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Organizational Entrepreneurship

Introduction

There was a time when only a few companies use to sell either similar or same products or services in any particular market. The demands of potential customers were rarely sophisticated and the product life cycles were relatively long. This was true for most of the 20th century, throughout which, businesses usually operated as independent bodies.

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Each had their own products and markets, and there were a few constraints and relatively low level of competition. In such market conditions, organizations were required to have a business plan supported with a feasibility to start and run a successful business at best. A corporate strategy was necessitated only in the late 1970s onwards to stay ahead within a market (Orcullo, 2007).

However, it is not true anymore. The ever growing population has primed up the insistence for a wide range of products and services. The heightened demand has paved way for more and more businesses to enter markets, subsequently heightening the level of competition and increasing the concerns of businesses in outperforming others. Growing competition has fastened the market evolution, reducing the life cycles of products and services and made the prevailing business environment much more complex. All this has rendered entrepreneurial activities within organizations much more important. Without entrepreneurship, organizations in the modern business environment may often run into the shadows of nothingness. This essay discusses the organizational and managerial factors which influence the degree of innovation and entrepreneurial activity occurring within an organization. Firstly, this essay will discuss several theories regarding organizational life cycle and size that are relevant to their entrepreneurial tendencies. Moreover, it will discuss leadership and management styles that foster organizational innovation and creativity within organizations. Lastly, this essay will link these theories with practice through an extended example.

Defining Entrepreneurship

This part of the essay looks into some important definitions.

Creativity – “the ability to develop new ideas and to discover new ways of looking at problems and opportunities.”

Innovation – “the ability to apply creative solutions to problems or opportunities to enhance or to enrich people’s lives.”

Entrepreneurship – “the result of a disciplined, systematic process of applying creativity and innovation to the needs and opportunities in the marketplace.”

(Zimmerer and Scarborough, 2002)

According to Hisrich (2001) “Entrepreneurship is the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic and social risks, and receiving the resulting rewards of monetary, personal satisfaction and independence.” Nafziger (1997 and 2006) mentions that entrepreneurial activity involves coordinating production factors such as land, labor, and capital; making decisions under uncertainties; innovating; solving problems through creativity and fulfilling a market gap with an input.

Leadership and Management

Kanter (1988) contends that every successful change, innovation and developmental project is typically steered by a visionary leader who has done well in selling his ideas and vision to his subordinates. Similarly, leadership is also crucial in fostering an organizational culture that accumulates innovative ideas from down up i.e. from his/her subordinates. Leadership is the most important factor that fosters entrepreneurial culture within an organization. The literature regarding leadership has a general consensus upon several leadership styles namely: autocratic, democratic and laissez-faire leadership. Autocrat leader characterized as directing leaders who gather others towards their goal and vision. They are commanding in their directions and hardly accept any input from their inferiors. They tend to make decisions and try to solve problems relying upon their own expertise. The information typically flows in a top down way in one direction; from executives or top managers to subordinates. The management literature often perceives them as ‘narrow-minded and heavy-handed in their unwillingness to share power, information and decision making in the organization.’ (Lawrence and McDaniel, 2008 p. 162)

On the contrary, democratic or participative leaders share their decision making powers with those working with them and group members. They openly discuss problems and present option to others. They are consensual and consultative in their conduct. They seek consensus of all the stakeholders (or the majority) before making a final decision (Lawrence and McDaniel, 2008). They seek views and inputs of others while retaining their final say. Information flow always two directional i.e. from superiors to subordinates and vice versa (Hamilton, 2010).

Lastly, the laissez-faire leadership style empowers subordinates to set their own goals and make decisions accordingly. Laissez Faire is originally a French phrase that means ‘leave it be.’ (Arnold, 2008) This leadership style does not deliberate a specific direction and turns most of the authority to every individual/group. Leader rarely gets involved in business matters and delegates employees with all the authority. Employees are under obligation to achieve organizational goals without violating company policies.

