What Stimulates Entrepreneurship In Large Organizations Commerce Essay

This paper discusses how large organizations deal with entrepreneurial activity. Entrepreneurship Is often associated with small firms. These small firms are more flexible, they don’t have problems with bureaucratic structures and as a consequence they are more speedy in coming up with new inventions. On the other hand, Peter Drucker (innovation and entrepeneurship) states that entrepreneurship is based upon the same principles, whether the entrepreneur is an existing large institution or an individual starting its own venture. So the nature of entrepreneurship is the same in both cases.

To succeed in today’s unpredictable world, companies large and small must be agile and able to respond quickly to fast-moving markets (Taylor 2001).

In this case we will focus on the large companies who have to encounter a lot of problems if they want to implement corporate entrepreneurship. In the first part, we do a literature review concerning corporate entrepreneurship. Here we will look for constraints of and solutions to corporate entrepreneurship.

In the second part we combine theory with practice. Through in depth interviews I would like to learn how a large organization (Barco) manages corporate entrepreneurship, what problems they have and if they get result from their actions. ( A big ship isn’t easy to turn). I will do this by following a structure based on the framework of Morris (1998). This framework includes the following aspects: systems, structure, strategic direction, policies, people and culture. For every aspect I would like to have an interview with a responsible to get insight on how Barco applies corporate entrepreneurship.

By considering every aspect I want to learn which methods Barco applies and which it doesn’t apply and why this is the case.

Taylor Bernard (2001), ” From corporate governance to corporate entrepreneurship”, Journal of Change Management, 2:2, 128-147

Literature Review

Definition: What is corporate entrepreneurship?

Definitions of corporate entrepreneurship vary a lot. Some authors speak of intrapreneurship (Gifford Pinchot, 1985), others form corporate venturing (Chesbrough, 2002).

von Hippel (1977) defines corporate venturing as an activity that aims at creating new businesses for the corporation through the development of external or internal corporate venture.

Corporate entrepreneurship is a term used to describe entrepreneurial behavior inside established organizations (Guth & Gingsberg, 1990). Damanpour (1991) states that at a basic level corporate entrepreneurship involves the generation, development and implementation of new ideas and behaviors by a company.

Zahra (1991) argues that corporate entrepreneurship can have formal and informal activities aimed at creating new businesses inside of established companies through product and process innovations and market developments.

From all the definitions we may conclude that there is no real consensus of what corporate entrepreneurship exactly is. Maybe a definition is to narrow to describe the whole process of corporate entrepreneurship. Corporate entrepreneurship is not an exact science and every firm adapts it in other ways. This is why we may not see this definitions in a strict way. Therefore we will look at corporate entrepreneurship as a system-wide activity undertaken within the context of existing firms.

Pinchot, Gifford III, Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur (1985). University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.

Chesbrough, H.W. (2002) ” Making Sense of Corporate Venture Capital”, Harvard Business Review, March

von Hippel, E. (1977). The sources of innovation. New York: Oxford University Press.

Guth, W. D., & Ginsberg, A. (1990). Guest editors’ introduction: Corporate entrepreneurship.

Strategic Management Journal, (Summer),11, 5-15.

Damanpour, F. 1991, ” Organizational Innovation: A Meta-Analysis of Determinants and Moderators”, Personnel ( September): 28-36

Zahra, S. (1991). Predictors and financial outcomes of corporate entrepreneurship: An

exploratory study. Journal of Business Venturing, (July),6, 259-285

Motivation: Why engage in corporate entrepreneurship?

Today firms are struggling to reinvent themselves and find ways how they could survive. For some companies it’s already too late but for others corporate entrepreneurship may be the key to survive.

The way of doing business has tremendously changed in the 21st century. Today companies must survive in a fast changing global environment where uncertainty is higher than ever. Firm nowadays need to become flexible and adaptive. One way by doing this is by stimulating entrepreneurship within the organization. Authors argue that entrepreneurship becomes key in the sustainability of large firms ( Baumol, 1996; Audretsch & Thurik, 2001). The dynamic that drives real competitive advantage is entrepreneurship and innovation.

Previous research also supported a positive relationship between intrapreneurship and growth, profitability, or both ( Covin and Slevin, 1986) for large firms in general, as well as for small firm performance in hostile environments ( Covin and Slevin, 1989)

Other reasons for stimulating entrepreneurship are that you take advantage of the in-house genius ( Adams 1996 ) and that you can exploit new market opportunities ( Eggers 1999 )

Baumol, W.J. (1996), “Entrepreneurship: Productive, unproductive, and destructive”, Journal of Business Venturing, 11(1), 3-22

Audretsch, D. B., & Thurik, A. R. (2001), “What’s new about the new economy? From the managed to the entrepreneurial economy” , Industrial and

Corporate Change, 10(1), 267-315

Covin, J.G., and Slevin, D.P. (1986), “The development and testing of an

organizational-level entrepreneurship scale” , In R. Ronstadt et al., eds., Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College.

