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Corporate Entrepreneurship and
Innovation: Entrepreneurial Development
within Organizations, Third Edition
Michael H. Morris, Donald F. Kuratko,
and Jeffrey G. Covin
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S E C T I O N
1
BUILDING BLOCKS
FOR CORPORATE
ENTREPRENEURSHIP
“
“Wealth in the new regime flows directly from innovation, not optimization; that is, wealth
is not gained by perfecting the known, but by imperfectly seizing the unknown.”
”
”
—KE VI N KE L L Y, “NE W RUL E S F OR THE NE W ECONOMY, ” WIRED
CHAPTER 1 The New Entrepreneurial
Imperative
CHAPTER 2 The Unique Nature of
Corporate Entrepreneurship
CHAPTER 3 Levels of Entrepreneurship in
Organizations:
Entrepreneurial Intensity
CHAPTER 4 The Forms of Corporate
Entrepreneurship
CHAPTER 5 Entrepreneurship in Other
Contexts: Non-profit and
Government Organizations
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Section Introduction
How does entrepreneurship apply to established organizations? As illustrated in the
model above, we begin to address this question by examining key building blocks for
understanding the nature of corporate entrepreneurship. This first section of the book
introduces basic concepts, tools, and frameworks that help explain how and why en-
trepreneurial behavior occurs in organizations, even as they become larger and more
complex. It consists of the first five chapters. Building on this foundation, we will
identify ways to encourage greater levels of entrepreneurship within existing organiza-
tions (Section 2 of the book), and then explore how it can be sustained over time
(Section 3).
I. Building Blocks for Corporate
Entrepreneurship
Understanding Stage of Company
Evolution (Ch. 1)
Understanding Imperatives for Innovation
in the External Environment (Ch. 1)
Understanding Nature of Corporate
Entrepreneurship (Ch. 2)
Understanding Levels and Forms of
Corporate Entrepreneurship (Chs. 3, 4)
Understanding Contexts of
Corporate Entrepreneurship (Ch. 5)
II. Creating the Entrepreneurial
Organization
III. Achieving and Sustaining
Entrepreneurial Performance
Organizational
Structure
(Ch. 9)
Constraints on
Entrepreneurial
Performance
Outcomes
(Ch. 11)
Facilitators of
Entrepreneurial
Performance
Outcomes
(Chs. 12, 13, 14)
Sustainable
Entrepreneurial
Performance
(Ch. 15)
The
Entrepreneurial
Organization
Corporate
Strategy
(Ch. 8)
Human
Resource
Capabilities
(Chs. 6, 7)
Organizational
Culture
(Ch. 10)
2 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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CHAPTER 1
THE NEW ENTREPRENEURIAL
IMPERATIVE
Introduction
We are in the midst of a global entrepreneurial revolution. In virtually every nation,
every industry, and every market, entrepreneurs are challenging existing assumptions
and creating value in novel ways. Not only are for-profit and non-profit venture
start-up rates at an all-time high but also the rate of new product and service introduc-
tion is at record levels in most industries. The same can be said for patents issued and
the licensing of new products and processes. The development, application, and en-
hancement of new technologies are occurring at a breathtaking pace. New forms of
business organization and business relationships are appearing almost daily. Entrepre-
neurial thinking and acting is changing the way business is conducted at every level.
It does not matter if you are a chip manufacturer or a plastics company, or whether
you are based in Los Angeles, Johannesburg, or Peking—entrepreneurship is redefin-
ing what you make, how you make it, where you sell it, and how you distribute it.
As the number of new ventures, new products, new technologies, and new patents
literally explodes worldwide, established companies are faced with a fundamental
choice. They can either become victims of this revolution as aggressive, upstart companies
move quickly in undermining their positions in existing markets and in creating whole
new markets—or, they can join the revolution.
Companies cannot be static—they must continually adjust, adapt, and redefine
themselves. This is a fundamental principle in a free market economy. However, in
this entrepreneurial age, the rate at which companies must transform themselves is ac-
celerating. In fact, many of those who have been part of the evolution (and revolu-
tion) of corporations in recent years have an amazing story to tell. The past quarter
century has produced immense transformation in the functions, patterns, and cycles
of organizations. Many of the conventional rules of business no longer apply. Funda-
mental assumptions about employees, products, resources, technologies, and markets
have been challenged and in some cases discarded altogether. For many companies,
turbulence in their external environments has become a way of life.
In the midst of all of this comes the question of the relevance of the traditional theo-
ries and principles that guide managerial practice. On the one hand, the nature and re-
lationships among variables that define how companies operate have changed to the
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point that different models and theories are required to address the practical needs of the
contemporary executive. As a result, managers have been surfeited with a whole range
of new concepts and tools ranging from total quality management and business process
reengineering to right-sizing, strategic alliances, and self-directed work teams. We can
call this the “new management thinking.” On the other hand, many of the basic lessons
and principles of good business practice still apply. It is important to remember the
adage, “Those who do not learn from the past are destined to repeat it.”
In this chapter, we explore the changing shape of the managerial challenge in compa-
nies. We build on the relevant lessons of conventional management theory, and identify a
new paradigm for achieving sustainable competitive advantage. As we shall see, entre-
preneurship represents a unifying framework for successful management practice in the
twenty-first century. An overall model of corporate entrepreneurship will be introduced,
and will serve as the foundation for the structure and flow of the chapters to come.
Turbulent Environments and the Embattled Corporation
To understand modern corporations, we must consider their “external” and “internal”
environments. We use the term “external environment” to speak of everything outside
the company, including the competitive, customer, technological, economic, regula-
tory, social, labor, and supplier environments. Each of these domains of the external
environment has critical implications for how things are done inside the company
(i.e., the internal environment). The internal environment, then, includes the struc-
tures, systems, processes, and culture that make up the climate within which people
do the work of a company.
The external environment today is all about change. This is not a radical or new reve-
lation. Heraclitus stated in 500 B.C. that, “nothing endures but change.” However, the
pace and magnitude of change are significantly greater than ever before. It is continuous
change, with a never-ending stream of new challenges deriving from each domain of the
external environment. It is complex change, as developments in technology combine
with developments with suppliers to affect developments with customers. And it is the
kind of change that threatens the very survival of the company on a month-to-month
basis. Even the most dominant company can be out of business in a blink of an eye.
Consider just a sampling of recent developments in eight major domains of a
company’s external environment:
Technological Environment Accelerated development of new technologies;
rapid product obsolescence; greater difficulty in
protecting intellectual property
4 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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Economic Environment Unpredictability of prices, costs, exchange rates,
interest rates, tax incentives, business cycles
Competitive Environment Aggressive “take no prisoners” competition;
highly innovative competitors; competition
from non-traditional sources with non-
traditional tactics; threats from niche players;
competitors who are also customers or partners
Labor Environment Growing scarcity of skilled workers; employees
more mobile and less loyal; higher employee
benefit costs; reliance on contract labor
Resource Environment Increasing resource scarcity; resources increas-
ingly specialized; unknown sources of supply;
more rapid resource obsolescence
Customer Environment More demanding and complex customers; mar-
kets that are more fragmented and more nar-
rowly segmented; emphasis on investing in and
capturing a customer’s life time value
Legal and Regulatory More aggressive regulation; virtually unlimited
product liability; Environmental regulatory
compliance costs; growing emphasis on free
and fair trade; increasing environmental regula-
tion and associated compliance costs; mandated
employee benefits costs
Global Environment Real-time communication, production, and dis-
tribution virtually anywhere in the world; more
sophisticated suppliers, customers, and competi-
tors located around the world; competitive ad-
vantage achieved through global outsourcing
and international strategic alliances
These dramatic changes have important implications for companies and how they
are managed (Romero-Martinez, et al., 2010). Quite simply, the modern corporation
finds itself embattled as it struggles to survive, much less to achieve sustained growth.
Figure 1-1 illustrates how trends in some of these areas force companies to abandon
conventional business practices. Managers face shortened decision windows and
diminishing opportunity streams, meaning they must act much more quickly or find
themselves missing out on opportunities. The constituencies (e.g., customers, suppliers,
CHAPTER 1 The New Entrepreneurial Imperative 5
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F I G U R E 1 - 1
How Environmental Turbulence Creates a Need for New Management Practices
Customers
Fragmented markets require companies
to adopt multiple approaches to serve
different target audiences
Rapidly rising customer expectations
force companies to customize their
products, customer support function,
and communication approaches, and yet
do so in ways that can be standardized
The costs of higher levels of customization
require companies to cultivate longer-term
customer relationships
Sustainable growth means learning new
skills in serving global markets
Competitors
Competitors lead customers to entirely new
market spaces, forcing companies to spend
greater amounts on product development
Aggressive competitors move quickly to
mimic anything new attempted by the
company, making it harder to differentiate
the company in the eyes of customers
Companies fnd themselves competing with
companies in other industries that play by
completely different rules—making current
competitive approaches irrelevant
Competitors specializing in narrow,
proftable niches avoid costs of competing
across a broader product and customer range,
while attacking the company’s most proftable
areas of business
The
Embattled
Corporation
Technology
Companies have to change the ways they
operate internally and how they compete
externally based on:
– New information management
technologies
– New production and service
delivery technologies
– New customer management
technologies
– New logistics and inventory
management technologies
– New sales force management
technologies
– New product development
technologies
Companies are increasingly accountable to
multiple stakeholders, and their actions are
more visible to these stakeholders, forcing
management to make diffcult choices and
deliver results while behaving responsibly
An increasingly litigious environment raises
the stakes on company liability for products
and how they are used; more lawsuits increase
company costs and penalize innovative actions
Regulatory restrictions limit choices while
forcing companies to learn new ways to compete
Growing affuence enables society to hold
companies more responsible for the
environmental and social implications of
their actions
Legal, Regulatory, and Ethical
Standards
6 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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distributors, alliance partners, regulators) with whom they interact are continually
changing, suggesting new performance standards and expectations must be met. As re-
sources become increasingly specialized and resource needs become less predictable,
companies tend to make shorter-term commitments to a given resource, and to rely
more heavily on the outsourcing, leasing, and leveraging (rather than ownership) of
resources. The dramatic pace of technological change combined with the fragmenta-
tion of markets forces companies to develop more new products and to do so much
faster. The company’s resources and its products become obsolete more quickly,
changing the economic realities that surround decisions regarding which resources to
employ, which products to develop, and which markets to enter.
In the final analysis, companies are experiencing a general lack of long-term control
over their external environments. Never before have incumbency and past experiences
been worth so little. No longer does company size matter, while being resource rich is
hardly a guarantee of marketplace performance. And the riskiest strategy of all is simply
to pursue business as usual.
The New Path to Sustainable Competitive Advantage
How are today’s companies reacting to this challenge? The response has been dramatic.
A veritable cornucopia of new strategic initiatives has preoccupied the time of
executives over the past decade. These include rightsizing, unbundling, focusing on
core businesses while divesting others, business process reengineering, total quality
management, flattening structures and decentralizing decision-making, outsourcing,
creating self-directed work teams, forming strategic alliances, and more. Meanwhile,
major companies have found themselves eliminating millions of jobs, closing plants,
moving operations to low-cost countries, and attempting to become “lean and
mean.” Yet they continue to struggle.
There are important lessons to be learned from all of this. Firstly, turbulence in the
external environment is causing a fundamental transformation in the internal operations
of companies. Or, more simply put, external change forces internal change. Secondly,
there are no simple formulas for success in the new competitive environment. While it
is clear that traditional models of bureaucracy, hierarchical management systems, and
companies operating on a command-and-control philosophy do not work in the con-
temporary environment, it is less clear what does work. It is all about experimentation,
as management looks for the right structure, right approach to control, right leadership
style, and right way to reward employees. Thirdly, there is an important upside to exter-
nal environments as they become more complex, dynamic, and hostile. Turbulence also
means opportunity. That is, changes in markets, technologies, regulation, and other areas
CHAPTER 1 The New Entrepreneurial Imperative 7
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close some doors while opening others. Market fragmentation also means new market
segments are appearing; new technologies create new company capabilities; a regulatory
change results in some sort of new need; and so on. While some companies focus only
on defending themselves against threats, others understand that there is a new opportu-
nity to be found behind every threat.
But what is the ultimate “bottom line”? That is, what is the real quest as managers
sort through the various theories, concepts, and new techniques and tools? The answer
is and always will be sustainable competitive advantage. But the rules have changed here as
well. Traditionally, competitive advantage was achieved by having lower costs than
the competition, achieving higher quality or product performance, adding a new
product feature, offering more selection or delivering better customer service. Unfor-
tunately, this game of “one-upsmanship” can no longer produce sustainable advantage.
Whatever one company does in these areas is quickly matched by other companies.
Moreover, to be successful in any industry today, companies must continually reduce
costs, improve quality, enhance customer service, and so forth. Such continuous improve-
ment is a minimal criterion for remaining in the competitive game.
