Analysis of Corporate Entrepreneurship

The entrepreneurship efforts that lead to the establishment and foundation of new business within companies are called corporate venturing. On the other had if they create organisational entities, autonomous or otherwise, that reside outside the existing organisational sphere, it is external corporate venturing.

The ability to identify and innovatively develop opportunities reduces as businesses move from the entrepreneurial to the growth phase. Retaining this is the key to success in the highly competitive and dynamic environment that most companies now operate in. Hence, there is a corporate need to adopt an entrepreneurial strategy by seeking competitive advantage through continuous innovation to effectively make use of identified opportunities in order to sustain and grow.

For such a strategy to succeed companies have to develop an economic and political environment not getting in the way of rearrangement of resources towards creative and entrepreneurial ends. There are a number of options to choose from to achieve this objective.

There is focused entrepreneurship where precise innovation initiatives are created with the rest of the organisation cut off from them. In addition, there is a managerial approach leading to the creation of organisation wide entrepreneurship. Entrepreneur in these types of organisations is a shared value driving managerial behaviour and creating an organisation wide entrepreneur spirit.

Many established organisations are often unwilling to alter the status quo. They have an inclination to create focused initiatives to identify and utilize new opportunities. While those may copy innovation, the very nature of their design erects hurdles between the existing organisation and the innovation effort. From the organisation’s viewpoint it becomes difficult to access and leverage the existing potential base and to put together new initiatives back into operational activity.

Expansion and continuation of organisation wide entrepreneurship, independent of the growth stage, require creation of a milieu in which those believing in the influence of opportunities feel encouraged to pursue them. The corporate level of such companies needs to design an organisational background contributing to autonomous generation of entrepreneurial initiatives. They provide a substance of overall guidance to these initiatives and make sure that potential ventures get the necessary resources as they move through the uncertain development process. The following needs to be noted at this juncture.

• There is neither a monetary offer nor is it seen as a principal motivator.
• Aids to entrepreneurship are rewarded with recognition and openings to engage in more such activities on a larger scale.
• Failure is considered normal and when it occurs, the focal point is problem solving and understanding rather than apportioning responsibility.
• Suitable procedures are used to acquire knowledge created in the innovation process and routines developed to allow absorption of such knowledge to create organisational

The contrasting pattern of focused and organisation wide entrepreneurship runs across every organisational factor. This starts with its mission and covers strategy, structure, systems, processes, people skills and attitude. In today’s business surroundings, institutionalising the elements of entrepreneurship is crucial in building a sustaining competitive organisation.

Fierce competition among existing players and the emergence of many focused competitors targeting specific market segments: this is the competitive background in many industries. The environment is depicted by swift technological advancement in many fields resulting in current solutions to customer problems becoming out of date. Hence, any company that is not continually developing, acquiring and adapting to new technological advances and to the changing business environment may be making the unplanned strategic decision to be out of business within a few years.

Due to these changes companies strongly need to become entrepreneurial. Globally they are attempting to promote entrepreneurship so that business opportunities are recognised and exploited. Many have succeeded in their endeavour to do so. They have developed new approaches to innovate and create new businesses realising profitable growth. Change, innovation, and entrepreneurship describe what such successful companies do to remain competitive. At the same time, a larger question emerging is the challenge of sustaining such changes, both in growing and mature organisations, particularly when the charismatic leadership that inspired the change exists no more. It is an organisational inconsistency. While the existing capabilities provide the basis for the current performance of a company they are likely to restrain the future ability to compete. Institutionalising entrepreneurship, therefore, is a major challenge for companies in the current competitive scenario.

Definition of corporate entrepreneurship

The essence of entrepreneurship is modernisation leading to wealth creation and sustained growth of corporations. The motive for entrepreneurship lies in the urge to identify the sources of existing and emerging customer dissatisfaction and developing solutions to eliminate them.

There are three main phases in the entrepreneurial process: the awareness and commitment to opportunity, the search of opportunity and decommitment. The first involving the process of identifying an opportunity is the toughest of all the phases.

Though in recent years we have witnessed a major research interest in opportunity identification except for a few frameworks developed by Kim and Mauborgne (2000), Ramachandran (2003), and Shane (2004), the research is essentially limited in this field.

