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Reprint: R0610G To be competitive, companies must grow innovative new businesses. Corporate entrepreneurship, however, isn’t easy. New ventures face innumerable barriers and seldom mesh smoothly with well-established systems, processes, and cultures. Nonetheless, success requires a balance of old and new organizational traits—and unless companies keep those opposing forces in equilibrium, their new businesses will flounder. The authors describe the challenges companies face when they pursue new businesses, as well as the usual problematic responses to those challenges. Such companies, they say, must perform three balancing acts:
The authors provide a detailed look at IBM’s Emerging Business Opportunity system, which manages all these balancing acts simultaneously.
To trounce rivals, your company must innovate. But most new ventures set up by established businesses fail. Why? Companies adopt one of two extreme approaches to corporate entrepreneurship—each of which has flaws. Some firms house new ventures in isolated divisions. When these firms later try to integrate fledgling enterprises with the mainstream, power struggles erupt between innovation leaders and division executives. Other companies charge all managers with nurturing innovative ideas. But preoccupied with their existing businesses, managers neglect new projects they consider diversions. Authors Garvin and Levesque suggest a better approach: balancing elements from your new and old businesses. Consider new product strategy. Creating successful innovations requires both new-business open-mindedness—“Let’s try it and see how customers react”—with old-business discipline—“Let’s think systematically about the market and develop a hypothesis for testing our business model.” Another balancing act: mixing operational experience with inventiveness. For instance, staff new ventures with “Mature Turks”—managers who have successfully run larger businesses but also readily challenge convention. Strike the right balance between new and old, and you sweeten the odds that innovative ventures will find a home in your company and score successes in the market. The Idea in Practice Garvin and Levesque provide these guidelines for balancing old and new: Balance Trial and Error with Discipline
Example: German manufacturing firm Henkel asked employees to identify problems they had experienced with its detergent products and to propose new business ideas that could address those problems. Employees emailed 1,000-plus proposals. An “invent team” rated ideas based on assessments of market size and Henkel’s existing technical capabilities—shrinking the list to 50 promising ideas.
Balance Experience with Inventiveness
Example: Expo Design Center used to operate independently of parent Home Depot, though the two sold related products. Then Home Depot brought buyers from both entities together. They now work on the same floor of an office building and jointly make decisions on common purchases. This balancing has netted them large savings from the 25% of vendors that Home Depot and Expo Design share. Balance Integration and Autonomy
Example: To support its shift from commodity to specialty chemicals, Ashland Chemical created its Strategic Expansion Project Board, comprised of the CEO and all group VPs. The board identified and funded high-potential projects that crossed traditional business boundaries. Once projects became operational, they moved to the Commercial Development Group, whose head reported directly to the CEO. For large companies, creating new businesses is the challenge of the day. After years of downsizing and cost cutting, corporations have realized that they can’t shrink their way to success. They’ve also found that they can’t grow rapidly by tweaking existing offerings, taking over rivals, or moving into developing countries. Because of maturing technologies and aging product portfolios, a new imperative is clear: Companies must create, develop, and sustain innovative new businesses. They must become Janus-like, looking in two directions at once, with one face focused on the old and the other seeking out the new. A version of this article appeared in the October 2006 issue of Harvard Business Review.