Remaining competitive is very different from achieving sustainable competitive ad-
vantage. The quest for competitive advantage requires that companies and the man-
agers within them continually reinvent themselves. Specifically, we believe advantage
derives from five key company capabilities. These include:
Adaptability—the ability to adjust, on a timely basis, to new technologies, new cus-
tomer needs, new regulatory rules, and other changes in conditions without losing
focus or causing significant disruption of core operations and commitments;
Flexibility—the ability to design company strategies, processes, and operational ap-
proaches that can simultaneously meet the diverse and evolving requirements of
customers, distributors, suppliers, financiers, regulators, and other key stakeholders;
Speed—the ability to act quickly on emerging opportunities, to develop new pro-
ducts and services more rapidly, and to make critical operational decisions without
lengthy deliberations;
Aggressiveness—an intense, focused, and proactive approach to eliminating competi-
tors, delighting customers, and growing employees;
Innovativeness—a continuous priority placed on developing and launching new prod-
ucts, services, processes, markets, and technologies, and on leading the marketplace.
Companies that are more adaptable, flexible, fast, aggressive, and innovative are
better positioned not only to adjust to a dynamic, threatening, and complex external
environment, but to create change in that environment (Heavey et al., 2009). That is,
8 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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they do not take the external environment as a given, and instead define themselves as
agents of change, leading customers instead of following them, creating markets, and
rewriting the rules of the competitive game.
These five capabilities ultimately come down to one—entrepreneurship. Entrepreneur-
ship is the core source of sustainable advantage in companies today. Advantage lies in find-
ing ways to tap the spirit of Richard Branson, Mark Zuckerberg, Steven Jobs, Anita
Roddick, and other great entrepreneurs within the mainstream of the company—on the
production floor, inside the sales force, among the purchasing agents. Continuous innova-
tion and an ability to continually redefine the competitive playing field are among the
skills that define corporate performance in the global economy of the twenty-first century
(Pitelis and Teece, 2009). As Steven Brandt (1986) noted in early work on corporate
entrepreneurship: “The challenge is relatively straightforward … companies must tap into
the creative power of their members. Ideas come from people. Innovation is a capability
of the many. That capability is utilized when people give commitment to the mission and
life of the enterprise and have the power to do something with their capabilities.”
What Is Entrepreneurship?
Although the term “entrepreneurship” has been in use for well over 200 years, there is
considerable disagreement over its meaning. People hold disparate views regarding
who is an entrepreneur, what an entrepreneurial venture looks like, and the nature
of the activities that constitute entrepreneurial behavior. Although literally hundreds of
perspectives have been presented over the years, seven of the most prevalent themes
are summarized in Table 1-1. At the center of these themes is creation. Entrepreneur-
ship is about creating organizations, change, innovation, and wealth. One study
performed a content analysis of key words found in dozens of definitions of entre-
preneurship (Morris et al., 1994). As can be seen in Table 1-2, the most common
terms include starting or creating a new venture; innovating or putting together
new combinations of resources; pursuing opportunity; acquiring necessary resources;
risk-taking; profit-seeking; and creating value.
Of the available perspectives, one definition captures the essence of entrepreneurship by
integrating its core elements. Entrepreneurship is “the process of creating value by bringing
together a unique combination of resources to exploit an opportunity” (Stevenson &
Jarillo-Mossi, 1986). This definition has four key elements. First, entrepreneurship
involves a process. This means it is manageable, can be broken down into steps or stages,
and is ongoing. Moreover, as a process, entrepreneurship can be applied in any organiza-
tional context. Second, entrepreneurs create value where there was none before. They
create value within organizations and they create value in the marketplace. Thirdly,
CHAPTER 1 The New Entrepreneurial Imperative 9
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entrepreneurs put resources together in a unique way. Unique combinations of money,
people, procedures, technologies, materials, facilities, packaging, distribution channels,
and other resources represent the means by which entrepreneurs create value and differ-
entiate their efforts. Fourthly, entrepreneurship involves opportunity-driven behavior. It
is the pursuit of opportunity without regard to resources currently controlled (Stevenson
et al., 2006). The abilities to recognize new opportunities in the external environment,
evaluate and prioritize these opportunities, and then translate these opportunities into
viable business concepts lie at the heart of the entrepreneurial process.
Timmons and Spinelli (2008) take us further, in elaborating on what entrepreneurs
do. They view entrepreneurship as the ability to create and build a vision from practi-
cally nothing. Fundamentally, it is a human, creative act. It is the application of energy
to initiate a novel concept or build an enterprise or venture, rather than just watching or
analyzing. This vision requires a willingness to take calculated risks—and then to do
everything possible to reduce the chances of failure. Entrepreneurship also includes the
ability to build a team with complementary skills and talents. It is the knack for sensing
opportunity where others see chaos, contradiction, and confusion. It is possessing
T A B L E 1 - 1
Seven Perspectives on the Nature of Entrepreneurship
Creation of Wealth Entrepreneurship involves assuming the risks associated
with the facilitation of production in exchange for profit.
Creation of Enterprise Entrepreneurship entails the founding of a new business
venture where none existed before.
Creation of Innovation Entrepreneurship is concerned with unique combinations of
resources that make existing methods or products obsolete.
Creation of Change Entrepreneurship involves creating change by adjusting,
adapting, and modifying one’s personal repertoire,
approaches, and skills to meet different opportunities
available in the environment.
Creation of Jobs Entrepreneurship is concerned with employing, managing,
and developing the factors of production, including the
labor force.
Creation of Value Entrepreneurship is a process of creating value for customers
by exploiting untapped opportunities.
Creation of Growth Entrepreneurship is defined as a strong and positive orien-
tation toward growth in sales, income, assets, and
employment.
SOURCE: Michael H. Morris, Entrepreneurial Intensity, Westport, CT: Quorum Books,
1998: 14.
10 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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the know-how to find, marshal, and employ resources—resources often controlled
by others.
What Is Corporate Entrepreneurship?
The definition above makes it clear that entrepreneurship is a phenomenon that can
occur in a variety of different organizational contexts. “Corporate entrepreneurship”
is a term used to describe entrepreneurial behavior inside established mid-sized and
large organizations. Other popular or related terms include “organizational entre-
preneurship,” “intrapreneurship,” and “corporate venturing.”
Definitions of corporate entrepreneurship have evolved over the past thirty years.
At a basic level, it involves the generation, development, and implementation of new
T A B L E 1 - 2
Key Terms Identified in Content Analysis of 75 Contemporary Definitions
of Entrepreneurship*
# of Mentions
1. Starting/founding/creating 41
2. New business/new venture 40
3. Innovation/new products/new market 39
4. Pursuit of opportunity 31
5. Risk-taking/risk management/uncertainty 25
6. Profit-seeking/personal benefit 25
7. New combinations of resources, means of production 22
8. Management 22
9. Marshalling resources 18
10. Value creation 13
11. Pursuit of growth 12
12. A process activity 12
13. Existing enterprise 12
14. Initiative-taking/getting things done/proactiveness 12
15. Create change 9
16. Ownership 9
17. Responsibility/source of authority 8
18. Strategy formulation 6
* Terms receiving five or more mentions.
CHAPTER 1 The New Entrepreneurial Imperative 11
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ideas and behaviors by a company (Damanpour, 1991). This perspective centers on
innovation, which can include new products or services, processes, administrative sys-
tems, or programs pertaining to employees of the organization. In this context, corpo-
rate entrepreneurship centers on enhancing the company’s ability to acquire and act
upon innovative skills and capabilities. Other definitions are concerned with the ability
of established companies to renew themselves. For instance, Salvato et al. (2009) empha-
size the capability that allows managers to systematically overcome internal constraints so
they can reinvent the company through novel business initiatives. Alternatively, some
researchers focus on the ability of the company to create new ventures. Hence, Zahra
et al. (2000) argue that corporate entrepreneurship can include formal or informal activ-
ities aimed at creating new businesses inside of established companies through product
and process innovations and market developments. They suggest the activities that can
take place at the corporate, division, functional, or project levels, with the unifying
objective of improving a company’s competitive position and financial performance.
Ling et al. (2008) bring these perspectives together by approaching corporate entre-
preneurship as the sum of a company’s innovation, renewal, and venturing efforts.
Under this definition, innovation (which is concerned with introducing something new
to the marketplace), strategic renewal (concerned with organizational renewal involving
major strategic and/or structural changes), and corporate venturing (entrepreneurial ef-
forts that lead to creation of new business organizations within the corporation) are all
important and legitimate parts of the concept of corporate entrepreneurship. Building
on this integrated approach, as we shall see in Chapter 4, entrepreneurship can manifest
itself in many different ways inside an established company.
Management versus Entrepreneurship
Entrepreneurship differs from management. Management is the process of setting ob-
jectives and coordinating resources, including people, in order to attain those objec-
tives. In essence, management involves getting things done through other people.
The effective manager is a planner, organizer, communicator, coordinator, leader, mo-
tivator, and controller; and most of all, a facilitator. In a sense, management is a trans-
formation process, where technical, human, and conceptual skills are used to transform
inputs into outputs. Further, to carry out their responsibilities, managers must under-
stand how the organization interacts with the external environments and how the dif-
ferent parts of the organization work together.
Management is both an art and a science. As an art, management requires the use of
behavioral and judgmental skills that cannot be quantified or categorized the way scien-
tific information in the fields of chemistry, biology, and physics can be. For example,
12 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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management involves motivating people, communication, leading, and using qualitative
judgment, intuition, gut feeling, and other non-quantifiable abilities. As a science, man-
agement requires the use of logic and analysis. The manager arrives at a solution by sys-
tematically observing, classifying, and studying facts in relation to the problem at hand.
The primary roles of the manager are contrasted with those of the entrepreneur in
Figure 1-2. Managers are charged with the efficient and effective utilization of the re-
sources under their control. They tend to be focused on optimizing current opera-
tions. Efficiency is improved when the amount of work being done (the output)
remains the same while the cost of producing this output (the input) declines. Effec-
tiveness pertains to the manager’s ability to choose appropriate objectives and the
means for achieving them. While efficiency means doing things right, effectiveness
F I G U R E 1 - 2
Comparing and Combining Key Roles of Managers and Entrepreneurs
THE MANAGER THE ENTREPRENEUR
THE
ENTREPRENEURIAL
MANAGER
director
planner
strategist
organizer
staffer
motivator
budgeter
evaluator
coordinator
supervisor
guerrilla thinker
visionary
opportunity-seeker
creator
innovator
calculated risk-taker
resource leverager
change agent
adaptive implementer
of new ideas
CHAPTER 1 The New Entrepreneurial Imperative 13
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means doing the right things. The entrepreneur, alternatively, is preoccupied not with
what is, but with what can be. They envision the future, recognize emerging patterns,
identify untapped opportunities, and come up with innovations to exploit those op-
portunities. As we noted earlier, they pursue opportunity regardless of resources con-
trolled. They do this by demonstrating creative capabilities in obtaining and leveraging
resources, overcoming obstacles, mitigating risks, and persisting in implementing new
ideas that represent change.
Within great organizations, a balance is achieved between disciplined management
and entrepreneurship (Ireland et al., 2009). Disciplined management requires focus, at-
tention to basic management principles and values, and a strong sense of accountability
for results. Entrepreneurship requires vision, a willingness to take risks, and a focus on
creating the future. Achieving this balance suggests that managers must become entre-
preneurs. That is, managers must be able to optimize current operations while at the
same time engaging in activities that make current operations obsolete. This is a difficult
challenge, and companies have achieved mixed results in striking the balance. Table 1-3
T A B L E 1 - 3
Perspectives on Corporate Entrepreneurship from Those Who Have Been There
L.D. DeSimone, former Chairman and CEO of 3M
Among b-schools and industry pundits, 3M is widely known for its creative inven-
tions. While not company policy, it is understood that its 8,000 researches are ex-
pected to spend up to 15 percent of their time working on unapproved projects. It is
this kind of an entrepreneurial environment that many corporations seek to emulate.
However, whether it’s the lack of financial ability to support such activity, or the lack
of an appropriate management team, many still struggle to accomplish such a mis-
sion. Management at 3M is so flexible and trusting that they don’t get concerned if
they don’t hear from an employee for a long period of time. If someone’s creative
energy is noticeably waning, the person is simply relocated to a department where
their original, hireable energy can be revitalized and put to good use. The hiring pro-
cess is a key part of 3M’s creative, entrepreneurial environment. According to
DeSimone, 3M rededicated itself in the early 90s to hiring people who intuitively
understand the discipline of the marketplace. Furthermore, a personality profile with
innovative characteristics was derived and used to formulate questions used in inter-
views for technical positions. Using inquiries such as “What kind of projects did you
initiate as a child?” and “Were you ever so creative that your parents got upset with
you?” has kept 3M in the limelight and in the forefront of corporate entrepreneurship.