It may be highlighted that corporate entrepreneurship is the process by which individuals inside organisations pursue opportunities not considering the resources they currently control. An entrepreneurial manager links up detached pieces of new technical knowledge that provide solution to a customer problem, matches this technical capability with the satisfaction of the market and brings together resources and skills needed to take the venture to the next level. This process creates new businesses and leads to the alteration of companies through a renewal of their key ideas.

Within the realm of existing firms, corporate entrepreneurship encompasses three types
of phenomena that may or may not be interrelated. These are:

1. The birth of new businesses within an existing firm
2. The transformation of the existing firms through the renewal or reshaping of the key ideas on which they are built
3. Innovation

Researchers have used a variety of labels to describe the first two phenomena. The creation of new businesses by firms through this process has been called internal corporate venturing, intrapreneurship and so on. The process of transformation of corporations through a renewal of their key ideas has been called strategic renewal, strategic change, revival and transformation, organisation renewal and so on. Synthesising these views, Sharma and Chrisman define corporate entrepreneurship as the process whereby an individual or a group of individuals, in association with and existing organisation, create a new organisation or instigate renewal or innovation within that organisation.

Corporate entrepreneurship efforts that lead to the creation of new business organizations within the corporate organisation are called corporate venturing. They may follow from or lead to innovations that exploit new markets or new product offerings or both. If corporate venturing activities result in the creation of semi-autonomous or autonomous of organisational entities that reside outside the organisational domain, it is called external corporate venturing. If corporate venturing activities result in the creation of organisational entities that reside within an existing organisational domain, it is called internal corporate venturing.

Strategic renewal refers to the corporate entrepreneurial efforts that result in significant changes in an organisation’s business or corporate level strategy or structure. These changes after the pre-existing relationships within the organisation or between the organisation and its external environment and in most cases will involve some sort of innovation. Renewal activities reside within an existing organisation and are not treated as new businesses by the organisation.

As is evident from the above discussion, innovation is at the heart of entrepreneurship and refers to the introduction of a new product, process, technology, system, technique, resource or capability to the firm or its markets either independently or as part of an organisational rejuvenation process.

Advantages

Corporate entrepreneurship can make a significant difference to a company’s ability to compete. It can be used to improve competitive positioning and transform corporation, their markets and industries when opportunities for value-creating innovations are developed and exploited. A key benefit to corporate entrepreneurship may be to push companies to employ a range of strategies often in unique combination. By doing so, companies build layers of advantage by combining distinctive bases for competitive superiority.

There have been many studies to substantiate the above-mentioned claims. Corporate entrepreneurship can improve a company’s growth and profitability. The empirical evidence that corporate entrepreneurship improves performance by increasing the company’s proactiveness and willingness to take risks through development of new products, processes and services has been termed compelling.

A longitudinal study by Zahra and Covin provides the best evidence of a strong corporate entrepreneurship performance relationship. Their study examined the longitudinal impact of corporate entrepreneurship on a financial performance index composed of growth and profitability indicators. Using data from three separate samples and a total of 108 companies, they identified a positive and strengthening linkage between corporate entrepreneurship and subsequent financial performance. In recent years, academic and practitioner interest has shifted more to the process of nurturing corporate entrepreneurship since the debate has moved from whether or not corporate entrepreneurship benefits to the ways and means of maximizing benefits.

How to Promote Entrepreneurship

Most organisations lose their entrepreneurial spirit and once they cross the start-up phase. The transition from an entrepreneurial growth company to a well-managed business is usually accompanied by a decreasing ability to identify and pursue opportunities. Initiatives and excitement give place to structure and systems. Organisations become blind to opportunities in the process. Some of the practices that contribute to the successful management of resources inhibit the pursuit of opportunity. In recent years, the assumptions about strategic and operational environments of the firm have been undergoing rapid changes and the mix of organisational resources necessary to keep pace with them will have to essentially be different. Most organisations, however, do not realize when and what changes are required and how to accomplish them especially when the managers do not feel compelled.

In order to enable the organisation to constantly breathe an air of innovation and excitement, there is a need to develop and economic and political eco-structure that does not impede small and large-scale redeployment of resources in new ways towards creative ends. Therefore, firms must create systems that focus the attention of individual participants on the innovation as an important and expected activity and direct group and firm behaviours toward entrepreneurial ends.
An entrepreneurial organisation will institutionalize practices that establish an organisational environment in which innovation is considered an accepted and appropriate response to organisational problems. These practices build commitment and enthusiasm by creating a shared sense of purpose and meaning in the organisation. This ensures that all the firm’s technical and business skills are brought to bear to achieve its purpose. This also helps in developing a culture that encourages creativity and creates a passion for innovation in the firm. Culture is an important determinant influencing individual’s willingness to accept entrepreneurial change. Organisational culture can be a source of sustained competitive advantage.

