CHAPTER 2 The Entrepreneurial and Intrapreneurial Mind

The Entrepreneurial and Intrapreneurial Mind THE ENTREPRENEURIAL PROCESS Nowadays, entrepreneurship is largely associated with the economic development of countries. To better explain this process AML, in the frame of FEMME project, has identified four main phases transversal to any entrepreneurial system: 1. Identify and evaluate the opportunity: This process begins with the identification of an opportunity and analysis of its potentiality. Through evaluations of market needs, competition, and the product life cycle, it is important to test the idea or concept of business with potential customers, assessing their willingness to purchase the product or service. This evaluation will allow the entrepreneur to formulate conceptions about the size of the market and how it is (growing, stable or stagnant), to know the competition, and to evaluate the strengths and weaknesses, threats and opportunities. 2. Develop a business plan: The business plan will summarize the entire business, addressing points such as strategy, market, competition, critical success factors, economic and financial analysis, investments, expenditures, financing, among others. This planning will be of extreme importance for the success of the business, since it is fundamental that the entrepreneur plans the actions to be carried out and outlines strategies to follow. 3. Determine and capture required resources: The entrepreneur’s planning and negotiation skills will be critical at this stage to determine what resources are needed for the implementation of the business, as well as for its subsequent funding. The success of this phase is very dependent on the previous phase. Funding can be obtained through various sources, such as bank credit, microcredit, business angels, state aid, venture capital, personal savings, family and friends, among others. 4. Managing a Business: After identifying a business opportunity, developing a business plan in detail, and capturing the resources needed to start activity, the entrepreneur debates the administrative and management issues throughout the process. At this stage, the entrepreneur must identify its limitations, recruit its work team and plan the actions, in order to combine efficiency and effectiveness, leading a business to success. Although the four phases of the entrepreneurial process are represented sequentially, they are not immutable. One entrepreneur may not complete one of the phases and immediately start the next, or even have to repeat several times a set of phases to reach the last one. 1

MANAGERIAL/ADMINISTRATIVE VERSUS ENTREPRENEURIAL DECISION MAKING Entrepreneurial management is distinct from traditional management. The difference between the entrepreneurial and managerial decision making can be viewed in the following dimensions 1. COMMITMENT TO OPPORTUNITY In general the entrepreneurial domain is revolutionary with short duration while the managerial domain is evolutionary with long duration The entrepreneurial domain is pressured by the need for action and has a short time span in terms of opportunity commitment hence it is fast to act on worth opportunity while the managerial domain is slow to act on opportunity and once the action is taken the commitment is usually for a long time span, too long in some cases. 2. COMMITMENT TO RESOURCES An entrepreneurial is used to having resources committed at periodic intervals that are often based on certain tasks or objectives being reached. The resources required are usually difficult to obtain, thus forcing the entrepreneur to maximize any resource used. In managerial domain the commitment of resources is for the total amount needed and managers normally receive personal rewards by effectively administering the resources under the control 3. CONTROL OF RESOURCES The manager/administrative is rewarded by effective resource administration and has a drive to own or accumulate as much resources as possible. The pressure of power, status and financial reward cause the manager to avoid periodic use of resources while The entrepreneur is under pressure of limited resources and strives to achieve periodic use of the resources needed. 4. MANAGEMENT CONTROL/SHARED VALUES AND NORMS/MANAGERIAL STRUCTURE In managerial domain the organization structure is formalized and hierarchical in nature. Reflecting clearly defined lines of authority and responsibility while the entrepreneurial domain has a flat organization structure with informal networks throughout due to the desire for independence. 5. STRATEGIC ORIENTATION The entrepreneurial strategic orientation depends on his or her perception of the opportunity while on managerial domain the strategic orientation involve the use of planning system. 2

INTRAPRENEURSHIP Intrapreneurship is the act of behaving like an entrepreneur while working within a large organization. Intraprenuers are usually highly self-motivated, proactive and action- oriented people who are comfortable with taking the initiative, even within the boundaries of an organization, in pursuit of an innovative product. Intrapreneurship refers to entrepreneurship within an existing organization or business structure. Existing businesses have the financial resources, business skills, and marketing and distribution system to commercialize innovation successfully. Often the bureaucratic structure, emphasis on short-term profits, and structured organization inhibit creativity. Some corporations have tried to establish an Entrepreneurial spirit in their organization, some in the form of strategic business units (SBUs.) It is practiced by employees within an established organization using a systemized business model. Employees, perhaps engaged in a special project within a larger firm are supposed to behave as entrepreneurs, even though they have the resources and capabilities of the larger firm to draw upon. The term intrapreneurship refers to a system that allows an employee to act like an entrepreneur within a company or other organization. Intrapreneurs are self-motivated, proactive, and action-oriented people who take the initiative to pursue an innovative product or service. An intrapreneur knows failure does not have a personal cost as it does for an entrepreneur since the organization absorbs losses that arise from failure. An entrepreneur takes substantial risk in being the owner and operator of a business with expectations of financial profit and other rewards that the business may generate. On the contrary, an intrapreneur is an individual employed by an organization for remuneration, which is based on the financial success of the unit he is responsible for. Intrapreneurs share the same traits as entrepreneurs such as conviction, zeal and insight. As the intrapreneur continues to expresses his ideas vigorously, it will reveal the gap between the philosophy of the organization and the employee. If the organization supports him in pursuing his ideas, he succeeds. If not, he is likely to leave the organization and set up his own business. 3

