Enterprise and Small Business Principles
Learning and the intrapreneurial firm
An increasingly complex business environment, where rapid changes in technology, competition, regulation and customer needs are the norm, has led to the search for new ways in which large firms can develop the right capabilities by which they can continuously anticipate the need for change. Therefore, organisational learning - which supports continuous adaptation and change - has captured the imagination of academics and managers who are trying to understand the increasingly chaotic environment in which organisations exist and operate.
Much of the recent literature on corporate entrepreneurship has indicated the importance of learning to the creation of an entrepreneurial culture within large firms (Baden-Fuller and Stopford, 1992; Zahra, 1999; Dess et al., 2003), especially with regard to developing a learning organisation within an increasingly competitive business environment.
14.9.1 The learning organisation
The learning organisation can be defined as an organisation skilled at creating, acquiring and transferring knowledge, and at modifying its behaviour to reflect knowledge and insights (Garvin, 1993). New ideas are essential if learning is to take place and, whatever the sources, these ideas are the trigger for organisational improvement within the large firm. The development of such new ideas, and their implementation, is at the heart of intrapreneurial behaviour within large firms.
It is worth emphasising that all organisations are involved in a learning process, either as part of a corporate strategy or through their individual ‘members’. Organisational learning is affected either directly or indirectly by individual learning, although organisational learning should not simply be counted as the sum of each member’s learning (Kim, 1993). This is because organisations, unlike individuals, develop and maintain learning systems that not only influence their immediate members but are also then transmitted to others by way of organisational histories and norms (Fiol and Lyles, 1985).
Collective learning is therefore one of the major features that differentiate organisational learning from individual learning. Even when organisational members leave and leadership changes, knowledge and skills developed and shared among the members through learning can be accumulated and preserved in organisations’ memories. Consequently, these routines and memories stored in the form of manuals, procedures, symbols, rituals and myths influence and determine the direction and scopes of individual and organisational learning (Romme and Dillen, 1997).
Although all organisations are assumed to be learning, the impacts derived from the learning differ according to the input and resources invested. Organisational learning starts with the intention and willingness to learn, which is articulated and supported by top management and shared by the members of organisations. Without providing appropriate tools and platforms for learning to be implemented in an organisation, effective learning will not take place.
Therefore, the development of an effective learning organisation requires a deliberate intervention by leaders to establish the necessary internal conditions for the growing firm to operate in a learning mode (Goh and Richards, 1997). Learning takes time and thus the early identification and assessment of the impact of the factors leading to learning within growing firms could help managers focus on specific interventions required to improve learning within organisations. An analysis of previous research into this area (Yoo et al., 2004) has shown that three major factors promote organisational learning, namely learning commitment, learning readiness and open-mindedness.
Organisational learning requires a commitment by the organisation and whilst learning intent reflects the decision that the organisation intends to engage in learning, organisational commitment refers to the implementation of its intent. Therefore, whereas intention is the equivalent of vision and an antecedent to action, the firm’s action in carrying out its intention is called learning commitment. Here the word ‘commitment’ is used in the sense of a firm’s dedication to its learning intent and it is the firm’s sincere and steadfast adherence to the goal of learning. Such commitment is action-oriented and would normally manifest itself in actions such as the setting aside and devoting a portion of its resources towards the learning infrastructure, systems, activities, training and development, policies and procedures needed for organisation learning. In undertaking such actions, the development of a more entrepreneurial culture will begin to manifest itself across the organisation.
Although organisations may commit resources to address organisational learning, the difference between different organisations in their actual learning may be because of different levels of organisation readiness. In the same way that units in the military, with their training and preparation for mobilisation for war, may be at differing levels of operational readiness, organisations depending on activities, resources and commitment would also be at differing levels of learning readiness. Organisations that have yet to build the capabilities required for learning would be less ready than those that have. Such capabilities include appropriate and timely feedback and appraisal on learning, and shared values among the members of organisations.
This is the willingness to critically evaluate the organisation’s operational routine and accept new ideas (Calantone et al., 2002). In many instances, mental models (or deeply held images of how the world works) limit us to familiar ways of thinking and acting (Day and Nedungadi, 1994). When large businesses proactively question long-held routines, assumptions and beliefs, they are engaging in the first phase of what is known as ‘unlearning’, something many entrepreneurs will undertake on a regular basis to gain market advantage. Unlearning is at the heart of organisational change and intra - preneurial development, and open-mindedness is an organisational value that may be necessary for unlearning efforts to transpire (Sinkula et al., 1997). Therefore, organisational learning starts with the intention and willingness to learn. Without providing appropriate tools and platforms for learning to be implemented within the organisation, effective learning will not take place.