George N. Hatsopoulos, former Chairman and CEO of Thermo Electron Corporation
For many years, Thermo Electron used the usual cash bonuses and stock options to
maintain and motivate employees. This works well in many corporations, but it
didn’t take long for Thermo Electron to realize that well-performing stocks were in-
dicative of the success of the whole company, not just one particular unit—thus no
(Continued)
14 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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real intrinsic motivation. The result: spin-outs. The publicly traded spin-outs, unlike
many spin-offs, remain as part of the business family (Thermo Electron does keep a
majority interest), and have the desired effect on employee attitude and work ethic.
Over 12 years, the corporation supported 12 spin-outs by providing financial and
legal services, employee benefits administrations, risk management, and investor re-
lations for a simple 1 percent of revenues. In 1995, 80 percent of their 12,000 em-
ployees worked for spin-outs, many of which had stock options in spin-outs other
than their own and had options valued at $1 million or more.
William F. O’Brien, President and CEO of Starlight Telecommunications
William O’Brien and his colleague, Pete Nielsen, experienced how tough it can be
to “dance with an elephant.” GTE has a new ventures group that supports creativity
and idea-generation within the corporate walls. However, for O’Brien and Nielsen,
after two years of working with senior management and refining their business plan
on their own time, their project was denied. Unfortunately, protocol was that new
ventures couldn’t be funded unless the supervisors for whom you worked signed off
on the initiative. Their main sponsor had retired, and the successor didn’t want to
lose their talent to another division. Both O’Brien and Nielsen ultimately resigned
and started Starlight Telecommunications, which is now making waves in the African
telecom industry. While reflecting on his experience with GTE, O’Brien developed
three guidelines for true intrapreneurship: (1) Corporate goals relating to new ventures
should be identified and disseminated, and managers should be encouraged to
support spin-offs that advance these goals, (2) Employees who identify new business
ideas should be protected and rewarded, and (3) Proposals should move quickly
through the approval process.
Bill Harris, Executive Vice President of Intuit, Former President and CEO of Chipsoft,
acquired by Intuit
For Intuit, acquiring the entrepreneurial edge wasn’t the problem. It was maintaining
it. The company grew fast, and it grew well—management easily recognized the fact
that they were not going to be able to “maintain their entrepreneurial agility” as they
went from a $50 million to a $500 million entity. Like Thermo Electron, Intuit’s CEO
decided to break up the organization into eight core-product units, each under the
direction of a different general manager and customer mission. Suddenly, the only
centralized issues were among that of MIS and compensation. Harris knew that to
sustain cutting-edge innovation and be truly entrepreneurial, “we must encourage and
allow our people—at all levels—to respond completely and immediately to our
customers.” Harris believes that continued entrepreneurial thinking in the unpredict-
able business will occur by encouraging employees to look to the customer for inspi-
ration and instruction rather than the boss. While this action might not always have
the best results, Intuit would rather reward intelligent failure than succumb to a di-
minishing quality of effort. Intuit fosters such creativity by investing one-third to one-
half of its operating income in unproved and unprofitable new products. It took six
years and multiple attempts before QuickBooks ever made a profit for the company.
SOURCE: Reprinted by permission of Harvard Business Review, Vol. 73, Issue 6. From
“How Can Big Companies Keep the Entrepreneurial Spirit Alive?” by L.D. Simone,
George Hatsopoulos, William F. O’Brien, Bill Harris, and Charles P. Holt, Nov/Dec 1995.
Copyright © 1995 by the Harvard Business School Publishing Corporation; all rights
reserved.
CHAPTER 1 The New Entrepreneurial Imperative 15
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provides a number of real world examples of success and failure. These challenges and
how they can be addressed is the focus of this book. A beginning point in understanding
the nature of this challenge is to recognize the ways in which companies tend to evolve,
or the organizational life cycle.
Why Companies Lose Their Entrepreneurial Way:
The Organizational Life Cycle
To understand the entrepreneurial challenge in established companies, we must under-
stand how companies evolve. While every organization is unique, patterns have been
identified in the ways companies evolve. Organizations experience the natural patterns
of life cycle stages. Various observers have described these stages in different terms. For
example, Kuratko (2009) discusses stages that include initial venture conceptualization,
start-up activities, venture growth, stabilization, diversification, strategic renewal, and/
or decline. Adizes (1999) developed the analogy of life cycle passages from nature and
applied the terms courtship, infancy, go-go, adolescence, prime, maturity, and death to
the stages that companies go through. Greiner’s (1972) classic article on evolution and
revolution as companies evolve depicted the stages as creativity, direction, delegation,
coordination, and collaboration. In short, authors may differ in terminology, but they
generally agree that patterns emerge over time. As we will see, this evolutionary pro-
cess has important implications for entrepreneurship within companies.
The evolutionary process can be demonstrated by considering the seminal work of
Griener (1972). He suggests a process whereby companies enter a particular stage, during
which they prosper until they reach a crisis point. How they deal with the crisis deter-
mines whether they move on to the next stage, or alternatively, whether they begin a
process of decline, failure, or become a candidate for acquisition. Hence, each growth
stage culminates in a crisis point where major and sometimes radical changes must be
made in managerial assumptions and approaches to running the company.
Start Up and Early Growth: This stage encompasses the launching of a venture and
the initial penetration of the market. It is a highly creative stage. A venture is
created where none existed, often based on innovative new products or services,
creative methods of production or service delivery, imaginative approaches to mar-
keting and distribution, and/or alternative methods of customer interaction and ser-
vicing. The work environment in the early stages is exciting, stressful, demanding,
uncertain, experimental, and highly ambiguous. The organization is run somewhat in-
formally, with everyone helping out with everything, and significant flexibility in what
is being done and how it is being done. Employees feel they are part of something as the
new venture begins to achieve meaningful results. However, a crisis eventually results
16 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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because the demands of greater size require more professionalized management, and
more formal structures, administrative systems, budgets, and controls.
Growth through Direction: Companies fail because they will not formalize. Where
management puts the necessary systems and structures in place, and augments the
leadership team with functional area professionals, another period of sustained
growth ensues. Over time, however, a crisis develops from demands for greater au-
tonomy on the part of lower-level managers and employees. The solution adopted
by many companies is to move toward greater delegation. Yet it is difficult for top
managers that were previously successful at being fairly directive to give up respon-
sibility and control.
Growth through Delegation: Delegation takes the form of creating semi-autonomous
product divisions and strategic business units. These operations are given targets to
achieve and, so long as they perform satisfactorily, they have considerable room to
grow their businesses as they see fit. Senior management focuses on major strategic
moves and acquisitions. Sustained growth again results, but it ultimately produces
the next crisis. Management begins to sense it is losing control over a highly diver-
sified field operation. Autonomous managers prefer to run their own shows without
coordinating plans, money, research, technology, and manpower with the rest of
the organization. Freedom breeds a parochial attitude. Inefficiencies result as divi-
sions duplicate one another’s efforts, communication among divisions is not timely,
customers receive mixed signals, and inconsistent strategic directions are pursued.
Growth through Coordination: Companies respond to this loss of control by central-
izing operations. Head office staff is developed to coordinate marketing, human
resource management, production, research and development, information technol-
ogy, and other operations across the various divisions and operating units. Consis-
tency and synergies are brought to the efforts of the various divisions and units,
resulting in the next period of sustained growth. However, centralization over
time tends to breed bureaucracy, and a crisis of red tape eventually occurs. Organi-
zational leaders will develop a myriad of procedures and systems during the fourth
stage. However, the proliferation of systems and programs begins to exceed its util-
ity. Procedures take precedence over problem solving, and innovation is dampened.
Those in field operations find themselves to be increasingly constrained by head of-
fice staff, while central administrators are increasingly frustrated with non-
cooperating field personnel. In short, the organization has become too large and
complex to be managed through formal programs and rigid systems.
Growth through Collaboration: Many companies struggle to overcome the crisis of red
tape, often finding it a losing battle. It is difficult to replace bureaucrats and
CHAPTER 1 The New Entrepreneurial Imperative 17
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administrators with innovators, and to transform a machine bureaucracy into an
innovation factory. Hence, most companies never make it to this next growth stage.
The very nature of the enterprise has to be reinvented. Companies must simplify
structures and procedures, reduce head office staff, reassign staff experts to consulting
teams assisting field operations, create matrix structures, encourage experimentation
in all facets of the business, and emphasize innovative projects involving cross-
functional teams. And while unsure of the next crisis, it will inevitably come. It is
likely a crisis related to the challenge of achieving sustainable entrepreneurship.
The demands on management change over a company’s life cycle, as the scope and
nature of operations become more diverse and complex. Each stage poses different
strategic challenges, and each requires a very different managerial approach. There is
an ongoing need for changes in how a company is run, including how goals are set,
decisions are made, resources are allocated, and performance is assessed. Table 1-4 pro-
vides a description of company practices as they tend to change through the five stages
of development. Changes are identified in terms of management focus, organizational
T A B L E 1 - 4
Changing Organizational Practices as Companies Evolve
Stage 1
Creativity
Stage 2
Direction
Stage 3
Autonomy
Stage 4
Coordination
Stage 5
Collaboration
Managerial
Focus
Make &
sell
Efficiency of
operations
Expansion
of market
Consolidation
of
organization
Problem
solving &
innovation
Approach
to
Company
Structure
Informal Centralized &
functional
Decentralized
& geogra-
phical
Line-staff &
product
groups
Matrix of
teams
Style of
Top
Managers
Individual-
istic &
entrepre-
neurial
Directive Delegative Watchdog Participative
Source of
Controls
Market
results
Standards &
cost centers
Reports &
profit
centers
Plans &
investment
centers
Mutual
goal
setting
Types of
Rewards
Emphasized
Ownership Salary &
merit
increases
Individual
bonus
Profit
sharing &
stock
options
Team
bonus
SOURCE: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations
Grow,” Harvard Business Review, July–August, 1972, p. 45.
18 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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structure, management styles, control systems, and reward systems as the organization
moves through its life cycle.
Understanding the stages of development and the changing organization practices
that are needed for each stage allows managers to be in a position to predict future chal-
lenges, and thereby to prepare strategies before crises arise. Managers often fail to real-
ize that organizational solutions that are not flexible and changing could create
problems for the future. Organizational evolution is not an automatic affair; it is a con-
test for survival. To move ahead, companies must consciously introduce planned struc-
tures that not only are solutions to a current crisis, but also are fitted to the next phase
of growth. This requires considerable self-awareness on the part of top management, as
well as great interpersonal skill in persuading other managers that change is needed.
One of the great lessons of the organizational life cycle is that, in far too many
companies, the entrepreneurial spirit tends to be systematically destroyed over time.
That is, an organization that was highly entrepreneurial in the start-up stage becomes
progressively bureaucratic over time. As each stage unfolds, new systems, structures,
rules, controls, and procedures are added, while others are modified. Successful compa-
nies make changes based on situational contingencies that accumulate over time. These
internal changes are made for logical reasons given the exigencies of company life at
different moments in time. However, in the process, the company can become less
adaptable, more inflexible, slower to act, and more reactive. Growing levels of speciali-
zation within the organization reinforce a commitment to maintaining the status quo.
Innovation is approached conservatively, with new initiatives pursued only when they
are virtually guaranteed to be successful. In critical moments, the company finds it is
either not sufficiently entrepreneurial, or its innovative efforts are misdirected.
The Entrepreneurial Imperative:
A Persistent Sense of Urgency
Over the stages of the life cycle, managers become increasingly adept at “producing,”
“administering,” and “integrating.” Otherwise, the company could not have achieved
its size and level of success. All the while, managers fail to become adept at
“entrepreneuring.” They operate in a reactive mode, attempting to respond to the many
entrepreneurial changes occurring in the external environment, but unaware of the need
to rekindle, and the methods for rekindling, the entrepreneurial fires within the company
itself. It is this entrepreneurial role of management that is most vital for addressing the
exponential changes acting on organizations in the twenty-first century.
There are no rules regarding how to achieve sustainable competitive advantage in a
complex, discontinuous, hyper-competitive, nano-speed world. It is a world that has
CHAPTER 1 The New Entrepreneurial Imperative 19
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stripped away the security of traditional management practices and thrust organizational
leaders into a revolution. Gary Hamel, a leading strategic thinker, believes that leaders
must find, ignite, and sustain the revolution rather than be victimized by it. Hamel
(2007) points to the inevitable diminishing returns experienced by most organizations
using traditional strategies, suggesting that conventional management practice has simply
run its course, and that an entirely new model of management is needed in our compa-
nies. The following questions help to demonstrate why a new model is needed:
How much more cost savings can the company wring out of its current business?
Are managers within the company working harder and harder for smaller and small
efficiency gains?
How much more revenue growth can the company squeeze out of its current busi-
ness? Is the company paying more and more for customer acquisition and market
share gains?
