One characteristic of the entrepreneurial organization is that it successfully implements enough creative ideas to make a surplus of fruitful opportunities for all its people. For example, one of the US’s most successful furniture companies, Herman Miller, which is full of innovating teams, has grown and avoided almost all downsizing despite frequently changing market conditions.
The need to get rid of good employees is almost always a symptom of an earlier failure to nurture the entrepreneurial teamwork within the organization. In this day and age it takes a pretty steady stream of innovation and continuous improvement for any organization just to stay in place. To get ahead, both individuals and organizations need to anticipate and direct change, and learn from it. This requires that the people doing the work take responsibility for improving it, using all the information and experience they can muster.
Many organizations big and small are still able to generate enough new products and services to create new jobs — at least as fast as the old ones are destroyed through automation and obsolescence. 3M’s internal entrepreneurs or “intrapreneurs” generate so many new products that 30% of their sales are new within the last five years. 3M now has 60,000 products and they keep growing.
Innovation isn’t just a matter of creativity, because in any company people know far more about how to make things better than we see implemented. Innovation depends on people who approach their work like an owner/entrepreneur, even if employed in a big organizations, to turn more of the good ideas into realities. Without a wide distribution of entrepreneurial energy, without many people in many different teams figuring out a piece of the larger dream and making it happen, corporations get stuck in old ways, age and die.
Oticon, the highly successful Danish hearing aid manufacturer, was aging and dying when the company was turned upside down, and the employee choices became the new management structure. Now employees volunteer for tasks and projects all over the company, sometimes working from several teams and learning many skills that add up to whole-business effectiveness. They have dissolved bureaucracy by establishing a voluntary network within the organization based on the internal market choices of people and teams. And since becoming more entrepreneurial the company’s profits have grown sixfold in two years.
An entrepreneurial organization is organized around teams that function as small businesses nested and networked together. These small businesses teams choose and work out exchanges between themselves and with others outside, whether as customers or collaborators, and greatly speed up the process of innovation. It normally takes a North American automobile company five or more years to develop a new car. The Chrysler Neon team did it in just 31 months. The secret was a highly entrepreneurial new product team, comprised of people from all the different functional areas of the organization, empowered to make most of the decisions themselves.
However, the bulk of the teams in any large organization are not directly creating a new product for customers; they are providing services to others within the organization who use those service to provide what the final customer wants. Teams provide accounting, market analysis, product design, information technology, maintenance, telephones, components, transportation, raw materials and so forth. The effectiveness of these services determines the overall effectiveness of the organization. How do you keep teams with internal customers from wasting the organization’s resources? Hierarchical control isn’t subtle enough. A strongly free internal market can discipline a network of teams without relying on hierarchical control.
At AT&T, PR functions were traditionally delivered either by a dedicated PR staff within a division or provided by the corporate PR group. Then Jerry Santos experimented with user choice. A small group called PR Creative Services was set up an allowed to sell its service in competition with the main corporate PR function. Their internal customers only pay when they use the service. The pressure of having to sell their services rapidly lead to a “can do” attitude and the group motto, “What the customer wants when they want it.” In setting themselves up as an internal business rather than a traditional staff group has so sharpened their ideas of service that the group is growing at a time when many staff activities in AT&T are downsizing. Marilyn Laurie, AT&T senior vice president of public relations says:
Despite unrelenting cost cutting throughout our business, Creative Services has kept a healthy balance sheet and has grown to meet demand. We’re applying the lessons we learned through Creative Services to the way we manage and evaluate work throughout AT&T public relations.
When your customer has the choice whether to use your services or not they get even more attention than the boss, because in the long run what the boss thinks will be determined by whether or not your customers use your services. The key to making an organization externally focused is to provide internal choice so those groups serving customers can get what they need to do it well.
Bureaucratic management evolved so the few could direct the work of many, with rules and practices to reduce rather than increase the initiative and creativity of the majority. A tale we have heard in a seemingly well-managed corporations that is not unusual:
When I come to work in the morning, I take off my brain, hang it on that hook over there and put on my hard hat. When I leave at night my brain goes back on and my hard hat hangs on the hook. At night I am running an entrepreneurial garbage collection business. I’m already making more at night in four hours than I do during the day in eight. My boss will be so surprised when I tell him why I am quitting, because he hasn’t even noticed that I have a brain. In fact he wouldn’t know a good idea or employee initiative if it walked up and bit him.
The most powerful single tool for replacing bureaucracy with entrepreneurship is the discipline of a free market system. Markets tend to coordinate work more effectively and distribute responsibility more widely.
