Entrepreneurship Versus Intrapreneurship
Entrepreneurship refers to the process of creating innovative new business ventures[7] or just of creating new business ventures.[8] An entrepreneur is the owner of such a business venture.[9] [10] [11] Intrapreneurship refers to the process of new venture creation, strategic renewal, and innovation by employees within an organization.[12] Intrapreneurs, then, are the employees of an organization who realize a creative idea and turn it into an innovation or new business venture.[13] [14] [15]
Research shows that there is no distinct set of characteristics exclusive to successful intrapreneurs.[16] However, given the right environment and support, many employees can become intrapreneurs.[17] So what should an organization do to make this happen?
Vision and Support from Managers
The top management of an organization must create a clear vision that promotes and encourages innovation and communicates it clearly to all employees. This is an essential part of the change management process that is necessary for intrapreneurship to occur.[18] The vision provides employees a clear direction as to where the organization is going in the future. This helps them adapt to the changes being implemented, and makes them more likely to exhibit desired behaviors during and after the transition.[19]
Support must be given by all managers. It is common wisdom in today’s corporate world that support from top management is required for an initiative to be successfully implemented in an organization.[20] Unfortunately, the detrimental effect of support from only the top management is not as widely known.
In many cases, support from only the top management team is not enough for a policy to be successfully implemented in an organization. To ensure the success of intrapreneurship, support from all managers in an organization is necessary. In some companies, for example, there is a culture against human resource development, even when there are established personal and professional development programs in place for employees. A top executive from an American multinational company once told the author of this article, “To some companies, their stand is we don’t want caterpillars; we want butterflies. If I get a new person in, and groom that person via training and development, that person may or may not make it in the future. If she or he can’t make it at the end of the day, we will need to incur additional costs to groom another person. This is just like getting a caterpillar and hoping that it will become a butterfly. It may turn out to be an ugly moth, and we will need to get another caterpillar to start all over again. If we get a butterfly right from the start, this can be avoided. It is not perfect, but you can at least know what you are getting. Hence, some companies would rather to pay more to get established personnel with a solid CV then to groom their own talents.”
In the following case study, employees from four separate companies were sent for training.[21] They were required to continue working outside of the training hours and were under a lot of stress to perform well, both at work and at the course. Support from their direct managers was necessary to facilitate the learning experience. For instance, direct managers were to release their employees from work early if necessary for them to be able to travel to their classes.
Despite the obvious support of the program from the top management, the direct managers of some of the affected employees were not sympathetic to their tighter schedules. Disparaging remarks were made, which added unnecessary stress to the employees. Eventually, the top management team had no choice but to intervene on the direct managers’ actions to make sure that the employees were set up to succeed at both training and work.
Organizational Structure
In order to encourage intrapreneurship, an organization has to adopt either an organic structure or an independent intrapreneurial team or department. For organizations that do not have either of these features, organizational restructuring is required.
The basic idea behind an organic structure is to make the organization flatter and less bureaucratic.[22] This encourages innovation by improving communication between employees, increasing the information flow within the organization, and enhancing the sensitivity and responsiveness of the organization to the external environment.[23] [24] In addition, through the decentralization of authority, lower level employees have the autonomy to promptly execute innovative initiatives.[25]
Some researchers caution that unscrupulous individuals may take advantage of the autonomy that a flat organization offers, engaging in self-interested exploitative behaviors that are detrimental to an organization.[26] Hence, although autonomy should be given, relevant checks and audits must also be in place.
Toyota is an example of an organization that has benefited from the flattening of its organizational structure. Following Toyota’s poor performance in 2009, the company implemented a series of structural changes.[27] In March 2011, when Japan was hit by the great earthquake and tsunami, the company suffered significant production disruptions. Instead of the traditional bottom-up approach of reporting the situation upward and waiting for further instruction, managers were authorized to make decisions autonomously, saving time and reducing the impact of the natural disaster on operations. In addition, to further increase the speed of decision-making in the company, Toyota’s president Akio Toyoda reduced the size of the board of directors by half. After these changes, Toyota’s performance improved.
Creating an Intrepreneurship Department
For some companies, an organization-wide restructuring is not feasible or desirable, often due to cultural or financial factors. A viable alternative is the formation of an independent intrapreneurial team or department that functions like a think tank. Such a team would focus on generating innovative and profitable proposals to achieve sustainable competitive advantages.