14.9.2 Barriers to organisational learning
Prior to designing a learning culture within an organisation, it is necessary to recognise and identify the possible barriers to learning that are likely to occur. Early detection and elimination of the factors that inhibit the implementation of learning within an organisation is equally as important as building the platform for learning to occur. To date, only a few studies have attempted to identify the barriers to organisational learning.
For example, Bierly and Hamalainen (1995) suggested four impediments to organisational learning, namely environmental stability, structure of the organisation, organisational culture, and the need for the organisation to unlearn. According to their research, an open decentralised structure is typically more flexible, adaptive and responsive to external and internal stimuli. In turn, this not only affects inter-functional communication and learning within the organisational structure but plays a role in determining who communicates most frequently with, and influences, the top management.
An organisation’s culture can also either facilitate or impede the different types of learning. A culture that emphasises risk-taking, openness in communication, and teamwork and that ensures that these values are shared and rewarded throughout the organisation will facilitate internal learning (Starbuck, 1992).
On the other hand, if the values of the organisation do not support and promote openness to outside knowledge sources, external learning can be impeded by the organisational culture. For example, a not-invented-here (NIH) syndrome will develop where alternative ideas and knowledge are rejected simply because it is thought that the organisation members’ own ideas must be superior to outside sources. This attitude, combined with ‘avoiding ambiguity’ on information, can deter learning from external sources. Adams et al. (1998) state that organisations with a long history of stable practice have developed routines for filtering out ambiguous information because such information is anathema in a system that focuses on meeting standardised operating outcomes and maintaining stability (Nelson and Winter, 1982). People concentrate instead on codified information that fits into prevailing expectations, or they redefine ambiguous problem situations as standardised ones for which information is readily available. Thus, avoiding ambiguity is a major organisational barrier to information acquisition.
Another impediment to learning is ‘compartmentalised thinking.’ Many large, established organisations break tasks down into separate steps, and give people a clear role to play and set of requirements to meet. The shared mental models that develop in these organisations reflect different functional thought worlds (Dougherty, 1992). Thus, different groups in these organisations often have different targets and tend to evaluate the same outcome differently (Levitt and March, 1988). These routines lead to compartmentalised thinking and each department focuses on its own goals and, as a result, information either does not cross intra-organisational boundaries or is interpreted quite differently on ‘the other side’. Poor communication between people and between organisations can be a major block to learning and quality improvement. Therefore, intra-organisational knowledge sharing refers to collective beliefs or behavioural routines related to the spread of learning among different units within an organisation (Moorman and Miner, 1997) and keeps alive the knowledge and information gathered from various sources, serving as reference for future action (Lukas et al.,
1996).
Finally, organisational ‘inertia’ is one of the greatest barriers to learning. Organisational change is difficult and inertia is resistance to change or, at least, resistance to changes that run counter to a fundamental existing orientation (Miller, 1993). An organisation’s prior history (memory) constrains its future behavior in that learning tends to be premised on local processes of search (Levitt and March, 1988). Therefore, organisations often resist change even when their environments threaten them with extinction because a whole learning system is bound together by a theory of action. As a result, radically new situations require that theories of action be replaced, but organisations have difficulties doing this (Argyris and Schon, 1978). This is because organisational myths, norms and procedures that have worked well in the past are very difficult to change. Thus, many successful organisations tend to become complacent, learn too little and eventually fail (Nystrom and Starbuck, 1984). Unlearning is a prerequisite for generative learning to take place and is the process through which learners discard knowledge and make room for new responses and mental maps, although the process can take time and resources and lead to a temporary state of organisational paralysis. Organisations that have been poisoned by their success are therefore often unable to unlearn obsolete knowledge in spite of strong disconfirmation (Nystrom et al., 1976) and unlearning is needed in order to make room for more adequate interpretative frameworks and responses in organisational memory.
14.9.3 External learning within intrapreneurial organisations
Intrapreneurial success among large firms has been largely described in the form of new product successes, such as the 3M Post It note (Brand, 1998). Therefore, for intra - preneurial organisations, the success of new products is also the dimension of performance that involves the organisation’s ability to adapt to changing conditions and opportunities in the environment (Walker and Ruekert, 1987). In this regard, successful intrapreneurial organisations rely on external information to detect opportunities emerging in the environment and which enable them to respond with creative solutions. When such information is transformed through an internalising process and results in the creation of new knowledge, organisational learning can make a contribution to the development of novel products.