In essence, organisations must learn to think and act in a dynamic equilibrium. This is a challenge but they have arranged of options to choose from depending on the size, competition and industry structure to achieve entrepreneurial excellence. At one end of this spectrum lies the focused initiative covering specific parts of the organisation and at the other, initiatives that attempt to breathe entrepreneurship across the organisation. The former is called surface entrepreneurship and the latter deep entrepreneurship.

Focused Entrepreneurship

Organisations that are mature in a number of aspects such as product market strategy, people’s attitudes, and structure and control systems would most often not like to upset their existing applecart in any way while exploring new growth avenues. Since their ability to identify and exploit opportunities has declined, they attempt to promote entrepreneurship by mandating it as a corporate objective. In some cases, entrepreneurship is injected into the organisation through appointment of one or more proven independent entrepreneurs. In others, someone from within who may have shown some of the attributes of entrepreneurship such as initiative, innovativeness and change leadership is chosen to lead the effort. They develop new products or services and often lead their implementation insulated from the restrictive approach of the rest of the organisation. Such attempts are often accompanied by the use of steep financial incentives to match the potential rewards of independent entrepreneurship.

In this process, the entire organisation does not become entrepreneurial and the existing product market strategy is not threatened, but it is able to add new products or services to its matured portfolio. This is a low risk approach considering that changing the chemistry of an organisation is not easy. Also, this can be a prelude to undertaking an organisation wide initiative that changes the chemistry of the firm. However this approach has its own limitations.

Challenges

Entrepreneurship needs passionate managers who are excited about championing entrepreneurial initiatives. Identification of such individuals may not always be automatic. Promoting entrepreneurship through a mandating process results in the appointment of managers into the role of an entrepreneur – a role for which they may be unsuited. Such managers may follow a mechanical or superficial search process in pursuit of presumed opportunities. While they may be good at preparing an attractive business plan, the quality of the basic idea itself may be questionable if the team lacks entrepreneurial qualities. This is particularly so if the environmental characteristics are not conducive. Some organisations have gone to the extent of literally recruiting start up entrepreneur. However, appointment of independent entrepreneurs in the role of corporate entrepreneurs leads to difficulties as they neither have the patience nor the experience to navigate the political and cultural realities of the organisations. It is useful to remember that the perception and exploitation of opportunities for innovation go beyond the efforts of one key manager. In short, it is difficult to sustain such injections of entrepreneurship.

While the use of steep financial incentives creates perceptions of inequity that could even result in the sabotage of the entrepreneurial initiative, use of existing financial control systems to monitor entrepreneurial ventures leads to frequent intervention and misguided direction during the progress of these ventures. The root cause of these difficulties is the use of the classical approach of setting objectives, motivating people to accomplish them. And monitoring and controlling such accomplishment. This approach works for activities for which expected results and the process to achieve them are well known. By its very nature, entrepreneurial activity seldom fits this mould. However, there are evidences of variations of this approach existing that actually encourage small experimental initiatives by managers who always demonstrate entrepreneurial qualities such as initiatives, idea generation, and networking. Stopford and Badenfuller found that it is possible for companies to shed past behaviours and adopt policies fostering entrepreneurship and accumulate initiative resource bundles that provide a platform on which industry leadership can be built. The path to be adopted begins with individual entrepreneurship by some key managers which broadens into renewal of the entire organisation. The resources and capabilities created in the process of renewal provide a platform on which far reaching industry changes can be built.

It is pertinent to discuss here some parallel organisational forms such as new venture divisions and skunk works that companies have used to stimulate entrepreneurial behaviour. We agree with the view of Floyd and Wooldridge derived from their observation of one of these forms in practice, that while these parallel forms may stimulate initiative, by their very nature, the design erects barriers between the ongoing organisation and the renewal process. This makes it more difficult to access and leverage the existing capability base and to integrate new initiatives back into operational activity.
The mixed results obtained by Hindustan Lever Ltd. under its Project Millennium initiative in the beginning of this century are a case in point.