The implementation of an intrapreneurial department depends on the specific focus and needs of an organization. For companies that are interested in improving current processes, an exploitative team (i.e. a team focused on improving an organization’s existing processes and products) may be the best option. For businesses interested in creating new ventures, an explorative team (i.e. a team that focuses on generating new products and processes) is more appropriate. Organizations can also form multiple kinds of teams simultaneously.[28] [29]
Regardless of the type of team formed, there must be diversity in order to maximize innovation. This can be achieved through reviewing the background, qualifications, and experiences of potential team members.[30] To ensure maximum efficiency and effectiveness, the team should also be shielded from unnecessary interferences such as daily organizational chores as well as jealousy from colleagues who are not able to join the team.[31] [32]
A Culture of Trust
Once the appropriate structure is established, an organization must reinforce the message of intrapreneurship through culture. Characteristics of organizations with successful intrapreneurship programs include organizational cultures with high trust and psychological safety, high justice and fairness, and high error and failure tolerance.
Psychological safety refers to the ability of individuals to be involved in interpersonal risk-taking without the fear of negative consequences.[33] [34] [35] [36] [37] Within the work context, psychological safety takes the form of a taken-for-granted positive belief about co-workers that facilitates open and trustful interactions.[38] [39] Such interactions are necessary for innovation and intrapreneurship.
To facilitate the formation of a psychologically safe culture, a compensation system based on group performance can be introduced. This will eliminate the potential for destructive competition among employees.[40] To prevent the problem of “free riders” not doing their fair share of work, a mixture of group- and individual-based performance compensation systems may be implemented. For example, a sum of money can be first allocated to a team as a reward for strong performance. In turn, this money can be distributed amongst team members based on their individual contributions.
A Culture of Fairness
In a highly innovative organization, a great number of ideas will be generated, and most of them will be rejected.[41] Team members who are frequently rejected can become disgruntled and withhold future input, which runs counter to an organization’s effort to encourage intrapreneurship. To avoid this scenario, a fair and just culture is required.
Ensuring procedural justice within an organization is one way to establish a culture of fairness.[42] This involves developing a policy that clearly states the criteria for the adoption of ideas by the organization and that is clearly communicated to every employee. The policy must be strictly followed under all circumstances. In the event that an employee faces a number of rejections, acknowledgment of a transparent policy will reduce the likelihood that he or she bears ill will toward the system or the project.[43]
A Culture that Tolerates Failure
A tolerance for errors and failures is required for innovation.[44] [45] Innovation involves taking risks and testing new ideas, therefore managers should avoid punishing failures and instead accept them as learning experiences. The following case study uses Nike as an example of the benefits of accepting failure.
Despite its past reliance on traditional advertising channels such as television commercials and printed media, Nike was testing new marketing tools such as social media.[46] Although its overall marketing budget increased to $2.4 billion in 2011, Nike’s spending on traditional advertisements decreased to give greater emphasis to this new marketing tool.[47] Nike faced troubles during the early stage of this new marketing strategy, however, its innovative approach paid off when sales reached $21 billion, topping the industry globally.[48]
Nike would not have attained this global leadership position if it did not have a culture of error and failure tolerance. Organizations with a low failure and error tolerance would not have invested the resources Nike did in an un-tested marketing channel, and at the first sign of trouble, they probably would have reverted to the old tried-and-tested ways.
Conclusion
In the current competitive and volatile business environment, organizations must be innovative in order to survive. One key way that organizations can achieve a high level of innovation is through the encouragement of intrapreneurship. First, top management must create a vision of intrapreneurship and communicate it clearly to the entire organization in order to garner support from all managers and employees. Next, the organization must ensure the right structure and culture are in place to promote innovation. Often, organizations must go through an important process of organizational restructuring and cultural change in order to create the necessary environment for a successful intrapreneurship program.
When the recommended structure and culture are in place, an organization becomes an innovative and learning organization.[49] And when complemented with other factors, such as an integrated information system and appropriate training for managers, employees can become very innovative and driven intrapreneurs, ensuring the company has a sustainable competitive advantage.[50] [51]
[1] Matson, J. V., Innovate or Die: a Personal Perspective on the Art of Innovation (Wisconsin: Paradigm Press, 1996).
[2] Thornberry, N. E., “Corporate Entrepreneurship: Teaching Managers to be Entrepreneurs,” Journal of Management Development, 22, no. 4 (2003): 329-344.
[3] Frederick, H. H., and D. F. Kuratko, Entrepreneurship: Theory, Process, Practice, Asia-Pacific ed., 2nd ed., (Australia: Cengage Learning, 2010).
[4] Mazzarol, T., Entrepreneurship & Innovation: A Manager’s Perspective, (Australia: Tilde University Press, 2010).
[5] Shimizu, K., “Risks of Corporate Entrepreneurship: Autonomy and Agency Issues,” Organization Science, 23, no. 1 (2012): 194-206.
[6] Barney, J. B., and W.S. Hesterly, Strategic Management and Competitive Advantage: Concepts and Cases, 3rd ed., (New Jersey: Prentice Hall, 2010).
[7] Frederick and Kuratko.