CORPORATE AND INTRAPRENURIAL CULTURE (CORPORATE VS INTRAPRENEURIAL CULTURE) CORPORATE AND INTRAPRENURIAL CULTURE Corporate culture/traditional culture is the environment of a particular organization. Corporate culture features: i. The typical corporate culture has a climate and reward system that favors conservative decision making ii. Emphasis is on gathering large amounts of data as the basis for rational decision iii. Risky decisions are often postponed until hard facts are found or consultant is hired. iv. Often there are so many approvals required that no individual feels personally responsible for the firms projects. Intraprenurial culture is the environment of an entrepreneurial oriented organization. Many firms attempts to create entrepreneurial culture and rewards. It encourages in house innovation and has a flat organization structure instead of hierarchical structure. Features : i. New business venturing ii. Innovativeness iii. Self renewal iv. Proactiveness DIFFERENCE BETWEEN CORPORATE (TRADITIONAL/NORMAL FIRM CULTURE) AND INTRAPRENURIAL CULTURE Goals On traditional corporate culture, the guiding direction in a traditional corporate culture are: (I) Adhere to instructions given (II) Do not make mistakes (III) Do not fail (IV) Do not take initiatives but wait for the instructions (V) Stay within your turf and protect your backside. (VI) Such restrictive environment is not conducive to creativity, flexibility, independence and risk taking The goals of intraprenurial culture are very different which are: (I) Develop vision, goals and action plans. (II) Be rewarded for action taken (III) Suggest, try and experiment (IV) Create and develop (V) Take responsibility and ownership. 4

Shared values and norms The traditional corporate culture is hierarchical in nature with established procedures, lines of authority and control mechanism. The culture of intraprenurial firm is different to traditional corporate, instead of hierarchical structure, it has a flat organizational structure with networking, teamwork, sponsors and mentors. Close working relationship help to establish atmosphere of trust that facilitate accomplishment of visions. Type of individuals and management styles on motivational side: Traditional managers are motivated primarily by promotion and typical corporate rewards. Intrapreneurs thrive on independence and ability create. Time orientation Traditional managers emphasize the short run, entrepreneurs Intraprenuers emphasize on the long run THE GUIDING PRINCIPLE IN A TRADITIONAL CORPORATE CULTURE 1. Follow instruction given 2. Do not make mistakes 3. Do not fail 4. Do not take initiative 5. Stay within your turf and protect your backside THE GUIDING PRINCIPLES OF ENTRAPRENEURS 1. Develop vision, goals and action plans. 2. Be rewarded for actions taken 3. Suggest, try and experiment 4. Create and develop 5. Take responsibility and ownership ORGANIZATIONAL CULTURE Corporate  Climate/Reward System Favors Intrapreneurial Conservatism  Follow Instructions, No Initiative  Hierarchy Of Authority  Develop Vision, Goals, & Plans  Suggest, Try, Experiment  Flat Organizational Structure- Networking & Teamwork 5

CORPORATE CULTURAL NORMS/VALUES Fragmented INTRAPRENEURIAL Instruction Whole Controlled Vision Outer-Directed In Control Alienation Inner-Directed “Chores” Responsibility Defined Limits Enthusiasm/Motivation Interference Space/Freedom Distrust Trust Expendable Belief In People Limiting People Expandable Growing People CAUSES FOR RECENT INTEREST IN INTRAPRENEURSHIP Interest in intrapreneurship has resulted from events occurring on social, cultural, and business levels. •There is an increasing interest in \"doing your own thing.\" Individuals frequently desire to create something of their own. They want responsibility and want more freedom in their organizations. •Intrapreneurship is one method for stimulating and capitalizing on those who think that something can be done differently and better. •Hyper competition has forced U.S. companies to focus on new product development and increased productivity. INTRAPRENEURIAL ACTIVITIES i. New business venturing refers to the creation of new business within an existing organization. ii. Organizational innovativeness refers to product and service innovation with an emphasis on development and innovation in technology. iii. Self-renewal reflects the transformation of organizations through the renewal of the key ideas on which they are built. iv. Proactiveness includes initiative and risk taking, as well as competitive aggressiveness 6

