Developing Entrepreneurial Behavior In Established Firms

Applying the Principles of Entrepreneurship

An entrepreneur is a person who organizes, operates, and assumes the risk for a business venture.[1] This term generally applies to individuals who start new organizations, but the term is also extended to individuals who are employed within established firms. This concept is termed corporate entrepreneurship. Corporate Entrepreneurship (CE) is a set of strategies utilized by established firms to promote growth and development of the organization.[2], [3] In essence CE applies the same principles of entrepreneurship to the larger context of established firms focusing on the development and utilization of innovation and strategic renewal to continuously grow the bottom line.

Some firms attempt to achieve these entrepreneurial outcomes through internal development while others resort to corporate venturing to achieve their growth goals. While most firms realize that it is absolutely critical to continuously innovate for survival and growth, many struggle to achieve such outcomes. Ultimately, firms look to create sustainable competitive advantage in order to compete with their rivals.[4] CE plays an important role in this battle as firms look for ways to distinguish themselves from others. Firms that effectively compete are those who find ways to remain one step ahead of the competition.

Utilization of CE strategies such as innovation and strategic renewal[5], [6], [7] help firms to create new products and processes that allow them to develop this sustainable competitive advantage. For example, firms such as Amazon, Apple, and Google, to name a few, continue to outperform their peers. Although each of these organizations represents vastly different industries, what is common to each of them is their perennial presence on some of the popular press’ most innovative firms lists.[8] Their presence on these lists supports the notion that engaging in CE can have positive implications for corporations and the broader economy.

So what factors contribute to the success of some firms in developing effective corporate entrepreneurship strategies? Although there are multiple factors, firms can explore the role that their employees play in promoting CE. Employers should look to empower their employees to act entrepreneurially by cultivating a culture that includes an entrepreneurial orientation within the firm.

Empowering Employees

Employees are an important resource for corporations. These individuals help firms absorb and deploy firm-specific knowledge that aids the organization in developing competitive advantage.[9] CE impacts employees from several different points of view. In order to attract and retain the best employees firms need to continuously motivate and challenge their work force.[10], [11], [12], [13], [14], [15] When employees are empowered within their organizations they experience increased motivation.[16] Participation in new product or process development activities can provide employees with the challenges that they require to remain motivated and actively engaged in the activities taking place within the organization.

Some enlightened companies have understood the importance of discovering, nourishing, and rewarding entrepreneurs in their midst before these talented individuals become restless and move on to other companies.[17] For example, former credit card company, MBNA America, developed a proprietary mechanism to foster innovation within the firm. Their “Masterpiece Program” was designed to give employees the ability to suggest ideas affecting any area of the firm. These ideas were then vetted and, if it was determined that they would improve the company, implemented. The generators of these ideas were often rewarded with recognition, compensation, and promotions.

According to a recent New York Times article, many employees are in fact leaving their organizations to pursue their own entrepreneurial endeavors,[18] if not for the increased challenges they require, then because of the decrease in job security within established corporations. One way to empower employees within an organization would be to deploy an entrepreneurial orientation (EO) within the firm.

Entrepreneurial Orientation

Entrepreneurial Orientation (EO) is defined as the strategy-making practices that firms utilize to identify and launch corporate ventures[19] and consists of five dimensions (autonomy, innovativeness, proactiveness, competitive aggressiveness, and risk-taking). While each of these dimensions is particularly important in fostering corporate entrepreneurship within the firm, it is still unknown whether any individual dimension might have more or less importance than another. Additionally, it is not clear whether these dimensions should be considered as a one-dimensional composite or if each dimension should be considered independently when searching for ways to foster entrepreneurial behavior within an organization. What is known is that EO within an organization improves firm performance.[20]

So which of the elements of EO (autonomy, innovativeness, proactiveness, competitive aggressiveness, and risk-taking) should managers focus on implementing within their organizations? Research suggests that each of these elements separately may have different impacts on the firm.[21] While introducing EO to an organization can be beneficial, this multifaceted construct will be exceedingly difficult to implement. Thus a deliberate and sequential implementation plan will help to bolster the likelihood of success.

