Corporate entrepreneurship
Shaker A. Zahra
The concept of corporate entrepreneurship (CE) has gained considerable recognition over the past two decades. The concept’s popularity stems from the varied contributions CE can make to a company’s financial and non financial performance (Zahra, Jennings, and Kurtako, 1999). CE can improve financial indicators of performance, such as return on assets and company growth, especially in highly dynamic markets. CE pro vides an opportunity for different groups to collaborate and create new products and goods, thus improving the company’s competitive position. CE activities also create opportunities to learn new skills that allow the company to renew its operations and compete effectively. This learning is crucial for acquiring new competencies and capabilities that make it possible for the firm to explore new growth options beyond its traditional markets and industries (Zahra, 1991).
Dimensions of CE
The concept of CE has been the subject of much discussion, leading to the proliferation of different classifications of its dimensions (Sharma and Chrisman, 1999). One of the most popular definitions views CE as the sum of the firm’s product innovation, proactiveness, and risk taking (Miller, 1983). Product innovation refers to the creation of goods and services. Proactiveness means being at the forefront of change in the industry – leading, rather than imitating other companies in their industries. Risk taking de notes a willingness to invest in projects that are deemed essential for the company’s survival and successful performance, even when the out comes of those investments are uncertain.
There is a growing consensus in the literature that CE consists of three major dimensions: in novation, venturing, and strategic renewal. While the strategic value of these dimensions appears to vary from one industry (and country) to the next, the three dimensions form a constellation of activities that keep the organization innovative.
Innovation is the first dimension of CE; it refers to the firm’s commitment to and investment in creating new products, goods, and ser vices. It also refers to the firm’s creation of new business models. Miller (1983) highlights the importance of radical innovation as a key indica tor of organizational risk taking, which is important for successful CE. Covin and Slevin (1989) argue the importance of pioneering rad ical innovation, suggesting that it requires ser ious organizational resource commitment and specialized managerial and organizational skills.
Venturing is the second component of CE (Guth and Ginsberg, 1990). It centers on the creation of new businesses in existing or new markets. Internal venturing refers to those situations where new creation occurs within exiting markets. Innovation is one of most important routes to internal venturing. External venturing occurs when new business creation takes place outside the boundaries of current business units. Alliances and acquisitions are commonly used in external corporate venturing. Corporate venturing activities serve multiple purposes, such as creating new businesses, developing new organizational competencies and capabilities, learning about distant markets and industries, and keeping the organization alert to various opportunities outside their current operations.
Corporate venturing is risky because it often takes the firm away from its traditional core competencies, leaving it vulnerable to competitive attacks. It is also difficult to integrate new and existing businesses due to differences in cultures, goals, and strategic priorities. New ventures also take away resources from established operations, creating another source of tension within the organization. Some companies may also lack the managerial skills to nurture new ventures and invest in them patiently over a period of time. Therefore, successful corporate venturing requires clear and specific goals, coupled with milestones. It also demands establishing and sharing a set of criteria by which new ventures’ success is evaluated. New ventures need time to develop and influence the organization’s financial performance; therefore, the sustained and visible support of senior executives is also needed. Finally, because many new ventures cross divisional lines, their success demands the broad representation of various units in the firm.
Strategic renewal is the third and final dimension of CE. It refers to the various activities intended to revitalize a company’s operations, build new competitive skills, or change its strategic thrust in fundamental ways. Strategic renewal begins with a vision for the company’s future and the skills necessary to actualize this vision. Senior management should lead the rest corporate entrepreneurship 43 of the organization in developing this vision and share it with other managers and employees. Strategic renewal embodies system wide changes that alter the technological base of the firm, revise its systems and processes, and challenge prevailing cultural assumptions about the market and competition. The effect of strategic renewal on a company’s financial performance might be slow to materialize because it requires significant changes in corporate cultures and managerial decision making.
Centralized vs. Dispersed CE
Given the advantages associated with CE, companies have considered effective ways to stimulate and foster these activities. Some companies opt to formalize their CE efforts by creating units that support and champion these activities. This centralized approach has major pluses, including the coherence of the company’s various activities. This approach also makes it easier for companies to track their investments and evaluate the results gained from CE efforts.
Other companies follow a more dispersed approach to CE, where they use seed money and incentives to encourage entrepreneurial activities. These efforts capitalize on and stimulate employees’ interest in developing and championing innovative ideas that benefit their units and the organization as a whole. These informal initiatives often complement existing formal systems and fill voids that exist in them. Some refer to informal CE activities as ‘‘intrapreneur ship’’ (Pinchot, 1985). Once their viability has been proven, informal activities may receive management support and then be integrated into the company’s formal CE projects. Thus, these informal initiatives are often the forerunners of formal CE venture programs.
Still, conflicts might arise between formal and informal intrapreneurial activities where employees pursue ideas that clash with the formal organizational agenda. Alternatively, managers may suppress informal initiatives that they do not understand or like. It is important, therefore, to create a system within the organization to evaluate informal initiatives and determine which projects have the potential to influence company performance. These projects should be integrated into existing CE systems, units, and structures. In conducting these reviews, managers should be aware that radical ideas often fall well beyond existing business lines or concepts. In these cases, new business creation units (or similar units) might be used to foster the development of these initiatives.
Promoting Intrapreneurship
Several factors stimulate and spur intrapreneur ship. A sense of autonomy gives employees and managers the freedom to take initiative and act. Political, organizational, and financial support from managers – especially when ideas fail – allows employees to explore innovative ideas without fearing the loss of their jobs or damaging their status or reputation. The availability of slack resources also encourages experimentation and exploration of innovative ideas, which are essential to discovering relevant opportunities and proving their market viability. ‘‘Slack’’ refers to organizational resources that exceed the firm’s current needs to accomplish its goals. Slack resources may include excess inputs (e.g., extra employees and unused capacity) and unexploited opportunities (Nohria and Gulati, 1996). Given that they are not committed to ongoing operations, these resources could be used to explore new ideas and prove their viability. The existence of an organic organization structure also promotes discovery and risk taking, which are crucial for successful intrapreneur ship. Organic structures facilitate informal as well as formal communication across divisional boundaries, building support and momentum for new ideas within the firm. The existence of strong and persistent champions also makes it easier for employees to undertake intrapreneurial efforts.
Bibliography
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