Frontiers of Entrepreneurship Research 1995

Frontiers of Entrepreneurship Research
1995 Edition

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    FRONTIERS OF ENTREPRENEURSHIP RESEARCH 1995.


    ENTREPRENEURIAL TRANSFORMATION: A DESCRIPTIVE THEORY

    Daniel F. Muzyka, INSEAD
    Alice J. de Koning, INSEAD
    Neil C. Churchill, INSEAD

    ABSTRACT

    This paper is an initial attempt to develop a descriptive theory of the process of transforming a company from a traditional corporation to an entrepreneurial one. There has been a considerable outcry by those within and without corporations for a change the way corporations operate and considerable effort is being put into their transformation. In both the cry and I corporate response thereto, there has been an increasing focus on making organizations more "entrepreneurial", that is, opportunity-seeking. We have identified a small group of companies which have recognized the need for transformation, but rather than simply correcting their problems they have set their goal of creating companies that better able to adapt and seize opportunity on a sustained basis. Beginning with a summary of our understanding of the entrepreneurial corporation and the transformation process, we develop a series of propositions which describe the end state that is being sought, the characteristics, processes and people involved in these entrepreneurial transformations, close by showing how that, when once transformed, they organizations become self-regenerating.

    INTRODUCTION

    The increasing domain and rapidity of change, the increasing complexity and breadth of technologies, competitive organizations, customer demands and information/knowledge have acted together to create shorter life spans for economic opportunity, and shorter life spans for differential exploitation of knowledge and competitive advantage. Since these forces for change have not been completely spent, and by most estimations won't be spent for upwards of a decade, this creates the need for corporations to adapt not only to present conditions but to have the potential for change over extended periods of time. Responding to the changes has caused many companies to focus on transformation to fix the mismatch between the functioning of many organizations and the requirements of their economic and competitive environments.

    While some organizations have found themselves able to adapt to a more rapidly changing world or have grown as a result of new opportunities (Pfeffer, 1994), many have found it very difficult to adapt fully. Management, in most cases, seems to display one of two dominant responses: either to (1) enact what they see as "one-time" corrections to better adapt their organizations to the new environment and seize valuable opportunities or (2) to create an organization that is better able to adapt on a continuing basis and to better manage the flow of opportunity. In the first category, we find companies that have reacted to enhance its performance by making people more locally responsible for administration of the enterprise using the structures and systems of the industrial management model (i.e., through restructuring), or have attempted to mobilize the organization to deal with the weaknesses in another fashion (reengineering or empowerment). In the second category we find companies that have delved deeply into understanding what type of organization they wish to enact. It is this group that is engaging in entrepreneurial transformations and it is this group that we find most interesting.

    This paper builds on our initial observations of the organizational and transformational processes in six companies who have attempted to either enact or maintain entrepreneurial organizations. The companies are both large (e.g., 3M, DEC, Rhone-Poulenc, and ABB), and medium-sized (e.g., Mettler-Toledo and MHZ). We also draw from the experience of other organizations such as GE, AT&T, XEROX and Philips which have conducted corporate transformation processes that have been less explicitly directed at enacting entrepreneurial organizations. This paper is much in keeping with the "action-research" perspective adopted in transformational research (e.g., see Ghoshal and Bartlett 1994, Chakravarthy and Doz (1992) and Hamel and Prahalad (1994)). In addition, the paper builds on work we have been undertaking in profiling the nature of entrepreneurial corporations. This work is described more explicitly in another work by some of the authors (see Churchill and Muzyka 1994).

    ENTREPRENEURIAL CORPORATION

    The Entrepreneurial Corporation (EC) is an opportunity-seeking organization. Entrepreneurial corporations have a built-in imperative to continually renew their businesses (Churchill & Muzyka 1994). The entrepreneurial company at its many levels is continually seeking new opportunities, discontinuing others of declining profitability, and allocating their resources where they can be better utilized. This continual seeking of opportunities at all business levels produces a continual renewal of the company's product portfolio. Further, since the company never knows in advance the nature of the product life cycle, it is always seeking growth to guard against possible stagnation (Figure 1). Adaptability and flexibility are not the strategic goals of the organization, but result from the opportunity focus and growth imperative that drives the organization continuously to renew the product and opportunity portfolios, and to adapt structurally around the current businesses and projects according to need.