As such, the author suggests that a purposeful approach and management of these components independently will help develop employees to act entrepreneurially. More specifically, the author suggests that utilizing these dimensions, as building blocks upon one another might be the best approach to implementing and fostering entrepreneurial behavior. The author also suggests that managers focus their initial efforts on developing the autonomy component of EO within their employees as this is the baseline dimension needed to achieve successful implementation of the broader EO construct. By developing autonomy amongst the workforce, the foundation can be set to more easily implement the innovativeness, proactiveness, competitive aggressiveness, and risk-taking dimensions of EO.

Autonomy

When developing an entrepreneurial orientation within a firm, employees must be given a certain level of autonomy to allow them the freedom to develop and capitalize on the new ideas that they may uncover. This autonomy is defined as the independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion.[22] While this freedom is a critical element of developing innovation it can be a double-edged sword. First, creating autonomy within one’s role can have lasting influence in empowering employees.[23] This freedom can allow employees to look beyond their current responsibilities in an effort to exploit opportunities that may tangentially arise in their daily interactions with various stakeholders (colleagues, customers, regulators, etc.). Additionally, this freedom can help them to better understand the broader business beyond, which might have lasting positive impacts on the organization as the firm and industry evolve.

On the down side, this freedom might lead to a decrease in control at various levels within the organization that might lead to unpredictability of employee actions and ultimately to scope creep away from current responsibilities. Losses in this area might lead to increased costs of operations and divergence from the core capabilities and profitability of the firm. As such, striking a balance within the firm will be critical. Managers could be able to strike this balance in a variety of ways.

First, managers should start at the beginning and seriously consider promoting autonomy within their firm when initially designing jobs for their employees. Job design is a responsibility with which managers have significant control. Designing jobs that include room for individual decision-making in varying but calculated situations might provide the freedom for innovation, as well as, providing the employee with individual fulfillment and personal development associated with job satisfaction.

Second, to be balanced and secure a measure of stability and control within the organization, managers should combine open job design with more specific goal-setting measures. By incorporating individual and team goals that are specific, measureable, achievable, relevant, and timely (SMART)[24] the organization can combat the scope creep often associated with higher levels of autonomy.

Lastly, and probably most difficult, managers should look for unique ways to reward autonomous behaviors of their employees. This would begin with a focused effort on rewarding processes as much as outcomes. Rewards for new ideas generated outside of an individual’s job function could be one way to reward autonomous behavior within the organization.

These are just a few of many steps that might help in promoting autonomy within the workforce, but in addition to autonomy organizations need to ensure that this newly found freedom is utilized productively. By setting this baseline of autonomy, managers can more effectively implement the remaining elements of EO (innovativeness, proactiveness, competitive aggressiveness, and risk-taking).

Innovativeness

Innovativeness is defined as a willingness to introduce newness and novelty through experimentation and creative processes aimed at developing new products and services, as well as new processes.[25] Innovativeness is at the heart of entrepreneurship and focuses on the processes of exploration and exploitation within and outside of the organization, but because the business with which the firm is currently engaged is so important a certain level of focus must be maintained on those profitable activities.

So how does a firm effectively manage its innovation and current operations? There have been many approaches to conducting both of these activities. Some firms have gained notoriety for providing employees with a portion of their work schedule to focus on innovative projects. Firms such as 3M and DuPont have achieved success by implementing programs such as these in an effort to make innovation an “all hands on deck” process that is dispersed throughout the organization. Others have segmented their workforce by creating distinct groups that are isolated from the daily operations of the organization, and tasked with creating the “new world.” The famous “Skunk Works” department of Lockheed Martin, which developed among other things the F-22 “Raptor” and SR-71 “Black Bird,” is a prime example of this approach.[26] For either the dispersed or focused approach to innovation to be successful managers will, above all else, need to practice patience and open-mindedness.

Innovation comes with a great deal of uncertainty, especially during its early stages of development. Operating under these conditions might cause frustrations amongst the various stakeholder groups as short-term performance is often considered the primary measure of success. By remaining patient and open-minded, firms can avoid missed opportunities to innovate such as those suffered by firms like Xerox during the evolution of the personal computing industry. Management will also need to ensure that the organization continuously asks, “how can we do things better.” This involves instilling a level of proactiveness within the organization.

