Corporate Entrepreneurship
FOSTERING ENTREPRENEURSHIP AMONG EMPLOYEES
AND ITS IMPACT ON COMPANY PERFORMACE
Karthik Patnaykuni
IIM LUCKNOW | CRISIL YOUNG THOUGHT LEADERS
Fostering Entrepreneurship among Employees and its Impact on Company Performance
Karthik Patnaykunia
a
PGDM Student at Indian Institute of Management, Lucknow
Abstract Growth oriented firms are constantly looking outwards for growth avenues. A low
hanging fruit is to capture the pool of ideas within the organization and apply them in real life.
Significant research has conclusively pointed out that the entrepreneurially oriented (EO) firms
perform much better than their peers. Efforts to foster such a culture requires a systems
approach where the top management as well as all units of the firm work towards a single goal
of increasing effectiveness in the most efficient manner. This paper recommends a series of
initiatives that are needed for a sustained entrepreneurial orientation in a firm.
Key Words: Entrepreneural culture, Intrapreneurship, Growth Strategies
1. Introduction: The application of VUCA terminology with modern firms brought in a
paradigm shift in the way businesses could function in any given sector. The traditional
competencies and strategies are eventually paving way for more and more firms across
geography to shed the bureaucratic set up and become more entrepreneurial. The latest buzz
words in organizations are ‘lean and agile’ strategies.
Entrepreneurially Oriented (EO) organizations have found significant strategic advantage over
peers in better top & bottom lines, stock performance etc. while scoring high on indices like
‘best places to work for’. Numerous studies have also tried to determine the driving forces,
impact of culture and deterrents to fostering an entrepreneurial culture. Despite all the research
the clear definition of an entrepreneurial orientation is slightly ambiguous. Multiple actions of
a firm have been considered as a proxy for an entrepreneurial orientation. Different researchers
have used different terminology based on the definition of industry, people involved and
product/ process innovation.
Figure 1: Dimensions of Corporate Entrepreneurship
K K K Chand and DR A C Mohan (2015) have listed the terminologies used by various
researchers over the past three decades. The most commonly used terminologies are: Corporate
Entrepreneurship, Intrapreneurship and Corporate Venturing. The primary driving forces for
an entrepreneurial orientation have been considered as reward/ reinforcement policy, work
discretion and organizational boundaries. Similarly the primary restraining forces considered
were time availability, process rigidity and management support.
Figure 2: Aspects that promote Entrepreneurship
Figure 3: Aspects that hinder Entrepreneurship
2. Components of Entrepreneurship: The earliest fragmentation of entrepreneurship was
done by Miller and Friesen in 1978. They postulated three ingrained aspects of
entrepreneurship, namely, innovativeness, risk taking, and proactiveness. Innovation has been
defined as the ability to cause a creative disruption to existing processes and systems. Risk
taking has been defined as the ability as well as willingness to venture into the unknown areas.
Emphasis has been laid on the calculated approach towards risk. Commitment of time/
resources/ energies etc. too have been considered as part of Risk Taking ability. Proactiveness
has been defined separately from risk taking as it involves opportunity seeking and forward
looking approach for new products, markets etc.
Lumpkin and Dess (1996) came up with two additional dimensions of entrepreneurial
orientation. They were competitive aggressiveness and autonomy. Competitive aggressiveness
talks about the intensity of a firm with which it attempts to outperform its competitors in every
possible aspect. Autonomy on the other hand talks about the level of independence enjoyed by
individual employees or teams to come up with new products/ ideas etc. and implement them.
3. Fostering an entrepreneurial culture: Creating an entrepreneurial culture in older firms is
one of the biggest challenge. Decades of practices and norms makes altering attitudes very
difficult. Most researchers and practitioners recommend a system level thinking for altering the
behavior in large organizations which need to change. The change is relatively easier in
younger and smaller firms where the crystallization of norms is not yet complete.
3.1 Top Management Commitment: One of the most critical ingredient of an
entrepreneurially oriented firm is the commitment of the top management including the board
for developing such a culture. In the absence of top management’s support, a systems level
change fails to materialize. For example, efforts taken by the design or R&D team can get shot
down by the conservative approach of the Accounts or the Human Resource team in the
absence of a common Northern Star for the entire firm.
The individual style of the thought leaders too has been considered as a deciding factor in
motivating young work force. Such thought leaders are likely to encourage the bulk of
workforce to take up initiatives while ensuring that they lend a watchful ear to the ideas that
pop up in every nook and corner of the organization.
