Entrepreneurship in Large Corporations - Research Paper Example

?Introduction Corporations are powerful drivers of the economy at local, national and global levels. As Down p. 119) argues, the traditional bureaucratic and technocratic approach to running corporate organisations has proved unfeasible in the contemporary world. Innovative approaches to managing corporations were sought for these vital economic contributors to remain relevant. A number of options have been pursued, including entrepreneurship, flattening of hierarchies, downsizing, outsourcing and encouraging culture change in corporations. In terms of entrepreneurship, the corporate disposition of firms seemed inhibitory to such ventures as corporations were largely divisional and highly bureaucratic. However, allowing for personal wealth accumulation, personal autonomy to spur innovation and cultural changes have all allowed the paradigm of corporate entrepreneurship to emerge (Down 2010, p. 120). Corporate entrepreneurship, hailed as new dawn to the power and performance of corporations, is defined as the establishment of novel business ideas and business opportunities within large corporations (Birkinshaw 2003, p. 47). However, the shift to entrepreneurial management of large corporations has been accompanied by numerous problems for corporations, which forms the focus of this study. One of the principal talking point and debated problem is the question of morality; corporations appear to justify dubiousness, grey practices and illegalities in the name of pursuit of entrepreneurship (Down 2010, p. 121). This problem raises the age-old question of the purpose of a corporate firm; should a corporation primarily seek profits first and other interests as by-the-ways? Should corporations seek to satisfy social good apart from profit seeking? Thus, a moral tension arises on the operations of entrepreneurial-based corporations as an extension to the debate on capitalism. When the stakeholder theory versus shareholder wealth maximisation concepts are applied to the purpose and obligations of corporations, the moral debate on entrepreneurial corporations is further illuminated. According to the stockholder wealth maximisation perspective, firms ought to primarily pursue maximisation of profits for the owners (Brink 2011, pp. 262-263). Hence, such firms are right in pursuing managerial capitalism to fulfil their fiduciary responsibilities to the stockholders of the corporation (Philips 2003, p. 36). However, the social contracts under which society operates translates to operating while keeping in mind the rights and interests of various stakeholders in the society. For a corporation, the stakeholders include the employees, suppliers, customers and the community within which the corporation operates (Freeman et al. 2010, pp. 164). The interests of all these groups should be taken into consideration when making critical decisions on the corporation’s future, for instance mergers, takeovers, closures and acquisitions. The shift towards entrepreneurial corporations has refocused firms towards their fiduciary wealth-making duties at the expense of the stakeholders. In true entrepreneurial fashion, modern corporations devise innovative ways to maximise profits which may contradict communities' interests. In a related way, the shift towards entrepreneurial corporations has adverse effects on the abilities of corporations to cater for the needs of the society in a moral and equitable manner. Under the social contract theory, states are established to cater for the needs and common interests of the citizenry, requiring that personal interests be ignored for the collective good. When a government privatises a public corporation responsible for the collective good of the society, the contract under which society operates is effectively broken. Privatising such services is usually undertaken for the pursuit of more efficiency and to lessen government interference in trade. However, such firms gain commercial interests and have the advantage of operating as monopolies; crucial services supposed to be equitably available are now distributed as market commodities with the aim of maximising turnover and profits. Down (2010, p. 123) argues that public service values have been replaced by corporate cultures depicted by competitive and profit-centred strategic directions. Corporations based on entrepreneurship blur the line between what is acceptable practice and what is not, taking advantage of grey areas and loopholes in legislation and thus engaging in unethical and immoral acts. The pursuit of profits inspired by entrepreneurial leaning by corporations influences them to identify grey opportunities for operations. In a capitalist manner, such undertakings can be justified as they may not directly breach any laws. However, this may be due to an oversight in legislative processes or ignorance on such loopholes. The lack of legislation guiding certain practices or outlawing certain acts does not make them moral or acceptable to the society (Philips 2003, pp. 36-38). This, however, makes them acceptable practices to an entrepreneurial corporate venture. For instance, multinational corporations may sell products with carcinogenic or mutagenic risks in third world