Proactiveness

Many firms react to situations that impact the organization. Whether these situations occur internally or outside of the firm, most organizations operate “business as usual” until the need arises to counteract some stimulus either positive or negative. Entrepreneurial organizations tend to hold a forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand.[27] This perspective represents proactiveness, and is critical to entrepreneurial behavior.

One way that firms can become proactive is to encourage the development of a critical eye toward the future. By building a culture that continuously asks, “How will these events impact the firm?” employees can become more efficient at forecasting the impact of events large and small on the organization. Additionally, sharing of new developments occurring internally and externally may provide the data needed to properly assess these potential impacts on the organization.

Competitive Aggressiveness

The desire to be the best among one’s peers and rivals best describes the notion of competitive aggressiveness. This dimension of EO may most demonstrate a sense of belonging and commitment to the organization. It represents the idea that “our firm” is the best and will work toward remaining the best. Organizational culture may have a strong influence on this dimension. Managers should look for opportunities to build employee commitment to the firm. Proper compensation and benefits is a start but alone fall short in building commitment from employees.[28]

Celebration of organizational wins coupled with individual participation in these wins is another tactic available to managers in fostering commitment. Project “wrap” parties, internal pep rallies, and even personal acknowledgements from senior managers are just a few ways to ensure that employees understand their value to the organization and help them build a sense of belonging that might increase their commitment to the organization and foster their competitive aggressiveness.

Risk-Taking

Lastly, for a firm to truly act entrepreneurially there will be a heavy need to take risks. Risk-taking is characterized by the willingness to make decisions during times of uncertainty. Unfortunately, this might be a time when the firm is significantly exposed. First and foremost employees must learn to make decisions that have the appropriate amount of calculated risk. This would entail the detailed development of rationale for decisions made. Utilizing tools that develop integrative thinking will help to ensure that employees have examined the various components of an issue necessary to make take such a calculated risk.

In edition to fostering integrative thinking to help refine the thought processes of employees, managers also need to separate the action from the outcome and view these two components distinctly and separately. Typically the idea and the execution of that idea are contingent upon a multitude of factors within and outside of the organization, and success in one area does not necessarily translate into success in the other. By rewarding calculated risks that may not turn into wins for the organization, managers can help to alleviate the potential fear associated with taking such risks.

Conclusion

As we know firms are continuously being pushed to innovate in order to survive and thrive in todays marketplace. This push coupled with ever tightening of technology cycle times has placed increased pressures on managers to find the next new business idea. This article suggests that the source of these new ideas may be right under the noses of managers and living amongst their employees. Managers should look for ways to bring these ideas out of the individuals who work within the firm and toward the forefront. One way that managers can achieve this task is by fostering EO within their respective firms.

While the development of EO within a firm might be the best approach to drawing out innovation within employees, managers should utilize deliberate measures to achieve success. By building the autonomy within the firm, as a first step, managers can help to open the minds of their subordinates toward better understanding the operating and competitive landscape in which the firm conducts its business. Additionally, this autonomy can set the foundation for the remaining elements of EO making it easier to implement innovativeness, proactiveness, competitive aggressiveness, and risk-taking. But implementation of autonomy should not be taken lightly. Managers should look to implement autonomy in a balanced way to ensure that lack of control and scope creep is minimized. By following these steps managers may be able to capitalize on the corporate entrepreneurial potential already existing within their organizations.

 

[1] Allen, K.R. (2008). Launching New Ventures: An Entrepreneurial Approach. Boston, Massachusetts: Houghton-Mifflin Publishing, (5th ed.).

[2] Burgelman, R.A. (1983). Corporate Entrepreneurship and Strategic Management: Insights from a Process Study. Management Science, 29: 1349-1364.

[3] Sharma, P., Chrisman, J. J. (1999). Towards a Reconciliation of the Definitional Issues in the Field of Corporate Entrepreneurship. Entrepreneurship Theory and Practice, Spring: 11-27.

[4] Teece D. J., Pisano G., Shuen A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7): 509-533.