3.2 Organizational Structure: The birth and growth of innovative ideas at times need the
modification of the organizational structure as well. Creation of Strategic Business Units
(SBUs) in conglomerates was one such initiative which ensured that all the activities related to
a product/ service remain under one set of managers. While this ensured a relatively seamless
flow of funds, information etc. the cross learning decreased substantially. In firms centered on
operations a functional hierarchy seems a better option. In either case, fostering operational
and product excellence over accounting efficiency has been found to be a model for high
entrepreneurial orientation.
Creation of venture groups, task forces and parallel organizations with significant financial
independence can be an added source of innovation. While creation of the sub groups the goals
when defined need to be more than financial in nature. Ability to create goals on multiple fronts
apart from financial front ensures that the outcomes are more radical and productive.
3.3 Policies and Procedures: One of the pressing concern in large firms is the rigidity that
comes due to uniform policies and procedures in all departments as well as units. This is a
significant problems in conglomerates operating in different industries at different stages of
product cycles. The one size fits all approach doesn’t permit the necessary fluidity to be present
where it is needed the most. Firms that are able to create a generic policies which are slightly
open to interpretation while ensuring that such flexibility is not abused fare better. An
alternative could be setting up a range for all the parameters that are under consideration.
Individual SBU heads could be allowed to take a call on the final values and procedures.
3.4 Knowledge Creation & Sharing: One the most common mistake done by most firms
is not having a systematic and robust database of knowledge resources. This causes a repeat
efforts in areas which could have been avoided by learning from the peer learning. Developing
central repository of ideas and innovations and the outcomes can go a long way in ensuring
that the employees are able to take a more informed decision. A subset of this problem is
selective storage. It was observed that firms which do have a central repository, tend to store
only success stories and disregarding the failed attempts. Failures are often half baked
successes and ability to keep a track of failures is another approach by which firms can innovate
rapidly.
3.5 Research & Development: Most firms shy away from having an in-house R&D unit.
The problem is even more grievous in the Indian context. The mere presence of an R&D unit
where constant attempts are made for innovation has shown to have positive impact on the firm
culture.
Even in firms that have a dedicated R&D team, fund allocation can be an issue. Researchers
have proposed a multi-tiered resource grant mechanism for maximum effectiveness. The model
proposed talks about multiple levels and sources from which an individual can seek resources
for an idea. For example, in a manufacturing firm a manager may be allowed to spend a certain
amount by his own discretion. At the same time, there could be multiple levels above him at
both vertical and horizontal direction from where a manager may seek funds. So, if one of the
manager fails to appreciate the idea and refuses to fund an idea, an employee can always seek
funds from the other sources. Such a design ensures that maximum ideas stand a chance to get
implemented or at least tested.
3.6 Human Resource Management: The HR Practices have often been blamed for failing
to bring in enough innovation in the system. A systems approach in the HR department would
mean that at all stages of intervention, innovative individuals are appreciated. The five strategic
choices made by the HR department are: Planning, Staffing, Appraising, Compensating and
Training & Development.
Perceived
capability for
solution
Low
High
Definition of Strategic issue
Vague
Precise
*Powerless*
*Trapped*
Do Nothing
Seek External Solutions
*Worried*
INTERNAL
Tinkering
ACTION
Figure 4: Understanding of the Problem or Opportunity
Scope
Low
Urgency
High
Simple
Marginal Change within some
functions
Worried, Efficiency Seeking
Figure 5: Perceived nature of required action
Complex
Turmoil or Skunkworks
RENEWAL
Planning Choices for entrepreneurial orientation must include broader job descriptions with
extensive analysis of each job. It should also include long term goal settings with integrated
design approach for the
entire
workforce.
Staffing Choices are
another vital aspect in
developing
an
entrepreneurially driven
organization. Being open
to both internal and
external
sources
of
applicants from diverse
backgrounds brings in
diversity in school of
thoughts and beliefs.
Similarly, a blend of
specialists
and
generalists need to be
recruited so that time
lapse between successive
Figure 6: Employee's expectation from appraisal for innovations
epochs is minimized. The
recruitment tool used
should also measure appetite for risk and other aspects needed for innovation. Appraising
Choices is perhaps the most important of all roles played by the HR department. Setting goals
which are medium to long term rather than short term fosters innovation and risk taking.