Covin, J.G., and Slevin, D.P. (1989), “Strategic management of small firms

in hostile and benign environments”, Strategic Management Journal 10(January):75-87.

Adams, R. V. (1996). Inspiring innovation. International Business, 9, 56-58.

Eggers, J. H. (1999). Developing entrepreneurial growth. Ivey Business Journal, (May),63,

76-81.

Obstacles for corporate entrepreneurship

A lot of large companies started to see the importance of corporate entrepreneurship. These companies were mostly used to work in old bureaucratic ways with a lot of control and hierarchical structures. Nowadays these companies realize that they have to change into entrepreneurial entities. The change from corporate governance to corporate entrepreneurship could be seen as a large problem because it has to deal with all the organizational aspects. To bring in corporate entrepreneurship in an organization everything has to be right.

There are a lot of obstacles for corporate entrepreneurship. Given the large number of potential constraints, it is helpful to identify general categories into which they can be grouped. Morris ( 1998) captured obstacles and divided them in six groups: culture, strategic direction, structure, systems, policies and people. This way of structuring seems interesting because we can then think of solutions in a planned way. By considering every aspect we are more focused and keep an overview of different processes who often work together. In this paper I will use and extend the framework of Morris to handle most constraints of corporate entrepreneurship and look how a large company applied solutions to these problems. Let us look at each of the categories in more detail.

CULTURE

Cornwall and Perlman (1990) define culture as “an organization’s basic beliefs and assumptions about what the company is about, how it members behave, and how it defines itself in relation to its external environment”.

Many authors have identified the critical role that corporate culture plays in the organizational process (e.g. Deal & Kennedy, 1982; Martin 1992; Sackmann 1992). Cornwall and Perlman (1990) have written that culture is a key determinant of, and the first step in fostering, entrepreneurial activity within an organization. For instance, Sony’s success in product innovation has been largely attributed to the success with which the company has inculcated its “Sony Spirit” in employees (Quinn, 1985). Although setting up a culture may not be that straightforward.

Firstly, a culture that is risk averse, or very process driven, is almost by definition discouraging employees from being entrepreneurial. ( Morris, Kuratko & Covin, 2011). Kriegesmann et al. (2005) have noted a tendency within companies to develop “zero error cultures” as competitive strive to meet high performance standards in a hypercompetitive marketplace. Managers therefore wrongly believe that zero errors are proof of high performance standards.

Secondly, companies often can’t make clear what they stand for, or do not achieve a consensus over value priorities (Morris, 1998). To stimulate entrepreneurship there should be a clear focus on what the company is about. The elements of a culture should be in line with the vision, mission and strategies of an organization.

Thirdly, culture itself is very complex and cannot be easily changed. For example, a non-innovative firm could bring in an extremely entrepreneurial CEO, and it could take seven to ten years (or more) to realize a substantial cultural change (Morris, Kuratko & Covin, 2011).

Fourthly, The culture itself may be too strong or too commanding. In this manner, homogeneity is stimulated and people are not allowed to think outside the cultural box. This can lead to stagnation and a reduced ability to adapt changes in the environment (Cloke and Goldsmith, 2002).

As corporate entrepreneurship asks for change and diversity, a culture that is too imposing could be tremendous for corporate entrepeneurship.

Lastly, individualism-collectivism would also appear to be an important dimension of organizational culture (Morris, Davis & Allen, 1994). A culture that focuses too much on individualism or collectivism may not be encouraging for corporate entrepreneurship. The result will be modest levels of entrepreneurship (Morris, Davis & Allen, 1994).

A high individualistic culture may produce strong incentives for entrepreneurial behavior, but will also result in gamesmanship, zero-sum competition, sequestering of information, and the chaotic pursuit of tangential projects having little fit with the organization’s competencies or overall direction. (Maidique 1980; Quinn 1985; Reich 1987; Rosenbaum et al. 1980; Steele 1983). Furthermore, individuals will more likely use organizational resources to satisfy self-interests and many tasks will be left incomplete as individuals are unable to obtain cooperation from those have the expertise. (Morris, Davis & Allen, 1994).

On the other extreme, a strongly collectivist atmosphere may actually give rise to an anti-entrepreneurial bias. Companies therefore may suffer from “free-riding” or “social loafing” syndromes. (Earley 1989; Jones 1984; Albanese and Van Fleet 1985).

The way in which a firm sets up a good corporate culture and handles the above problems will be determining for the firm’s entrepreneurial success, as culture gives people direction and keeps the whole organization together.

Morris, M. H. 1998. Entrepreneurial Intensity ( Westport, CT: Quorum Books)

Deal, T., & Kennedy, A. (1982), Corporate cultures. Reading, MA: Addison-Wesley.

