The essence of corporate entrepeneurship within the adaptive cycle
- 1 Introduction
- 2 Corporate entrepreneurship
- 3 Similarities and difference between CE and AC
- 4 Possible effects of CE on AC
- 5 The Four Models
- 6 Examples of CE in organizations
- 7 References
The Adaptive Cycle (AC) shows the processes which any organization goes through or will be during its existence. We believe that Corporate Entrepreneurship (CE) exists within the AC and positively influences its phases: Equilibrium, Crisis, New Combinations and Entrepreneurship. We also describe the similarities between the AC and CE, elaborate on different forms and approaches of CE implementation, and give the examples when CE has positive effect on the development of the organizations.
Corporate entrepreneurship (CE) – is the process by which teams within an established company conceive, foster, launch and manage a new business that is distinct from the parent company but leverages the parent’s assets, market position, capabilities or other resources. CE can be compared to some parts of the Adaptive Cycle (AC). It starts with the organization when it goes from right “New combinations” phase to the left “Entrepreneurship” phase which can be seen in figure 1. By seeking for new business opportunities, an organization can initiate his own kind of CE. Suitable options for innovation will be considered as a possible new business to be explored. The organization will transform the new combination to a more stable phase. The innovation will be further developed and improved what leads to the equilibrium phase.
Similarities and difference between CE and AC
There is a clear connection between the AC and CE. We describe the similarities and differences between CE an AC to make this topic more clear.
The similarities between CE and AC:
- ‘’’Creating a base for new business.‘’’ Organizations will use CE for the creation of new business, an example is Google’s 20% time, where employees are allowed to spend 20% of their work time on projects they like. 50% of Google’s products are started as a 20% project, like Gmail.
- ‘’’Hopeful about future, the uncertainty remains.‘’’ The results of CE and AC are uncertain. This is also why large companies choose to implement many different projects. The chance of success will rise with this approach.
- ‘’’Existing resources & capabilities.‘’’ Projects which are created by CE and within AC both exist out of own resources and capabilities.
- ‘’’Options to fight for survival.‘’’ CE and AC both use the principle of entrepreneurship to create new business and survive.
- ’’’Hopeful about the future is replaced by confidence in the future’’’ CE and AC could both start multiple new project within an existing organization. Every single project has the potential to be a success. The opportunity of surviving a crisis increases for an organization when there are multiple projects started.
Possible effects of CE on AC
The similarities between the Adaptive Cycle and Corporate Entrepreneurship show how close they are connected with each other. That’s why CE can influence AC and have positive effect on the organization. Here are the effects we found:
- ’’Creating a risk’’’ Organizations who stimulating CE might create a crisis to initiate the innovation.
- ’’’CE exists through the whole adaptive cycle’’’ CE can exist when a company is in an Equilibrium, Crisis or New combinations phase. It is not limited to the Entrepreneur phase of AC. This has some advantages. For example by exploring the new combination when an organization is in the equilibrium phase, and such new combinations of the CE initiatives prevent a crisis for the whole organization.
- ’’’CE is more controlled, targeted and predictable’’’ When an organization plans the innovations it gains control over this process. This is less when a company is in a crisis phase because innovation is limited by time that is over for the organization needs to stop his activities.
- ’’’’Size of the impact of a Black Swan’’’ The size of an impact due by a Black Swan could be smaller. Organizations which explore new options and possibilities long before a Black Swan strikes will be prepared. Switching to another core business will become more easy, which potentially reduces the impact of a black swan.
- ’’’’Negative impact of CE’’’ The ROI of CE projects is unknown, resources might be spent and have a negative impact on financial health of an organization. Less resources means less fund in a crisis situation and potentially less abilities for new entrepreneurships. This is why the management of CE projects is important.
- ’’’Continual and temporary entrepreneurship’’’ AC limits entrepreneurship to one phase, the application of CE is mostly a continual process in an organization.
The Four Models
As shown previously corporate entrepreneurship can be really positive asset to the organization in preventing of minimizing damage from Black Swans and crisis. Organization is always free to choose their own strategy against those threats, but if they choose to implement CE next models can help to choose different forms and approaches of CE implementation. It can help companies to implement corporate entrepreneurship in forms that more suitable for them. Corporate entrepreneurship models have two dimensions:
- Organizational ownership: Who has primary ownership for the creation of new businesses
- Resource authority: Is there are funds in the organization for corporate entrepreneurship
When a new company is formed, this is commonly to enter a new or improve upon a current market. This is a classic example of the role of an opportunist. But this does not always have to be the case. By using corporate entrepreneurship, new markets could be entered. Big companies often find themselves very good at what they do, but as the adaptive cycle states, this will only last for a limited amount of time. This is why big companies also explore new markets for opportunities.
- Almost every new company begin as opportunists
- No organizational ownership and resources
- Driven by “project champions” - creating new businesses
- Works only in trusting corporate cultures that are open to experimentation
The enabler is a role that encourages their employees to come up with new ideas. This enables people to actively develop new concepts that lead to new services or products. This entrepreneurial spirit might cause the crisis phase to be shortened or happening at a later point in time. The organization allows for resources to be made available to give employees an easy access to this entrepreneurial aspect.
