Corporate Entrepreneurship As a Strategic Option for Firms - Research Paper Example

CORPORATE ENTREPRENEURSHIP AS A STRATEGIC OPTION FOR FIRMS I. Introduction What can organization change to stay competitive when faced with stiff competition and unpredictable market demand? How can these positive changes stay in the organization to sustain its edge? How can the organization manage innovations responsibly in accordance to their fiduciary duty? Survival of companies remain largely reliant on its ability to react to market forces immediately or have the resources, reach and net to capture markets that were not primarily considered at the onset of its existence. In any industry, correct timing in reacting to market forces has always been a source of debate. It is a variable that is almost impossible to predict even with empirical data on hand (Eckerson, 2006). Thus the next best thing is to make sure that the company’s market presence has a wider reach and has an inventory that can satisfy the demand of the market at any time. However, this proposition is expensive without any value added opportunity opening for the company. On the other hand, competition will most likely remain as a factor or a constant reminder to drive quality and excellence in customer service. However, competition also has the ability to expand its market reach and compete head to head with any branch of the company. Market leadership can only be gained if the following are implemented in sequence: operational streamlining and implementation of control to have a strong corporate governance structure. But, these too can be implemented by any competitor. Ergo, all else being equal, the only remaining factor that will enable companies to gain competitive edge over their rivals oweHoweveother otare its employees. Promoting a culture of corporate entrepreneurship is a formula that has been percolating in the minds of Covin and Miles (1999) as a strategic option for companies to gain competitive advantage over their rivals. This paper, in essence, will show how corporate entrepreneurship as a strategy will capitalize on the untapped natural innovation and creativity of its employees as they perform their daily functions. However, once the gates are open the flow of ideas from employees will be unrestricted. This paper shall propose strategies on how to reign in the creativity and direct them to directions that are juxtaposed to the company’s goal. This paper shall study the various aspects and characteristics of entrepreneurship as it relates to companies and their core products. This paper shall also expose the possible risk and dangers that the company can experience if entrepreneurship is unabated and unrestricted. Rationalizing entrepreneurship’s impact to the company and how to harness and encourage entrepreneurship in a continuing basis, this paper will provide strategies to this effect. Applying new concept in the strategic application of entrepreneurship that would include corporate ambidexterity, this paper shall provide a fresh insight on how best to exploit entrepreneurship. By identifying an ambidextrous mind-set this paper aims to inculcate into the employees’ consciousness its framework in order to make it a part of the culture of the company. This paper will likewise resolve the resistance of some employees towards change and other factors which contribute to their opposition to innovation. Responsible management calls for adhering to the requirements of corporate governance. The controls however are at times too restrictive and will require the charge back concept to assess its actual profitability. This paper shall aim to provide insights on how best to integrate the two operational requirements of responsible corporate management into the fore. Introducing the tenets of diversification, the transformation of entrepreneurial ideas can develop and evolve into actual profit center for the company. The spin-off of departments responsible for the maintenance, provisioning and producing the innovative ideas shall be a proposed solution that will make the new company responsible for its own fiscal management. This would result to the new company absorbing all the risk while the mother company reaps all the benefits of its creation. II. Review of Literature In the article entitled “Corporate Entrepreneurship and the Pursuit of Competitive Advantage” by Covin and Miles (1999) discusses about what defines a company to be entrepreneurial and entrepreneurial typologies that firms make use of (Covin & Miles, 1999) to innovate and transform their firms to gain more profit and maintain their market base if not increase it. According to the article, there are three major determinants that characterize a firm as entrepreneurial; these are: "established" organization enters a new business, individual or individuals champion new product ideas within a corporate context and "entrepreneurial" philosophy permeates an entire organization's outlook and operations (Covin & Miles, 1999). The article also espoused four typologies that form entrepreneurship that would add to the firm’s competitive advantage. These are sustained regeneration –firms that regularly and continuously introduce new product and service lines in the market or they simply enter new markets (Covin & Miles, 1999); organizational rejuvenation --it is the renewal of the corporation’s internal processes and structure to improve the supply chain making it more efficient and effective; strategic renewal –it is the strategy of an organization which aims to renew the ideas and visions upon which the firm and its products were made (Guth & Ginsberg, 1990); last is domain redefinition –it is the action of a firm that a firm does in order to create a new range of products leading to an entirely different product segment. The other literature entitled “Governance, Ownership and Corporate Entrepreneurship: The Moderating Impact” by Zahra (1996) posits that executives have an aversion to entrepreneurship because it does not add any value to their net worth in the company. The aversion also stems from the restrictions provided by