markets. Such products may be outlawed in the countries of origin, but not legislated upon in the foreign markets in developing countries. Whereas no legal mechanism may pin down corporations behaving in this manner, there exists no moral justification for such practices. Here, the firms are engaging in business that may be harmful to the perhaps oblivious consumers while taking advantage of failure in legislative capabilities. This is as a result of uncontrolled entrepreneurial action where such business opportunities are spotted, noted as illegal and exploited by the corporations. Entrepreneurship also leads to various aspects of corporations becoming defunct and disposed off. The much maligned bureaucracy in corporations serves several essential functions for the corporation. According to Down (2010, p. 116), bureaucracy is commonly equated with red tape and blamed for inhibiting effectiveness due to complex and rigid procedures. However, a closer look at the issue opens up a number of positives brought to a corporation due to bureaucracy. Bureaucracy provides for control mechanisms within corporations and thus protects the firm from chaotic operations and ultimate falls. The capitalistic nature of corporations translates to a situation where they require internal controls to regulate activities and ensure the management practices do not get out of hand. According to Hendry (2004, p. 9), bureaucracy provides instrumental rationality and disciplinary control in corporations. Entrepreneurship exists as the anti-thesis of bureaucracy, breaking down the rigid internal processes that typified classical bureaucratic corporations (Covin, Green and Slevin 2006, p. 59). Whereas this is done with the interest of improving on effectiveness, the control aspects of bureaucracy are lost in the process. The post-bureaucracy setting in which corporations entrepreneurially operate has moral norms now being contested; wealth pursuit is justified as the primary goal of corporations (Hendry 2004, p. 10). Thus, the internal control brought about by bureaucracy is lost, with the replacements in policy unable to adequately control personal wealth pursuit interests. The Enron case provides a perfect exemplification of the effects of entrepreneurial problems in corporations in the post-bureaucratic business world. Accounting and audit failures at Enron led to a spectacular fall from financial performance and grace. The case of Enron puzzled many due to the view that the fall happened in a developed nation, where sophisticated auditing and strong principles of accounting and financial disclosures are the order of the day (Cunningham and Harris 2006, p. 27). A number of lessons are discernible from the Enron case regarding the bureaucratic-entrepreneurial shift in corporations. Integration of entrepreneurship into corporate management was preceded by fulfilling a number of requirements. First, individuals had to be able to accumulate personal entrepreneurial wealth; and secondly, a higher degree of autonomy was necessary for corporate entrepreneurship (Down 2010, p. 120). Hendry (2004, pp. 2-3) details how the pursuit of self interests gradually transformed into a morally acceptable and legitimate activity with the shift towards modern corporate management. The arguments of these two scholars are clearly at work in the Enron case; Arthur Andersen pursued personal wealth within the firm, while the ethical inclination of the firm was clearly questionable (Rockness and Rockness 2005, p. 35). Of importance, however, is the lack of internal control mechanisms at Enron to avoid the gradual sink into financial malpractice and unethical behaviour. The entrepreneurial disposition of the firm allowed the malpractices to happen for a long time. Bureaucratic mechanism would have placed many hurdles on Andersen’s path through a number of rules, regulations and routines. Whereas such aspects do exist in modern corporate entrepreneurships (Down 2010, p. 117), increased flexibility and focus away from rules to profiteering allows for such unfortunate scenarios to arise. This focus on entrepreneurial undertakings leads to traversing of boundaries and, thus, weakening of integrity in the firm. Entrepreneurial corporations may also suffer pitfalls arising from the opposite nature of entrepreneurs and large organisations; exploitation versus exploration. According to Elfring (2005, pp. 1-2), large organisations traditionally practice exploitation where they seek to refine existing competences and build on current insights and projected returns. On the other hand, exploration is an inherent aspect of entrepreneurship entailing experimenting with new alternatives with unpredictable returns. The integration of entrepreneurship elements in large corporations thus brings about higher levels of risk-taking, uncertain innovations and aggressive competitiveness (Dess and Lumpkin 2006, p. 147). When the corporate entrepreneurship fails to balance the aspects of exploration and exploitation well, the two opposites may lead to unstable corporations (Elfring 2005, pp. 1-2). Thus, firms are in danger of ending up worse depending on how they execute the entrepreneurship aspects of the corporations in the new settings. As Morris, Kuratko and Covin (2008, p. 192) state, the