The Entrepreneurial Corporation

On the face of it ‘entrepreneur’ and ‘corporate’ conjure up opposites. We perceive entrepreneurs as highly motivated, talented and agile innovators, willing to take on a high degree of risk and uncertainty, often with objectives beyond merely making profits.

On the other hand, large corporations tend to be characterised as bureaucratic – a characteristic that constrains innovation – even corporations that exist because of novel entrepreneurial innovations.

Jeremy Hutchison-Krupat, Co-Director of the Entrepreneurship Centre at Cambridge Judge Business School, offers valuable insight into how these two apparent opposites can coalesce and how even large established organizations can effectively implement both incremental and transformative innovation with the right interaction of structure, processes and culture.

Joseph Schumpeter who coined the phrase ‘creative destruction’ – the dismantling of long-standing practices to make way for innovation – thought of an entrepreneur as being defined by the context. Specifically, that they are an entrepreneur when they establish something new but they lose “that character as soon as [they settle] down to running it as other people run their business.” Hutchison-Krupat concurs with the notion that entrepreneurship is defined by context. Further, he views this optimistically: noting how this points to the possibility that corporations could have many latent entrepreneurs that simply lack the right context for them to reveal their entrepreneurial talents, “we tend to focus on the fact that an entrepreneur is a person, and yes they are, but you can have an entrepreneurial person within a corporate context.”

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Join Jeremy and colleagues on CJBS’s Building & Sustaining an Entrepreneurial Culture program to instil entrepreneurial dynamism in your organization

Dates: 13-15 May 2020│Format: In-class study │Location: Cambridge, UK

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At a time when, in virtually every sector, traditional markets are being disrupted by insurgents and new technologies, this is good news for incumbent companies. If corporate organizations can build sustainable entrepreneurial cultures they can face up to threats from insurgents and find new opportunities for growth.

We tend to focus on the fact that an entrepreneur is a person, and yes they are, but you can have an entrepreneurial person within a corporate context

“It's the context that really creates the challenge,” says Hutchison-Krupat. And, this challenge is not isolated to large established corporates;  it can seemingly sneak up on an entrepreneurial “start-up” where the founder or manager wakes up one morning to realise they have 1,000 going on 10,000 people in multiple countries. “The change in scale seems to happen so quickly. They – the entrepreneur – is the same person but they realise whoa, what happened? We don't have the same context anymore…. I used to know everybody.”

This leads to the question, are all organizations capable of embracing an entrepreneurial spirit and fostering innovation? “In a Utopian world, yes,” says Hutchison-Krupat, “but in the real world no, not in their current state. There have to be some contextual factors in place.” For example, where a start-up has scaled up quickly to become a big corporate it may not yet have acquired much bureaucracy. “Its evolutionary path to get back to being more entrepreneurial is probably closer than an established firm that has become more rigid in structures and processes. In contrast, though, the start-up may have a greater need to focus on efficiency, which may reinforce bureaucracy. Therein lies the challenge!”

Hutchison-Krupat is the Academic Program Director for CJBS’s Building & Sustaining an Entrepreneurial Culture executive program. Culture is in the title because entrepreneurial organizations need to have “the right dimensions of culture,” he says. “So, if you're an organization that absolutely doesn't embrace the notion of psychological safety, or an organization where employees just don't feel safe to experiment or stray from the norm, then it will be very hard to embrace an entrepreneurial spirit.”

Many large organizations express a sincere desire to be entrepreneurial. Paradoxically, though, many of these same organizations find it hard to accept that embracing entrepreneurialism requires a different way of doing things. “An example of an effective culture of innovation is one where there exists a well-understood set of shared values around what innovation is and where the boundaries are and people are empowered to carry out innovation within these boundaries in their own individual way.” There has to be some freedom, but according to Hutchison-Krupat “what makes the pursuit of entrepreneurialism within a large corporation so interesting, challenging, and complex is that there is no one single answer. It's finding the right balance of actually putting more constraints in some places and relaxing constraints in others.”

“If we think of the context that entrepreneurs operate within, they're generally financially constrained and time constrained. Yet, they are not so constrained to a specific idea, business segment or configuration, which allows them to be more agile and to pivot quicker. Moreover, they may not face the implications of each individual failure, just the implications of an overall failure.”

By comparison, executives in large organizations face constraints in the form of status, reputation, annual reviews, budgets and numerous established processes and structural things that can make them feel, even in a simple brainstorming meeting, afraid to voice, what could be perceived as, a bad idea.

The challenge for large organizations is to create a context… an agile culture that embraces ideas, and creates safety for employees

This has consequences. The true entrepreneur doesn’t care whether or not they say something stupid (other than in an investor meeting). Expressing ideas freely is part of experimentation and pivoting quickly. The challenge for large organizations is to create a context where people can do that, an agile culture that embraces ideas, and creates safety for employees.

A starting point to achieve an entrepreneurial culture is to understand that culture is cannot simply be mandated. Rather it is an evolutionary process and credibility is key. It is not enough to have a mission statement that touts the importance of innovative behaviour. You have to do it. “People have to see that you are going to embrace it. The longer you haven't embraced it, the more actions it will take to reinforce the message so people recognise that it's credible.”

There are the different ways to show credibility. Hutchison-Krupat mentions the idea of thinking about culture in terms of what you protect and what you promote. For example, if a leader seeks more innovative behaviour from their organization, which is rigid and uncomfortable with experimentation, and an employee decides to try something different and fails, this is an opportunity for the leader to step in and offer protection. This is where a leader needs to promote this approach, and make it clear to everyone else by saying ‘no, this is what we want to nurture.’