The knowledge-based view suggests that an organisation’s most important resource is the knowledge embedded within it and the development and enhancement of this knowledge is critical in obtaining competitive advantage of an organisation (Grant, 1996). In particular, heterogeneous knowledge bases and capabilities of an organisation are the main determinants of performance differences, and organisations are therefore advised not only to use different knowledge bases and capabilities in developing knowledge but also to have access to externally generated knowledge (DeCarolis and Deeds, 1999).
In a world of increasing global competition and rapid technological change, organisational success depends on the ability to innovative consistently (Rosenkopf and Nerkar, 2001). As such, technological knowledge sourcing has become an important phenomenon as organisations have come to realise that they can no longer rely solely on in-house technological and knowledge capacity to generate new products, processes and services (Howells et al., 2003).
As a result, innovative organisations are establishing greater linkages with other actors to access external knowledge and to benefit from the processes of knowledge interaction (Caloghirou et al., 2004; Howells et al., 2003). In many cases, this is due to an increasing recognition that competitiveness now depends not merely on the capabilities that an organisation can create and exploit internally, but on the effectiveness with which it can gain access and utilise sources of technological knowledge and capabilities beyond its boundaries (Howells et al., 2003).
Organisations can either develop their own technologies through in-house R&D or source technologies via research cooperation or contracting arrangements such as licensing or outsourcing, and the learning attached to both types of technology development has advantages and disadvantages.
For example, internal knowledge development can make it difficult for other firms to imitate the competence and thus yield a sustained competitive advantage (Prahalad and Hamel, 1990), although focusing on internal development only may be high risk and involve major investments for the organisation. As a result, large amounts of organisational resources are typically required for an organisation to be successful at internal learning. However, these efforts may not produce results and could leave the organisation at a competitive disadvantage to those that are more efficient in internal learning (Bierly and Hamalainen, 1995).
In contrast, it is recognised that external learning is required to develop a broader knowledge base and to keep abreast of cutting-edge technologies. This approach increases flexibility and is critical to organisations operating within a dynamic environment (Grant, 1996). However, external knowledge typically takes longer to integrate into new products because it is harder to understand and interpret, as the external knowledge needs to be translated into a new language so that organisational members can understand and interpret its meaning. This is particularly the case if the new external knowledge is to be combined in a complex manner with existing internal knowledge. If the use of many different complementary technologies results in a new product, it may be very difficult to integrate new external knowledge that is based on different cognitive frameworks. Thus, product and process development may be slower for firms relying on external learning (Bierly and Hamalainen, 1995).
Although the organisation of innovation along the internal versus external sourcing dimension is considered to be a complex issue (Veugelers and Cassiman, 1999), both learning types are mutually interdependent and complementary processes. For example, Cohen and Levinthal (1990) suggest that firms must excel at internal learning and develop ‘absorptive capacity’ before they can learn from external sources. On the other hand, the internal learning process can be substantially improved by effective external learning, since there will be many new ideas generated outside the organisation. In addition, external learning will enable firms to view some issues from different perspectives, which may be difficult to do with only internal learning due to established organisational routines and biases. Thus, internal and external learning are both vital to success, and each organisation must determine how to balance the internal and external learning to maximise its overall learning (Bierly and Chakrabarti, 1996).
Indeed, high-technology sectors are more likely to be able to take advantage of complementarities between internal and external technology sourcing, and most organisations use a combination of both ‘make’ and ‘buy’ technology strategies, although smaller organisations have a higher probability of using an exclusive ‘make or buy’ strategy and are less likely to combine these technology-sourcing strategies compared with larger organisations. They may therefore use less combinatory strategies, but when they do so, they could use them more intensively and productively (Veugelers and Cassiman, 1999).
Certain types of organisational culture, such as underlying values and beliefs of organisations, are believed to impede learning from external sources. If the values of the organisation do not support and promote openness to outside knowledge sources, then external learning can be impeded by the organisational culture (Bierly and Hamalainen, 1995). For example, organisations that are intolerant of uncertainty tend to favour and rely on the well-articulated information and knowledge created internally and avoid ambiguous information available from external sources. Adams et al. (1998) state that organisations with a long history of stable practice have developed routines for filtering out ambiguous information, which is anathema in a system that focuses on meeting standardised operating outcomes and maintaining stability (Nelson and Winter, 1982). Hence, people concentrate instead on codified information that fits into prevailing expectations or they redefine ambiguous problem situations as standardised ones for which information is readily available.