How much longer can the company keep propping up its share price through share
buybacks, spin-offs, and other forms of financial engineering? Is top management
reaching the limits of its ability to push up the share price without actually creating
new wealth?
How many more scale economies can the company gain from mergers and acquisi-
tions? Are the costs of integration beginning to overwhelm the savings obtained
from slashing shared overhead costs?
How different are the strategies of the four or five largest competitors in the indus-
try from the company’s strategy? Is it getting harder and harder to differentiate the
company from its competitors?
For too many companies, more than one of these questions will elicit answers of
“not much” and “yes,” suggesting the company may be reaching the point of dimin-
ishing returns. Once this is acknowledged, organizational leaders can begin the tasks of
learning the “entrepreneurial” perspective and apply the radically different approaches
required to navigate the challenging years ahead.
Corporate entrepreneurship represents a framework for facilitating ongoing
change and innovation in established organizations. It provides a blueprint for
coping effectively with the new competitive realities. As we shall see in the coming
chapters, corporate entrepreneurship transcends the company’s strategy, structure,
culture, control systems, rewards, and human resource management approaches. It
redefines the purpose of the enterprise, where the philosophy becomes one of
“healthy dissatisfaction,” of continually putting the company’s own products and
services out of business with better ones, with leading customers instead of
20 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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following them, and with turning traditional assumptions about price and perfor-
mance on their head.
Unfortunately, it is no simple process to move a traditional hierarchical company to
the point that sustainable entrepreneurship becomes a meaningful and important
component of the organization. Traditional management practices that have fo-
cused upon doing tasks more efficiently are not sufficient solutions to new chal-
lenges. Organizations need to allow the freedom and provide the resources that
corporate entrepreneurs require to develop their ideas. Management needs to be-
come more flexible and creative, and more tolerant of failure. In fact, failure
needs to be seen as a vital learning process. Corporate entrepreneurs must be
stimulated, supported, and protected. And ultimately, companies must create en-
vironments within which there is a constant sense of urgency—urgency to chal-
lenge assumptions, urgency to change, and urgency to innovate. Innovate or
dissipate must become the mantra.
A Model of Corporate Entrepreneurship and
Guide to Coming Chapters
What does it take to transform a non-entrepreneurial company into highly entrepre-
neurial company? The fundamental purpose of this book is to address this question.
To guide the reader through this journey, the authors have developed an integrative
model of corporate entrepreneurship. Presented in Figure 1-3, the model has three
major components.
The beginning point is to develop an in-depth understanding of the nature of en-
trepreneurship and how it can be applied to established organizations. While entre-
preneurship has certain defining aspects no matter where it is applied, there are also
unique differences involved when attempting to apply it within an existing enterprise.
Building on this foundation, company leaders must then build a work environment
that encourages employees to recognize and act upon their own innate entrepreneurial
potential. Four key elements of this work environment include the organization’s
strategy, structure, culture, and human resource management system. Finally, the abil-
ity to achieve entrepreneurial performance on a sustainable basis requires a clear un-
derstanding of the ongoing obstacles that constrain entrepreneurship, together with
specific facilitators and measures of entrepreneurial outcomes.
This model can be applied in addressing the entrepreneurial challenges within any
organization. It also provides the basic structure for the chapters to come. Thus,
Section 1 of the book, consisting of Chapters 1 through 5, provides the building blocks
for corporate entrepreneurship. We will examine the unique aspects of entrepreneurship
CHAPTER 1 The New Entrepreneurial Imperative 21
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when it is practiced in larger, established companies. The steps in the entrepreneurial pro-
cess will be investigated. The concept of entrepreneurial intensity will be introduced to
capture the different degrees and amounts of entrepreneurship that can occur in an orga-
nization. In addition, we will explore the different forms that entrepreneurship takes in
companies. Further, attention will be devoted to ways in which entrepreneurship can be
applied not only to corporations, but also to established non-profit and public sector or-
ganizations. Section 2 of the book, which includes Chapters 6 though 10, then examines
the core elements that must come together in order to create an entrepreneurial organiza-
tion. Specific chapters are devoted to examining how corporate strategy, structure, cul-
ture, and human resource management can each be designed in ways that foster
entrepreneurial behavior. Section 3 of the book is concerned with achieving and sustain-
ing entrepreneurial performance, and includes chapters 11 through 15. Individual chap-
ters are devoted to obstacles to ongoing entrepreneurship, entrepreneurship at different
levels of management, control systems and entrepreneurship, measuring entrepreneurial
performance, and the challenges of sustainability.
F I G U R E 1 - 3
A Model of Corporate Entrepreneurship and Guide to the Book Structure
I. Building Blocks for Corporate
Entrepreneurship
Understanding Stage of Company
Evolution (Ch. 1)
Understanding Imperatives for Innovation
in the External Environment (Ch. 1)
Understanding Nature of Corporate
Entrepreneurship (Ch. 2)
Understanding Levels and Forms of
Corporate Entrepreneurship (Chs. 3, 4)
Understanding Contexts of
Corporate Entrepreneurship (Ch. 5)
II. Creating the Entrepreneurial
Organization
III. Achieving and Sustaining
Entrepreneurial Performance
Organizational
Structure
(Ch. 9)
Constraints on
Entrepreneurial
Performance
Outcomes
(Ch. 11)
Facilitators of
Entrepreneurial
Performance
Outcomes
(Chs. 12, 13, 14)
Sustainable
Entrepreneurial
Performance
(Ch. 15)
The
Entrepreneurial
Organization
Corporate
Strategy
(Ch. 8)
Human
Resource
Capabilities
(Chs. 6, 7)
Organizational
Culture
(Ch. 10)
22 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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THE INNOVATOR’S NOTEBOOK
Microsoft: Trailing in the Innovation Race?
It is hard to believe that the $60 billion powerhouse located in Redmond,
Washington, and known as Microsoft could be actually losing ground in the
innovation race. Yet success can breed complacency in large companies.
Microsoft rode the wave of PCs into consumers’ homes, and still sells a copy
of its software with virtually every one of the millions of PCs sold every year.
Office and Windows, its core products, have become standards for most consu-
mers, and the popularity of Windows has led to both American and European
courts declaring Microsoft’s operating-system business an illegal monopoly.
Microsoft’s reputation as a monopolist has led to strong opposition from
competitors as well as consumers. The company’s movement into the markets
for mobile phones, cable television, and home gaming consoles prompted the
following action in each area: mobile phone companies formed a software
consortium to slow Microsoft’s progression; cable operators hesitated to install
Microsoft’s software on cable set-top boxes due to concerns that using the
software would allow Microsoft to control their networks; and consumers and
game development companies grew skeptical of Microsoft’s intentions when
the company insisted on maintaining control of the online-gaming service
provided through the Xbox. In all three cases, Microsoft’s dominance in the
PC market led to players in other markets taking defensive measures to prevent
the company from becoming a competitor. So, what’s a company to do?
The answer is simple: innovate! As technology progresses, electronic de-
vices are dominating the business and consumer landscapes today. This fact
has not been lost on Microsoft, and it has been strategically positioning itself
for innovation.
Microsoft has one of the largest laboratories in the world and three chief
technology officers yet the company has been accused of frustrating the efforts
of its innovators. This can easily happen when a company grows too large and
bureaucratic. With over 90,000 employees it is understandable that bureau-
cratic layers begin to build in an organization. To combat this problem Micro-
soft has 800 computer scientists, sociologists, psychologists, mathematicians,
physicists and engineers working across the globe in search of new ideas. Dur-
ing the economic downturn in 2009 the company invested over $9 billion in
research and development.
CHAPTER 1 The New Entrepreneurial Imperative 23
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In 2010, CEO Steven A. Ballmer outlined four areas of focus for long-term
research aimed at pioneering the next generation of breakthrough technologies.
Cloud computing and software plus services: Combining the power of
desktop and server software with the reach of the Internet is creating
important opportunities for growth. Microsoft is focused on delivering
end-to-end experiences that connect users to information, communications,
entertainment, and people in new and compelling ways across their lives at
home, at work, and the broadest-possible range of mobile scenarios.
Natural user interfaces: Dramatic changes in the way people interact with
technology, as touch, gestures, handwriting, and speech recognition be-
come a normal part of how devices are controlled create opportunities to
reach new markets and deliver new kinds of computing experiences.
Natural language processing: The increase in computing power will enable
a new generation of software that has the knowledge and intelligence to
respond to simple natural language input and quickly carry out complex
tasks in a way that accurately reflects users’ needs and preferences.
New scenario innovation: Global issues including healthcare, environmen-
tal sustainability, and education can be opportunities for software that
could enable people without specialized programming skills to quickly
create models and simulations that could transform scientific research and
have a dramatic impact on a wide range of industries, from financial ser-
vices, to engineering, aerospace, and manufacturing.
Today at Microsoft’s Redmond campus it becomes apparent that the future
needs of consumers is the innovative focus. Microsoft envisions this future as a
world of multiple sensors, where our plants tell homeowners when to water
themand our doorbell automatically sends photos of visitors to our mobile phone.
Inside the house the coffee table will have its own touch interface, connecting to
3D cloud applications all accessible on every surface of the home. Where sur-
faces are inaccessible, skin may be used as a display and input device. The basis
of Microsoft’s research is the transition from a graphical user interface (GUI) that
we use today in computers and phones to natural user interaction (NUI).
Microsoft may also consider buying start ups whose technology is consid-
ered good by using a program called BizSpark, which gives startup companies
free access to Microsoft tools, technologies, and services. The program is open
to private companies that are less than three years old and have less than
$1 million revenue. Thirty thousand companies have signed on to BizSpark.
24 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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Summary and Conclusions
A revolution is underway in modern organizations. Highly turbulent external environ-
ments are forcing managers to rethink literally every aspect of organizational life. As
the nature of the competitive challenge continually redefines itself, larger companies
find themselves becoming too slow, too reactive, and too complacent. To address these
shortcomings, many companies are down-sizing, right-sizing, outsourcing, reengineering,
restructuring, and generally attempting to reinvent themselves.
All of this represents a quest for sustainable competitive advantage; an elusive goal
that can no longer be achieved based on conventional management practices. Sustain-
able advantage in the twenty-first century derives from being more adaptable and flexi-
ble, from being faster and more aggressive, and from generating higher rates of
innovation compared to other companies. In short, the ultimate source of marketplace
advantage is entrepreneurship.
In this chapter, entrepreneurship has been defined as an opportunity-driven process
of value creation, where value is created through unique combinations of resources.
The challenge comes down to size. The question for Microsoft is how to
turn new innovations into success stories on a scale of Windows and Office,
which continue to dominate their business by accounting for almost half an-
nual revenues. Microsoft is aware that success is fleeting, and staying in place
means getting left behind. The company is taking steps today that will surely
payoff in the future.
Discussion Questions
1. Describe how the “new entrepreneurial imperative” has affected Microsoft.
2. How would you apply the organizational life cycle to Microsoft today?
3. What specific actions indicate that Microsoft is trying to exhibit corporate
entrepreneurship?
SOURCES: Adapted from “Microsoft: Way beyond the PC,” The Economist,
November 30, 2005, pp. 83–85; and the Microsoft Web site,http://www.
microsoft.com/msft/reports/ar09/index.html, accessed April 14, 2010.
CHAPTER 1 The New Entrepreneurial Imperative 25
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When this process is applied to established organizations, our focus becomes corporate
entrepreneurship. The chapter draws a distinction between entrepreneurship and man-
agement, in the process arguing that today’s managers must find ways to become entre-
preneurs. The corporate imperative in twenty-first century organizations is to strike a
balance between disciplined management and entrepreneurial behavior. Leading-edge
companies find ways to optimize current operations while at the same time inventing
the future. They serve existing stakeholders while also leading customers to new sources
of value, creating new markets, and redefining the rules of the competitive game.
Although companies tend to be highly entrepreneurial in their early stages, they sub-
sequently create bureaucracies and cultures that stifle the entrepreneurial spirit. This is
the lesson of the organizational life cycle. The changing competitive landscape suggests
that, as companies evolve, the need for entrepreneurial behavior does not dissipate. Yet,
the abilities to think and act in an entrepreneurial fashion at every level of management,
and within every area of the company, tend to decline in direct proportion to the size and
age of the company.
The challenge thus becomes one of fostering entrepreneurial transformations within
organizations. Toward this end, the chapter has introduced an integrative model of cor-
porate entrepreneurship designed around three major components: building blocks for
corporate entrepreneurship, the creation of an entrepreneurial work environment, and
the achievement of sustainable entrepreneurial performance. This model provides the
guiding structure for the layout of the book. Subsequent chapters will examine each of
the key elements within the three components of the model. When combined, these ele-
ments provide a roadmap to entrepreneurial success.
