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Why are Corporate Entrepreneurs not enough?

Posted By Stefano Cavallazzi On 17/06/2015 @ 07:45 In The Big Why | 1 Comment

Foto del profilo di Stefano Cavallazzi

by Stefano Cavallazzi

Research Fellow of Organization and HR Management

What does it take to translate the organization’s entrepreneurial and innovative effort into effective market outcomes? How do you set proper execution practices that allow you to pursue new competitive opportunities? Since Schumpeter suggested that entrepreneurs are the main agents of economic growth and market renewal in 1936, Corporate Entrepreneurship (CE) research has tried to shed some light on how firms can structure a process that allows the organization to identify and pursue value-creating opportunities leveraging on employees’ entrepreneurial behaviors. Scholars developed and refined the Corporate Entrepreneurship Assessment Instrument (CEAI) to evaluate four dimensions of organizational climate (management support, individual work discretion, rewards and time availability) as antecedents of innovative output and concluded that higher levels of entrepreneurial climate generate increased innovation.

Climate is not enough

We (Mikkel Draebye, David Bardolet, Monica Masucci and Stefano Cavallazzi) ran an exploratory survey involving 217 professionals, managers and directors from several functions (from R&D to HR) of large Italian and English companies applying the CEAI.Corporate EntrepreneurshipWe recorded, on average, a high “Climate for CE” score, which adds to the improving trend observed in the literature since the start of the new millennium (Graph 1)*. However, such trend is in contrast with that of reduced amounts of innovations successfully implemented throughout the same years, whether they are product, service or process ones (Graph 2).

Confirming this tendency is the fact that more than 50% of the companies we surveyed had introduced less than three innovations in the last 2 years (Graph 3).Number of innovations

The missing element: systems for Corporate Entrepreneurship

We guessed that reduced innovativeness, in spite of improving entrepreneurial climate, is a clear sign that most organizations sorely lack the necessary organizational processes and capabilities to CE not only possible, but also efficient. Therefore, we identified three groups of systems that enable the proper stimulation, monitoring and management of new ideas surging from the employee or managerial base, at any level, and assessed them within the company we had surveyed:

  • Selection and Development Processes: presence of an effective stage-gate system and top-management review process that rule the submission of ideas, as well as the evaluation, the resource allocation, the management and the killing of new projects;
  • Metrics: presence of clearly defined drivers, metrics and budgeting tools ruling the allocation of resources to new project/ventures;
  • Incentives: presence of significant monetary and non-monetary incentives promoting employees and managers’ commitment to idea generation and project development.

Five best practices for Corporate Entrepreneurship systems

SystemsOur results confirmed our assumption that systems are the true lever that allows turning entrepreneurial climate into effective innovative output. By screening our sample for frequency and quality of innovation, we extrapolated the best practices of our “corporate entrepreneurship champions”:

  1. Structure sound idea and project reviews and dedicated funding systems. Our top performers combine a formal stage-gate process, which sets sound and strict evaluation criteria for each development phase of the new project, with two additional factors. From an organizational design perspective, the development of new projects within the firm is usually entrusted to a dedicated unit. Moreover, from a resource allocation perspective, a pre-ordained percentage of the firm/division’s budget is systematically allocated to the development of new ideas that will come up during the following year.
  2. Adopt a varied-portfolio approach for new projects. Rationalizing new ideas and projects within a portfolio, which is diversified both in terms of strategic goals and in terms of risk profiles, is definitely a must for effective corporate entrepreneurship management. Implementing a diversified portfolio approach to the firm’s set of new projects is a good way to boost the quality of innovation, as it leads to greater innovativeness of the output (e.g. the output is more radically innovative compared to the market and the previous firm experience).
  3. Be disciplined in quickly divesting from inconclusive projects. Highly entrepreneurial firms show strong rigor in putting projects through a severe stage-gate process with clear and strict criteria. In case these criteria are not met, the project is killed without hesitation. Note that killing projects differs from failing: companies rapidly leaving behind ideas that quickly prove unsuccessful free up resources for developing and nurturing truly successful projects, resulting in a higher number of market introductions, as well as in quality of innovation. On the other side, firms that hold over the killing of projects keep financial and intellectual energies stuck in ventures that will likely not see the light or be “just another piece in the market mix”.
  4. Customers first, profits second. Do you remember the 2007 Oakley Thump Mp3 sunglasses? Aiming to merge the technologies of eye sun protection with portable music, Oakley ended up with one of the greatest gadget flops of all time. Even though “innovative”, they were judged esthetically ugly, barely functional and much overpriced by consumers. What sets entrepreneurial champions apart is putting customer appreciation at the forefront of ideas evaluation and development, along with potential sales. The price/cost mix is tailored on what customers want. Profitability is a control metric, not the process driver.
  5. Experienced motivated managers make the difference. Our results highlight that appointing experienced and well-reputed managers to the development of new ventures is a key driver of innovation quality, as it leads to significantly higher levels of radical innovations. Moreover, those experienced managers are not rewarded with specific monetary incentives to develop new businesses. Innovation leaders match their sound market expertise with the specific will to challenge it, aiming to meet the superior goal of renewal for sustained competitive advantage.

We can conclude that, even though essential and powerful, corporate entrepreneurs are not enough. People alone are too likely to fall into the trap of organizational complexity. A systematic approach to corporate entrepreneurship must go beyond organizational climate and get into organizational process design to ensure a structural entrepreneurial empowerment. We are eager to bring this research forward to provide established corporations with actual tools to support entrepreneurial development. In the meantime, keep updated with our team and our activities at the Intrapreneurship Hub at www.intrapreneurshiphub.com.

*The data for Corporate Entrepreneurship Climate was taken from Hornsby, Kurakto & Montagno (1999); Hornsby, Kuratko & Zahra (2002); Hornsby, Kuratko, Shepherd & Bott (2009); Intrapreneurship Hub Exploratory Survey, Bardolet, Cavallazzi, Draebye, Masucci (2015)

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