Idea 19 - Entrepreneurship (50 Management ideas you really need to know)

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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