References
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26 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: iChapters User
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CHAPTER 1 The New Entrepreneurial Imperative 27
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S E C T I O N
1
BUILDING BLOCKS
FOR CORPORATE
ENTREPRENEURSHIP
“
“Wealth in the new regime flows directly from innovation, not optimization; that is, wealth
is not gained by perfecting the known, but by imperfectly seizing the unknown.”
”
”
—KE VI N KE L L Y, “NE W RUL E S F OR THE NE W ECONOMY, ” WIRED
CHAPTER 1 The New Entrepreneurial
Imperative
CHAPTER 2 The Unique Nature of
Corporate Entrepreneurship
CHAPTER 3 Levels of Entrepreneurship in
Organizations:
Entrepreneurial Intensity
CHAPTER 4 The Forms of Corporate
Entrepreneurship
CHAPTER 5 Entrepreneurship in Other
Contexts: Non-profit and
Government Organizations
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Section Introduction
How does entrepreneurship apply to established organizations? As illustrated in the
model above, we begin to address this question by examining key building blocks for
understanding the nature of corporate entrepreneurship. This first section of the book
introduces basic concepts, tools, and frameworks that help explain how and why en-
trepreneurial behavior occurs in organizations, even as they become larger and more
complex. It consists of the first five chapters. Building on this foundation, we will
identify ways to encourage greater levels of entrepreneurship within existing organiza-
tions (Section 2 of the book), and then explore how it can be sustained over time
(Section 3).
I. Building Blocks for Corporate
Entrepreneurship
Understanding Stage of Company
Evolution (Ch. 1)
Understanding Imperatives for Innovation
in the External Environment (Ch. 1)
Understanding Nature of Corporate
Entrepreneurship (Ch. 2)
Understanding Levels and Forms of
Corporate Entrepreneurship (Chs. 3, 4)
Understanding Contexts of
Corporate Entrepreneurship (Ch. 5)
II. Creating the Entrepreneurial
Organization
III. Achieving and Sustaining
Entrepreneurial Performance
Organizational
Structure
(Ch. 9)
Constraints on
Entrepreneurial
Performance
Outcomes
(Ch. 11)
Facilitators of
Entrepreneurial
Performance
Outcomes
(Chs. 12, 13, 14)
Sustainable
Entrepreneurial
Performance
(Ch. 15)
The
Entrepreneurial
Organization
Corporate
Strategy
(Ch. 8)
Human
Resource
Capabilities
(Chs. 6, 7)
Organizational
Culture
(Ch. 10)
2 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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CHAPTER 1
THE NEW ENTREPRENEURIAL
IMPERATIVE
Introduction
We are in the midst of a global entrepreneurial revolution. In virtually every nation,
every industry, and every market, entrepreneurs are challenging existing assumptions
and creating value in novel ways. Not only are for-profit and non-profit venture
start-up rates at an all-time high but also the rate of new product and service introduc-
tion is at record levels in most industries. The same can be said for patents issued and
the licensing of new products and processes. The development, application, and en-
hancement of new technologies are occurring at a breathtaking pace. New forms of
business organization and business relationships are appearing almost daily. Entrepre-
neurial thinking and acting is changing the way business is conducted at every level.
It does not matter if you are a chip manufacturer or a plastics company, or whether
you are based in Los Angeles, Johannesburg, or Peking—entrepreneurship is redefin-
ing what you make, how you make it, where you sell it, and how you distribute it.
As the number of new ventures, new products, new technologies, and new patents
literally explodes worldwide, established companies are faced with a fundamental
choice. They can either become victims of this revolution as aggressive, upstart companies
move quickly in undermining their positions in existing markets and in creating whole
new markets—or, they can join the revolution.
Companies cannot be static—they must continually adjust, adapt, and redefine
themselves. This is a fundamental principle in a free market economy. However, in
this entrepreneurial age, the rate at which companies must transform themselves is ac-
celerating. In fact, many of those who have been part of the evolution (and revolu-
tion) of corporations in recent years have an amazing story to tell. The past quarter
century has produced immense transformation in the functions, patterns, and cycles
of organizations. Many of the conventional rules of business no longer apply. Funda-
mental assumptions about employees, products, resources, technologies, and markets
have been challenged and in some cases discarded altogether. For many companies,
turbulence in their external environments has become a way of life.
In the midst of all of this comes the question of the relevance of the traditional theo-
ries and principles that guide managerial practice. On the one hand, the nature and re-
lationships among variables that define how companies operate have changed to the
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point that different models and theories are required to address the practical needs of the
contemporary executive. As a result, managers have been surfeited with a whole range
of new concepts and tools ranging from total quality management and business process
reengineering to right-sizing, strategic alliances, and self-directed work teams. We can
call this the “new management thinking.” On the other hand, many of the basic lessons
and principles of good business practice still apply. It is important to remember the
adage, “Those who do not learn from the past are destined to repeat it.”
In this chapter, we explore the changing shape of the managerial challenge in compa-
nies. We build on the relevant lessons of conventional management theory, and identify a
new paradigm for achieving sustainable competitive advantage. As we shall see, entre-
preneurship represents a unifying framework for successful management practice in the
twenty-first century. An overall model of corporate entrepreneurship will be introduced,
and will serve as the foundation for the structure and flow of the chapters to come.
Turbulent Environments and the Embattled Corporation
To understand modern corporations, we must consider their “external” and “internal”
environments. We use the term “external environment” to speak of everything outside
the company, including the competitive, customer, technological, economic, regula-
tory, social, labor, and supplier environments. Each of these domains of the external
environment has critical implications for how things are done inside the company
(i.e., the internal environment). The internal environment, then, includes the struc-
tures, systems, processes, and culture that make up the climate within which people
do the work of a company.
The external environment today is all about change. This is not a radical or new reve-
lation. Heraclitus stated in 500 B.C. that, “nothing endures but change.” However, the
pace and magnitude of change are significantly greater than ever before. It is continuous
change, with a never-ending stream of new challenges deriving from each domain of the
external environment. It is complex change, as developments in technology combine
with developments with suppliers to affect developments with customers. And it is the
kind of change that threatens the very survival of the company on a month-to-month
basis. Even the most dominant company can be out of business in a blink of an eye.
Consider just a sampling of recent developments in eight major domains of a
company’s external environment:
Technological Environment Accelerated development of new technologies;
rapid product obsolescence; greater difficulty in
protecting intellectual property
4 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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Economic Environment Unpredictability of prices, costs, exchange rates,
interest rates, tax incentives, business cycles
Competitive Environment Aggressive “take no prisoners” competition;
highly innovative competitors; competition
from non-traditional sources with non-
traditional tactics; threats from niche players;
competitors who are also customers or partners
Labor Environment Growing scarcity of skilled workers; employees
more mobile and less loyal; higher employee
benefit costs; reliance on contract labor
Resource Environment Increasing resource scarcity; resources increas-
ingly specialized; unknown sources of supply;
more rapid resource obsolescence
Customer Environment More demanding and complex customers; mar-
kets that are more fragmented and more nar-
rowly segmented; emphasis on investing in and
capturing a customer’s life time value
Legal and Regulatory More aggressive regulation; virtually unlimited
product liability; Environmental regulatory
compliance costs; growing emphasis on free
and fair trade; increasing environmental regula-
tion and associated compliance costs; mandated
employee benefits costs
Global Environment Real-time communication, production, and dis-
tribution virtually anywhere in the world; more
sophisticated suppliers, customers, and competi-
tors located around the world; competitive ad-
vantage achieved through global outsourcing
and international strategic alliances
These dramatic changes have important implications for companies and how they
are managed (Romero-Martinez, et al., 2010). Quite simply, the modern corporation
finds itself embattled as it struggles to survive, much less to achieve sustained growth.
Figure 1-1 illustrates how trends in some of these areas force companies to abandon
conventional business practices. Managers face shortened decision windows and
diminishing opportunity streams, meaning they must act much more quickly or find
themselves missing out on opportunities. The constituencies (e.g., customers, suppliers,
CHAPTER 1 The New Entrepreneurial Imperative 5
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F I G U R E 1 - 1
How Environmental Turbulence Creates a Need for New Management Practices
Customers
Fragmented markets require companies
to adopt multiple approaches to serve
different target audiences
Rapidly rising customer expectations
force companies to customize their
products, customer support function,
and communication approaches, and yet
do so in ways that can be standardized
The costs of higher levels of customization
require companies to cultivate longer-term
customer relationships
Sustainable growth means learning new
skills in serving global markets
Competitors
Competitors lead customers to entirely new
market spaces, forcing companies to spend
greater amounts on product development
Aggressive competitors move quickly to
mimic anything new attempted by the
company, making it harder to differentiate
the company in the eyes of customers
Companies fnd themselves competing with
companies in other industries that play by
completely different rules—making current
competitive approaches irrelevant
Competitors specializing in narrow,
proftable niches avoid costs of competing
across a broader product and customer range,
while attacking the company’s most proftable
areas of business
The
Embattled
Corporation
Technology
Companies have to change the ways they
operate internally and how they compete
externally based on:
– New information management
technologies
– New production and service
delivery technologies
– New customer management
technologies
– New logistics and inventory
management technologies
– New sales force management
technologies
– New product development
technologies
Companies are increasingly accountable to
multiple stakeholders, and their actions are
more visible to these stakeholders, forcing
management to make diffcult choices and
deliver results while behaving responsibly
An increasingly litigious environment raises
the stakes on company liability for products
and how they are used; more lawsuits increase
company costs and penalize innovative actions
Regulatory restrictions limit choices while
forcing companies to learn new ways to compete
Growing affuence enables society to hold
companies more responsible for the
environmental and social implications of
their actions
Legal, Regulatory, and Ethical
Standards
6 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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distributors, alliance partners, regulators) with whom they interact are continually
changing, suggesting new performance standards and expectations must be met. As re-
sources become increasingly specialized and resource needs become less predictable,
companies tend to make shorter-term commitments to a given resource, and to rely
more heavily on the outsourcing, leasing, and leveraging (rather than ownership) of
resources. The dramatic pace of technological change combined with the fragmenta-
tion of markets forces companies to develop more new products and to do so much
faster. The company’s resources and its products become obsolete more quickly,
changing the economic realities that surround decisions regarding which resources to
employ, which products to develop, and which markets to enter.
In the final analysis, companies are experiencing a general lack of long-term control
over their external environments. Never before have incumbency and past experiences
been worth so little. No longer does company size matter, while being resource rich is
hardly a guarantee of marketplace performance. And the riskiest strategy of all is simply
to pursue business as usual.
The New Path to Sustainable Competitive Advantage
How are today’s companies reacting to this challenge? The response has been dramatic.
A veritable cornucopia of new strategic initiatives has preoccupied the time of
executives over the past decade. These include rightsizing, unbundling, focusing on
core businesses while divesting others, business process reengineering, total quality
management, flattening structures and decentralizing decision-making, outsourcing,
creating self-directed work teams, forming strategic alliances, and more. Meanwhile,
major companies have found themselves eliminating millions of jobs, closing plants,
moving operations to low-cost countries, and attempting to become “lean and
mean.” Yet they continue to struggle.
There are important lessons to be learned from all of this. Firstly, turbulence in the
external environment is causing a fundamental transformation in the internal operations
of companies. Or, more simply put, external change forces internal change. Secondly,
there are no simple formulas for success in the new competitive environment. While it
is clear that traditional models of bureaucracy, hierarchical management systems, and
companies operating on a command-and-control philosophy do not work in the con-
temporary environment, it is less clear what does work. It is all about experimentation,
as management looks for the right structure, right approach to control, right leadership
style, and right way to reward employees. Thirdly, there is an important upside to exter-
nal environments as they become more complex, dynamic, and hostile. Turbulence also
means opportunity. That is, changes in markets, technologies, regulation, and other areas
CHAPTER 1 The New Entrepreneurial Imperative 7
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close some doors while opening others. Market fragmentation also means new market
segments are appearing; new technologies create new company capabilities; a regulatory
change results in some sort of new need; and so on. While some companies focus only
on defending themselves against threats, others understand that there is a new opportu-
nity to be found behind every threat.
But what is the ultimate “bottom line”? That is, what is the real quest as managers
sort through the various theories, concepts, and new techniques and tools? The answer
is and always will be sustainable competitive advantage. But the rules have changed here as
well. Traditionally, competitive advantage was achieved by having lower costs than
the competition, achieving higher quality or product performance, adding a new
product feature, offering more selection or delivering better customer service. Unfor-
tunately, this game of “one-upsmanship” can no longer produce sustainable advantage.
Whatever one company does in these areas is quickly matched by other companies.
Moreover, to be successful in any industry today, companies must continually reduce
costs, improve quality, enhance customer service, and so forth. Such continuous improve-
ment is a minimal criterion for remaining in the competitive game.
