Enterprise and Small Business Principles
Barriers to intrapreneurship within a corporate culture
The success of entrepreneurial practices within companies such as Apple and Microsoft in the US and Virgin and Marks and Spencer in the UK has resulted in attempts by many large companies to develop the positive side of small business and implement the spirit, culture and rewards of entrepreneurship into their organisations (Harris et al., 1995). However, large companies have a problem in being entrepreneurial for one simple reason - they are too big. The size of such organisations means that managers have to structure the corporation in order to control it, and as the company grows bigger, even more structures of management are added in order to manage the whole operation. Consequently, a number of barriers to intrapreneurship may be created as there are considerable differences between a traditional corporate culture and an intra - preneurial culture, with the former having an emphasis on a culture and reward system that tends to favour caution in decision making.
For example, large businesses rarely operate on a ‘gut feeling’ for the market-place, as many entrepreneurs do. Instead, large amounts of data are gathered before any major business decision is made, not only for use in rational business decisions, but also for use as justification if the decision does not produce optimum results. Risky decisions are often postponed until enough hard facts can be gathered or a consultant hired to provide extra advice and information. As a result of such a culture, large firms will often face difficulties in attracting suitably entrepreneurial staff. Entrepreneurs will not be attracted to large organisations, preferring the risk and adventure associated with ownership of a small business, although there are exceptions such as John Harvey Jones of ICI, who develop an intrapreneurial style of management within a large organisation.
Moreover, large organisations may discourage the employment and advancement of entrepreneurial individuals. This is because the presence of entrepreneurs within a large company could possibly alienate other important managers within the organisation, especially if those individuals’ career development is dependent upon conforming to the accepted structures and norms of the corporation. Other barriers to intrapreneurship within a corporate setting include the following.
14.7.1 Traditional corporate structures
The hierarchical nature of large corporations is not conducive to entrepreneurial behaviour, with considerable ‘distance’ between the top layers of management and the lowest level of the workforce, resulting in an impersonal relationship between management and staff. Multiple layers of management can also lead to many layers of approval between the potential intrapreneur and the person in charge of resources. For example, if a shop-floor worker in a manufacturing plant comes up with an idea to improve the production process, then the permission to develop the idea further usually comes from three or four levels of authority higher up, with each level having the potential to
reject the proposal before it reaches someone with the responsibility and authority for funding.
The nature of corporate culture itself - where job descriptions are rigidly enforced - may stifle innovation. The established procedures, reporting systems, lines of authority and control mechanisms of a traditional hierarchical organisation are there to support the existing management structure, and not to promote creativity and innovation (Krueger, 1998). For example, the reporting procedures of large firms are usually centred on the short-term needs of budget officers and performance measurements. Managers are therefore taught to think in terms of short-term cycles.
14.7.3 Large firm performance standards
The performance standards imposed by large businesses, especially in the short term, may adversely affect the development of intrapreneurial projects, many of which are long-term in nature. In many large organisations, short-term profits are generally used as the main measurement of a company’s success. This is because increased short-term profits will support the company’s share price and thus attract new investors. This will lead to pressure on managers to devise short-term strategies rather than look to longterm investment. Entrepreneurial activities, especially innovative new projects, will take time to develop sufficiently, and a short-term policy attitude will lead to problems with regard to financing such projects. Any mistakes may also be damaging to the personal reputation of the individual intrapreneur, who may be removed from the project prematurely and replaced with a less entrepreneurial corporate manager.
The planning procedures within large organisations can stifle entrepreneurship. Generally, as companies get bigger the corporate environment will require more control and specific performance standards to exert this control. Thus paperwork and reporting standards on projects may take precedence over entrepreneurial and innovative behaviour. In some cases, this can lead to ‘underground innovation’, where intrapreneurs become involved in product innovations that are not authorised by the organisation (Abetti, 1997). Instead, they are carried out in secret in the intrapreneur’s own time until they are so near market readiness that they cannot be stopped.
Total ownership and the associated independence in decision making is one of the primary motivations in entrepreneurship. Within large companies, however, ownership of the assets of the intrapreneurial part of the business is rarely possible, except in the case of a management buy-out. Furthermore, the intrapreneur will have difficulty in retaining total ownership of the idea from its development stage to its final marketing due to the functional nature of management within a large organisation. As such, the influence of the intrapreneur on the innovative idea may be diluted by other individuals within the organisation.
Mobility of managers within large organisations may lead to a lack of commitment to specific projects, especially if those projects are of a long-term nature, as many intra - preneurial ones are. This may lead to a change in priorities by different managers for the project, thus losing the continuity associated with new product development within small companies. The flexibility to change the direction of projects may prove difficult if it impinges upon the activities of other departments within the company.
14.7.7 Inappropriate reward systems
In many large companies, there are often inappropriate methods to compensate creative employees. Rewards are normally based on improvements in strict performance measures laid down by management, with very little scope for a reward basis based on creativity and innovation. Promotion to management - the normal route for talented individuals within a large corporation - is seldom an attractive reward to intrapreneurs. This is because it normally takes them out of the job in which they have displayed their innovative talents and places them into a managerial position with increased administrative responsibilities.
However, despite these problems, there are a number of initiatives a large organisation can take which can create an environment that is conducive to innovation and entrepreneurship.