CLIMATE FOR INTRAPRENEURSHIP In establishing an Intrapreneurial environment, certain factors and leadership characteristics need to be present. The first of these is that the organization operates on the frontiers of technology. Since research and development are key sources for new product ideas, the firm must operate on the cutting edge of technology and encourage and supporting new ideas instead of discouraging them. Second is experimentation, or trial and error, is encouraged. Successful new products usually do not appear fully developed; instead they evolve. A company wanting to establish an intrapreneurial spirit has to establish an environment that allows mistakes and failures. Without the opportunity to fail, few corporate intrapreneurial ventures will be developed. Third an organization should make sure that there are no initial opportunity parameters, such as turf protection, inhibiting creativity in new product development. Fourth, the resources of the firm need to be available and easily accessible. Often, insufficient funds are allocated not to creating something new but instead to solving a problem that have an immediate effect on the bottom line. Some companies, such as Xerox, 3M, and AT&T have established separate venture capital areas for funding new internal ventures. Fifth a multidisciplinary team approach needs to be encouraged. One key to Intrapreneurial success is the existence of \"skunkworks\" involving key people. Developing the needed team work for a new venture is further complicated by the fact that a team member’s promotion within the corporation is related to performance in the current position, not in the new venture. The corporate environment must establish a long time horizon for evaluating the success of the overall program. Sixth the spirit of intrapreneurship cannot be forced on individuals; it must be voluntary. Most managers in a corporation are not capable of being successful intrapreneurs. Those who do emerge from this self selection process must be allowed the latitude to carry a project through to completion. An intrapreneur falls in love with the new venture and will do almost anything to ensure its success. The seventh characteristic is a reward system. The intrapreneur needs to be appropriately rewarded for the energy and effort expended on the new venture. An equity position in the new venture is one of the best motivational methods. Eight a corporate environment favorable for intrapreneurship has sponsors and champions throughout the organization that supports the creative activity and resulting failures. Finally the intrapreneurial activity must be whole-heartedly supported by top management. 7

INTRAPRENEURIAL LEADERSHIP CHARACTERISTICS There are certain individual characteristics needed for a person to be successful Entrepreneurs, including: 1. Understanding the environment 2. Being visionary and flexible 3. Creating management options 4. Encourage teamwork while employing a multi-disciplined approach 5. Encouraging open discussion 6. Building a coalition of supporters, and persisting EVALUATING INTRAPRENEURSHIP PROPOSALS BARRIERS TO INTRAPRENEURSHIP i. Inherent Nature of Large Organizations ii. No Long-Term Commitment iii. Lack Of Autonomy For Decision Making iv. Lack of Intrapreneurial Talent v. Inappropriate Compensation Methods vi. Constrained Environment 8

ESTABLISHING INTRAPRENEURSHIP IN THE ORGANIZATION To establish an intrapreneurial environment, the organization must implement a procedure. This can be done internally, but it is easier to use an outsider to facilitate the process. This is particularly true when the environment is very traditional. There are some steps involved in it. Step 1: The first step is to secure a commitment to intrapreneurship in the organization by top, upper, and middle management. Without top management commitment, the organization will never be able to make the necessary changes. Once top management has committed to intrapreneurship for a sufficient length of time, the concept is introduced throughout the organization. This is effectively accomplished through seminars. General guidelines need to be established for intrapreneurial venture development. Next, intrapreneurial leaders need to be identified, selected, and trained. Step 2: Ideas and general interest areas should be identified, along with the amount of risk money that is available. The overall expectations and target results should be established, specifying time frame, profitability requirements, and impact of the organization. A mentor/sponsor system needs to be established. Step 3: A company needs to use technology to make itself faster and more flexible. Technology has allowed small companies to act like they are big ones. Large companies can use technology to make them responsive and flexible. Step 4: The organization can use a group of managers to train and share their experiences with other members. These sessions should be conducted one day per month for a specified period of time. Information about intrapreneurship and about the company’s specific activities should be well publicized. Step 5: The organization needs to develop ways to get closer to its customers by tapping the data base, hiring from smaller rivals, and helping the retailer. Step 6: An organization must learn to be more productive with fewer resources. With middle management cutbacks, more control has been given to lower levels of the organization. The span of control should be increased. Step 7: The organization needs to establish a strong support structure. Because they do not immediately affect the bottom line, intrapreneurial activities can be overlooked and receive little funding. These ventures require flexible, innovative behavior, with the intrapreneurs having total authority over expenditures and access to funds. Step 8: The support must involve trying the rewards to the performance of the intrapreneurial unit. This encourages team members to work harder and compete more effectively. The equity portion of the compensation is particularly difficult to handle. Step 9: The organization needs to implement an evaluation system that allows successful units to expand and unsuccessful ones to be eliminated. 9