Business Case Development More on HBR Learning
An organization desiring to establish and entrepreneurial environment must implement a procedure for its creation. Although this can be done internally, frequently it is easier to use someone outside to facilitate the process. This is particularly true when the organization’s environment is very traditional and has a record of little change and few new products being introduced. The first step in this process is to secure a commitment to corporate entrepreneurship in the organization by top, upper, and middle management levels. Without top management commitment, the organization will never be able to go through all the cultural changed necessary for implementation. Once the top management of the organization has been committed to corporate entrepreneurship for a sufficient period of time (at least three years), the concept can be introduced throughout the organization. This is accomplished most effectively through seminars, where the aspects of corporate entrepreneurship are introduced and strategies are developed to transform the organizational culture into an entrepreneurial one. General guidelines need to be established for corporate venture development. Once the initial framework is established and the concept embraced, corporate entrepreneurs need to be identified, selected and trained. This training needs to focus on identifying viable opportunities and their markets and developing the appropriate business plan. Second, ideas and general areas that top management is interested in supporting should be identified, along with the amount of risk money that is available to develop the concept further. Overall program expectations and the target results of each corporate venture should be established. As much as possible, these should specify the time frame, volume, and profitability requirements for the new venture, as well as the impact of the organization. Along with entrepreneurial training, a mentor/sponsor system needs to be established. Without sponsors or champions, there is little hope that the culture of the organization can be transformed into an entrepreneurial one. Third, a company needs to use technology to make itself more flexible. Technology has been used successfully for the past decade by small companies that behave like big ones. How else could a small firm like Value Quest Ltd. compete against very large money management firms, except through a state-of-the-art personal computer and access to large data banks? Similarly, large companies can use technology to make themselves responsive and flexible like smaller firms. Fourth, the organization should be a group of interested managers who will train employees as well as share their experiences. The training sessions should be conducted one day per month for a specified period of time. Informational items about corporate entrepreneurship in general – and about the specifics of the company’s activities in developing ideas into marketable products or services that are the basis of new business venture units – should be well publicized. This will require the entrepreneurial team to develop a business plan, obtain customer reaction and some initial intentions to buy, and learn how to coexist within the organizational structure. Fifth, the organization needs to develop ways to get closer to its customers. This can be done by tapping the database, hiring from smaller rivals, and helping the retailer. Sixth, an organization that wants to become more entrepreneurial must learn to be more productive with fewer resources. This has already occurred in many companies that have downsized. Top-heavy organizations are out of date in today’s hypercompetitive environment. To accommodate the large cutbacks in middle management, much more control has to be given to subordinates at all levels in the organization. Not surprisingly, the span of control may become as high as 30 to 1 in divisions of such companies. The concept of "lean and mean" needs to exist if corporate entrepreneurship is to prevail. Seventh, the organization needs to establish a strong support structure for corporate entrepreneurship. This is particularly important since corporate entrepreneurship is usually a secondary activity in the organization. Since entrepreneurial activities do not immediately affect the bottom line, they can be easily overlooked and may receive little funding and support. To be successful, these ventures require flexible, innovative behavior, with the corporate entrepreneurs having total authority over expenditures and access to sufficient funds. When the corporate entrepreneur has to justify expenses on a daily bases, it is really not a new internal venture but merely an operational extension of the funding source. Eighth, support also must involve tying the rewards to the performance of the entrepreneurial unit. This encourages the team members to work harder and compete more effectively since they will benefit directly from their efforts. Because the corporate venture is a part of the larger organization and not a totally independent unit, the equity portion of the compensation is particularly difficult to handle. Finally, the organization needs to implement an evaluation system that allows successful entrepreneurial units to expand and unsuccessful ones to be eliminated. The organization can establish constraints to ensure that this expansion does not run contrary to the corporate mission statement. Similarly, corporate ventures that fail to show sufficient viability should not be allowed to exist just because of vested interests. Robert D. Hirsch, Michael P. Peters, Dean A. Shepherd. Entrepreneurship 7th Edition. 2008. McGraw-Hill/Irwin. p75-76. (Many thanks to SBANC for passing this excellent guidance along. Russ) The SBANC Newsletter is provided as a service to the members of our affiliates: Academy of Collegiate Marketing Educators (ACME), Association for Small Business & Entrepreneurship (ASBE), Federation of Business Disciplines (FBD), International Council for Small Business (ICSB), Institute for Supply Management (ISM), The International Small Business Congress (ISBC), Marketing Management Association (MMA), Small Business Administration (SBA), Service Corps of Retired Executives (SCORE), Small Business Institute (SBI), Society for Marketing Advances (SMA), United States Association for Small Business & Entrepreneurship (USASBE), U.S. Department of Veterans Affairs (VA).. If you are interested in membership or would like further information on one of our affiliates, please see our web site at http://www.sbaer.uca.edu |