- Employees develop new concepts with support from senior management
- Resources and processes
- No organizational ownership
- People apply for funds not for an idea
The advocate is a role where funding is not an issue. The organization allows for employees to entrepreneur without financial limitations. This is usually triggered from the top of the organization. Therefore the board has a clear view of what is happening within the organization concerning corporate entrepreneurship.
- Funding isn’t an issue
- Budgeting the core group focused on Corporal Entrepreneurship
- Lead by a company veteran or model figure
- Highly depends on Senior Executive visibility and support (advocating)
The producer is a role that encourages business units to entrepreneur. This means that there is a dedicated team working on entrepreneurship. This role uses an established and focused aspect, giving it a relative stable source of innovation. It is considered to partially overlap with business units innovation.
- Establishing and supporting formal organizations
- High funding or active of business-units
- Encourage latent entrepreneurs and cross-unit collaboration
- Isolated project teams as threats to existing business units
- Critical points are credibility and trust
Examples of CE in organizations
Companies like 3M, Apple Computer, Anaconda- Ericsson, GE, Lockheed, Prime Computer, Toyota, Sony, Rubbermaid, United Artists and many called entrepreneurship as the secret weapon for success. They state that CE projects are essential for survival in business and through tough economic conditions. The four different models of CE which are previously described are applied to the cases. An interesting fact is that some cases could be related to multiple models.
Example: Google. 20% of their work time on projects that interest them and they think will beneﬁt Google and their customers. Examples are products such as Gmail, Google News, Orkut, and AdSense
Ken Kutaragi was working in the sound labs at Sony Corporation when he bought his young daughter a Nintendo game console. Ken observed his daughter playing with the new Nintendo game but he was displeased with the quality of the sound of the Nintendo game. Because of his training and experience in electronics Ken concluded that a digital chip, dedicated solely to sound, would significantly improve the quality of the Nintendo gaming system
Before Sony went in the game business there was an electrical engineer named Ken Kutaragi who worked for Sony as an consultant for Nintendo. Because he had strong beliefs on improving sound quality of the Nintendo game console. Ken Kutaragi developed the CD-ROM based system, but Nintendo didn’t show interest in this concept. Ken Kutaragi went with it to Sony and convinced them to enter the gaming business. While most of the senior management was against this idea, he was backed up by chairman Ohga. This resulted in a positive way; The PlayStation was a great success.
Judging how this form of entrepreneurship relates to our model we believe that this fits in well with the advocate. This is because this is a form on entrepreneurship that was highly dependent on a senior’s visibility and support.
Example: Lockheed Martin - Skunk Works
Skunk Works was one the earliest documented successful corporate entrepreneurship ventures. This company is part of the airplane manufacturer Lockheed Martin and is officially called Lockheed Martin’s Advanced Development Programs (ADP). It is one of the first documented successful examples of CE. The whole program started in 1943 with entrepreneur Kelly Johnson when he assembled with a hand-picked team of Lockheed Aircraft Corporation engineers and manufacturing employees the XP-80 Fighter jet. This was a secret project for the U.S. Army and took only 143 days to finish the build. Johnson had a strong influence on the program. The program was guided by “out of the box” and unconventional thinking, and broke with the traditional system which should slow them down, cost time and money and had a bad influence on innovation. Kelly created his own 14 rules about the work methods of Skunk Works and has been seen as the strong leader of the program. This makes the case of Skunk Works relate to the Advocate model of CE. There is also some kind of connection with the Producer model, only Skunk Works doesn’t active support the other business units of Lockheed Martin, so the connection with the Producer model is weak.
Example: American Greetings Corporation
"American Greetings Corporation, Inc. is the world's largest publicly traded greeting card company. It is based in Brooklyn, Ohio and sells paper greeting cards, electronic greeting cards, party products and electronic expressive content". When they wanted to get into the online greeting card business they set up an office in a separate building, on the same campus with a whole new environment, independent from American Greetings. They placed mostly creative people in this building who were thinking out of the box to develop new concepts. After they successfully accomplished the project, the online greeting card business was merged with the American Greetings Corporation. This was a big struggle for the employees who experienced the new method of working. Once you started entrepreneuring, it’s hard to work for a boss again. The case of American Greeting is very strong linked with the Producer model of CE. The upper management created a whole new environment where a new business was created with all kind of different projects. These new initiatives are in eventually merged in the existing portfolio of the organization.
- Guth, W. D., & Ginsberg, A. (1990). “Guest editors' introduction: Corporate entrepreneurship”, Strategic Management Journal, (Summer),11, 5-15.
- Robert C. Wolcott and Michael J. Lippitz. The Four Models of Corporate Entrepreneurship. MIT Sloan Management Review. Fall 2007, Vol.49, No.1, p. 76-79.