Entrepreneurship in the conventional sense hinges upon incentive; people respond to incentives by creating mechanisms for their fulfillment. In this sense of the word, “entrepreneurial” also differs from merely “enterprising” in that these mechanisms take the form of business units, usually small companies. So while applying an innovative approach to debt management might not be called “entrepreneurial” in the strictest sense, creating a new company whose mission is the application of that approach would likely fit the description.
What is Corporate Entrepreneurship?
In the corporate workplace, “entrepreneurial” is often applied more loosely. The relentless propensity for euphemism in corporate communication has seen the term used to describe everything from the truly pioneering to the somewhat less idle. For purposes here, it is necessary to distinguish entrepreneurial activities from other incentive-driven activities, and from business as usual.
Although a conventional understanding of entrepreneurship helps to stake out its meaning in the corporate sphere, some refinements to the conventional definition are needed. Corporate entrepreneurship, for example, is unlikely to issue in the creation of a new company, or at least not as a first step. More often the result of corporate entrepreneurship is a new department, team, task force, or the like. But not all newly-created teams can be said to be the product of entrepreneurship; clearly a set of features distinguishes those teams which operate according to entrepreneurial principles from those brought about through the normal course of business.
To gain a better understanding of what is meant by the term, we present several management structures which are commonly regarded as entrepreneurial in character. By examining their operations, we can pinpoint those features which mark them as entrepreneurial. By examining their results, we can see which management strategies are most successful at embracing entrepreneurship and why. Xerox PARC (XPARC) often cited as the archetypal failure of corporate entrepreneurship. General Electric (GE) is clearly a frontrunner for the archetypal success. Strategies of this type have also made their way into non-commercial organizations, such as non-profit companies and the military (USM).
A Day Late and $7000 Short
In 1970, Xerox was a wildly successful copying company. Intellectual property and what were unconventional sales strategies were generating enormous profits. It was in this year that Xerox gathered together a sizable number of researchers and gave them a mission: “to create the architecture of information,” a motto which even by today’s standards sounds a bit lofty. One can only imagine how it sounded in 1970.
But the truly remarkable thing about XPARC is that it did just that.
Over the next few years, XPARC would develop three of the most important advances in personal computing since the semiconductor. They would do it largely on their own, and they would do it almost a decade before anyone else. Unfortunately for XPARC and its parent, though, they wouldn’t see a dime in profit.
In the early 1970’s, mini computers were being adopted by hobbyists and researchers in modest numbers. Their market was small in large part because their operation was complicated. In 1973, XPARC developed Alto, and a set of computing paradigms to accompany it. The Alto computer internals were not at the time very different from other mini computers already on the market. What was different, however, was the role that it was created to play. Alto was to be marketed to the masses. The client-server and distributed computing paradigms which XPARC developed at about the same time illustrated this purpose. It would be eight years before another company similarly positioned (IBM) would try the same thing, but this time to better result.
Most are familiar with the story behind the early development of the graphical interface. XPARC developed the interface (a windowed environment controlled by a mouse, also created at XPARC) to reduce the complexity involved in working with a computer. Again, the goal was to produce a computer for the mass market. Again, other companies (Apple. Microsoft) wouldn’t manage to capitalize on the advance for almost a decade.
Object-oriented programming makes systems development faster and more efficient. It is the root architecture for almost all recent computer programs. Because it decreases development cost, it also increases supply - more programs on more systems. It was pioneered at XPARC.
The personal computer market gained momentum in the early 1980’s, Xerox turned to its prolific child for a product to sell. It was at this time that the mistake was realized. Engineers estimated that memory alone for each Alto would cost roughly $7000 – a large amount of money in 1981. A product intended for mass distribution had a price point well above what the masses were willing to spend. IBM had started producing computers for far less by this point. Engineers had been working on the Alto and its complementary products for almost 10 years. The cost of the machine, although not fixed, was nevertheless known throughout development.
As an application of management strategy, XPARC clearly exhibits entrepreneurial elements. More a research institution than a corporation, XPARC scientists worked in small teams on specific projects. These teams could pursue research and development more autonomously, without interference from or dependence upon a large and somewhat slower corporate mechanism. By 1970 standards, business units within XPARC were to a large degree independent.
Units at XPARC were also flexible. Research and development teams are usually built to react quickly to new advances and discoveries, and teams at XPARC were no exception. XPARC teams were able to react to new conditions quickly, partly because they were smaller and less managerially rigid than their cousins at Xerox.