[8] Gartner, W. B., “‘Who is an Entrepreneur?’ is the Wrong Question,” Entrepreneurship Theory and Practice, 12, no. 2 (1989): 47-68.
[9] Davidsson, P., Researching Entrepreneurship, (New York: Springer, 2004).
[10] Gartner, W. B., “What Are We Talking About When We’re Talking About Entrepreneurship?” Journal of Business Venturing, 5, no. 1 (1990): 15-28.
[11] Rauch, A., and M. Frese, “Let’s Put the Person Back into Entrepreneurship Research: A Meta-Analysis on the Relationship Between Business Owners’ Personality Traits, Business Creation, and Success,” European Journal of Work and Organizational Psychology, 16, no. 4 (2007): 353-385.
[12] Sharma, P. and J. J. Chrisman, “Toward a Reconciliation of the Definitional Issues in the Field of Corporate Entrepreneurship,” Entrepreneurship Theory Practice, 23, no. 3 (1999): 11-27.
[13] Anderson, N. R., and M. A. West, “Measuring Climate for Work Group Innovation: Development and Validation of the Team Climate Inventory” Journal of Organizational Behavior, 19, no. 3 (1998): 235-258.
[14] Frederick and Kuratko.
[15] Hulsheger, U. R., N. Anderson, and J. F. Salgado, “Team-Level Predictors of Innovation at Work: A Comprehensive Meta-Analysis Spanning Three Decades of Research” Journal of Applied Psychology, 94, no. 5 (2009): 1128-1145.
[16] Thornberry.
[17] Ibid.
[18] O’Brien, J. A., Management Information Systems, 8th ed., (McGraw-Hill/Irwin, 2006).
[19] George, J. M. and G. R. Jones, Understanding and Managing Organizational Behavior, 5th ed., (New Jersey: Prentice Hall, 2008).
[20] Frederick and Kuratko.
[21] Thornberry.
[22] Robbins, S., R. Bergman, I. Stagg, and M. Coulter, Management, 5th ed. (Australia: Pearson Education, 2008).
[23] Daft, R. L., Understanding the Theory and Design of Organizations, (China: Thomson South-Western, 2007).
[24] Robbins, Bergman, Stagg, and Coulter.
[25] Daft.
[26] Shimizu.
[27] Taylor, A., “Akio Toyoda: Toyota’s Comeback Kid,” Fortune, 165, no. 3, (2012): 48-55.
[28] March, J. G., “Exploration and Exploitation in Organizational Learning,” Organization Science, 2, no. 1 (1991): 71-87.
[29] Mazzarol.
[30] Bantel, K. A., and S. E. Jackson, “Top Management and Innovations in Banking: Does the Composition of the Top Team Make a Difference?” Strategic Management Journal, 10, no. 2 (1989) 107-124.
[31] Thornberry.
[32] Mazzarol.
[33] Carmeli, A., “Social Capital, Psychological Safety and Learning Behaviours from Failure in Organizations,” Long Range Planning, 40, no. 1 (2007): 30-44.
[34] Carmeli, A., D. Brueller, and J. E. Dutton, “Learning Behaviours in the Workplace: The Role of High-Quality Interpersonal Relationships and Psychological Safety,” Systems Research and Behavioral Science, 26, no. 1 (2009): 81-98.
[35] Edmondson, A., “Psychological Safety and Learning Behavior in Work Teams,” Administrative Science Quarterly, 44, no. 2 (1999): 350-383.
[36] Nembhard, I. M., and A. C. Edmondson, “Making it Safe: The Effects Of Leader Inclusiveness and Professional Status on Psychological Safety and Improvement Efforts in Health Care Teams,” Journal of Organizational Behaviour, 27, no. 7 (2006): 941-963.
[37] Tynan, R., “The Effects of Threat Sensitivity and Face Giving On Dyadic Psychological Safety and Upward Communication,” Journal of Applied Social Psychology, 35, no. 2 (2005): 223-247.
[38] Baer, M., and M. Frese, “Innovation is Not Enough: Climates for Initiative and Psychological Safety, Process Innovations, and Firm Performance,” Journal of Organizational Behavior, 24, no. 1 (2003): 45-68.
[39] Roussin, C. J., “Increasing Trust, Psychological Safety, and Team Performance Through Dyadic Leadership Discovery,” Small Group Research, 39, no. 2 (2008): 224-248.
[40] George and Jones.
[41] Shimizu.
[42] Ibid.
[43] Ibid.
[44] Frederick and Kuratko.
[45] Mazzarol.
[46] Cendrowski, S., “Nike’s New Marketing Mojo,” Fortune, 165, no. 3 (2012): 56-61.
[47] Ibid.
[48] Ibid.
[49] Robbins, Bergman, Stagg, and Coulter.
[50] O’Brien.
[51] Thornberry.