Martin, J. (1992). Cultures in organizations: Three perspectives. Oxford: Oxford University Press.

Sackmann, S. (1992), Culture and subcultures. An analysis of organizational knowledge. Administrative Science Quarterly, 37, 140-161

Cornwall, J. and Perlman, B. (1990) Organisational Entrepreneurship, Homewood, ///.: Irwin. Macmillan.

Quinn, J.B. (1985). Managing innovation: Controlled chaos. Harvard Business Review, 73-84

Cloke, K. et al., 2002. The end of management and the rise of organizational democracy, Jossey-Bass.

Michael H. Morris, Duane L. Davis, Jeffrey W. Allen (1994), Fostering Corporate Entrepreneurship : Cross-Cultural Comparisons of the Importance of Individualism versus Collectivism, Journal of International Business Studies, Vol.25, pp. 65-89

Earley, P. Christopher, (1989). Social loafing and collectivism: A comparison of the United States and the People’s Republic of China, Administrative Science Quarterly, 34: 565-81

Jones, Gareth, (1984) Task visibility, free riding, and shirking: Explaining the effect of structure and technology on employee behavior. Academy of Management Review, 9: 684-95

Albanese, Robert & David D. Van Fleet. (1985), Rational behavior in groups: The free-riding tendency, Academy of Management Review, 10: 244-55.

Kriegesmann, B., Kley, T., and Schwering, M. (2005), “Creative errors and Heroic Failures: Capturing Their Innovative Potential,” Journal of Business Strategy, 26(3): 57-64

STRATEGIC DIRECTION

Michael Porter (1996) draws a critical distinction between strategy and operational effectiveness, arguing that managers are increasingly preoccupied with the latter and ignorant of the former. As operational effectiveness could be effective in the short run, it fails in the long run. Therefore, firms need to find strategies for long run survival.

Firms that want to engage in successful corporate entrepreneurship need to have an entrepreneurial orientation. Entrepreneurial orientation refers to the strategy-making practices that businesses use to identify and launch corporate ventures (Dess and Lumpkin, 2005). In the absence of an entrepreneurial orientation, the goal of corporate entrepreneurship may not be reached.

Furthermore, entrepreneurship in a firm may not be achieved if there is no meaningful direction from the top. This requires good leaders with a clear vision and commitment to entrepreneurship. Instead, top management is often more cautious with new opportunities. This could be a major problem because with no top management support, nobody will feel to engage in entrepreneurial activity and take risks. Hence, middle-and lower-level employees are strongly influenced by the role models found at the top of the firm. In the absence of specific goals for product and process innovation and a strategy for accomplishing such goals, entrepreneurship will only result accidentally or by chance (Morris, Kuratko & Covin, 2011).

Besides that, firms could also have problems to define a strategy that encounters both exploration and exploitation. As exploration and exploitation are often two opposing forces, the strategy of a firm needs to find a balance between these two. This mental balancing act can be one of the toughest of all managerial challenges -it requires executives to explore new opportunities while working on exploiting existing capabilities (O’Reilly & Tushman, 2004).

A final note is that strategy formulation itself is not enough. The actual execution of a strategy is as important as the strategy itself. Implementing the strategy requires adequate structures, systems, procedures and human resource practices.

Gregory G. Dess, G.T. Lumpkin (2005), The role of Entrepreneurial Orientation in Stimulating Effective Corporate Entrepreneurship.

O’Reilly C. & Tushman M., (2004), The ambidextrous organization, Harvard Business Review, 74-81.

Porter, M.E. (1996), “What is Strategy?”, Harvard Business Review, 74(6): 61-78.

STRUCTURE

Structure typically depends on a number of factors such as the nature, the size, the strategies and environmental conditions of a firm (Burns, 2005). Although there is no one best structure, it is generally argued that a company’s structure follows from the strategy. If entrepreneurship and innovation are integral part of the company’s strategy, then inconsistencies with certain general types of structure can be problematic.

Morris, Kuratko & Covin (2011) state that a hierarchical structure is a typical problem in large organizations. A hierarchical structure seems to be problematic because this reduces the ability to identify market opportunities and to take risk. Entrepreneurship suffers the farther away decision making becomes from everyday operations. Other entrepreneurial barriers within a hierarchical structure are top-down management and restrictive communication channels. In contrast, as an organic structure may be more preferred to stimulate corporate entrepreneurship (e.g. Morris and Kuratko, 2002) , organic structures may also have some pitfalls. For instance, if teams almost work autonomously, this can result in anarchy.

Additionally, there is a tendency to continually narrow the span of control of managers over subordinates. The result is over-supervised employees with little room for creativity.

To finish, structures that give responsibility for entrepreneurial activities to managers without delegating a certain amount of authority also constraints corporate entrepreneurship as managers will feel frustrated. Therefore, some hierarchy, that gives managers some authority could be desired.