the operation of corporate governance in the company that restricts spending while attaching every spending to their names. As theorized by the other articles entrepreneurship requires investment and a certain amount of exposure from the company. However, the article also recognizes the added value of an entrepreneurial company in the shares of stocks of a company, thus major stock holders are interested in its success within the company. While at the opposite end the executives within the company are averse to it. The third literature entitled “The Relationship Between Corporate Entrepreneurship and Strategic Management” (Barringer & Bluedorn, 1999). According to Bluedorn there are five dimensions to strategic management that can be used in corporate entrepreneurial setting; these are 1.) Scanning intensity –method of uncertainty absorption to minimize the employees feeling of high sense of security because as entrepreneurs they must remain vigilant; 2.) planning horizon –is the period that decision maker consider in planning; 3.) Planning flexibility —the capacity of a firm’s strategic plan to change as environmental opportunities and threats emerge (Barringer & Bluedorn, 1999); 4.) Locus of planning –says that a firm should maintain a high level of employee involvement from all hierarchical levels within the firm; 5.) Control attributes –business strategies are able to meet predetermined goals and objective. In the article entitled “Strategizing throughout the Organization: Managing Role Conflict in Strategic Renewal” (Floyd & Lane, 2000) talks about strategic renewal. It consists of three sub-processes namely competence definition, deployment, and modification. In line with this the roles of operating managers were defined together with the time line, processes and values that should govern the operations of the firm. This article supports this research’s stand of the importance of alignment and adaptability of the employees in the entrepreneurial process. According to an article written by Birkinshaw and Gibson (2004) ambidexterity is the ability of a company to synthesize and balance the application of adaptability and alignment (Birkinshaw & Gibson, 2004) as a form of entrepreneurial strategy. In the paper written by Birkinshaw and Gibson (2004), adaptability in the management context is the ability of a firm and its employees to recover swiftly from disasters, to move quickly toward new opportunities, to adjust to volatile markets and to avoid complacency. While alignment, is defined in the same paper as the ability of the firm that is able to create a clear sense of how value is being created in the short term and how activities should be coordinated and streamlined to deliver that value (Birkinshaw & Gibson, 2004). In another article entitled, Ambidexterity as a Dynamic Capability: Resolving the Innovator’s Dilemma (2007) espoused that exploitation is about efficiency, increasing productivity, control, certainty, and variance reduction while exploration is about search, discovery, autonomy, innovation and embracing variation. Ambidexterity is about doing both (O’Reilly & Tushman, 2007). Innovation is the heart of entrepreneurship (Stevenson & Gumpert, 1985). Innovation by nature is making use of the present and available technology is order to create and offer something new to the market. Introducing something new to the market would not ensure the success of the new business venture. Businesses have come and gone because failure in direction, lack of training and preparation of contingency plans and mitigation strategies that is essential when venturing to unknown markets. According to the article entitled “The Truth about Diversification by the Numbers”(2000), reduction in specific risk is the benefit of diversification (Price & Surz, 2000). Diversification is the process by which the company undertakes new business level ventures that should be able to complement and help in the production of main product of the company. A strategy used by companies that are diversifying its product portfolio is to spin-off the division responsible for the creation, maintenance and promotion of the new products. This will ensure that all the risk associated to product development and promotions are absorbed by the new company leaving the mother company risk free. What these articles failed to mention is how to harness and let creativity and innovation be encouraged from their employees. How they would be able to inspire creativity on a continuing basis to ensure that the flow of ideas will be continuous to ensure that the right ideas are harnessed and explored to the fullest of its potential. They also failed to mention the process by which innovations will be presented or the system that will be followed by employees in presenting innovations to decision makers for consideration. This paper shall analyze the principles espoused by the above articles to provide a cohesive practical process that can be adopted by companies. This paper shall also provide an option that can be adopted to evolve the innovation in a form that will be beneficial to the company. III. Corporate Entrepreneurship An ambidextrous company that fosters corporate entrepreneurship uses the natural talent of its human resource. The company will be able to limit its exposure at the stage when the proposed innovation has a strong probability of success. Even at the operation of the innovation vis-a-vis the operation of its core competency or product the production target of the company is secured. Corporate ambidexterity juxtaposed to corporate entrepreneurship as a culture needs to be channelled to control the creativity and innovative ideas to the practicable. This culture will ensure that only viable ideas are presented for consideration and that only feasible ideas are piloted or implemented softly to encourage further study of its feasibility. Ambidexterity will encourage consultation and collaboration with in-house experts on the feasibility of the idea thus attaining support and buy-in within the company. Since there is no detachment with the operational aspect of the manager’s