Remaining competitive is very different from achieving sustainable competitive ad-
vantage. The quest for competitive advantage requires that companies and the man-
agers within them continually reinvent themselves. Specifically, we believe advantage
derives from five key company capabilities. These include:
Adaptability—the ability to adjust, on a timely basis, to new technologies, new cus-
tomer needs, new regulatory rules, and other changes in conditions without losing
focus or causing significant disruption of core operations and commitments;
Flexibility—the ability to design company strategies, processes, and operational ap-
proaches that can simultaneously meet the diverse and evolving requirements of
customers, distributors, suppliers, financiers, regulators, and other key stakeholders;
Speed—the ability to act quickly on emerging opportunities, to develop new pro-
ducts and services more rapidly, and to make critical operational decisions without
lengthy deliberations;
Aggressiveness—an intense, focused, and proactive approach to eliminating competi-
tors, delighting customers, and growing employees;
Innovativeness—a continuous priority placed on developing and launching new prod-
ucts, services, processes, markets, and technologies, and on leading the marketplace.
Companies that are more adaptable, flexible, fast, aggressive, and innovative are
better positioned not only to adjust to a dynamic, threatening, and complex external
environment, but to create change in that environment (Heavey et al., 2009). That is,
8 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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they do not take the external environment as a given, and instead define themselves as
agents of change, leading customers instead of following them, creating markets, and
rewriting the rules of the competitive game.
These five capabilities ultimately come down to one—entrepreneurship. Entrepreneur-
ship is the core source of sustainable advantage in companies today. Advantage lies in find-
ing ways to tap the spirit of Richard Branson, Mark Zuckerberg, Steven Jobs, Anita
Roddick, and other great entrepreneurs within the mainstream of the company—on the
production floor, inside the sales force, among the purchasing agents. Continuous innova-
tion and an ability to continually redefine the competitive playing field are among the
skills that define corporate performance in the global economy of the twenty-first century
(Pitelis and Teece, 2009). As Steven Brandt (1986) noted in early work on corporate
entrepreneurship: “The challenge is relatively straightforward … companies must tap into
the creative power of their members. Ideas come from people. Innovation is a capability
of the many. That capability is utilized when people give commitment to the mission and
life of the enterprise and have the power to do something with their capabilities.”
What Is Entrepreneurship?
Although the term “entrepreneurship” has been in use for well over 200 years, there is
considerable disagreement over its meaning. People hold disparate views regarding
who is an entrepreneur, what an entrepreneurial venture looks like, and the nature
of the activities that constitute entrepreneurial behavior. Although literally hundreds of
perspectives have been presented over the years, seven of the most prevalent themes
are summarized in Table 1-1. At the center of these themes is creation. Entrepreneur-
ship is about creating organizations, change, innovation, and wealth. One study
performed a content analysis of key words found in dozens of definitions of entre-
preneurship (Morris et al., 1994). As can be seen in Table 1-2, the most common
terms include starting or creating a new venture; innovating or putting together
new combinations of resources; pursuing opportunity; acquiring necessary resources;
risk-taking; profit-seeking; and creating value.
Of the available perspectives, one definition captures the essence of entrepreneurship by
integrating its core elements. Entrepreneurship is “the process of creating value by bringing
together a unique combination of resources to exploit an opportunity” (Stevenson &
Jarillo-Mossi, 1986). This definition has four key elements. First, entrepreneurship
involves a process. This means it is manageable, can be broken down into steps or stages,
and is ongoing. Moreover, as a process, entrepreneurship can be applied in any organiza-
tional context. Second, entrepreneurs create value where there was none before. They
create value within organizations and they create value in the marketplace. Thirdly,
CHAPTER 1 The New Entrepreneurial Imperative 9
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entrepreneurs put resources together in a unique way. Unique combinations of money,
people, procedures, technologies, materials, facilities, packaging, distribution channels,
and other resources represent the means by which entrepreneurs create value and differ-
entiate their efforts. Fourthly, entrepreneurship involves opportunity-driven behavior. It
is the pursuit of opportunity without regard to resources currently controlled (Stevenson
et al., 2006). The abilities to recognize new opportunities in the external environment,
evaluate and prioritize these opportunities, and then translate these opportunities into
viable business concepts lie at the heart of the entrepreneurial process.
Timmons and Spinelli (2008) take us further, in elaborating on what entrepreneurs
do. They view entrepreneurship as the ability to create and build a vision from practi-
cally nothing. Fundamentally, it is a human, creative act. It is the application of energy
to initiate a novel concept or build an enterprise or venture, rather than just watching or
analyzing. This vision requires a willingness to take calculated risks—and then to do
everything possible to reduce the chances of failure. Entrepreneurship also includes the
ability to build a team with complementary skills and talents. It is the knack for sensing
opportunity where others see chaos, contradiction, and confusion. It is possessing
T A B L E 1 - 1
Seven Perspectives on the Nature of Entrepreneurship
Creation of Wealth Entrepreneurship involves assuming the risks associated
with the facilitation of production in exchange for profit.
Creation of Enterprise Entrepreneurship entails the founding of a new business
venture where none existed before.
Creation of Innovation Entrepreneurship is concerned with unique combinations of
resources that make existing methods or products obsolete.
Creation of Change Entrepreneurship involves creating change by adjusting,
adapting, and modifying one’s personal repertoire,
approaches, and skills to meet different opportunities
available in the environment.
Creation of Jobs Entrepreneurship is concerned with employing, managing,
and developing the factors of production, including the
labor force.
Creation of Value Entrepreneurship is a process of creating value for customers
by exploiting untapped opportunities.
Creation of Growth Entrepreneurship is defined as a strong and positive orien-
tation toward growth in sales, income, assets, and
employment.
SOURCE: Michael H. Morris, Entrepreneurial Intensity, Westport, CT: Quorum Books,
1998: 14.
10 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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the know-how to find, marshal, and employ resources—resources often controlled
by others.
What Is Corporate Entrepreneurship?
The definition above makes it clear that entrepreneurship is a phenomenon that can
occur in a variety of different organizational contexts. “Corporate entrepreneurship”
is a term used to describe entrepreneurial behavior inside established mid-sized and
large organizations. Other popular or related terms include “organizational entre-
preneurship,” “intrapreneurship,” and “corporate venturing.”
Definitions of corporate entrepreneurship have evolved over the past thirty years.
At a basic level, it involves the generation, development, and implementation of new
T A B L E 1 - 2
Key Terms Identified in Content Analysis of 75 Contemporary Definitions
of Entrepreneurship*
# of Mentions
1. Starting/founding/creating 41
2. New business/new venture 40
3. Innovation/new products/new market 39
4. Pursuit of opportunity 31
5. Risk-taking/risk management/uncertainty 25
6. Profit-seeking/personal benefit 25
7. New combinations of resources, means of production 22
8. Management 22
9. Marshalling resources 18
10. Value creation 13
11. Pursuit of growth 12
12. A process activity 12
13. Existing enterprise 12
14. Initiative-taking/getting things done/proactiveness 12
15. Create change 9
16. Ownership 9
17. Responsibility/source of authority 8
18. Strategy formulation 6
* Terms receiving five or more mentions.
CHAPTER 1 The New Entrepreneurial Imperative 11
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ideas and behaviors by a company (Damanpour, 1991). This perspective centers on
innovation, which can include new products or services, processes, administrative sys-
tems, or programs pertaining to employees of the organization. In this context, corpo-
rate entrepreneurship centers on enhancing the company’s ability to acquire and act
upon innovative skills and capabilities. Other definitions are concerned with the ability
of established companies to renew themselves. For instance, Salvato et al. (2009) empha-
size the capability that allows managers to systematically overcome internal constraints so
they can reinvent the company through novel business initiatives. Alternatively, some
researchers focus on the ability of the company to create new ventures. Hence, Zahra
et al. (2000) argue that corporate entrepreneurship can include formal or informal activ-
ities aimed at creating new businesses inside of established companies through product
and process innovations and market developments. They suggest the activities that can
take place at the corporate, division, functional, or project levels, with the unifying
objective of improving a company’s competitive position and financial performance.
Ling et al. (2008) bring these perspectives together by approaching corporate entre-
preneurship as the sum of a company’s innovation, renewal, and venturing efforts.
Under this definition, innovation (which is concerned with introducing something new
to the marketplace), strategic renewal (concerned with organizational renewal involving
major strategic and/or structural changes), and corporate venturing (entrepreneurial ef-
forts that lead to creation of new business organizations within the corporation) are all
important and legitimate parts of the concept of corporate entrepreneurship. Building
on this integrated approach, as we shall see in Chapter 4, entrepreneurship can manifest
itself in many different ways inside an established company.
Management versus Entrepreneurship
Entrepreneurship differs from management. Management is the process of setting ob-
jectives and coordinating resources, including people, in order to attain those objec-
tives. In essence, management involves getting things done through other people.
The effective manager is a planner, organizer, communicator, coordinator, leader, mo-
tivator, and controller; and most of all, a facilitator. In a sense, management is a trans-
formation process, where technical, human, and conceptual skills are used to transform
inputs into outputs. Further, to carry out their responsibilities, managers must under-
stand how the organization interacts with the external environments and how the dif-
ferent parts of the organization work together.
Management is both an art and a science. As an art, management requires the use of
behavioral and judgmental skills that cannot be quantified or categorized the way scien-
tific information in the fields of chemistry, biology, and physics can be. For example,
12 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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management involves motivating people, communication, leading, and using qualitative
judgment, intuition, gut feeling, and other non-quantifiable abilities. As a science, man-
agement requires the use of logic and analysis. The manager arrives at a solution by sys-
tematically observing, classifying, and studying facts in relation to the problem at hand.
The primary roles of the manager are contrasted with those of the entrepreneur in
Figure 1-2. Managers are charged with the efficient and effective utilization of the re-
sources under their control. They tend to be focused on optimizing current opera-
tions. Efficiency is improved when the amount of work being done (the output)
remains the same while the cost of producing this output (the input) declines. Effec-
tiveness pertains to the manager’s ability to choose appropriate objectives and the
means for achieving them. While efficiency means doing things right, effectiveness
F I G U R E 1 - 2
Comparing and Combining Key Roles of Managers and Entrepreneurs
THE MANAGER THE ENTREPRENEUR
THE
ENTREPRENEURIAL
MANAGER
director
planner
strategist
organizer
staffer
motivator
budgeter
evaluator
coordinator
supervisor
guerrilla thinker
visionary
opportunity-seeker
creator
innovator
calculated risk-taker
resource leverager
change agent
adaptive implementer
of new ideas
CHAPTER 1 The New Entrepreneurial Imperative 13
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means doing the right things. The entrepreneur, alternatively, is preoccupied not with
what is, but with what can be. They envision the future, recognize emerging patterns,
identify untapped opportunities, and come up with innovations to exploit those op-
portunities. As we noted earlier, they pursue opportunity regardless of resources con-
trolled. They do this by demonstrating creative capabilities in obtaining and leveraging
resources, overcoming obstacles, mitigating risks, and persisting in implementing new
ideas that represent change.
Within great organizations, a balance is achieved between disciplined management
and entrepreneurship (Ireland et al., 2009). Disciplined management requires focus, at-
tention to basic management principles and values, and a strong sense of accountability
for results. Entrepreneurship requires vision, a willingness to take risks, and a focus on
creating the future. Achieving this balance suggests that managers must become entre-
preneurs. That is, managers must be able to optimize current operations while at the
same time engaging in activities that make current operations obsolete. This is a difficult
challenge, and companies have achieved mixed results in striking the balance. Table 1-3
T A B L E 1 - 3
Perspectives on Corporate Entrepreneurship from Those Who Have Been There
L.D. DeSimone, former Chairman and CEO of 3M
Among b-schools and industry pundits, 3M is widely known for its creative inven-
tions. While not company policy, it is understood that its 8,000 researches are ex-
pected to spend up to 15 percent of their time working on unapproved projects. It is
this kind of an entrepreneurial environment that many corporations seek to emulate.
However, whether it’s the lack of financial ability to support such activity, or the lack
of an appropriate management team, many still struggle to accomplish such a mis-
sion. Management at 3M is so flexible and trusting that they don’t get concerned if
they don’t hear from an employee for a long period of time. If someone’s creative
energy is noticeably waning, the person is simply relocated to a department where
their original, hireable energy can be revitalized and put to good use. The hiring pro-
cess is a key part of 3M’s creative, entrepreneurial environment. According to
DeSimone, 3M rededicated itself in the early 90s to hiring people who intuitively
understand the discipline of the marketplace. Furthermore, a personality profile with
innovative characteristics was derived and used to formulate questions used in inter-
views for technical positions. Using inquiries such as “What kind of projects did you
initiate as a child?” and “Were you ever so creative that your parents got upset with
you?” has kept 3M in the limelight and in the forefront of corporate entrepreneurship.