The processes an organization has and the messages – implicit and/or explicit – it communicates say a lot about what actions and behaviours it protects and promotes. If, for example, every single innovation process in the company is owned by someone in the C-suite, it tells people that they are not empowered or trusted enough to have ideas and make decisions. In contrast, an organization built on a strong culture of innovation may rely on an organic process of idea selection where it encourages people across the organization to work on ideas, such that only the most promising ideas ‘bubble up’ to the senior management level.

If an entrepreneurial orientation is not embraced at the top of the organization it will be very difficult if not impossible for innovation to emerge

As Hutchison-Krupat observes, “Those processes tell people that senior management is trusting them to make selection decisions, to judge what the right ideas are, to work together to figure these things out. Those are more subtle in terms of what you protect and what you promote. And I think it's even the language that is used, how it's worded, that says a lot about what the organization protects and promotes within its culture.”

If an entrepreneurial orientation is not embraced at the top of the organization it will be very difficult if not impossible for innovation to emerge. But the converse is not true, if an entrepreneurial outlook is embraced at the top it does not necessarily mean innovations will flow. Again, it is about context, leaders need to understand where they currently are. Unless the organization is willing to adopt the innovative ideas that emerge and can easily be restructured and adapt processes to take them on, they will fail or disappear. “Ultimately a lot of the challenges come about because organizations have something really innovative, but are not prepared or able to adopt and commercialise it.”

Working with program participants Hutchison-Krupat aims to diagnose three challenges:

1. Whether their company is struggling to generate ideas.

2. Whether there is plenty of capacity to come up with ideas, but the company always decides to work on what they know, what’s safest. So it is a selection problem.  

3. If when the organization comes up with good ideas and selects them it is unable to execute them, get them into a business unit and commercialise them.

It is important for leaders to understand these three categories so they can identify where they need to improve and what to work on.

Innovation can be incremental, bordering on continuous performance improvement, or it can be about breakthrough transformative change. Incremental innovation will not require many organizational structural changes. If the current corporation is organised and structured around products, doing better at those products and coming up with more innovative solutions for current products does not require a new network of communication, or a new process for working between business units, etc.

When we move into the area of radical change it is different. In this area Hutchison-Krupat makes a very important distinction, “We tend to lump the transformative, disruptive, radical, whichever word we use for the really wild innovations into one bucket, yet some are radical because they introduce brand new technologies and capabilities whereas others are just something the organization had not done before.” In this second case the organization has all the technologies and capabilities, they understand all of the components, but now a new trend or a new customer need calls for them to be arranged in a different way.

Where corporations have innovations, that makes sense for them and they have the technology and capabilities for, the key challenge is to be able to fluidly adapt and create structures to take them on. “By structures it's not just business units and divisions, but it’s within those which person gets to make the decisions. Are decisions for the right type of project at the right level? Having the recognition that not all decisions should happen at the same level in the organization is a starting point,” says Hutchison-Krupat. What is more, when the structures are right a radical innovation can be something that when you break it down, doesn't seem that radical.

As far as processes, large organizations generally have formal processes in place for getting innovation to move through their pipeline. And the organizations that are more capable at pursuing lots of different types of innovation have lots of different types of processes. The projects that are much further out from the core require a different process than those that are nearer. Ability and desire to adopt a process to deal with radical innovations will say something about what the organization protects and promotes. “If you look at the process, is it saying that everything has to fit very tightly and neatly within a very specific definition? Well, that's not gonna be as entrepreneurial.”

The good news is if you get the processes right and the structure right, then those will help reinforce the culture. It's about finding that right balance

To sustain an entrepreneurial orientation, organizations need to constantly monitor how their processes, structures, context, culture, are interacting. “The good news is if you get the processes right and the structure right, then those will help reinforce the culture. It's about finding that right balance… this is the overall goal but there is no magic recipe.”

If an incumbent large organization tries to launch a radical new domain – say a Hilton launches an Uber or an Airbnb – it will need to adopt a much looser process than it currently has. It won’t have the specs, won't know exactly what it should achieve in the first month. So, trying to put milestone targets around it is impossible. Trying to fit a new business model that is unknown, into a rigid stage-gate process won’t work.

The only way is to follow the process a start-up entrepreneur and a VC would follow: Are we making progress? Have we made the progress we'd like to achieve? Given the activities that we've done, what have we learned? What do we know now? And where we are now given what we know, are we on the right trajectory or do we need to pivot? “So, the process is much looser, it will require much more experimentation, it means you will have to tolerate a lot more failure,” says Hutchison-Krupat “It's a different process, but it doesn't mean that it doesn't have a place within a large corporation.”

AI, machine learning and big data are becoming important tools for innovators. However, Hutchison-Krupat considers them as an input, not as the end. “AI and machine learning should be an input, but we have to remember that the important factor is the question you ask. And all of the different biases that are built into even AI.”

“A lot of the selection is about making sure that we uncover where the core tensions are among people within the organization, among our business, among our strategy, among what we're trying to do.” Algorithms and computational analysis, have a part to play but “the most important thing is to recognise, the spectrum of types of innovation, and the spectrum of processes that need to be followed, and applying the right ones at the right time, and with the right matching,” concludes Hutchison-Krupat.