Burns P., (2005), Corporate Entrepreneurship: Building an Entrepreneurial Organisation, Palgrave Macmillan

Morris, H.M. and Kuratko, D.F. (2002), Corporate Entrepreneurship, Fort Worth: Harcourt College Publishers.

SYSTEMS

Large organizations typically depend on a number of formal managerial systems that have evolved over the years. These systems were needed to coordinate the increasingly complex corporate environment and were focused on stability, order and coordination. Within this focus, entrepreneurship is discouraged (Morris, Kuratko & Covin, 2011).

The question here arises in what way the old systems are obsolete for corporate entrepreneurship. As corporate entrepreneurship requires other systems, companies are forced to try new things. In what way could the old system be used and in what way are new systems required? For example, how do companies use control, budgeting and planning systems that foster innovation and entrepreneurship?

Control systems have historically placed a heavy emphasis on efficiency, sometimes ignoring or even undermining effectiveness (Morris, Schindehutte & Allen, 2006). Probably, control systems may be too strict for corporate entrepreneurship. Budgeting systems provide no flexibility for the funding of experimental projects and tend to reward the politically powerful. Planning systems are often too harsh and become prescribed, they focus on the planning document rather than the planning process, and often use professional planners instead of relying on the people who really are involved (Morris, Kuratko & Covin, 2011).

Lastly, these systems could be supported by new technologies. The way in which firms use information and communication technologies could help them achieve a better environment for corporate entrepreneurship. If information systems are absent or deficient, innovation could be slower.

POLICIES AND PROCEDURES

First of all, it should be clear that policies and procedures are a smaller part of the larger control system. Policies and procedures are in fact the underlying elements of how control systems work. For example, inflexible policies and strict procedures will result in rigid control systems, which, as I have discussed, are tremendous for entrepreneurial activity.

The procedures that people have to follow when they want to introduce new entrepreneurial activity may be too strict. Two of the most costly side-effects of detailed operating policies are complex approval cycles for new ventures and detailed documentation requirements (Morris, Kuratko & Covin, 2011). This could be seen as red tape for entrepreneurial activity. If procedures are very complex, people are blocked and give up their ideas.

Nevertheless, some procedures are definitely required for making decisions about which project may be initiated and which may not. The fact is that those procedures are often too severe. For example procedures often impose unrealistic timetables and performance benchmarks on entrepreneurial programs (Morris, Kuratko & Covin, 2011).

They way in which firms can overcome these strict policies and procedures will lead to better corporate entrepreneurship.

PEOPLE

Al of the entrepreneurial activity depends on the people, it are the people who have to do it.

The treatment of people is done by human resource management. Human resource management is responsible for the recruitment, training, motivation, evaluation and rewarding of people. When a firm engages in corporate entrepreneurship, human resources also need to apply new methods.

The main problem with people is that they have a natural tendency to resist change. This is a big problem as entrepreneurship requires a lot of change. How does HR helps to change people minds in the direction of corporate entrepreneurship? What problems do they face?

Next to that, people are afraid of failure. It is important for HR to see failure as a process of learning. The way in which HR treats failure may therefore be important for the entrepreneurial people.

Another people-related aspect is the lack of skills and talent in the entrepreneurial area. Therefore recruitment and training of qualified people may be very important.

A different aspect of corporate entrepreneurship is that people should have some freedom in their work. For example 3M was the first company that introduced “organizational slack” as a key factor for corporate entrepreneurship, enabling their engineers and scientists to spend 15% of their time on projects of their own design. As a result of this many inventions came out of 3M (e.g., Post it Notes and Scotch Tape). CASE Google. How do other companies do this? Do they also give some time to work on own projects or do they use other methods? How does HR deal with autonomy of their people. Autonomy is necessary for people to work on entrepreneurship. But what is a good autonomy. Shouldn’t there be some control?

Furthermore, corporate entrepreneurship often requires to work in teams. How does HR helps to form decent teams? How do they encounter the problem of free-riding?

One more aspect of HR is that they are responsible for rewarding people. How does HR give bonuses for new entrepreneurial activity. Especially the rewarding of teams may not be that easy.

Breaking through the obstacles

The way in which an organization can deal with the above obstacles will be determining for their entrepreneurial success. In this section we will look at research that offers solutions to overcome the problems and constraints of corporate entrepreneurship.

CULTURE

In this section we will look at the literature concerning solutions to set up a decent culture that stimulates entrepreneurship within a firm.

First of all, an entrepreneurial culture should have some basic values concerning entrepreneurship. Entrepreneurship therefore requires a culture built around risk, innovation, emotional commitment, autonomy, and empowerment, among others (Cornwall and Perlman 1990; Peters 1987; Pinchot 1985; Waterman 1987).

