUND
Then later, transistor radio
didn't fight with existing radio companies in home market
Instead, transistor radio
shifted the market from home radio market
to the outdoor market
This radio targeted new market first
For example
like outdoor, such as
vacation, ocean, or summer
They targeted the different market
Then what happened?
Everybody used the transistor radio
and existing radio company collapsed
This is why we care for
the startup's innovations