    This perspective is based on our observations of 3M and other ECs. The most striking result of the opportunity focus and growth imperative of the corporation is the how decisions get made - the decisions which allocate resources and develop opportunities into products and businesses. Decision making is multi-actor, multi-path, and decentralized. Stories of bootstrapping resources for product or market development are the legendary at 3M, but low-level managers are equally likely to stop projects that do not promise good enough ROA. Commitments are made and withdrawn throughout the organization, and each great idea has more than one avenue to find commitment of resources. Slack is built into the system to facilitate the development of "unplanned" ideas, albeit in different amounts in R&D and in operating businesses, but the principle of localized responsibility for pursuing opportunity is carried throughout the system. Opportunities and ventures are not tightly planned nor closely managed until they are big enough to warrant concerted attention. Entrepreneurial corporations are also profit oriented. In part this comes from a continuous reevaluation of current and potential products and a reallocation of resources. In part it comes from the realization that if they are to continue to venture, they must have profit margins sufficient to cover the cost of failures and to provide the slack resources and the R&D, if technological companies) needed to innovate and pursue opportunities. They search for areas in which they can provide value to the customer and hence command high margins.

    Opportunity focus is evident at all levels of the organization, not just the in the new ventures division or at the top. People throughout the organization have access to resources of the corporation, including funds, facilities, knowledge, and other people. The implicit or explicit goal of ECs is to achieve good profits and growth through pursuing the opportunities. The specifics of 3M's processes and characteristics have been observed by many researchers, and seem to be somewhat unique to 3M. We have found, though, that although the specific processes and managerial attention may be different from company to company, the essential concept remains the same. For example, Johnson & Johnson has a radically different corporate culture than 3M, but pushes the same decentralized opportunity focus through its top-down attention to budget reviews.

    Another aspect of ECs, although not limited to them, is the use and prevalence of teams. Teams are part of the culture and are formed to explore opportunities and design products or other responses to them and reformed when other uses for the members arise. They are fluid, and flexible and readily support resource deployment and re-deployment. As we shall see later, they are also a powerful tool in the transformation process towards being an entrepreneurial organization.

    Despite the changing environment, these firms seem to undergo fewer traumatic changes and fewer restructuring, for two reasons. First, as cited above, in the constant search for better opportunities, growth and renewal of the product portfolios, the relative value of products and businesses are continually reviewed. In this context, reallocation of resources (capital, people, or plant) is not viewed as an admission of failure, but rather a recognition that something better has emerged. Second, ECs frequently check what we call their operational logic, the processes of information sensing, knowledge building and communicating, analyzing and reflecting. They seem less likely to get locked into obsolete or limiting cognitive frames.

    TRANSFORMATION PERSPECTIVE

    As noted above, the executives and managers of many corporations believe becoming more entrepreneurial is the key to survival in the dynamically changing world. The challenge is to shift their organizations to this fundamentally different concept. Our research has allowed us to observe a few of these transformations in process, and our observations are discussed in detail below.

    The most striking difference between an entrepreneurial transformation and other types of transformations described in the literature, is the initial, explicit focus on what the corporation should look like or how it should operate when the process is done. This in-depth reflection on the desired end-state then drives the detail of the transformation process. The way these transformation unfolded, and particularly the role of management in the process, seemed different and caused us to conceptualize entrepreneurial transformations differently than others (Van de Ven, 1992).

    Our current understanding is that transformation is a path-dependent process. This approach to transformation draws on punctuated equilibrium theory of evolution, which argues that adaptation is not incremental, but rather occurs in a cycle starting with a shock which causes the generation of many variations, and then a non-deterministic process of selection and retention resulting in the technology standard or organizational form (Tushman and Romanelli, 1985, Gersick, 1991). This cycle implies that management action in selection and retention directly affects the final result of the transformation. The how' of transformation determines the what' of the new organization (Chakravarthy and Gargiulo, 1994). This approach contrasts the usual conceptualization of transformation as stages of change which are a series of tasks like overcoming resistance to change and correcting old problems, before creating the new organization. Rather, we see transformation as an embedding process. And it is precisely because transformation is an embedding process that designing the end-state is so crucial. In becoming an EC, management must consciously work to enact or embed the behaviors and processes of the entrepreneurial corporation. This perspective may apply to all transformations, but it is most salient for the entrepreneurial transformation precisely because an EC is best defined by its processes and it ability to change (Figure 2).

    Most transformation prescribed in the management literature discuss the specifics of the change process, but the end-state is not specified. The result is that choices are made early in the process which could limit, perhaps harmfully, the future options of the corporation. In another paper (Muzyka and de Koning, 1995) we developed a taxonomy of the transformation literature, under the rubric of restructuring, reengineering, renewing and regenerating, positing a mixture of instrumental or motivation methods, to achieve improved efficiency or effectiveness of the company. All these transformations can provide benefits to the corporation, but we would argue that the missing element compared to the transformations in our companies is the explicit conceptualization of the end-state as the opportunity focused, entrepreneurial corporation.