George N. Hatsopoulos, former Chairman and CEO of Thermo Electron Corporation
For many years, Thermo Electron used the usual cash bonuses and stock options to
maintain and motivate employees. This works well in many corporations, but it
didn’t take long for Thermo Electron to realize that well-performing stocks were in-
dicative of the success of the whole company, not just one particular unit—thus no
(Continued)
14 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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real intrinsic motivation. The result: spin-outs. The publicly traded spin-outs, unlike
many spin-offs, remain as part of the business family (Thermo Electron does keep a
majority interest), and have the desired effect on employee attitude and work ethic.
Over 12 years, the corporation supported 12 spin-outs by providing financial and
legal services, employee benefits administrations, risk management, and investor re-
lations for a simple 1 percent of revenues. In 1995, 80 percent of their 12,000 em-
ployees worked for spin-outs, many of which had stock options in spin-outs other
than their own and had options valued at $1 million or more.
William F. O’Brien, President and CEO of Starlight Telecommunications
William O’Brien and his colleague, Pete Nielsen, experienced how tough it can be
to “dance with an elephant.” GTE has a new ventures group that supports creativity
and idea-generation within the corporate walls. However, for O’Brien and Nielsen,
after two years of working with senior management and refining their business plan
on their own time, their project was denied. Unfortunately, protocol was that new
ventures couldn’t be funded unless the supervisors for whom you worked signed off
on the initiative. Their main sponsor had retired, and the successor didn’t want to
lose their talent to another division. Both O’Brien and Nielsen ultimately resigned
and started Starlight Telecommunications, which is now making waves in the African
telecom industry. While reflecting on his experience with GTE, O’Brien developed
three guidelines for true intrapreneurship: (1) Corporate goals relating to new ventures
should be identified and disseminated, and managers should be encouraged to
support spin-offs that advance these goals, (2) Employees who identify new business
ideas should be protected and rewarded, and (3) Proposals should move quickly
through the approval process.
Bill Harris, Executive Vice President of Intuit, Former President and CEO of Chipsoft,
acquired by Intuit
For Intuit, acquiring the entrepreneurial edge wasn’t the problem. It was maintaining
it. The company grew fast, and it grew well—management easily recognized the fact
that they were not going to be able to “maintain their entrepreneurial agility” as they
went from a $50 million to a $500 million entity. Like Thermo Electron, Intuit’s CEO
decided to break up the organization into eight core-product units, each under the
direction of a different general manager and customer mission. Suddenly, the only
centralized issues were among that of MIS and compensation. Harris knew that to
sustain cutting-edge innovation and be truly entrepreneurial, “we must encourage and
allow our people—at all levels—to respond completely and immediately to our
customers.” Harris believes that continued entrepreneurial thinking in the unpredict-
able business will occur by encouraging employees to look to the customer for inspi-
ration and instruction rather than the boss. While this action might not always have
the best results, Intuit would rather reward intelligent failure than succumb to a di-
minishing quality of effort. Intuit fosters such creativity by investing one-third to one-
half of its operating income in unproved and unprofitable new products. It took six
years and multiple attempts before QuickBooks ever made a profit for the company.
SOURCE: Reprinted by permission of Harvard Business Review, Vol. 73, Issue 6. From
“How Can Big Companies Keep the Entrepreneurial Spirit Alive?” by L.D. Simone,
George Hatsopoulos, William F. O’Brien, Bill Harris, and Charles P. Holt, Nov/Dec 1995.
Copyright © 1995 by the Harvard Business School Publishing Corporation; all rights
reserved.
CHAPTER 1 The New Entrepreneurial Imperative 15
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provides a number of real world examples of success and failure. These challenges and
how they can be addressed is the focus of this book. A beginning point in understanding
the nature of this challenge is to recognize the ways in which companies tend to evolve,
or the organizational life cycle.
Why Companies Lose Their Entrepreneurial Way:
The Organizational Life Cycle
To understand the entrepreneurial challenge in established companies, we must under-
stand how companies evolve. While every organization is unique, patterns have been
identified in the ways companies evolve. Organizations experience the natural patterns
of life cycle stages. Various observers have described these stages in different terms. For
example, Kuratko (2009) discusses stages that include initial venture conceptualization,
start-up activities, venture growth, stabilization, diversification, strategic renewal, and/
or decline. Adizes (1999) developed the analogy of life cycle passages from nature and
applied the terms courtship, infancy, go-go, adolescence, prime, maturity, and death to
the stages that companies go through. Greiner’s (1972) classic article on evolution and
revolution as companies evolve depicted the stages as creativity, direction, delegation,
coordination, and collaboration. In short, authors may differ in terminology, but they
generally agree that patterns emerge over time. As we will see, this evolutionary pro-
cess has important implications for entrepreneurship within companies.
The evolutionary process can be demonstrated by considering the seminal work of
Griener (1972). He suggests a process whereby companies enter a particular stage, during
which they prosper until they reach a crisis point. How they deal with the crisis deter-
mines whether they move on to the next stage, or alternatively, whether they begin a
process of decline, failure, or become a candidate for acquisition. Hence, each growth
stage culminates in a crisis point where major and sometimes radical changes must be
made in managerial assumptions and approaches to running the company.
Start Up and Early Growth: This stage encompasses the launching of a venture and
the initial penetration of the market. It is a highly creative stage. A venture is
created where none existed, often based on innovative new products or services,
creative methods of production or service delivery, imaginative approaches to mar-
keting and distribution, and/or alternative methods of customer interaction and ser-
vicing. The work environment in the early stages is exciting, stressful, demanding,
uncertain, experimental, and highly ambiguous. The organization is run somewhat in-
formally, with everyone helping out with everything, and significant flexibility in what
is being done and how it is being done. Employees feel they are part of something as the
new venture begins to achieve meaningful results. However, a crisis eventually results
16 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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because the demands of greater size require more professionalized management, and
more formal structures, administrative systems, budgets, and controls.
Growth through Direction: Companies fail because they will not formalize. Where
management puts the necessary systems and structures in place, and augments the
leadership team with functional area professionals, another period of sustained
growth ensues. Over time, however, a crisis develops from demands for greater au-
tonomy on the part of lower-level managers and employees. The solution adopted
by many companies is to move toward greater delegation. Yet it is difficult for top
managers that were previously successful at being fairly directive to give up respon-
sibility and control.
Growth through Delegation: Delegation takes the form of creating semi-autonomous
product divisions and strategic business units. These operations are given targets to
achieve and, so long as they perform satisfactorily, they have considerable room to
grow their businesses as they see fit. Senior management focuses on major strategic
moves and acquisitions. Sustained growth again results, but it ultimately produces
the next crisis. Management begins to sense it is losing control over a highly diver-
sified field operation. Autonomous managers prefer to run their own shows without
coordinating plans, money, research, technology, and manpower with the rest of
the organization. Freedom breeds a parochial attitude. Inefficiencies result as divi-
sions duplicate one another’s efforts, communication among divisions is not timely,
customers receive mixed signals, and inconsistent strategic directions are pursued.
Growth through Coordination: Companies respond to this loss of control by central-
izing operations. Head office staff is developed to coordinate marketing, human
resource management, production, research and development, information technol-
ogy, and other operations across the various divisions and operating units. Consis-
tency and synergies are brought to the efforts of the various divisions and units,
resulting in the next period of sustained growth. However, centralization over
time tends to breed bureaucracy, and a crisis of red tape eventually occurs. Organi-
zational leaders will develop a myriad of procedures and systems during the fourth
stage. However, the proliferation of systems and programs begins to exceed its util-
ity. Procedures take precedence over problem solving, and innovation is dampened.
Those in field operations find themselves to be increasingly constrained by head of-
fice staff, while central administrators are increasingly frustrated with non-
cooperating field personnel. In short, the organization has become too large and
complex to be managed through formal programs and rigid systems.
Growth through Collaboration: Many companies struggle to overcome the crisis of red
tape, often finding it a losing battle. It is difficult to replace bureaucrats and
CHAPTER 1 The New Entrepreneurial Imperative 17
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administrators with innovators, and to transform a machine bureaucracy into an
innovation factory. Hence, most companies never make it to this next growth stage.
The very nature of the enterprise has to be reinvented. Companies must simplify
structures and procedures, reduce head office staff, reassign staff experts to consulting
teams assisting field operations, create matrix structures, encourage experimentation
in all facets of the business, and emphasize innovative projects involving cross-
functional teams. And while unsure of the next crisis, it will inevitably come. It is
likely a crisis related to the challenge of achieving sustainable entrepreneurship.
The demands on management change over a company’s life cycle, as the scope and
nature of operations become more diverse and complex. Each stage poses different
strategic challenges, and each requires a very different managerial approach. There is
an ongoing need for changes in how a company is run, including how goals are set,
decisions are made, resources are allocated, and performance is assessed. Table 1-4 pro-
vides a description of company practices as they tend to change through the five stages
of development. Changes are identified in terms of management focus, organizational
T A B L E 1 - 4
Changing Organizational Practices as Companies Evolve
Stage 1
Creativity
Stage 2
Direction
Stage 3
Autonomy
Stage 4
Coordination
Stage 5
Collaboration
Managerial
Focus
Make &
sell
Efficiency of
operations
Expansion
of market
Consolidation
of
organization
Problem
solving &
innovation
Approach
to
Company
Structure
Informal Centralized &
functional
Decentralized
& geogra-
phical
Line-staff &
product
groups
Matrix of
teams
Style of
Top
Managers
Individual-
istic &
entrepre-
neurial
Directive Delegative Watchdog Participative
Source of
Controls
Market
results
Standards &
cost centers
Reports &
profit
centers
Plans &
investment
centers
Mutual
goal
setting
Types of
Rewards
Emphasized
Ownership Salary &
merit
increases
Individual
bonus
Profit
sharing &
stock
options
Team
bonus
SOURCE: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations
Grow,” Harvard Business Review, July–August, 1972, p. 45.
18 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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structure, management styles, control systems, and reward systems as the organization
moves through its life cycle.
Understanding the stages of development and the changing organization practices
that are needed for each stage allows managers to be in a position to predict future chal-
lenges, and thereby to prepare strategies before crises arise. Managers often fail to real-
ize that organizational solutions that are not flexible and changing could create
problems for the future. Organizational evolution is not an automatic affair; it is a con-
test for survival. To move ahead, companies must consciously introduce planned struc-
tures that not only are solutions to a current crisis, but also are fitted to the next phase
of growth. This requires considerable self-awareness on the part of top management, as
well as great interpersonal skill in persuading other managers that change is needed.
One of the great lessons of the organizational life cycle is that, in far too many
companies, the entrepreneurial spirit tends to be systematically destroyed over time.
That is, an organization that was highly entrepreneurial in the start-up stage becomes
progressively bureaucratic over time. As each stage unfolds, new systems, structures,
rules, controls, and procedures are added, while others are modified. Successful compa-
nies make changes based on situational contingencies that accumulate over time. These
internal changes are made for logical reasons given the exigencies of company life at
different moments in time. However, in the process, the company can become less
adaptable, more inflexible, slower to act, and more reactive. Growing levels of speciali-
zation within the organization reinforce a commitment to maintaining the status quo.
Innovation is approached conservatively, with new initiatives pursued only when they
are virtually guaranteed to be successful. In critical moments, the company finds it is
either not sufficiently entrepreneurial, or its innovative efforts are misdirected.
The Entrepreneurial Imperative:
A Persistent Sense of Urgency
Over the stages of the life cycle, managers become increasingly adept at “producing,”
“administering,” and “integrating.” Otherwise, the company could not have achieved
its size and level of success. All the while, managers fail to become adept at
“entrepreneuring.” They operate in a reactive mode, attempting to respond to the many
entrepreneurial changes occurring in the external environment, but unaware of the need
to rekindle, and the methods for rekindling, the entrepreneurial fires within the company
itself. It is this entrepreneurial role of management that is most vital for addressing the
exponential changes acting on organizations in the twenty-first century.
There are no rules regarding how to achieve sustainable competitive advantage in a
complex, discontinuous, hyper-competitive, nano-speed world. It is a world that has
CHAPTER 1 The New Entrepreneurial Imperative 19
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stripped away the security of traditional management practices and thrust organizational
leaders into a revolution. Gary Hamel, a leading strategic thinker, believes that leaders
must find, ignite, and sustain the revolution rather than be victimized by it. Hamel
(2007) points to the inevitable diminishing returns experienced by most organizations
using traditional strategies, suggesting that conventional management practice has simply
run its course, and that an entirely new model of management is needed in our compa-
nies. The following questions help to demonstrate why a new model is needed:
How much more cost savings can the company wring out of its current business?
Are managers within the company working harder and harder for smaller and small
efficiency gains?
How much more revenue growth can the company squeeze out of its current busi-
ness? Is the company paying more and more for customer acquisition and market
share gains?