functional imperatives, the managers can still tap industry expert through its vendors for additional insights. The feasibility study of the operation should also indicate the controls by which checkpoints shall be set-up to monitor the viability of the innovation when it is implemented. The purpose of such controls is to ensure that corporate governance is adhered with to protect the interest of the share holders from a potential failed attempt at industrial adventurism. Other mechanisms such as charge back can also be employed to ensure that proper assessment of its financial viability will also be revealed through its financial statement. Evolving into a spin-off the innovative idea will likely be used to capture untapped market or develop market for the mother company. This will be a win-win situation for the company since as stated earlier the new company will be able to shield the mother company from further exposure. While at the same time enabling the company to tap and expand its market reach to include the newly created market of the new company. The only remaining foci of discussion are the process by which entrepreneurial and ambidextrous culture can be inculcated and remain a permanent fixture in an organization. Given that risk aversion among executives has been suspected to be the cause of the decline of several US company’s competitiveness over the years (Franko, 1989; Hoskisson & Hitt, 1994). The following system can be adopted by companies to promote a culture of ambidexterity and entrepreneurship in companies: Reward system that will form part of the company’s employee evaluation that assesses employee performance can be put in place. Regular competition that would include a substantial reward amongst the employee can also be organized in a regular basis. Both strategies are largely cost effective since it will capitalize the creativity of the employees instead of consultants. The other non-tangible benefit that may not be apparent is the motivation it will create amongst the employees as they consider their ideas as a capital for their performance. To remove the tinge of exploitation and ensure corporate ownership of the idea, a reward system or incentive program can be put in place. Another strategy is to organize focus groups to discuss innovations or improvements at regular intervals. This is largely composed of employees from different departments that are considered the best of the best performers in the organization. They are essentially tapped based on their experience and innovative creativity. The oldest strategy which is also the most expensive is to organize a department solely dedicated for the purpose. These are normally called the business development group, research and development group or even at times the product development group. Unlike the previous propositions these departments will exist for the sole purpose of creating new products innovations or improvements. However, this study shall not delve into the merits of the strategies mentioned above. A more focused investigation should be conducted to evaluate the operational parameters of the abovementioned proposals. Legal opinions shall likewise be procured to ensure that there is no ambivalence with regards to the ownership of any innovations that will be generated through the operations of the propositions. IV. Discussion Companies seeking to be entrepreneurial to ensure its corporate survival run the risk of its managers concentrating on the innovations and abandoning their own operational imperatives. It is not a matter of executives stepping out of their comfort zone to explore and innovate but rather it is their fiduciary responsibility to its shareholders to make the company continue to be profitable. Ambidextrous manager’s has within their consciousness to ensure that their operational responsibilities continue to function within the acceptable or beyond expectations. However, in creating ambidexterity in companies, managers who are responsible for the day to day operation of the company had limited wiggle room for innovation. Innovation will only be within the confines of his area of responsibility and this by in itself will stifle his creativity. Since his official contacts are limited and are only within the confines of his corporate functions that would include vendors, and his input and output departments (Mom,van den Bosch, Volberda 2009). Once an idea is proven to be profitable and the return on investment is within the parameters set by the company the next step is to consider the manner by which the innovation will be allowed to operate. It is prudent for companies to measure not only a certain amount of control to innovative ideas but on other factors as well. Innovative and creative ideas should be accorded the strictest control possible to limit the exposure of companies to the start-up and roll-out cost. As suggested, feasibility studies should not only be scrutinized for their bottomline, return on investment and profitability numbers but it should include the scrutiny of the suggested governance controls. By studying the operational parameters of the proposed innovations that includes its expenses in contrast to its maximum output or benefits. And the efficient ratio between the input raw material and revenue generating products, controls can be set. This will ensure that proper monitoring of the operation is in conformity with the feasibility study numbers thus minimizing wastage or the exposure of the company. These thresholds can be used as checkpoints for decision makers to either let the project continue or to scrap it. One technique mostly adopted by companies that are in the process of diversification is the charge-back option. Charging the company and its department for the services and products provided by the innovative idea will result to an objective measure of the true value of the innovative idea in relation to the governance controls. However, the very idea of being innovative is to step out of the corporate comfort zone thus too much control may result to suppression of the idea and impede development. That