Enterprise and Small Business Principles

Climate for intrapreneurship within an organisation

As with independent entrepreneurs, many managers in a corporation are not capable of being successful intrapreneurs. Being an intrapreneur is not something that can be assigned to individuals within an organisation, like other job descriptions such as fin­ancial controller or marketing manager. In many cases, intrapreneurs are self-selected, i. e. they come up with an idea that they will develop further, often in their own time (see Chapter 7). Intrapreneurship can only be developed within an organisation by cre­ating the right climate for such individuals to flourish (Kuratko et al., 1993).

14.6.1 Intrapreneurship sponsors

Within large companies where new innovations can often be lost in the bureaucracy and unresponsiveness of the organisation, intrapreneurs cannot sufficiently develop their ideas alone. A corporate environment favourable to intrapreneurship has sponsors and champions throughout the organisation who not only support the creative activity and resulting failures but have the planning flexibility to establish new objectives and direc­tions as needed (Knight, 1987). Such sponsors can be at all levels of the organisation, from chief executive to project manager to other intrapreneurs.

The role of the sponsor should include:

■ overcoming the financial concerns of other managers regarding risky ventures, both in initial review and follow-up evaluations;

■ curing the need for resources by defending proposals in evaluation meetings, allo­cating initial exploration funding to new ideas and permitting flexibility in budgets in terms of money, people and equipment;

■ ensuring that corporate venturing develops quickly within an organisation by plac­ing the rewards and initiatives in place for intrapreneurs;

■ fighting internal departmental issues, such as the hoarding of resources in one divi­sion and ‘empire-building’.

14.6.2 Continuous involvement of the original intrapreneur

In many large organisations, it is usually the case that an innovator of a new idea will be forced to hand that idea to another team of individuals for its development. This is particularly the case where a member of a division working in one industrial sector has come up with an idea that is applicable in another industrial sector in which the com­pany operates. The intrapreneur may also be left behind if the idea reaches a stage of development where the intrapreneur has no direct experience (e. g. from development to manufacturing).

In many cases, the removal of the original intrapreneur from a project can often result in that project not reaching fruition. This is particularly the case where an idea

is new and innovative, and has been developed solely by the intrapreneur. In many cases, intrapreneurs are the driving force behind new ideas within the company. When they are removed from projects, the very driving force behind the project is lost, as the new ‘project leader’ tends not to have the same degree of enthusiasm as the intrapreneur, as he will be working on someone else’s idea. As Pinchot (1986) states: ‘Intrapreneurs cannot exist if their passionate commitment is ignored and their visions given to people who don’t understand them. Without intrapreneurs, innovation flounders.’

There have been criticisms of using a single intrapreneurial team to take an idea from development to commercialisation, mainly because of the reluctance of companies to have intrapreneurial teams led by inventors or researchers with very little commer­cial experience. In such scenarios, the inventor should become a member of the intra - preneurial team, perhaps in the role of technical leader, or act as a consultant to the intrapreneurial management team while still working on the development of the idea. In other cases, the inventor of the idea has sufficient skills to become the leader of the intrapreneurial team. One of the more important factors is that the intrapreneurial team stays together throughout the duration of the project, even after commercialisa­tion. This is often because if the idea is new to the market, then imitations will soon follow, often with significant improvements. In order for the company to be able to counteract these ‘follower’ strategies, it is important that the original intrapreneurial team stays together for subsequent product generations.

14.6.3 The autonomy of the intrapreneurial team

As entrepreneurs have a desire to be ‘their own boss’, with responsibility for the des­tiny of their company, intrapreneurs have a desire to have sole control over the destiny of their particular idea. In many cases, intrapreneurship is stifled within large organ­isations because the authority to develop innovation is often several management levels above that of the innovator, and with restricted access. If intrapreneurship is to work within large organisations, then intrapreneurs need the power to make decisions within their project remit (Garnsey and Wright, 1990). This may include having the necessary authority to source people and resources from outside the parent organisation.