Teams at XPARC were extremely productive, due in large part to their structural independence and internal flexibility. But despite these features, XPARC was unable to capitalize on its productivity. This failure was not due to external factors, but rather internal ones. Business units at XPARC were not working for the same purpose as XPARC itself.
Research and development in the corporate sector is attached to potential sales. While XPARC was created as a research-driven enterprise, the organization itself was still intended to generate sales revenue for Xerox, if only indirectly. XPARC business units, however, took research and development as their primary purpose. It wasn’t until the early 80’s that Xerox realized its research teams, while effective, were not working for the same purpose as their parent.
Legends and Black Belts
When it first started to take shape in this country, the electricity industry was a loosely connected network of companies involved in some way with producing, converting, and using electricity. A large number of these companies, including Edison’s, were consolidated to form General Electric at an early stage of the industry’s history, just two years after Edison consolidated his own companies.
GE management was from the beginning confronted with a structure that was less a unified corporate structure but rather several nearly independent business units under one name. Rather than attempt to fuse the disparate units into a conventional corporate structure, management at GE decided that the existing entrepreneurial structure should remain intact in so far as this was possible.
Structural independence of business units was already high, and so modifications of the merger served mostly to take advantage of economies of scale and provide tools that all units required in some form (human resources, capital investment, etc . . .). Flexibility had been a necessity for companies operating in the electricity industry, and so most of these units were very flexible internally as well.
These features played a crucial role in propelling GE to singular success in electricity, and later success in many other industries. As mentioned above, these two features (structural independence, internal flexibility) were also shared by XPARC. So why then did GE rise to dominate the corporate landscape while Xerox remained a copy company?
Before they were merged, each of GE’s child companies was operated to generate revenue for itself. Once the merger occurred, this purpose remained largely unchanged, because child units which operate for this purpose generally help the parent. This is in stark contrast to XPARC, where purposes of the parent were not aligned with purposes of the child.
Such a management strategy allowed GE to succeed even as it moved beyond electricity into plastics, jet engines, and eventually even finance. Jack Welch Jr. has received such praise from management to media as to have him canonized. The praise, however, is richly deserved, as he took a management strategy that was working well and improved upon it.
More than any of his successors, Welch recognized that as a corporation, GE’s purpose was to manage. Its core workforce was made up of people who knew how help entrepreneurial business units succeed. He succeeded in shaping the company around this idea, and building enormous expertise in management of this type.
Certain key programs which GE used to succeed were based on a quality control program known as Six Sigma. Black belts and green belts set up business units which usually exhibit all of the features noted earlier. Six sigma programs are special, though, in that a solid concentration is placed on enhancing internal flexibility, especially in the areas of internal performance measurement. Six sigma itself refers to a measurement standard, essentially describing a certain distance from the statistical norm. Six sigma programs are invariably focused on getting quick and accurate results, as close to the action as possible.
Clients in Unlikely Places
The history of GE and XPARC serve to illustrate strong applications of corporate entrepreneurial strategy. But entrepreneurial strategies are often applied to a lesser degree within an organization to achieve positive results.
It is becoming much more commonplace for people within a corporation to refer to their peers as “clients,” even though they all work for the same company. By encouraging a business unit to think in terms of clients and suppliers, rather than department names and numbers, the corporation fosters an entrepreneurial attitude (or “business culture”) among its employees. In this kind of environment, we see entrepreneurial structures taking shape.
Non-commercial organizations have also adopted a “peer as client” strategy to help engender an entrepreneurial culture. The US Navy and other branches of the military understand the benefits that an entrepreneurial business unit can bring to a larger operation, and it is common, if a bit surreal, to hear an officer within the supply chain refer to a squad of combat marines as his clients.
What is interesting about these cases is that the “peer as client” strategy implicitly encourages business units to adopt the practices of corporate entrepreneurship mentioned earlier.
Establishing a peer as a client clearly focuses the business unit’s purpose. Focusing the purpose in this way helps to guarantee that the unit’s activities will remain in synch with the priorities of the organization as a whole.
This focus of purpose often requires business units to adapt quickly to changing client requirements, and so encourages internal flexibility. Because flexibility is to some degree dependent upon structural independence, there will be a push to the latter as well. In an entrepreneurial environment such as the one described below, both will take shape.