Organizational Structures

Organizational structures often go with a hands and glove relationship with leadership and management styles. Organizations that are lead by autocrat and directive leadership often have a centralized, hierarchical structure. On the other hand, democratic leaders prefer a flat and decentralized organizational structure. It should be noted that various others factors may come into play in determining an organization’s structure. Generally, decentralized structures are favorable for analyzing new products, services, and processes, and are more likely to implement entrepreneurial endeavors as compared to centralized firms as “concentrated power often prevents imaginative solutions of problems.” (Thompson, 1969)

Organizational Life Cycle and Entrepreneurship

According to Greiner’s (1972), organizations have a history in terms of evolving and revolutionizing, a factor that impacts upon its entrepreneurial tendencies. Lessem (1989) contends that the development of organizational strategies is affected by stages that are akin to the developmental stages of human beings; what and where we are determines what we do and what we get out of our lives. Lessem (1989) presents a four stage life cycles model for organizations. These stages are: primal, rational, developmental and metaphysical.

The primal stage of development is typified by a youthful company which is grasping, learning, instinctive and entrepreneurial. It wants to explore and try everything that it gets its hands upon. The primal stage is similar to the early childhood stage in which babies try to grab almost everything – they are fearless and fascinated by everything. This reflects upon the contention that young companies are ‘success hungry’ and have a willingness to try anything in its pursuit. They are not scared of change. At the rational phase, organizations moved to the stage of reason with emphasis upon structure and order. Organization puts down procedures replacing gut instincts with intelligence. The management becomes intelligent by suppressing opportunism which eradicates mistakes by employing some tested methodological approaches. The next stage is the developmental stage where organizations renew themselves in face of a mid life crises situation when they seek to answer ‘what else is there?’ Organizations reflect upon their past, in their quest to find new directions. At the final metaphysical phase, transformation is likely to take place. Organizations become wise and try to define themselves through terms other than profit. Often moral and ethical issues run concurrently with material goals.

The entrepreneurial tendencies of an organization depend on where an organization is in its life cycle. An organization cannot pursue a strategy for a stage it hasn’t reached. “The age, size, resources, desire or fear inherent in an organization may cause it to or not allow it to act independently but rather behave in accordance with external or internal forces such that strategic management is ultimately deterministic.” It can be inferred from this theory that organization at the rational stage tend to be most entrepreneurial in their approach as they retain the exuberance of youth while have the rationality to eradicate mistakes through methodological approach. Lessom (1989) recognizes that organization can concurrently undergo several different stages. For instance, the marketing department or R&D of an organization can be deliberately kept at a primal stage to foster innovation and creativity. This sort of strategy can be pursued by large and old organization to infuse or retain entrepreneurial culture.

Firm Size and Entrepreneurship

It has been argued that organizational size also impact upon its entrepreneurial tendencies. The management literature is split between those who argue that large firms have advantage over small firms in pursuing entrepreneurship and those who contend otherwise.

Large firms are said to be more entrepreneurial because they have monopolistic powers which enable them to better realize the rewards of innovation. They are also in a better position to finance research and development internally. Internal financing is helpful in two ways. Firstly because in order to obtain external finance, firms are often required to disclose some information regarding their entrepreneurial projects, and secondly because internal financing provides better flexibility in achieving success in case of an exhaustive developmental process. Large firms can achieve scales of economies in research and development. They can better exploit the results of their research and spread the fix cost of innovation. Scale of economies can be achieved in the research and developmental process itself from a technological perspective as well as the productivity of the researchers Kaimien and Schwartz (1982) suggest that large research groups increase the chances of serendipitous discoveries. Interaction of colleagues having special familiarity with a problem at hands can be helpful in generating insightful solutions. Considering the advantages of large firms for their entrepreneurial tendencies, Nooteboom and Rothwell and Dodgson (1994) argue that the strengths of large firms are predominantly material namely; economies of scale and scope, easy access to cheap financial resources, ability to spread risks, better capacity to specialize in both human resource and well and technologies.