14.6.4 Crossing boundaries in the organisation

In developing an idea from first principles to final commercialisation, the intrapreneur will have to cross a number of boundaries within the organisation. These may include:

■ inter-functional boundaries, such as between research and development (R&D) and marketing;

■ divisional boundaries between different business units within the company (e. g. an innovation may begin in the semiconductor division within a company, but may have more applicability in the instruments division);

■ organisational boundaries between different levels of management in the hierarchy of the organisation (as mentioned earlier).

However, there is increasing evidence that managers within large organisations are recognising that vertically driven, financially oriented, authority-based processes, which for so long dominated company operations, are being overtaken by horizontal pro­cesses that cut across organisational boundaries (Goshal and Bartlett, 1995). For intra­preneurship to be effective throughout the whole organisation, willing individuals in the intrapreneurial team, regardless of functional specialism, must modify the traditional boundaries between different parts of the organisation to encourage multi-disciplinary teamwork and participation.

14.6.5 Tolerance of risks, failures and mistakes

Risk is a factor that is inexorably linked with entrepreneurship and innovation. How­ever, large companies are risk adverse, as the concept of personal failure is anathema to the system of promotion and career development within traditional organisations, with managerial conservatism and performance measurement often inhibiting intra­preneurship (Schwab and Schwab, 1997). In contrast, many entrepreneurs in small firms see failure as a learning experience, from which new products, services and ven­tures can be developed. To foster an intrapreneurial climate, this tolerance towards risk and failure through experimentation should be encouraged (Sathe, 1989). If a large company wants to develop an entrepreneurial spirit, it has to establish an environment that allows mistakes and failures in developing new innovative ideas. While this is in direct opposition to the established promotion and career system of the traditional organisation, without the opportunity to fail few if any corporate intrapreneurial ven­tures will be undertaken

14.6.6 Long-term philosophy towards success

There is a danger that the creation of internal corporate ventures, which are externalised from the main functions from the company, could lead to considerable problems. Whilst such decentralisation may lead to researchers and product developers becom­ing closer to the market-place, it may lead to a focus on short-term market perform­ance, in order to ‘prove’ the success of the new venture. Therefore, a company must be prepared to establish a long time horizon for evaluating the success of individual ven­tures as well as the overall intrapreneurship programme. An intrapreneurial climate should not be established within an organisation unless that company is willing to invest money with no expectation of return for five to ten years. It is also important that ideas are allowed to develop fully and that the resources allocated to such intrapre - neurial projects are not withdrawn before the idea has progressed to commercialisation (Pryor and Shays, 1993).

14.6.7 Finding resources for ideas

Although intrapreneurs will often work on their new ideas in their own time, organ­isations need to make resources available to such individuals in order that these ideas reach the market-place more quickly. This can be done by allocating either time or funds to the intrapreneur. Often, if intrapreneurs cannot find time to make their ideas mar­ketable to the company, then those ideas will remain in the intrapreneur’s head rather than becoming a marketable product, process or service. Once the idea has been shown to be of some value to the organisation, then funds need to be made available to develop this idea to the point where it can be adopted by the organisation. In many companies, available resources are often committed to solving problems that have immediate effects on the bottom line, rather than the development of new ideas. If discretionary funds are not available, the intrapreneur may become frustrated to the point of abandoning the commercialisation of the idea altogether. More worrying for the company, the idea may be taken elsewhere to be developed by the intrapreneur, either to a competing organisation or a new small business.

14.6.8 An effective reward system

Although the attainment of commercialisation of their ideas is often sufficient, the energy and effort expended by the intrapreneurial team in the creation of the new ven­ture needs to be appropriately rewarded (Brazeal, 1996). However, as intrapreneur­ship is a relatively new phenomenon, many companies have yet to develop an adequate reward system that is adequate in terms of pay and promotion.