    DESCRIBING THE ENTREPRENEURIAL TRANSFORMATION PROCESS

    In the three sections, we summarize some of our initial observations from field research in several transformational processes directed at enacting entrepreneurial corporations. These initial observations and descriptive propositions will form the basis for more structured explorations in the future. We realize both the limitations and breadth of these observations, but at this stage of research have strived to capture the "rich detail" in what we have observed. Having attempted to capture the elements and levels of the transformational processes, we appreciate both the difficulties individual writers have had in attempting to categorize and explain transformation, and the daunting task faced by executives in attempting to enact successful transformations. This section is organized in three parts. First we discuss some key characteristics of the transformation process, some of which are unique to entrepreneurial transformations, and some perhaps more widely applicable. Second, we discuss the organizations' key resource in the transformation process and in an EC: the people. And third, we discuss the opportunity identification and capture processes that must be embedded in the organization during the transformation.

    CHARACTERISTICS OF THE ENTREPRENEURIAL TRANSFORMATION PROCESS

    Describing some the key characteristics of the entrepreneurial transformation process is a difficult task, not the least because transformation is difficult to observe. We have highlighted four characteristics, focusing on what we consider points where managerial action is feasible and important. First, we observe the external shock triggering the process of transformation. Most perspectives on transformation emphasize the need for a performance shock to galvanize the organization and overcome inertia. Second, management must design the new opportunity focused organization they want to create. This design is crucial for guiding managerial action so that the necessary new skills, behaviors and processes are embedded into the organization during the transformation. Third, the measures of success for an entrepreneurial transformation must reflect the new opportunity focus. And fourth, management must design internal triggers for focused self-evaluation within the organization. These triggers allow the organization to check whether opportunities are effectively identified and captured, and thus improve the overall calibration of the organization to its changing environment.

    Triggering the Transformation Process

    The transformations engaged in by the EC "want-to-bes" are often precipitated by some external trigger or visible performance difficulty. These often traumatic shocks finally shake management into making the investment in (1) repairing the current organization (creating a better fit with the current operating environment) and (2) enacting a new style of organization. The leadership in some organizations, where the shock is less than totally traumatic, often appear to "hype" or enhance the problems in order to increase the focus of the organization on the difficulties and to enhance the sense of urgency individuals feel, thus helping to enact a new form of organization. At least some managers must internalize this shock, and successfully communicate the urgency to others (Baden-Fuller and Stopford, 1992). We observed a wide range of triggers, including fear of losing markets to the Japanese (a Swiss company), fear of more general global competition and shrinking profit margins (Rhone-Poulenc), and even a new CEO who hated the workaholic patterns of an ineffective firm (a German company). The trigger for change lets people see their work and company from a new perspective.

    Proposition 1: The transformation's starting point or trigger is an external shock (markets, government, performance or other) which is internalized by the organization.

    Designing the New Company

    As part of the transformation, it appears the leadership guiding the transformational process, along with their process consultants (either external or internal), must develop an understanding of the some key elements during the course of the transformation. First, they seem to work out a clear understanding of what style of organization they are trying to create, and the mechanisms (EC) they are trying to implant. Second, in appreciating the gap between the current state and an EC ("where are we, what do we need to change to get there"), they develop a focus for the specifics of their own transformation process. Thus, although the details of the transformation emerge in the process, the focus or problem is clear throughout. Third, management explores the possible tools, behaviors and skills to be developed or used in transformation process. Finally, the company must evaluate its operational logic - our term for how the company gathers information, communicates and analyses it, and finally uses the knowledge for action or learning. We agree with Stopford and Baden-Fuller (1992) that changing cognitive frames may be an essential part of a regenerative transformation.

    This problem-focused approach, as opposed to a solution oriented approach, is the key to success according to Paul Evans (1995). Unsuccessful transformation use solutions, adopted from external sources, as bandages on the key problems. Successful transformation focus on the problems which must be solved, or in our own words, they focus on identifying and solving the identified gaps. The clear focus on the goal and on the necessary mechanisms provides a standard to understand the gap between where the company is now, and where it should be. As the process of transformation begins, the tools and behaviors and skills and norms for the new EC are articulated, and specific plans are developed and implemented. The gap becomes both the focus and the challenge for everyone involved (Hamel and Prahalad, 1989).

    In entrepreneurial transformations, management chooses to build an opportunity focused organization.

    Proposition 3: Entrepreneurial transformations begin with a clear vision of how the company should function, and the gap between the present and future ways of operating.