To liberate an economy we privatize inefficient government monopolies and open the door to competition. Cost effective entrepreneurs offer levels of service and price that force the old bureaucracies to become more cost effective and customer focused. This lesson applies just as well inside corporations and government agencies as it does in national economies.
In a bureaucratic corporation, if you want something manufactured you have to go to the manufacturing function. If you want it sold you must use the designated sales force. Bureaucratic systems are based on the assumption that establishing monopolies of power over functions, products and services, markets, and technologies is the most efficient way to promote innovation and change. But when we think of what we know of monopoly and the complacency, bloat , and stagnation it generally brings about, it seems foolish to believe that structures based on monopolies of power will outperform systems based on freedom, choice, and competition. Why then do most organizations act as if monopoly is best. Often it is because they cannot see any alternative to hierarchy except when there is a crisis. Then we see choice and internal freedom blossom.
Early in the AIDS crisis the New York Blood Bank realized they had to keep information on each pint of blood with far greater detail and accuracy than ever before. The consequences of a single mistake could easily be death. They needed a computerized tracking system — and they needed it right away.
They asked the Medical Products Department of DuPont for help. Medical Products went to DuPontÇs corporate Information Systems group for help, but they couldnÇt respond in time. Then they discovered a small software group within another part of DuPont that could build the system fast.
Part of DuPont’s massive fibers operation called IEA had learned how to use a new technology called case tools to write software much faster. Using this new technology IEA produced what The New York Blood Bank needed in just 90 days.
As IEA’s reputation for quick practical solutions using the new technology spread, other departments inside DuPont with their own crises came to them for help. But the Fibers Department could not go on subsidizing the needs of other departments. To fund the rapid growth of this new technology IEA needed a system for collecting revenue from other divisions and bringing it to the bottom line of the Fibers Department.
With corporate support, IEA was soon operating in what we call the “free intraprise mode.” Corporate finance helped the group quickly develop an effective accounting system for billing customers in other departments. Their internal and external customers had other choices for getting software, so whenever IEA was selected it was because they offered superior cost effective service.
By 1988, IEA was generating enough revenue to employ 120 people. They provided cost-effective software development to a number of departments and drove the rapid spread of a new and useful technology throughout the company. This technology would not have spread as fast had DuPont allowed only one source of information services technology in the company. A single source would have defended the old way they were familiar with and asked people with software needs to wait their turn. Many transfusion patients would have died unnecessarily.
The basic principles for creating an entrepreneurial organization are known to all of us. We live in the free enterprise system. To create entrepreneurial organizations we only have to recreate the freedoms and institutions of the free enterprise system inside the organization.
Ten Steps to an Entrepreneurial Organization
1) Give users of internal services a choice of more than one internal vendor.
2) Give employees the security of something akin to ownership rights in the internal intraprises they create, as well as the larger corporation.
3) Demand and engender truth and honesty, marketplace feedback and marketplace discipline, to support widespread decision-making.
4) Give intrapreneurial teams responsibility for their own bottom line even if they are subsidized — as a profit center rather than a cost center.
5) Allow many options and diversity in personnel, in jobs, in innovation efforts, alliances, exchanges.
6) Provide extensive training and education, and safety nets, so employees can develop and take risks as their organization develops.
7) Create an internal “bank account” for every internal enterprise.
8) Streamline systems for registering internal enterprises so they have standing in the corporation..
9) Establish a system for registering agreements and contracts between internal enterprises, so that people can give their word and trust the system.
10) Establish a justice system for adjudicating disputes between internal enterprises and between employees and enterprises.
These are the kind of structures necessary for a productive and ethical marketplace, just as essential to internal markets as external national markets. Yet markets will never be enough. Markets have a logic of their own which does not necessarily represent either human priorities or global priorities. Widespread participation in planning and decision-making is essential, as are guarantees of egalitarian and ethical practices. When the stakes are high enough, and the goals worthwhile and visionary, everyone can be proud to be an owner-director of their own small business-within-a-business. By being part of a larger network, each group can make a big difference.
As numerous social institutions are losing influence — some of our families, communities and churches – it may be through the workplace that many of us pursue higher human aims, and model some routes to a humane and sustainable future. By applying simple principles of democratic freedoms and market disciplines to the workplaces, we may all of us together be able to collaborate in changing the world.
The nations most successful in approaching the future depend on free markets, guaranteed rights, education, and limited social supports. Oddly enough, in business organizations, which owe their existence to structured free markets, the most controversial item in this list of democratizing principles is free markets — and yet we know that efficiency, prosperity, and heightened levels of responsibility are correlated with the opportunities and demands of free markets.