[5] Ahuja, G., & Lambert, C. M. (2001). Entrepreneurship in the large corporation: A longitudinal study of how established firms create breakthrough inventions. Strategic Management Journal, 22(607), 521-543.

[6] Bessant, J., Lamming, R., Noke, H., & Phillips, W. (2005). Managing innovation beyond the steady state. Technovation, 25(12): 1366-1376.

[7] Peltola, S. 2012. Can An Old Firm Learn New Tricks? A Corporate Entrepreneurship Approach to Organization Renewal. Business Horizons, 55: 43-51.

[8] Each of these firms were listed on Business Week’s 2005 Most Innovative Firms list and Fast Company’s 2009 Top 50 Innovative Firms list.

[9] Wang, C. H., He, J., & Mahoney, J. T. (2009). Firm-Specific Knowledge Resources and Competitive Advantage: The Roles of Economic and Relationship- Based Employee Governance Mechanisms. Strategic Management Journal, 30: 1265-1285.

[10] Herzberg, F. (1976). The Managerial Choice. Homewood, IL: Dow Jones-Irwin.

[11] Kluger, A. N., Tikochinsky, J. (2001). The Error of Accepting the “Theoretical” Null Hypothesis: the Rise, Fall, and Resurrection of Common-Sense Hypotheses in Psychology. Psychology Bulletin, 127: 408-423.

[12] Latham, G. P., Pinder, C. C. (2005). Work Motivation Theory and Research at the Dawn of the Twenty-First Century. Annual Review of Psychology, 56: 485-516.

[13] Ronen, S. (2001). Self-Actualization Versus Collectualization: Implications for Motivation Theories. Mahwab, New Jersey:Lawrence Erlbaum Associates, Inc. Publishers.

[14] Steers, R. M., & Porter, L. W. (1991). Motivation and Work Behavior. New York, New York: McGraw-Hill.

[15] Wicker, F. W., Brown, G., Wiehe, J. A., Hagen, A. S., & Reed, J. L., (1993). On Reconsidering Maslow: An Examination of the Deprivation/Domination Proposition. Journal of Research in Personality. 27: 118-133.

[16] Gagne, M. & Deci, E.L. (2005). Self-Determination Theory and Work Motivation. Journal of Organizational Behavior. 26: 331-362.

[17] Howe, S. (2010). Corporate America, Find Your Hidden Entrepreneurs. Business Week.

[18] Wakeman, J. (2010). Going Solo. The New York Times.

[19] Dess, G.G., Lumpkin, G.T. (2005). The Role of Entrepreneurial Orientation in Stimulating Effective Corporate Entrepreneurship. Academy of Management Executive, 19(1) 147-156.

[20] Ibid.

[21] Ibid.

[22] Ibid.

[23] Liu, D., Zhang, S., Wang, L., & Lee, T.W., 2011. The Effect of Autonomy and Empowerment on Employee Turnover: Test of a Multilevel Model In Teams. Journal of Applied Psychology, 96(6): 1305-1316

[24] Dess, G., Lumpkin, T., & Eisner, A. (2014). Strategic Management: Text and Cases, Seventh Edition. New York: McGraw Hill.

[25] Dess & Lumpkin, 2005.

[26] https://www.cnet.com/pictures/seven-decades-of-lockheed-skunk-works-aircraft-pictures/

[27] Dess & Lumpkin, 2005.

[28] Shafiq, M., Zia-ur-Rehman, M., & Rashid, M., 2013. Impact of Compensation, Training and Development, and Supervisory Support on Organizational Commitment. Compensation and Benefits Review, 45(5): 278-285.

Author of the article
Mark Tribbitt, PhD, MBA
Mark Tribbitt, PhD, MBA, , PhD is an assistant professor of strategic management at Pepperdine University. He comes to academia with more than 15 years of experience within the financial services industry. During that time Mark has held a variety of management positions in retail, commercial, and wholesale banking. He earned his PhD in Strategic Management from Drexel University, an MBA from Villanova University, and a BS in Finance from the University of Delaware. His teaching focuses on strategic management, entrepreneurship, and management of technology and innovation. Mark’s primary research interest deals with the intersection between corporate governance and corporate entrepreneurship.
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