It is important that a culture is open for risk-taking and sees failure as an opportunity to learn from. In that way, culture can help to overcome people’s natural tendency to fear failure. For example Nokia’s culture states that “you are allowed to have a bit of fun, to think unlike the norm, where you are allowed to make a mistake” (Leavy, 2005, p. 39). In the factories of BMW there is a “flop of the month” award, given by the senior executive for “successful failures” (Kriegesmann et al., 2005). Here it is recognized that failure is needed to innovate and learn.

Next, a culture needs a clear vision about what the company stands for. It is here that leadership comes into place. It is difficult to build a culture without someone having a vision about the future. According to Covin & Slevin (1991), top management values and philosophies are essential variables of firm-level entrepreneurship. There should be a clear voice from top management that gives direction towards an entrepreneurial culture. Moreover, vision, mission and strategy should be aligned. For example, you can’t have an entrepreneurial vision when your strategy is imitating competitors.

As a final point, the culture should find a good balance between individualism and collectivism. Corporate executives must recognize and proactively manage this dimension of culture. The highest levels of entrepreneurship will occur when a fairly balanced amount of consideration is given to the needs of the individual and the collective (Morris, Davis & Allen, 1994). Individuals are needed to provide the vision, commitment, and internal salesmanship because otherwise nothing would be accomplished. But as the process unfolds, the entrepreneur requires teams of people with unique skills and resources.

Cornwall, Jeffrey T. & Baron Perlman, (1990), Organizational entrepreneurship. Homewood, ///.: Irwin.

Peters, Thomas. (1987), Thriving on chaos, New York: Alfred A. Knopf.

Pinchot, Gifford, ///. (1985), Intrepreneuring, New York: Harper and Row.

Waterman, Robert H, (1987), The renewal factor: How the best get and keep the competitive edge, New York, Bantam Books.

Leavy, B. (2005), “A Leader’s Guide to Creating an Innovation Culture”, Strategy & Leadership, 33(4): 38-45.

Jeffrey G. Covin, Dennis P. Slevin (1991), A Conceptual Model of Entrepreneurship as Firm Behavior, Baylor University

STRATEGIC DIRECTION

Many fast-growing young corporations attribute much of their success to an entrepreneurial orientation. By illustration, 3M is a good example of how a corporate strategy can induce internal venture development. Every aspect of 3M’s management approach is aimed at new venture creation and 3M’s policies create a climate of innovation and entrepreneurial development. (Dess and Lumpkin, 2005).

Dess and Lumpkin (2005) emphasize the role of entrepreneurial orientation towards successful corporate entrepreneurship. The dimensions of entrepreneurial orientation include autonomy, innovativeness, proactiveness, competitive aggressiveness and risk-taking.

Moreover, Geller (1980) argued that a risk-taking, highly venturesome, and innovative top management style is appropriate in “invest/grow” situations.

In a study of Barringer and Bluedorn (1999) a positive relationship was found between corporate entrepreneurship intensity and scanning intensity, planning flexibility, locus of planning, and strategic controls. These are all part of the strategic management practices.

Environmental scanning refers to the managerial activity of learning about events and trends in the organization’s environment (Hambrick, 1981).

Planning flexibility refers to the capacity of a firm’s strategic plan to change as environmental opportunities/threats emerge. Flexible planning systems allow firms to adjust their strategic plans quickly to pursue opportunities and keep up with environmental change (Stevenson and Jarrillo-Mossi, 1986).

The term locus of planning refers to the depth of employee involvement in a firm’s strategic planning activities. A deep locus of planning involves a high degree of employees from all hierarchical levels in the planning process (Barringer and Bluedorn, 1999).

Strategic controls base performance on stragically relevant criteria, contrasting to objective financial information (Gupta, 1987; Hoskisson and Hitt, 1988). Examples of strategic control measures include customer satisfaction criteria, new patent registrations, quality control, etc.

Next, the challenge to balance exploitation and exploration could be seen as a major task for the top management. The company’s leaders must decide if they should house mainstream and newstream activities in physically separate units within the organization (spatial separation approach) or if major innovative activity should be periodically performed within mainstream units (temporal separation approach) (Baden-Fuller and Volberda, 1997).

According to Morris, Kuratko and Covin (2011) organizational ambidexterity is encouraged when top-level managers assume direct responsibility for both mainstream and newstream. By placing themselves in roles where they directly interact with both the exploitation-focused and exploration-focused sides of their organizations, top managers can more effectively balance the resource commitments needed to achieve current and future competitiveness. Finally, top managers help create ambidextrous organizations by setting explicit goals for innovative outcome. For example 3M wants at least 25 percent of its annual sales coming from products introduced over the preceding five years.

Lastly, the implementation of a firm’s entrepreneurial strategy relies largely on middle-level managers. According to Kuratko et al. (2005), “Middle-level managers endorse, refine, and shepherd entrepreneurial opportunities and identify, acquire, and deploy resources needed to pursue those opportunities.”