How much longer can the company keep propping up its share price through share
buybacks, spin-offs, and other forms of financial engineering? Is top management
reaching the limits of its ability to push up the share price without actually creating
new wealth?
How many more scale economies can the company gain from mergers and acquisi-
tions? Are the costs of integration beginning to overwhelm the savings obtained
from slashing shared overhead costs?
How different are the strategies of the four or five largest competitors in the indus-
try from the company’s strategy? Is it getting harder and harder to differentiate the
company from its competitors?
For too many companies, more than one of these questions will elicit answers of
“not much” and “yes,” suggesting the company may be reaching the point of dimin-
ishing returns. Once this is acknowledged, organizational leaders can begin the tasks of
learning the “entrepreneurial” perspective and apply the radically different approaches
required to navigate the challenging years ahead.
Corporate entrepreneurship represents a framework for facilitating ongoing
change and innovation in established organizations. It provides a blueprint for
coping effectively with the new competitive realities. As we shall see in the coming
chapters, corporate entrepreneurship transcends the company’s strategy, structure,
culture, control systems, rewards, and human resource management approaches. It
redefines the purpose of the enterprise, where the philosophy becomes one of
“healthy dissatisfaction,” of continually putting the company’s own products and
services out of business with better ones, with leading customers instead of
20 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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following them, and with turning traditional assumptions about price and perfor-
mance on their head.
Unfortunately, it is no simple process to move a traditional hierarchical company to
the point that sustainable entrepreneurship becomes a meaningful and important
component of the organization. Traditional management practices that have fo-
cused upon doing tasks more efficiently are not sufficient solutions to new chal-
lenges. Organizations need to allow the freedom and provide the resources that
corporate entrepreneurs require to develop their ideas. Management needs to be-
come more flexible and creative, and more tolerant of failure. In fact, failure
needs to be seen as a vital learning process. Corporate entrepreneurs must be
stimulated, supported, and protected. And ultimately, companies must create en-
vironments within which there is a constant sense of urgency—urgency to chal-
lenge assumptions, urgency to change, and urgency to innovate. Innovate or
dissipate must become the mantra.
A Model of Corporate Entrepreneurship and
Guide to Coming Chapters
What does it take to transform a non-entrepreneurial company into highly entrepre-
neurial company? The fundamental purpose of this book is to address this question.
To guide the reader through this journey, the authors have developed an integrative
model of corporate entrepreneurship. Presented in Figure 1-3, the model has three
major components.
The beginning point is to develop an in-depth understanding of the nature of en-
trepreneurship and how it can be applied to established organizations. While entre-
preneurship has certain defining aspects no matter where it is applied, there are also
unique differences involved when attempting to apply it within an existing enterprise.
Building on this foundation, company leaders must then build a work environment
that encourages employees to recognize and act upon their own innate entrepreneurial
potential. Four key elements of this work environment include the organization’s
strategy, structure, culture, and human resource management system. Finally, the abil-
ity to achieve entrepreneurial performance on a sustainable basis requires a clear un-
derstanding of the ongoing obstacles that constrain entrepreneurship, together with
specific facilitators and measures of entrepreneurial outcomes.
This model can be applied in addressing the entrepreneurial challenges within any
organization. It also provides the basic structure for the chapters to come. Thus,
Section 1 of the book, consisting of Chapters 1 through 5, provides the building blocks
for corporate entrepreneurship. We will examine the unique aspects of entrepreneurship
CHAPTER 1 The New Entrepreneurial Imperative 21
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when it is practiced in larger, established companies. The steps in the entrepreneurial pro-
cess will be investigated. The concept of entrepreneurial intensity will be introduced to
capture the different degrees and amounts of entrepreneurship that can occur in an orga-
nization. In addition, we will explore the different forms that entrepreneurship takes in
companies. Further, attention will be devoted to ways in which entrepreneurship can be
applied not only to corporations, but also to established non-profit and public sector or-
ganizations. Section 2 of the book, which includes Chapters 6 though 10, then examines
the core elements that must come together in order to create an entrepreneurial organiza-
tion. Specific chapters are devoted to examining how corporate strategy, structure, cul-
ture, and human resource management can each be designed in ways that foster
entrepreneurial behavior. Section 3 of the book is concerned with achieving and sustain-
ing entrepreneurial performance, and includes chapters 11 through 15. Individual chap-
ters are devoted to obstacles to ongoing entrepreneurship, entrepreneurship at different
levels of management, control systems and entrepreneurship, measuring entrepreneurial
performance, and the challenges of sustainability.
F I G U R E 1 - 3
A Model of Corporate Entrepreneurship and Guide to the Book Structure
I. Building Blocks for Corporate
Entrepreneurship
Understanding Stage of Company
Evolution (Ch. 1)
Understanding Imperatives for Innovation
in the External Environment (Ch. 1)
Understanding Nature of Corporate
Entrepreneurship (Ch. 2)
Understanding Levels and Forms of
Corporate Entrepreneurship (Chs. 3, 4)
Understanding Contexts of
Corporate Entrepreneurship (Ch. 5)
II. Creating the Entrepreneurial
Organization
III. Achieving and Sustaining
Entrepreneurial Performance
Organizational
Structure
(Ch. 9)
Constraints on
Entrepreneurial
Performance
Outcomes
(Ch. 11)
Facilitators of
Entrepreneurial
Performance
Outcomes
(Chs. 12, 13, 14)
Sustainable
Entrepreneurial
Performance
(Ch. 15)
The
Entrepreneurial
Organization
Corporate
Strategy
(Ch. 8)
Human
Resource
Capabilities
(Chs. 6, 7)
Organizational
Culture
(Ch. 10)
22 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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THE INNOVATOR’S NOTEBOOK
Microsoft: Trailing in the Innovation Race?
It is hard to believe that the $60 billion powerhouse located in Redmond,
Washington, and known as Microsoft could be actually losing ground in the
innovation race. Yet success can breed complacency in large companies.
Microsoft rode the wave of PCs into consumers’ homes, and still sells a copy
of its software with virtually every one of the millions of PCs sold every year.
Office and Windows, its core products, have become standards for most consu-
mers, and the popularity of Windows has led to both American and European
courts declaring Microsoft’s operating-system business an illegal monopoly.
Microsoft’s reputation as a monopolist has led to strong opposition from
competitors as well as consumers. The company’s movement into the markets
for mobile phones, cable television, and home gaming consoles prompted the
following action in each area: mobile phone companies formed a software
consortium to slow Microsoft’s progression; cable operators hesitated to install
Microsoft’s software on cable set-top boxes due to concerns that using the
software would allow Microsoft to control their networks; and consumers and
game development companies grew skeptical of Microsoft’s intentions when
the company insisted on maintaining control of the online-gaming service
provided through the Xbox. In all three cases, Microsoft’s dominance in the
PC market led to players in other markets taking defensive measures to prevent
the company from becoming a competitor. So, what’s a company to do?
The answer is simple: innovate! As technology progresses, electronic de-
vices are dominating the business and consumer landscapes today. This fact
has not been lost on Microsoft, and it has been strategically positioning itself
for innovation.
Microsoft has one of the largest laboratories in the world and three chief
technology officers yet the company has been accused of frustrating the efforts
of its innovators. This can easily happen when a company grows too large and
bureaucratic. With over 90,000 employees it is understandable that bureau-
cratic layers begin to build in an organization. To combat this problem Micro-
soft has 800 computer scientists, sociologists, psychologists, mathematicians,
physicists and engineers working across the globe in search of new ideas. Dur-
ing the economic downturn in 2009 the company invested over $9 billion in
research and development.
CHAPTER 1 The New Entrepreneurial Imperative 23
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In 2010, CEO Steven A. Ballmer outlined four areas of focus for long-term
research aimed at pioneering the next generation of breakthrough technologies.
Cloud computing and software plus services: Combining the power of
desktop and server software with the reach of the Internet is creating
important opportunities for growth. Microsoft is focused on delivering
end-to-end experiences that connect users to information, communications,
entertainment, and people in new and compelling ways across their lives at
home, at work, and the broadest-possible range of mobile scenarios.
Natural user interfaces: Dramatic changes in the way people interact with
technology, as touch, gestures, handwriting, and speech recognition be-
come a normal part of how devices are controlled create opportunities to
reach new markets and deliver new kinds of computing experiences.
Natural language processing: The increase in computing power will enable
a new generation of software that has the knowledge and intelligence to
respond to simple natural language input and quickly carry out complex
tasks in a way that accurately reflects users’ needs and preferences.
New scenario innovation: Global issues including healthcare, environmen-
tal sustainability, and education can be opportunities for software that
could enable people without specialized programming skills to quickly
create models and simulations that could transform scientific research and
have a dramatic impact on a wide range of industries, from financial ser-
vices, to engineering, aerospace, and manufacturing.
Today at Microsoft’s Redmond campus it becomes apparent that the future
needs of consumers is the innovative focus. Microsoft envisions this future as a
world of multiple sensors, where our plants tell homeowners when to water
themand our doorbell automatically sends photos of visitors to our mobile phone.
Inside the house the coffee table will have its own touch interface, connecting to
3D cloud applications all accessible on every surface of the home. Where sur-
faces are inaccessible, skin may be used as a display and input device. The basis
of Microsoft’s research is the transition from a graphical user interface (GUI) that
we use today in computers and phones to natural user interaction (NUI).
Microsoft may also consider buying start ups whose technology is consid-
ered good by using a program called BizSpark, which gives startup companies
free access to Microsoft tools, technologies, and services. The program is open
to private companies that are less than three years old and have less than
$1 million revenue. Thirty thousand companies have signed on to BizSpark.
24 SECTION 1 BUILDING BLOCKS FOR CORPORATE ENTREPRENEURSHIP
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Summary and Conclusions
A revolution is underway in modern organizations. Highly turbulent external environ-
ments are forcing managers to rethink literally every aspect of organizational life. As
the nature of the competitive challenge continually redefines itself, larger companies
find themselves becoming too slow, too reactive, and too complacent. To address these
shortcomings, many companies are down-sizing, right-sizing, outsourcing, reengineering,
restructuring, and generally attempting to reinvent themselves.
All of this represents a quest for sustainable competitive advantage; an elusive goal
that can no longer be achieved based on conventional management practices. Sustain-
able advantage in the twenty-first century derives from being more adaptable and flexi-
ble, from being faster and more aggressive, and from generating higher rates of
innovation compared to other companies. In short, the ultimate source of marketplace
advantage is entrepreneurship.
In this chapter, entrepreneurship has been defined as an opportunity-driven process
of value creation, where value is created through unique combinations of resources.
The challenge comes down to size. The question for Microsoft is how to
turn new innovations into success stories on a scale of Windows and Office,
which continue to dominate their business by accounting for almost half an-
nual revenues. Microsoft is aware that success is fleeting, and staying in place
means getting left behind. The company is taking steps today that will surely
payoff in the future.
Discussion Questions
1. Describe how the “new entrepreneurial imperative” has affected Microsoft.
2. How would you apply the organizational life cycle to Microsoft today?
3. What specific actions indicate that Microsoft is trying to exhibit corporate
entrepreneurship?
SOURCES: Adapted from “Microsoft: Way beyond the PC,” The Economist,
November 30, 2005, pp. 83–85; and the Microsoft Web site,http://www.
microsoft.com/msft/reports/ar09/index.html, accessed April 14, 2010.
CHAPTER 1 The New Entrepreneurial Imperative 25
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When this process is applied to established organizations, our focus becomes corporate
entrepreneurship. The chapter draws a distinction between entrepreneurship and man-
agement, in the process arguing that today’s managers must find ways to become entre-
preneurs. The corporate imperative in twenty-first century organizations is to strike a
balance between disciplined management and entrepreneurial behavior. Leading-edge
companies find ways to optimize current operations while at the same time inventing
the future. They serve existing stakeholders while also leading customers to new sources
of value, creating new markets, and redefining the rules of the competitive game.
Although companies tend to be highly entrepreneurial in their early stages, they sub-
sequently create bureaucracies and cultures that stifle the entrepreneurial spirit. This is
the lesson of the organizational life cycle. The changing competitive landscape suggests
that, as companies evolve, the need for entrepreneurial behavior does not dissipate. Yet,
the abilities to think and act in an entrepreneurial fashion at every level of management,
and within every area of the company, tend to decline in direct proportion to the size and
age of the company.
The challenge thus becomes one of fostering entrepreneurial transformations within
organizations. Toward this end, the chapter has introduced an integrative model of cor-
porate entrepreneurship designed around three major components: building blocks for
corporate entrepreneurship, the creation of an entrepreneurial work environment, and
the achievement of sustainable entrepreneurial performance. This model provides the
guiding structure for the layout of the book. Subsequent chapters will examine each of
the key elements within the three components of the model. When combined, these ele-
ments provide a roadmap to entrepreneurial success.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: iChapters User
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CHAPTER 1 The New Entrepreneurial Imperative 27
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