As discussed earlier, the concept of organisational ‘inertia’ can be one of the greatest barriers to internal learning and can also impede external learning, especially as it has been argued that interaction is a key concept for knowledge creation and innovation. Thus the openness of organisations to external knowledge sources is an important element when evaluating their innovative potential (Caloghirou et al., 2004). The organisation has to be constantly aware that it should try to avoid institutional lock-in as well as being flexible and responsive enough to be able to meet the demands of the future (Howells et al., 2003). A lack of management comfort with learning from external sources tends to inhibit firms from making full of use of external developments (Tidd and Trewhella, 1997). Organisational inertia is resistance to change or, at least, resistance to changes that run counter to fundamental existing orientations (Miller, 1993) and the tendency to remain with the status quo (Huff et al., 1992). Therefore, organisational inertia in external learning is similar to the concept of the NIH syndrome in the R&D community (Katz and Allen, 1982) that reflects a natural tendency in most employees to be somewhat resistant to change. Employees may feel threatened by new ideas and externally generated ideas may be devalued in an attempt to show support for, and endorsement of, internal projects (Bierly and Daly, 2004).
When an entrepreneurially oriented large business seeks to internalise new technology-based capabilities obtained from external sources, it must be sufficiently large to have considerable in-house technical expertise that can assist the organisation to understand, interpret and realise the benefits of a new idea from the external sources (Mowery et al., 1998). Organisations are required to seek the knowledge and technologies to augment their current technology base and provide additional ‘external capabilities’ that can be deployed by them. External sources, in combination with the in-house generation of new knowledge, are then deployed to produce new and improved products and processes that are hopefully aligned with future market requirements (Howells et al., 2003). Hence, without the intrapreneurial and learning capability to internalise the knowledge and skills sought from external sources, there is no guarantee that a diffusion of knowledge will occur within a large firm. Therefore, a large firm possessing a strong internalisation capability tends to know where and how to acquire the knowledge and skills required either to complement or advance its current competence base. Hence, the successful intrapreneurial large firm that has a strong capability to internalise knowledge and skills will not only pursue a strong in-house development but will also be actively involved in sourcing externally.
This chapter has discussed briefly much of the general knowledge regarding the concept of intrapreneurship, i. e. entrepreneurship within a corporate environment. It has demonstrated that, under certain conditions in the large organisation, the enterprise, innovation and creativity of a small firm can be developed if specific barriers are overcome and certain policies and procedures put in place. It has also shown that the intrapreneur is quite different from the entrepreneur and the corporate manager, often possessing the competencies associated with both types of individuals.
In examining this phenomenon, the chapter has drawn predominantly on literature from the US to examine concepts such as the differences between an entrepreneurial and intrapreneurial venture; the barriers to intrapreneurship within a corporate environment; the climate for intrapreneurship; and, finally, the characteristics of an intrapreneur. To date, very little work has been carried out in the European context on this area. On the one hand, this may be due to the fact that much of modern and innovative management techniques could be described as falling within the sphere of ‘intrapreneurship’; on the other hand, it could be that the general concepts of intrapreneurship have yet to penetrate the management of large European organisations in both the public and private sector. However, it is clear that more work needs to be carried out to examine the entrepreneurial practices of organisations that are not classed as SMEs. A clear research agenda needs to be drawn up to test some of the concepts presented in this chapter and to examine whether they exist in the UK and other European countries.
The chapter has also examined the key factors that both enhance and inhibit organisational learning as well as the issues that facilitate external learning within innovative organisations, thus leading to greater intrapreneurial behaviour. Three factors - learning commitment, learning readiness and open-mindedness - enhance organisational learning, which starts with the intention and willingness to learn. Without providing an appropriate platform for learning to take place, learning intent will never be realised. However, excessive reliance on internal learning may lead the organisation to a ‘competence trap’ by harnessing and focusing on ‘core competence’, which in turn may become ‘core rigidities’ and prevent entrepreneurial behaviour within the large organisation. Therefore, access to external sources of technology becomes important in ensuring the large firm’s learning and, more importantly, enables it to continue to innovate and remain competitive. A number of key factors - most notably organisational culture and capability - can help to transform externally generated knowledge into a key competitive advantage for the organisation. More importantly, the capability to learn internally can enhance the learning from external sources of different organisations and enable a continuous culture of entrepreneurial behaviour within the firm.
