Idea 19 - Entrepreneurship
Entrepreneurs
fizz with ideas. They take chances. They're driven, energetic, nimble and
inspiring. Big business is - well, it's big. Its first instinct is to protect
itself, so it's careful and conservative. It's slow to respond and quick to
squelch daring ideas. How do you ignite the spirit of the entrepreneur inside
something like that? It's not easy, but there is an answer: 'corporate
entrepreneurship'.
Joseph Schumpeter extolled the virtues of entrepreneurs back
in 1911. The most compelling reason for large companies to become more
entrepreneurial is to spot opportunities in their own markets before anyone
else does. The big boys can tell many horror stories about what happens when
they don't pay attention. One of the grisliest concerned Johnson & Johnson,
which once enjoyed over 90% market share in metal stents (a tube that keeps
clogged arteries open). When a competitor got approval for a next-generation
device, Johnson & Johnson was a little slow to respond. By the time it had
got its act together, its share had shrivelled to 8%. When IBM told some German
engineers to stop work on software that links processes in different parts of
an organization, they stalked out and started their own business. It's called
SAP and has chalked up billions of dollars in sales.
Larger companies are often present in multiple markets,
which means they must keep many eyes peeled. Somewhere out there will be a more
focused potential competitor who, even now, may be preparing to make your
current customer solution obsolete. Companies need to foster their own skills
in innovation or sacrifice growth to faster-moving rivals.
Buy a piece
of 'em Various forms of entrepreneurship have emerged -one of the
most effective ways that companies can act like entrepreneurs, if correctly handled,
is 'corporate venturing'. It has been popular in growth industries like
high-tech and pharmaceuticals, where brain power is much of the cost of entry
and small companies can challenge the majors with new products relatively
easily. So if they look too threatening, buy a piece of 'em and walk into the
future together. In pure corporate venturing, the company takes a minority
stake in a smaller company with promising know-how, though variations can
include non-equity alliances.
The shrewder corporations invest in partnership with a
venture capital firm, not least because the latter are ruthlessly good at
knowing when to pull the plug. Since half or more of these investments may
prove failures, this is a particularly useful and money-saving skill. Semiconductor
manufacturer Intel, through corporate venturing arm Intel Capital, has
been extremely successful in this arena. Since 1991 it has
invested over $4 billion in some 1,000 companies, of which 310 have since been
sold or been listed on a stock exchange. Nokia too is an active corporate
venturer, along similar lines. BT began with its own corporate incubator, but
has since learnt its lesson and sold a majority stake to venture capitalists.
Then there is 'intrapreneurship', a term popularized by
Gifford Pinchot in his 1985 book Intrapreneuring. He defined it as 'behaving
like an entrepreneur when you're employed at a large corporation for the
benefit of the corporation as a whole'. In most organizations, people are
thought to be either dreamers or doers. According to Pinchot, intrapreneurs are
'dreamers who do'. These are the ones who press on with a good idea, in spite
of the discouragement or even the veto of management. Pinchot counsels
subversion from intrapreneurs (themselves) - 'it is easier to ask for
forgiveness than for permission' - and encouragement from the company, which
should allow them time and resources. Unbelievers say corporate-sponsored
intrapreneurship is a flashy substitute for what management should be doing
anyway at a strategic level.
A third approach is 'bringing the market inside' -
introducing buying-and- selling mechanisms into the company to make
transactions, information sharing and even forecasting more efficient. This was
very much the style of the collapsed Enron, which is a bad advertisement, but
it was Enron at fault and not the concept. Companies have been operating forms
of internal markets for years, with one department 'selling' competitively to
another, but this takes the idea up a notch. When BP, for example, wanted to reduce
greenhouse-gas emissions, it gave each business unit the right to generate one
tonne of carbon dioxide emissions. It also laid on an electronic trading system
for them to trade those rights among each other. If unit A reduced emissions to
half a tonne, it could sell the rights to its other half tonne to unit B, which
was still pumping out 1.5 tonnes. No one wanted to be unit B, giving money to
unit A, and the company hit its reductions target a full nine years ahead of
schedule. Other intriguing inrernal markets have been aimed at forecasting
sales more accurately, and funding and staffing projects.
If BP has been dabbling in the markers, it has also used the
fourth and final technique, 'entrepreneurial transformation'. This involves
remodelling the entire organization and culture to allow people, particularly
business heads, to feel more like entrepreneurs - and so behave more like
entrepreneurs.
Agreeing a
contract Julian Birkinshaw, a strategic and international management
specialist at the London Business School, has studied BP's transformation and
says that at its heart is a management philosophy that puts the responsibility
for delivering results 'deep down in the organization'. 'Contracts' are set up
between top management and the business unit heads, who are then free to
deliver as they see fit, within certain constraints, The constraints are laid
down by the centre, which also provides various forms of support. The result is
a management model with four components:
1.
Direction -
company strategy, company goals, the markers in which it competes, and its
positioning in those markets. This includes BP's commitment to 'be a force for
good'.
2.
Space -
identifies just how much freedom business heads have to deliver on their
'contracts'. They are free from constant interruption and close supervision and
given the time to experiment and refine their ideas.
3.
Boundaries -
the legal, regulatory and moral limits within which the company operates. They
may be spelt out in documents and codes, or implicitly understood.
Support -
information systems, knowledge sharing programs, training and development,
work/life balance services, all provided by the company to help business heads
do their job.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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