On the other hand, there are those who argue that large and monopolistic firms are less likely to innovate as they are less likely to be threatened by rivals (Scherer, 1980) or because the pursuit of new products may come at the cost of existing ones. Mansfield et al. suggests that large firms can often get entangled in longer chain of commands, managerial coordination inefficiency, and less flexibility. Firms may become too bureaucratic as they grow in size. Researches and other personnel within large firms may be less motivated to innovate due to lesser personal gains in comparison to smaller firms. Moreover, premature ideas can often get discarded and lost in the shuffle in large firms. Nooteboom and Rothwell and Dodgson (1994) content that the relative advantages of small firms in entrepreneurial pursuits are behavioral. For instance “greater innovation in management and labor, due to interwined ownership and management, and more variation and innovation in tasks of workers, tacit knowledge in unique skills, more efficient communications, and flexibility.” (Nooteboom, 1994)

Case Study: Google

A salient example of an organization that operates in a very complex environment and successfully fosters an innovative organizational culture in pursuit of entrepreneurship is Google. Technological innovation and creative solutions is the corner stone of the organization’s corporate culture. Through its diligent innovations, the company has become a market leader in a relatively short time as compared to other organizations. The leadership and management style Google is very critical in infusion entrepreneurship. The company’s highly participative and somewhat free reign approach

Employees input is valued and considered in every step of decision making and information sharing is viewed to be crucial in bringing about the best from employees. Eric Schmidt, the current Executive Chairman and former CEO of Google, mentions that “in traditional companies, the big offices, the corner offices, the regal bathrooms, and everybody dressed up in suits cause people to be afraid to speak out. But the best ideas typically don’t come from executives.” (Manyika 2008) The organizational structure at Google is purely flat and non-hierarchical. According to Schmidt, Google is a “very flat, very non-hierarchical, very much informal in culture and ideas – ideas come from everywhere. … Part of the job of being a CEO in a company like Google is to have an environment where people are constantly throwing you their best ideas as opposed to being afraid to talk to you.” (Carlson, 2009)

Moreover, Google follows the “70/20/10?, meaning that its employees spent 70% of their working hours on core activities; 20% those activities that are linked with the core ones and 10% on projects that are of their own personal interests in line with the organizational goals. Schmidt himself used to follow this strategy spending his time in three separate rooms for each type of activities (Battelle, 2005). Furthermore, Schmidt contends that “new ideas emerge with freedom from thinking about obligations” (Manyika 2008). Adhering to this line of thinking, the company allows its core engineers to spend 1 working day each week in pursuit of new idea, without having them follow up on their regular duties (Battelle, 2005). Such approach allows Google to sustain a primal and rational developmental stage as part of its life cycle, while proceeding to the developmental and metaphysical stage concurrently. Moreover, the company successfully retains the behavioral advantages of small firms for entrepreneurship through such deliberation while enjoying the material advantages of large firms as well.

Personal Development Plan and Reflection

As part of my personal development plan, I intend to focus on developing my leadership skills, keeping in mind its importance in fostering an overall culture and mindset that leads to entrepreneurship.

According to Tannenbaum and Schmidt (1973) leadership styles range between relatively directive to participative The following figure the range of leadership styles as described by Tannenbaum and Schmidt (1973).

More participative

TellsSellsConsults NegotiatesDelegates

A different leadership theory by Edgar Schein (1987) contends that leaders can have three different approaches when they are manage change, solve problems, or manage projects. They are namely: the expert mode, the doctor-patient mode and the process consultation mode.

The expert mode: In this approach, the leader initially identifies a situation; which can come as either mitigating a threat, capitalizing upon an opportunity or pursuing an entrepreneurial project, and provides direction based upon his own expertise.