Baden-Fuller, C., and Volberda, H. 1997. “Strategic Renewal: How Large Complex Organizations Prepare for the Future,” International Studies of Management & Organization, 27(2): 95-120

Geller, A. (1980), Matching people to business strategies, Financial Executive, 48(10), 18-21.

Bruce R. Barringer, Allen C. Bluedorn, The relationship between corporate entrepreneurship and strategic management, Strategic Management Journal, 20: 421-444.

Hambrick, D.C. (1981), “Specialization of environmental scanning activities among upper level executives” Journal of Management Studies, 18, pp. 299-320.

Gupta, A.K. (1987), “SUB strategies, corporate-SBU relations, and SBU effectiveness in strategy implementation”, Academy of Management Journal, 30, pp. 477-500.

Hoskisson, R.E. and M.A. Hitt (1988), “Strategic control systems and relative R&D investment in large multiproduct firms”, Strategic Management Journal, 9(6), pp. 605-621

Kuratko, D.F., Ireland, R.D., Covin, J.G. and Hornsby, J.S. (2005), “A Model of Middle-Level Managers’ Entrepreneurial Behavior”, Entrepreneurship Theory and Practice, 29(6): 699-716.

STRUCTURE

Structural context, according to Burgelman (1983) refers to “the various administrative mechanisms which top management can manipulate to influence the perceived interest of the strategic actors at the operational and middle levels in the organization”. The corporate entrepreneurship and the innovation literatures indicate that one method of managing the uncertainties of innovation is through organizational structure (Burgelman, 1983, 1984; Nielsen, Peters & Hisrich, 1985; Tornatzky et al., 1983).

In general, results indicate a link between higher levels of innovation and more organic structures (rather than mechanistic structures) characterized by decentralization, lack of formalization, open communication, broader span of control and high levels of complexity ( for example: Covin & Slevin, 1990; Burns & Stalker, 1961; Pierce & Delbecq, 1973; Tornatzky et al., 1983). Supporting a flexible/fluid organizational structure that minimizes bureaucracy and maximizes adhocracy; and by evaluating innovative schemes in terms of their contribution to a coherent strategy, build and entrepreneurial structure (Bywaters, 1991; Davis et al.,1991).

Specifically, with a decentralized structure, managers have more autonomy and more control over resources, enabling them to initiate a greater number of creative ideas that eventually result in a larger number of innovations (Kanter, 1983). In a centralized organization, new ideas must travel and extended chain of command before receiving approval, which then reduces the number of ideas and innovations (Pierce & Delbecq, 1977). For example, General Motors eliminated unnecessary levels of management and encouraged teamwork and participative management styles to nurture entrepreneurship (Smith, 1986). The intense exchange of information between innovation participants is likely to be facilitated by informal structures that permit team members ready access to needed information or skills (Zaltman et. al, 1973). Therefore, formal bureaucratic structures are totally discouraging corporate entrepreneurship.

As top-down management also forms an obstacle for corporate entrepreneurship, Shell Oil Company, abandoned its old top-down culture in favor of structures with a more entrepreneurial spirit. By doing this, Shell is following Drucker’s (1985) advice that entrepreneurial structures should be new and separately organized from the old and exiting ways. Daily and Dalton (1992) found that CEOs who reduce their authoritarian behaviors and relinquish some control to expert employees and/or to their board of directors have higher firm performance. So, by delegating an amount of control towards employees who engage in entrepreneurial activity, less frustrations will appear.

Moreover, Proctor & Gamble, Johnson & Johnson, and 3M successfully foster corporate entrepreneurship by setting up new ventures separately so that each unit can carry different policies, rules, and measurements that best fit its objectives and spirit (Drucker, 1985). Morris and Kuratko (2002) believe venture teams are a vitally important element in any entrepreneurial organization. They state that “No matter what particular structures emerge, an important building block for structure should be the concept of the venture team… Venture teams represent a means for achieving a major break-through in terms of innovation productivity in the firm.”

To conclude, the success of these units will depend on the degree of fit with the mainstream organization, requiring a high degree of awareness, commitment and connection (Thornhill and Amit, 2001). With a more loosely structure, strong entrepreneurial leadership and culture will be needed to keep the organization together.

Burgelman, J. (1983), Entrepreneurship and the outlook for America, Free Press, New York, NY.

Burgelman, R. (1984), Designs for corporate entrepreneurship in established firms, California Management Review, 26: 154-166.

Burgelman, R. (1986), Managing corporate entrepreneurship: New structures for implementing technological innovation. In M. Horwitch (Ed.), Technology and the modern corporation: 112:153. New York: Pergamon Press.

Nielsen, R., Peters, M., & Hisrich, R. (1985), Intrapreneurship strategy for internal markets – corporate, non-profit and government institution cases. Strategic Management Journal, 6: 181-189.