prevents it to percolate enough to achieve its optimum level that may redound to the benefit of the company eventually. However, prudent corporate governance will legally not sanction such adventurism. A good diversification strategy creates more need for its product by providing the end-to-end needs of its customer. A bad diversification strategy is to go into the market with products that creates competition for the core product of the company. The later will infringe into the loyalty of the customers of the company’s original core product. It is derisive and may even be considered bad business and broaching unethical business conduct. Widening the market reach or expanding the market demographics of the product of a company can be achieved by an entrepreneurial company committed to abide and stick to its corporate responsibility. Creating more need by developing the supporting products or services of its core product or service can be achieved by responsible implementation of innovations by ambidextrous employees. Diversification’s negative effect is that the core competency of the company will be diminished when some or all of its secondary products becomes more profitable than the core product. The next concept will help resolve this challenge to ensure that the company remains ahead if not overtake its competition while adhering to the tenets of good corporate governance and ethics. Finally to end the entrepreneurial process for companies, spinning off the department responsible for the innovative idea is a good strategy to ensure that employees remain true to their corporate core competency. Spinning off the department responsible for the creation, execution, maintenance and management of the innovative idea will allow greater latitude in the fiscal management of its resources. Optimum operation can be achieved and realized and the limits of its potential can easily be explored. However it should also be taken into consideration that symmetrical operation can still be assigned to the mother company to ensure that the spun-off company remain committed to the operation of the innovative idea. Spinning off the company will also enable the company to explore and develop its own market to support and augment the market reach and demographics of the mother company. Allowing the company to serve other companies with similar needs will encourage more interest and wider market for the mother company in the long run. This will provide greater potential revenue that will increase the value proposition of the company that will reflect in its share prices in the market. The only negative part of this whole concept is market saturation. However, by the time it reached its optimum capacity, the market share of the mother company is already substantial. The mother company would have recouped its investment and met its optimal goal while other competitors are still playing catch-up. V. Conclusions Inculcating corporate entrepreneurship and ambidexterity into the corporate culture to capitalize on the inherent talent of employees is a must for organizations in this day and age. These will provide organizations an edge over their competitors while being one of the primary movers that influence market movement. Declaring themselves ambidextrous or entrepreneurial companies will not make them profitable, the proposition should also include the institution of processes in which the culture will be enhanced and ingrained. The process, in turn, should include safeguards and other mechanisms that will protect the company from a long drawn and expensive project if it is proven to be a failure. The process should also be designed in a way that will enable the company to maximize its benefit if the innovation proves to be a success. There are many ways to achieve corporate entrepreneurship. And there are many ways to implement them as well. The very nature of the proposition is innovation and creativity and its encouragement as a corporate culture or part of an organization’s collective consciousness. Ambidexterity as an inculcated consciousness will be an essential quality of managers in an entrepreneurial company. Being ambidextrous will enable him to ensure that his key result area is achieved and his key performance indicators are exceeded even while being innovative and creative. Corporate ambidexterity as a culture in a company will enable managers to be entrepreneurial within the context and in support of the company’s core competency. However, being entrepreneurial does not give the license to spend recklessly in the spirit of being entrepreneurial. It is the fiduciary responsibility of managers to be responsible on how company resources are spent. Thus, sponsor employees of innovative ideas should provide realistic controls to ensure that the exposure of the company will be limited. The projected numbers in their feasibility studies should be practicable and achievable within the context of limiting the exposure of the company. Evolving the innovations further, a company seeking to be entrepreneurial will result to a diversified company. Coupling the implementation of the recommended parameters in this paper will result to a company that will create a larger market reach. A diversified company that sticks to its core product line while innovating on the support or secondary product line will create a company that can offer a one stop shop for its customers. Creating another department if not a new company that will ensure the success of the innovative idea is a good strategy for each employee to remain focus on their core competency. Ensuring that the core competency remains intact and profitable will ensure the survival of the company as the new spun-off department absorbs all the risk associated with the creation of a new company. References: Accenture. (2005). The Ambidextrous Senior-Leadership Team. Accenture. Barringer, B., & Bluedorn, A. (1999). The Relationship Between Corporate Entrepreneurship and Strategic Management. Strategic Management Journal , 421-444. Birkinshaw, J., & Gibson, C. (2004). 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