Creating an Entrepreneurial Organization

Are entrepreneurial innovators at their creative best when unbridled by rules, systems, and corporate bureaucracies? Or does the most productive innovation occur when it is practiced in a systematic, organized, disciplined, and accountable manner? There is ample entrepreneurial folklore to buttress either approach.

An employee once asked Thomas Alva Edison who, over a 50-year career, produced a near-constant stream of new ideas and businesses based on them (the best known being General Electric), how he should tackle a particular task. A man who refused to bow to convention, Edison responded: “Hell, there are no rules! We’re trying to get something accomplished here.”

Another time, the story goes that Edison returned to his lab late one night after a long trip and, finding that there had been no progress on a particularly difficult technical problem, called the engineer concerned at home to ask why. When the engineer said that he had tried every “reasonable thing” he could think of, and had failed to get even a lead, Edison responded: “You have tried all reasonable things. Reasonable things never work… you’ll have to begin thinking up unreasonable things to try, and now you’ll hit the solution in no time.”

Doing away with rules and reasonable things is at one extreme. The other view, favoured most notably by Peter F Drucker, holds that entrepreneurial innovation must be practiced in a systematic, organized and disciplined manner. Drucker believes that path-breaking inventions of the sort that Edison regularly came up with (which he used as foundations for businesses) are rare and unpredictable, and yield no lessons for potential entrepreneurs. An alternative hypothesis about the process of entrepreneurial innovation is therefore necessary, Drucker has argued.

Are the two approaches mutually exclusive? Or is a synthesis of the two possible? I would submit that organizations can marry the two, with optimal benefit to themselves: that even if there is an institutionalized basis to the continuous search for new business opportunities, conditions can be made conducive for creative souls to flourish. After all, though Edison was one of the greatest inventor-entrepreneurs of his day, he could not take his businesses forward beyond a certain point, and had to make way for professional managers.

One of the key responsibilities of an entrepreneurial leader is to ensure that there is a never-ending search for new business opportunities. This search has to be continuous, with everyone in the business feeling a sense of responsibility and urgency for seeking out and developing new opportunities. The leader is responsible for ensuring that existing operations do not take up so much organizational time, attention, and resources as to smother new business initiatives. New initiatives may initially seem marginal and unimportant compared to existing operations. But the only way to ensure their fruition is to allocate to them organizational time, energies, talent and all other resources on a much larger scale than warranted by their size. Only in this way can an organization identify and develop future sources of growth and profits on a regular basis.

The leader of an organization needs to make it clear that every member of the management must contribute to, and be held accountable for, new business development. He can make it obligatory for managers to periodically identify the revenues and profits they have created from businesses that did not exist, say, three years earlier. Since no entrepreneurial leader can afford to neglect existing operations, he needs to set priorities in terms of the time, talent, and other tangible resources to be assigned to existing business on the one hand, and to new initiatives on the other. He also needs to make clear that all resources assigned to new initiatives are a strategic investment in the future of the firm.

The entrepreneur can entrust the search for new initiatives to a separate entity (or to a unit within the organization) that has no work other than to develop new business. This can help avoid situations where the overriding concern with delivering next quarter’s revenues and profits does not jeopardize new ventures. Alternatively, he can follow the example of a US company that has decreed that 15 percent of an employee’s time can be spent in the pursuit of ideas that he or she thinks can greatly benefit the company in future.

Since the search for new business opportunities must be focused, systematic, and disciplined, the entrepreneur needs to lay down the ground rules according to which it must be conducted. This means defining the directions (the business sectors or areas) that the search can consider legitimate, and those that are not to be pursued. In the absence of such mapping, organizational time, energies, and other resources can be wasted. Imposing such discipline will not necessarily kill the initiative and creativity of managers; on the other hand, it can reduce their uncertainty levels (which are bound to be high in the first place, since they are dealing with future developments) and help them become more productive.

Direction mapping can provide effective signals for managers only if it also lays down broad financial thumb rules that help them decide what sort of initiatives to pursue and what to leave out. The entrepreneur needs to establish a set of criteria for screening out entrepreneurial ideas that may be attractive in general terms, but are still lack a strategic ‘fit’ with his business.

The ground rules are also needed to signal to people how new entrepreneurial initiatives should be developed. Treating every resource as scarce must be made a way of life. It must be incumbent on all advocates of new projects and initiatives to use their imagination as much as they use more tangible organizational resources. This requirement will concentrate minds wonderfully, and teach managers to think and act like real-life entrepreneurs, who must needs incur expenditures (especially on ‘start-up costs’) wisely and parsimoniously.

The entrepreneurial leader must also set out ground rules in regard to how the new business planning process will be used. It must be designed to focus unrelentingly on what the true business opportunity is and how to capture it; the role of each distinct element in the business plan; the logic underlying each assumption; and how the project will move from milestone to milestone.

The entrepreneur must have great insight into the core drivers of his organization’s future entrepreneurial development, because this enables him to identify opportunities that his firm is in a unique position to capitalize on. He needs to create the structures, systems, processes, mindsets and motivational levels needed to get people to constantly search for new business opportunities, commit to the launching of new business initiatives, and ensure quick and effective execution.

The case for rules, checks, systems and performance criteria is that they concentrate minds wonderfully and serve as an aid to creative thinking. In their absence, managers can err on the side of using too little imagination and creativity, and too much of an organization’s tangible resources. Why must the rules for new entrepreneurs (who are almost always resource-constrained) and new business development teams in established companies be different?

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