Achieving profitable organic growth expectations is more challenging than ever before – changing markets, customer, and shareholder expectations, new players entering the market, the pace of innovation, and the potential for brand loyalty to flip in the blink of an eye.
A McKinsey survey confirmed that 86% of senior executives know how critical innovation is to competitiveness and 80% believe their business models are threatened by disruption. Yet, less than 10% felt confident in their organization’s ability to innovate internally or use and engage partners to grow and increase the elasticity of their brands.
And we know that the barriers to corporate innovation can be endless – culture, bureaucracy, risk profile, knowledge and capability, cash flow, and the press for quarterly earnings performance, to name a few. In fact, the business history books tell many stories of companies that have grown big while investors grew more conservative, and employees became risk-averse in fear of losing jobs. Think of companies like Borders, Pan Am, Blockbuster, and our favorite department stores like Lord & Taylor and Bamberger’s.
Applying entrepreneurship principles and investing in new models with outside partners (like early-stage companies) are powerful answers to the challenge of accelerating growth and increasing brand health through innovation. Take Netflix as an example of a disruptive company that started as an online, movie-rental company that pivoted to a subscription-based, DVD-rental model and then to a streaming entertainment service. When getting the ball rolling on original content (e.g., House of Cards, Orange Is the New Black), Netflix partnered with new and established studios like Media Rights Capital. Today, the Netflix brand is known equally for streaming our favorite shows as it is for its original content.
Wait, stop! Corporate entrepreneurship?
Corporate entrepreneurship means creating new business models in an already well-established organization. While it may sound like an oxymoron, as a coined term, it’s been around since the 1970s and has been extensively studied by academics, written about in primary research, books, articles, and educational programs have been designed for undergraduates, graduates, and executives. MIT’s Wolcott & Lippitz defined corporate entrepreneurship as:
“The process by which teams within an established company conceive, foster, launch, and manage a new business that is distinct from its parent company but leverages the parent’s assets, market position, capabilities, and financial resources. It pairs external teams, early-stage companies, and research institutions with internal teams and resources to create new business models.”
Formal and informal corporate entrepreneurship can happen at the enterprise, business, functional, regional project, or individual levels depending upon the needs, goals, individuals, and the urgency to strengthen the company’s financial performance, corporate, product and employment brands, and long-term competitive position. Researchers Tseng and Tseng suggest that corporate entrepreneurship strengthens a company’s success profile (versus entering straight into a mergers-or-acquisition) by encouraging new behaviors – proactivity, risk-taking, and innovation productivity.
Current business operating realities can be headwinds
Aligning strategy, entrepreneurial-driven innovation, and business cases requires different skills, systems, and support. Doing it right requires access to new innovation, change in culture including greater transparency, and risk tolerance, rewards and incentives, a willingness to extend the brand, and a balance between new ways of working and the current way that has advanced the company thus far.
Established organizations already have fixed standards, systems, and structures in place, and striking the balance between respect for the current and passion for the future is essential. Corporate entrepreneurs, or employees with support to innovate for the benefit of the company, are often frustrated by these fixed approaches including:
Preservation of the status quo, fear and threat of change, silos and political factions, and the amount of stakeholder engagement required to move new models forward because they slow down corporate innovation and threaten competitiveness.
This is even true of arguably the most famous story of corporate entrepreneurship, breakthrough innovation, and game-changing brand building – the Post-It note. In 1968, 3M researcher, Spencer Silver, researched a durable adhesive for aircraft application. A mistake led to a new adhesive that was weaker, could stick to certain surfaces and be peeled off without leaving residue and be reused. It wasn’t until 1977 that 3M commercialized the Post-It note in 4 cities (to slow sales) and committed to educating consumers on the value of the product.
Corporate entrepreneurship and evolving a brand in line with these new behaviors are changes – and changes can be exciting, scary, frustrating, and satisfying. It requires a lot of patience and empathy, a delicate balance between respect for legacy and urgency for new. There will be confusion, inertia, and hurt relationships from opaque strategic direction and financial resources, constant pull for short-term results, and threats to incentives and compensation.
Make the individual corporate entrepreneur the hero, not the villain
At the end of the day, innovating and evolving brands within this construct largely comes down to the individual corporate entrepreneur – and a recognition that her strengths will be her individualist mindset and thought-leading approaches in corporate cultures that urge collective and unified decision-making.