Tornatzky, L. Eveland, J., Boylan, M., Hetzner, M., Johnson, E., Roitman, D., & Schneider, J. (1983), The processes of innovation: Analyzing the literature, Washington, DC: National Science Foundation.

Burns, T., & Stalker, M. (1961), The management of innovation, London: Tavistock.

Pierce, J., & Delbecq, A. 1977. Organization Structure, individual attitudes and innovation, Academy of Management Review, 2: 27-37.

Kanter, R. (1983), The changemasters, New York: Simon and Schuster.

Zaltman, J. Duncan, R. & Holbeck, J. 1973, Innovations and organizations, New York: John Wiley and Sons.

Bywaters, D.R. (1991), “Motivating management”, Executive Excellence, Vol. 8 No.11, p.18.

Davis, D., Morris, M. and Allen, J. (1991), “Perceived environmental turbulence and its effect on selected entrepreneurship, marketing, and organizational characteristics in industrial firms”, Journal of the Academy of Marketing Science, Vol. 19 No, 1, pp. 43-51.

Drucker, P.F. (1985), Innovation and Entrepreneurship, HarperBusiness, New York, NY.

Thornhill, S., and Amit, R. (2001), “A Dynamic Perspective of Internal Fit in Corporate Venturing”, Journal of Business Venturing, 16(1): 25-50.

SYSTEMS

Systems likewise structure should follow a more flexible way in order to stimulate entrepreneurship. The term “control system” implies a carefully constructed and well-integrated set of items including thousands of documents, policies, procedures, rules, objectives, guidelines, databases, technologies and equipment (Morris et al., 2006). Anthony and Govindarajan (2001) conclude that management control can be broken down into four distinct stages: strategic planning, budget preparation, performance measurement and performance evaluation. Cirka (1997) examined the specific mechanisms for achieving control. He distinguishes simple control, technological control, bureaucratic/administrative control and cultural control. Management control systems tend to evolve as the organization develops. Sanyal and Guvenli (2000) found that the number and types of control is correlated with the company size, number of employees and years in operation.

Pinchot (2000) observed that many centralized companies with highly sophisticated control systems are, in fact, out of control. He argues that bureaucracy becomes inappropriate when there is a greater need for self-determination and coordination. He refers to “intelligent organizations” built around democratic self-management, voluntary networks and limited corporate governance.

Control systems have two opposing elements. On the one hand, control systems provide strategic direction to the innovative efforts of firms, and the efficiencies they produce can free up resources for innovation (Marginson, 2002). On the other hand, control systems that tightly monitor behavior and resource utilization can serve to undermine employee creativity and motivation to experiment and take risks (Morris and Kuratko, 2002; Shih and Yong, 2001).

Therefore a balance should be needed. Simons (1995) reviews the problem of exercising control in an environment demanding flexibility, innovation and creativity. He cites three control mechanisms that can be used to balance the conflict between creativity and control: belief systems, boundary systems and interactive control systems. Belief systems are based on the internalization of core values for a higher commitment of employees. Boundary systems are based on the principle that it is better to specify what must not be done than what must be done in order to stimulate creativity. Interactive control systems rely on communication and dialogue in order to involve senior-management in the decisions of subordinates.

Other authors (for example Morris et al., 2006; Goodale, et al., 2011) also recommend a concept of “balanced control” in order to encourage innovation activity in organizations.

The concept of control might also allow variations among divisions and units. Govindarajan (1988) provides evidence that indicates these units may require different approaches to control systems, as opposed to a system-wide approach.

Budgeting systems also help to maintain control. The likelihood of entrepreneurial behavior would seem greater if the organization has clear and specific financial accountability (Simons, 1995). Organizational slack with respect to budgeting, is a key feature of entrepreneurial control systems. It implies a degree of looseness in resource availability. Without slack no experimentation and no new things could be tried. Managing slack involves balancing (Morris et al.,2006). When the budget system is too loose, huge amounts of money would be wasted. When the budget system is too tight, entrepreneurship will be blocked. A tight control system mandates that budgets be prepared for units, departments, functional activities, and projects before money can be spent. Alternatively a budgeting process that allows for slack is more flexible (Morris, Kuratko and Covin, 2011). George (2005) argues that having slack resources together with a lot of internal competition is a good thing. Note that simply having slack is not enough as slack applies to operational budgets. If you really want to innovate, there is also need to provide venture capital funds that are separate from the operational budgets.

Planning systems, as a part of the control process also need some flexibility. According to Lenz en Lyles (1985), strategic planning systems become too rational. Excessive rationality is present when the entrepreneurial spirit essential for planning is replaced by rigidity, excessive quantification and formality. If a planning system becomes too rational, its capacity to ensure innovation is gone. The tendency towards too much rationality seems to be manifest in the growing professionalization of the planner’s job, excessive emphasis on quantification in strategic decision-making, a drive to make planning routine and administratively efficient and the unqualified acceptance of improper use of techniques for strategic analysis. Instead a deeper locus of planning that involves a high degree of employees from all hierarchical levels might be wishful. (Barringer and Bluedorn, 1999).