The doctor-patient mode: It involves the leader being a bit more consultative in term of assessing a situation by considering the inputs of others. However, the expertise of the leader is detrimental for further directions.

The process consultation mode: Here, the leader is essentially participative, in which the ownership of every situation and the subsequent response of a business is collectively determined by the entire workforce. It utilizes the knowledge and insights of others.

Viewing both these theories, I conclude that I will generally focus upon being a participative leader, adhering to both the doctor-patient approach as well as the process consultant approach. I am of the view that as part of the participative and consultative approach, when working with individuals who hold similar expertise as mine, or relatively little more or less in any particular field, a process consultant approach with be highly suitable for getting valuable insights of all to bring about the best ideas on table, whereas a doctor-patient approach can be viable when my expertise a superior. However, reflecting upon this assignment and specially from the case of Google, I believe being open and sharing decision making is always the best overall approach. For this, I will focus upon improving my communication skills; learn about formal and informal communication. Moreover, I will also try to gain a deep understanding of team/group work theories.

The Authors Entrepreneurial Attitude

Considering the four entrepreneurial attitudes namely activist, reflector, theorist and pragmatist, which were identified during the course work, I find myself to be more of an activist. Reflecting upon this assignment, the activist approach is likely to create and sustain a primal developmental stage in any work environment. The weaknesses of this attitude coincides with pitfalls of the primal stage and therefore, it is wise to proceed towards a rational developmental stage which is a mix of both activist and reflector attitude.

References

Arnold, G (2008) Examining the Relationship Between Leadership Style and Project Success in Virtual Projects, ProQuest.

Battelle, J (2005) Google CEO Eric Schmidt gives us his golden rules for managing innovation. CNN/Money. {online} http://money.cnn.com/magazines/business2/business2_archive/2005/12/01/8364616/index.htm (accessed on 14th May 2012)

Carlson, N. (2009) Google CEO Eric Schmidt: We Don’t Really Have A Five-Year Plan. Business Insider {online} http://articles.businessinsider.com/2009-05-20/tech/30099731_1_google-ceo-eric-schmidt-googlers-google-people (accessed on 14th May 2012)

Hamilton, C (2010). Communicating for Results: A Guide for Business and the Professions. Cengage Learning

Hisrich, R.D (2011) Entrepreneurship. Tata McGraw-Hill Education

Kamien, M.I and Schwarz, N.L (1982) Market Structure and Innovation. Cambridge University Press. Cambridge

Kanter, R. M (1988) in Robert L Kuhn (1988) Handbook for Creative and Innovative Managers, McGraw Hill

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Lessem, R. (1989) Global Management Principles. Prentice Hall.

Manyika, J (2008) Google’s View on the Future of Business: An Interview with CEO Eric

Schmidt. The McKinsey Quarterly. {online} http://www.mckinseyquarterly.com/Googles_view_on_the_future_of_business_An_interview_with_CEO_Eric_Schmi t_2229 (accessed on 14th May 2012)

Nafziger, E. Wayne (1997), The Economics of Developing Countries, Third Edition, Prentice-Hall, New Jersey

Nafziger, E. Wayne (2006), Economic Development, 4th edition, Cambridge University Press, Cambridge

Nooteboom, B. (1994) ‘Innovation and Diffusion in Small Firms: Theory and Evidence’, Small

Business Economics, Vol. 6, pp327-347.

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Industrial Innovation, Editors M. Dodgson and R. Rothwell, Aldershot Hants: Edward Elgar, pp310-324.

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Scherer, F.M. (1980) Industrial Market Structure and Economic Performance, 2nd. Edn.,

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Tannenbaum, R and Schmidt WH (1973) How to choose a leadership pattern Harvard Business Review May-June

Thompson V.A. (1969). Bureaucracy and Innovation. University of Alabama Press, Alabama.

Zimmerer, T. W and Scarborough, N. M. (2002) Essentials of Entrepreneurship and Small Business Management (3rd ed.) Prentice Hall

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