Our corporate entrepreneur, Barb, will selectively temper her competence and expertise to collaborate, obtain sponsorship, and share the limelight – to varying degrees of self-satisfaction. She will build her personal leader brand and earn accolades amongst individuals and groups who believe in change. Barb will experience a hit during her annual performance review with feedback that suggests she is moving faster than the organization can handle, and she will question herself.
Barb should be celebrated as a hero, not villainized as a threat to the status quo. According to Tsang and Tsang (2019), “companies that abandon the individual when glorifying the team may not produce much entrepreneurship”. Here’s how to set Barb, and other corporate entrepreneurs like Barb, up for success:
1. Be clear with her about her level of resource authority and the organization’s expectation of how corporate entrepreneurship will operate and report. Barb can then mediate her own expectations – and as part of her own personal leader brand building, determine how much of her personal identity she must retain and what she is willing to compromise in order to get along inside of the organization.
2. Help her make choices about her approach to corporate entrepreneurship. Reflecting upon the Wolcott and Lippitz four models for corporate entrepreneurship is a place for her to start, and help her decide upon the mode that she can work within and be successful:
- Enabler: Organization provides funding and attention to specific projects she brings forward;
- Opportunist: Organization is not deliberate in its approach. She is to use her networks to identify opportunities and win favor for the ideas internally;
- Producer: Organization empowers her to establish a new group and removes operating obstacles;
- Advocate: The organization asks her to serve as an evangelist for corporate entrepreneurship and expects business units to fund activity.
3. Provide structures and systems required for her to manage and collaborate. It’s essential for Barb to manage a pipeline of new opportunities, stay up to date on the latest trends so that she can serve as that internal thought leader, evaluate new models presented by partners and early-stage companies, advance business cases through a clear decision path, consistently report results, and most importantly, collaborate and bring others along with her.
Inspire Global Ventures surveyed corporate entrepreneurs in various functions in well-established U.S. organizations and nearly all cited the lack of new structures and systems as top reasons for stopping or slowing down entrepreneurial-driven innovation particularly with outside partners and early-stage companies.
Structures include respect for hierarchy and approaches to stakeholder engagement; standard work for commercializing new innovation; decision-making and approval processes; levels and limits of authority; and stated and unstated cultural norm of acceptable actions and behaviors. Systems are technologies that manage and track engagement; create transparency and foster collaboration; provide data-driven insights; and offer standards for business cases and reporting.
4. Pair her with brand strategy and investor relations so that corporate entrepreneurship can contribute to the health and evolution of the corporate brand and employee value proposition. Barb will have new and interesting narratives and stories about company innovation that can prove invaluable to brand building and investor relations efforts. Show us a company that doesn’t have “innovative” as a brand attribute.
This will also bolster Barb’s confidence, allow her to advance other team members as part of the process, and ultimately reinforce both entrepreneurial behavior and company reputation as forward-thinking and entrepreneurial.
Stakeholders are paying attention
Tseng and Tseng (2019) assert that companies have a responsibility to their stakeholders to practice corporate entrepreneurship. A 2019 study conducted by researchers from the Universidad Carlos III de Madrid (UC3M) and the Universidad Autónoma de Barcelona (UAB) affirms that the pressure from financial analysts significantly influences public company innovation activity and increases CEOs’ incentive to invest and find more efficient ways to innovate.
And, guess what? Those more efficient ways work.
An Accenture Labs study confirmed that companies that practice corporate entrepreneurship including investing in early-stage technologies grow five times faster than those that don’t engage. Why? Because innovating outside of the four walls of the company with early-stage companies can increase speed and efficiency, and either disrupt well-established organizations or inspire them toward corporate entrepreneurship (and with scale comes a healthy return on investment).
It’s generally understood that organizations need to embrace new and breakthrough approaches to business model innovation if they want long-term prosperity. If your organization isn’t ready, perhaps exploring one of the hundreds of traditional and non-traditional academic paths available is the way to go – one even promises to “turn the 90% failure rate of corporate innovation initiatives on its head.” Though taking a good hard look in the mirror might be a more effective path.
Cover image source: Reza Rostampisheh