To finalize, as communication is an important factor within innovation, information systems should help and support entrepreneurial activity. With IT’s increasing sophistication and usage, managers now consider the use of IT as a competitive tool used for implementation of strategic plans and the support of firm core competences (e.g., Aral and Weil 2007; Oh and Pinsonneault, 2007). For an organization to develop the capacity for sustained innovation, it must take resources available for new products and provide collaborative structures and processes to solve problems creatively and connect innovations with existing businesses (Bhaskaran, 2006). IT is seen vital to building this capacity (King and Burgess, 2006). Therefore, a good information system helps people to find the right resources at the right time.

Morris, M. H., Schindehutte, M., Allen, J. Avila R., 2006. ” Balanced Management Control Systems as a Mechanism for Achieving Corporate Entrepreneurship,” Journal of Managerial Issues, 18(4): 468-495

Pinchot. G., ///. 2000. Intrapreneuring San Francisco: Berrett-Koehler).

Goodale, J.C., Karatko, D.F., Hornsby, J.S.,and Covin, J.G. 2011. “Operations Management and Corporate Entrepreneurship: The Moderating Effect of Operations Control on the Antecedents of Corporate Entrepreneurial Activity in Relation to Innovation Performance,” Journal of Operations Management, 29(2): in-press.

Lenz R.T., Lyles Marjorie A., (1985), “Paralysis by Analysis : Is Your Planning System Becoming Too Rational ?” Long Range Planning, Vol. 18, No. 4 pp. 64-72

Anthony, A.N. an V. Govindarajan, (2001), Management Control Systems, Chicago, IL: Irwin.

Cirka, C.C., (1997), A piece of the Puzzle: Employee Responses to Control Practices and Effects on Firm Control Strategy, Philadelphia, PA: Temple University Press.

Sanyal, R. and T. Guvenli, (2000), “Introducing Modern Management Control Techniques in an Economy in Transition.”, Mid-Atlantic Journal of Business 36(4): 1-16.

Marginson, D.E.,(2002), “Management Control Systems and Their Effects on Strategy Formulation at Middle Management Levels: Evidence for a U.K. Organization.”, Strategic Management Journal 23(11): 1019-1031.

Morris and D. Kuratko, (2002), “Corporate Entrepreneurship”, Dallas, TX: Harcourt Press.

Shih, M.S. and L.C. Yong, (2001), “Relationship of Planning and Control Systems with Strategic Choices: A Closer Look.”, Asia Pacific Journal of Management 18(4): 481-494.

Simons, R.,(1995), “Control in an Age of Empowerment”, Harvard Business Review 63(2): 80-88.

Govindarajan, V. (1988), “A Contingency Approach to Strategy Implementation at the Business-Unit Level: Integrating Administrative Mechanisms with Strategy”, Academy of Management Journal 31(4): 828-853.

George, G.,(2005),”Slack Resources and the Performance of Privately Held Firms”, Academy of Management Journal, 48(4): 661-676.

Aral, S., and P. Weill (2007), “IT Assets, Organizational Capabilities, and Firm Performance: How Resource Allocation and Organizational Differences Explain Performance Variation”, Organization Science 18(5), 763-780.

Oh, W., and A. Pinsonneault (2007), “On the Assessment of the Strategic Value of Information Technologies: Conceptual and Analytical Approaches”, MIS Quarterly 31(2), 239-265.

Bhaskaran, S.,(2006), “Incremental Innovation and Business Performance: Small and Medium-Size Food Enterprises in a Concentrated Industry Environment”, Journal of Small Business Management 44(1) , 64-80.

King, S.F., and T.F. Burgess (2006), “Beyond Critical Success Factors: A Dynamic Model of Enterprise System Innovation”, International Journal of Information Management 26, 59-69.

POLICIES AND PROCEDURES

As control systems require more flexibility and a proper balance between too much and too little control, policies and procedures should follow.

As we have seen, policies and procedures that impose unrealistic timetables are problematic within corporate entrepreneurship. According to Burns (2005), the entrepreneurial organization needs to build some slack and leeway into its procedures so that innovation is encouraged.

PEOPLE

See paper: promoting corporate entrepreneurship through HRM practices

How does HR helps corporate entrepreneurship? What are good practices that good be used for stimulating entrepreneurship?

Resistance to change ƒ  solution: change management

Afraid of failure ƒ  solutions

Lack of skills ƒ  Solutions

Organizational slack

As we can conclude it is a combination of different factors who all hold together. Large organizations are like large ships, they aren’t easy to turn. You have to put a lot of effort in it to get change.