In terms of pay, a study by Balkin and Logan (1988) has examined the different policies that organisations can develop to reward entrepreneurial staff. Their conclu­sions indicated that intrapreneurs should be paid below or at the market rate, with a significant portion of the individual’s salary at risk in the form of pay incentives, which should be linked to individual and corporate venture’s performance. Therefore, the fixed - package portion of an intrapreneur’s reward package - salary and benefits - would be low. However, this should be compensated by a number of benefits including the following.

Short-term variable pay benefits

These include profit sharing, which can focus the intrapreneur’s attention on the cor­porate venture’s financial goals. This can also strengthen team spirit within the cor­porate venture, as all employees will receive a share of the profits proportional to their salaries. It is important within corporate entrepreneurship that a new internal venture does not imitate the reward policies of the corporation’s other traditional business divi­sions, as these policies are usually designed for a complex bureaucracy and recognise the difference in pay scales according to an individual’s status in the organisation.

Long-term variable pay benefits

Equity ownership is a means for rewarding intrapreneurs. As well as being an excellent retention tool for the large organisation (with employees likely to remain within the venture as it develops), it also gives intrapreneurs a sense of ownership and responsib­ility for their venture, distinguishing it from other projects that the intrapreneur may have previously undertaken in a corporate capability for the large firm. In addition, stock ownership may also create a grater entrepreneurial spirit within a corporate venture, as employees look for more innovations and opportunities that will increase the profits (and stock value) of the venture.

Education and health benefits

To pay for travel, tuition and supplies for job-related education and training. Entrepre­neurial employees frequently, in the development of new ideas, discover gaps in their education and training, and must develop new skills to continue to be productive and innovative. This is crucial in high-technology industries where corporate entrepre­neurship is prevalent. In addition, large firms initiating corporate venturing must be aware of the changes that will occur in the working lifestyles of intrapreneurs - as they assume ‘ownership’ for their ventures, their working hours will inevitably become longer (60-80 hours per week is not uncommon in these cases) and, as with entre­preneurs, the demands on their time will increase, as will the stress of the job. As a result, many companies are providing benefits in the form of health club memberships so that intrapreneurs can develop positive coping behaviours.

Therefore, pay policies within corporate ventures should recognise that individuals assuming the role of intrapreneur should be treated differently from the rest of the organisation. However, this could cause potential problems in the development of the intrapreneurial venture, especially in the attraction of staff from other divisions of the large firm. Indeed, corporate entrepreneurship should pay more attention to internal pay equity than independent small firms, because if it is to attract employees from other units of the large firm, it must be sensitive to the company’s reward packages, and may have to match overall company pay and benefits levels, which may restrict its ability to design policies that reward innovation and creativity. However, this problem can be limited by:

■ physically separating the corporate venture from the rest of the organisation;

■ convincing possible transferees that the risk of greater long-term reward may be worth the short cut in pay;

■ not accepting transfers from other divisions in the large organisation.

The traditional reward within a corporate structure - promotion - is often not sufficient, as the motivation behind the development of the idea is often not career advancement. More importantly, intrapreneurs seldom make good corporate managers, as they rarely have the temperament for coping with the company’s structure. This may cause prob­lems in the organisation, especially with other corporate managers. 3M, for example, has developed a ‘dual promotion system’ where successful intrapreneurs can choose to be promoted either on the technical or the management hierarchy of the business (Fry, 1987). This recognises the needs of those intrapreneurs who do not wish to achieve more administrative responsibilities. Those intrapreneurs who wish to remain in tech­nical development - and indeed are more valuable in the laboratory than in the office - are given a higher rank but are not constrained to purely administrative positions. On the other hand, some companies prefer to reward their intrapreneurs through giv­ing them a position of freedom within the organisation to develop new ideas or even setting the intrapreneur up in a separate venture with suitable equity as motivation for success. For example, within both 3M and Johnson and Johnson, the intrapreneur who successfully develops a new product, market or service, and then builds a business on it, will become the head of that business (Drucker, 1985). This could be general man­ager or a division president, with the appropriate rank, bonuses and stock options.