Establishing Corporate Entrepreneurship in the Organization

An organization desiring to establish and entrepreneurial environment must implement a procedure for its creation. Although this can be done internally, frequently it is easier to use someone outside to facilitate the process. This is particularly true when the organization’s environment is very traditional and has a record of little change and few new products being introduced.

The first step in this process is to secure a commitment to corporate entrepreneurship in the organization by top, upper, and middle management levels. Without top management commitment, the organization will never be able to go through all the cultural changed necessary for implementation. Once the top management of the organization has been committed to corporate entrepreneurship for a sufficient period of time (at least three years), the concept can be introduced throughout the organization. This is accomplished most effectively through seminars, where the aspects of corporate entrepreneurship are introduced and strategies are developed to transform the organizational culture into an entrepreneurial one. General guidelines need to be established for corporate venture development. Once the initial framework is established and the concept embraced, corporate entrepreneurs need to be identified, selected and trained. This training needs to focus on identifying viable opportunities and their markets and developing the appropriate business plan.

Second, ideas and general areas that top management is interested in supporting should be identified, along with the amount of risk money that is available to develop the concept further. Overall program expectations and the target results of each corporate venture should be established. As much as possible, these should specify the time frame, volume, and profitability requirements for the new venture, as well as the impact of the organization. Along with entrepreneurial training, a mentor/sponsor system needs to be established. Without sponsors or champions, there is little hope that the culture of the organization can be transformed into an entrepreneurial one.

Third, a company needs to use technology to make itself more flexible. Technology has been used successfully for the past decade by small companies that behave like big ones. How else could a small firm like Value Quest Ltd. compete against very large money management firms, except through a state-of-the-art personal computer and access to large data banks? Similarly, large companies can use technology to make themselves responsive and flexible like smaller firms.

Fourth, the organization should be a group of interested managers who will train employees as well as share their experiences. The training sessions should be conducted one day per month for a specified period of time. Informational items about corporate entrepreneurship in general – and about the specifics of the company’s activities in developing ideas into marketable products or services that are the basis of new business venture units – should be well publicized. This will require the entrepreneurial team to develop a business plan, obtain customer reaction and some initial intentions to buy, and learn how to coexist within the organizational structure.

Fifth, the organization needs to develop ways to get closer to its customers. This can be done by tapping the database, hiring from smaller rivals, and helping the retailer.

Sixth, an organization that wants to become more entrepreneurial must learn to be more productive with fewer resources. This has already occurred in many companies that have downsized. Top-heavy organizations are out of date in today’s hypercompetitive environment. To accommodate the large cutbacks in middle management, much more control has to be given to subordinates at all levels in the organization. Not surprisingly, the span of control may become as high as 30 to 1 in divisions of such companies. The concept of "lean and mean" needs to exist if corporate entrepreneurship is to prevail.

Seventh, the organization needs to establish a strong support structure for corporate entrepreneurship. This is particularly important since corporate entrepreneurship is usually a secondary activity in the organization. Since entrepreneurial activities do not immediately affect the bottom line, they can be easily overlooked and may receive little funding and support. To be successful, these ventures require flexible, innovative behavior, with the corporate entrepreneurs having total authority over expenditures and access to sufficient funds. When the corporate entrepreneur has to justify expenses on a daily bases, it is really not a new internal venture but merely an operational extension of the funding source.

Eighth, support also must involve tying the rewards to the performance of the entrepreneurial unit. This encourages the team members to work harder and compete more effectively since they will benefit directly from their efforts. Because the corporate venture is a part of the larger organization and not a totally independent unit, the equity portion of the compensation is particularly difficult to handle.

Finally, the organization needs to implement an evaluation system that allows successful entrepreneurial units to expand and unsuccessful ones to be eliminated. The organization can establish constraints to ensure that this expansion does not run contrary to the corporate mission statement. Similarly, corporate ventures that fail to show sufficient viability should not be allowed to exist just because of vested interests.

Robert D. Hirsch, Michael P. Peters, Dean A. Shepherd. Entrepreneurship 7th Edition. 2008. McGraw-Hill/Irwin. p75-76.

(Many thanks to SBANC for passing this excellent guidance along. Russ)

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