transformation towards corporate entrepreneurship is accompanied by extensive need to learn new paradigms and unlearn entrenched logic. The authors further argue that a crisis may ensue in the process of transformation. The prescription to avoid such crises entails making entrepreneurship the dominant logic of the corporation over past practices (Morris, Kuratko and Covin 2008, p. 193; Antoncic and Hisrich 2001, p. 496). Here, the dangers of haphazard practices arise, where the traditional practices are shunned, profiteering upheld, morality questioned and routines flouted. The danger magnifies further in the case of large corporations where instability has severe consequences. In a related argument, engaging in corporate entrepreneurship involves financial risk taking not traditional to the organisation. Large corporations are pivotal players in the economy, sometimes providing crucial products and services to the society while being custodians of diverse interests of various stakeholders (Freeman et al. 2010, pp. 164). Besides, their large size makes them be considerably bulky in processes and operations even in the post-bureaucratic age. Financial risk taking to the exploratory nature of entrepreneurship may be a pitfall for large corporations. The autonomy promoted by the evolution towards entrepreneurship places the interest of numerous the stakeholders in the hands of the entrepreneur, who in this case can be the CEO. Entrepreneurship inherently involves uncertainties and difficulties due to the risks taken which may be damaging to the corporation. The impacts of a potential failure are untold; losses of incomes by the employees, loss of investment by the stockholders, loss of products by the society and tax income to the government. For instance, the many unwise acquisitions undertaken by the management of Enron were in pursuit of entrepreneurship. Such risk taking by a few individuals led to the fall of a prestigious firm and unenviable impacts on the stakeholders of Enron. The closure of the firm led to a loss of 4,000 jobs, loss of life savings for thousands of investors and the vanishing of about $70 billion in wealth (Rhode and Paton 2002, p. 1). This provides evidence that corporate entrepreneurship is accompanied by pitfalls that have serious impacts especially in large corporations. Conclusion The need to transform corporations into highly efficient and performing businesses has ushered in the era of corporate entrepreneurship away from classical bureaucratic organisations. This shift entails certain changes in corporations, including the justification of pursuit of personal wealth, increased autonomy and a culture change towards entrepreneurship. However, the advent of corporate entrepreneurship brings with it a number of pitfalls especially to large corporations. Corporate entrepreneurship encourages the pursuit of wealth and maximisation of profits while at the same time deriding internal corporation controls promoted by bureaucracy. One of the undesirable impacts of the change entails the introduction of illegalities, shady and grey practices into the corporation in the spirit of pursuing profits. As a question of morality, the corporation quits catering for the interests of other stakeholders and upholds the fiduciary income generation duty to the stockholders. The element of entrepreneurship also transforms the firm into risk taking ways, which if unwisely ventured into may harm these corporations. Hence, corporate entrepreneurship is accompanied by pitfalls and should, therefore, be wisely executed. References Antoncic, B and Hisrich, RD 2001, “Intrapreneurship: Construct refinement and cross-cultural validation”, Journal of Business Venturing, vol. 16, no. 5, pp. 495-527. Birkinshaw, J 2003, “The paradox of corporate entrepreneurship”, Strategy and Business, vol. 30, no. 30, pp. 46-57. Brink, A 2011, Corporate governance and business ethics, Springer Publishing, UK. Cunningham, GN and Harris, JE 2006, “Enron and Arthur Andersen: The case of the crooked E and the fallen A”, Global Perspectives on Accounting Education, vol. 3, pp. 27-48. Dess GG and Lumpkin, GT 2005, “The role of entrepreneurial orientation in stimulating effective corporate entrepreneurship”, Academy of Management Executives, vol. 19, no. 1, pp. 145-156. Elfring, T 2005, Corporate entrepreneurship and venturing, Springer, UK. Freeman, RE et al. 2010, Stakeholder theory: The state of the art, CUP, Cambridge. Hendry, J 2004, Educating managers for post-bureaucracy: The role of the humanities, BRESE, London. Covin, JG, Green, KM and Slevin, DP 2006, “Strategic process effects on the entrepreneurial orientation–sales growth rate relationship”, Entrepreneurship Theory and Practice, vol. 30, no. 1, pp. 57–81. Morris, JH, Kuratko, DH and Covin, JG 2008, Corporate entrepreneurship and innovation, Thomson Learning, UK. Philips, R 2003, Stakeholder theory and organisational ethics, BK Publishers, UK. Rhode, DL and Paton, PD 2002, “Enron: lessons and implications: lawyers, ethics, and Enron”, Stanford Journal of Law, Business and Finance, vol. 9, p. 1-5. Rockness, H and Rockness, J 2005, “Legislated ethics: From Enron to Sarbanes-Oxley, the impact on corporate America”, Journal of Business Ethics, vol. 57, pp. 31-54. Read More