Similarly, over insistence on financial performance can be a killer of innovation. Goal setting
process that gives credit to initiatives and knowledge creation irrespective of outcome is one
of the primary driving forces in fostering entrepreneurship. Compensating Choices too need to
be modified keeping in view the new realities and goals of the firms. Monetary compensation
alone may not be capable of bringing the best out of employees. Creating a flexible incentive
scheme that lets individuals choose from an array of options has shown to benefit the most.
Training &Development choices display the direction in which the firm intends to grow. Being
able to determine the future needs and the required skill sets can be a game changer. In terms
of entrepreneurship, training specifically for innovation has found to be effective and has
statistically significant impact.
3.7 Internal Marketing: Internal marketing is a relatively new concept. It talks about each
team inside the firm needs to consider all other units as internal customers. This is a paradigm
shift in how units inside transitional firms interact with each other. This ensures that each unit
is given a free hand with respect to the process that needs to be implemented as long as the end
product needs the satisfaction of the next unit. Ivancevich and Gilgert, 2000 have found
numerous benefits of such an approach. The first benefit being the pressure on the top
management to state clear and objective goals from each unit. Secondly, the employees at each
level are empowered to bring change to existing systems. Thirdly, unit by unit appraisal means
the identification of Innovation Champions takes place in the most effective manner. Such
practices ensures that organization as a whole is very flexible while the objective goals work
as linchpins.
3.8 Individualism vs Collectivism: A collective approach kills innovation by ignoring the
individual’s contribution. At the same time, a highly individualistic culture means that
Individuals do not get necessary support from their team to execute ideas. In fact, extremely
individualistic firms have witnessed situations where peers have sabotaged peer’s initiatives.
A cross cultural study too confirms that as collectivism increases in a firm, the innovative
output initially increases and after a point starts coming down.
4. Potential Traps: Ahuja et al in 2001 proposed three types of traps in which organizations
may fall. Efforts taken at all levels by organizations often fail to transform into long term
behavioral and cultural changes. The explanation for the same is given on the basis of three
traps namely, familiarity traps, maturity traps and propinquity traps. Familiarity Trap is a major
concern in mature industries where the prolonged exposure to the technology and process make
the people insensitive to the changes in the external environment. Architectural innovation can
be a source of avoiding this trap. It refers to altering the product slightly so as to find a new
application. Additionally, constantly working in close proximity to the latest developments in
the field makes sure that the risk of falling into a familiarity trap is minimized. The second trap
was found to be Maturity Trap. This is very similar to familiarity trap and yet fundamentally
different because it refers to a preference for a proven technology that has stood the test of
time. Such obsession with older technology can become a core rigidity especially when
commitment in terms of resources is needed in the long term. In heavy industries where huge
capital is incurred in procuring technologies such trap can be disastrous. A policy level decision
to constantly try and experiment new and nascent technologies can be a way to prevent falling
into this trap. Nascent technologies also have the option of flexibility i.e. the firm can be
actively involved in shaping the growth of a new technology. Directing the growth in a
direction that favors the firm can provide a long term strategic advantage to a firm. The last
trap proposed was Propinquity Trap. It was observed that firms tend to look out for solutions
which closely resemble existing solutions. Such myopic search can prevent capturing
opportunities that often hide in plain sight. Also, radical changes often remain out of
consideration set due to this trap. Job rotations and external hiring can minimize this risk.
5. The Flip Side: Most research points towards the advantages of being an entrepreneurially
driven firm. Little research has gone into finding the possible pitfalls of embracing
entrepreneurship. From the existing theories of Agency Cost certain flip sides may be seen. If
a firm keeps rewarding initiatives and does not penalize failures as recommended widely,
individuals may start seeking irrational risks. Such acts will give them both financial rewards
as well as recognition in a innovation seeking firm while causing loss of value for the
shareholders. Safeguards with respect to measurable & objective goals can mitigate such risks.
6. Conclusion: An entrepreneurial culture has the capability to provide sustained advantage to
a firm. Despite this, fostering such a culture is pretty difficult, especially in mature firms. A
systems level approach where each unit and process is made sensitized to the goal is a way
forward to ensure that the culture in gradually imbibed. The role played by top management’s
commitment and evolution of the systems & processes play a pivotal role in inculcating the
culture. Despite this they are not sufficient conditions and sensitizing the entire organization
towards the larger business goal is critical to foster a culture of entrepreneurship.
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