    Measures of Success

    The measures of success for initial transformational efforts appear to be (1) observable action to initiate opportunities and a new orientation toward opportunity, (2) increased numbers of individuals engaging in entrepreneurial activity, and (3) new entrepreneurial behavior cascading through the organization. In the medium term, it may be possible to note an improvement in the economic performance of the business. As we argued above, ECs have both profit and growth imperatives built into their goals, and that growth is achieved through increasing the number of successful opportunities or businesses.

    In the organizations we studied, we noticed that episodes or examples where individuals and groups took initiative and created value were generally celebrated. The overall measure of success is whether the organization is able to identify and capture value-creating opportunities and whether individuals are willing and able to take and seize the initiative, if necessary, in capturing opportunity. Thus, the leadership in organizations undertaking entrepreneurial transformations appear to use the actual acts of individuals seizing opportunity as a key measure of their success. Toulouse (1988), for example, reports a CEO who measured success by the number of active projects in his firm - increasing from only 3 to over 40 projects in a few years. By focusing on pursuing opportunity, as well as the number of successful products, management recognizes that not all opportunities will become successful products and that failures are normal. In addition, because of the nature of transformation, all these measures must be used longitudinally, looking for change within the organization over time.

    Proposition 4: Successful entrepreneurial transformations are best measured, in the short term, by the number of projects and opportunities under active development in the firm.

    Proposition 5: In the medium term, successful entrepreneurial transformations should show in increased numbers of opportunities identified and captured that create value for the company and its customers.

    Avoiding Future Transformations

    The process of transformation builds specific skills which should help prevent the need for future full-scale transformation. Full-scale transformations are often considered necessary but life-threatening' by researchers (Tushman and Anderson, 1986). Entrepreneurial transformation is designed to create an opportunity focused organization, which is more responsive to changes internally and externally. Within the punctuated equilibrium model, we argue that the new organization stays in the retention phase longer because an EC is adaptable to a wider range of opportunities and change than other companies.

    The EC avoids future traumatic shocks by building into the new company endogenous triggers which restart the process of self-evaluation, creativity and testing at different times and places throughout the company. At a Swiss company, the management 'schedules' total reengineering for part of the company. This unit completely reevaluates its operations and in the process also affects other units in the company. At Johnson & Johnson, it appears that budget evaluation and executive questioning triggers this self-evaluation process. At 3M, the pressure of meeting new to old product sales ratios triggers the re-thinking process.

    The focused transformations within the organization become less traumatic and major organization wide transformation becomes less likely, because there is both less complacency about the success of the status quo (Miller, 1990) and because performance is not destroyed before embedded routines are challenged. As noted earlier, the company's employees must come to grip with the general and specific problems facing the company as part of the initial transformation enacting the EC. Further, the nature of organizational direction, structure, process, behavior and analytical paradigms leads to a stronger ability to adapt to a wider range of environmental conditions without traumatic transformation. The process of learning, analyzing and creating solutions is a time of growing variation in proposed solutions. As the employees try out their ideas, testing the ideas and looking for ones that work well, a process of selection and finally retention of the company specific solutions allows the company to achieve a greater level of effectiveness.

    Proposition 6: Sustainable ECs have internal triggers to restart the problem-focused evaluation of the business learned in the transformation process.

    Proposition 7: Sustainable ECs use the skills of problem-solving and change, learned during transformation, to improve organization effectiveness.

    PEOPLE: THE KEY RESOURCE IN AN EC AND AN ENTREPRENEURIAL TRANSFORMATION

    Special attention is given to the people involved in the entrepreneurial transformations we have observed. Because opportunity focus takes place at multiple levels in an EC, the transformation must involve changing the way people throughout the corporation think and act (Peters, 1992). A new approach to selection, acculturation, retention and motivation of people in the organization is developed. To support the role of people in the specific opportunity processes described below, we have identified four things which management must recognize and build during the regenerative transformation. These are diversity of perspectives, robust operational logic, low turnover of people, and motivating rewards.

    Cognitive Frames: The Operational Logic of the EC

    One of the more compelling aspects of an EC is the constant challenging of the operating logic, and the relatively easy transition from one operating paradigm to the next. The operating logic of a company is inherent in the cognitive frames of the people, and in the formal and informal information networks they build. The "dominant logic" (in the sense used by Prahalad and Bettis, 1986) of the organization is usually fairly simple at the macro level. At an operating level, each business may possess a certain economically driven "dominant logic" which is always challenged: how do we create and maintain value for all stakeholders?

    We may divide operational logic into a series of steps (see Figure 3). The first step is the information an organization senses or decides to sample. A second step is the translation and communication of what is witnessed to the organization as a whole and to specific individuals. A third step is the analysis of the information according to accepted or embedded algorithms. At this point, a decision is taken whether to call to action (and then reflect), or to simply reflect and observe again (Argyris and Schon, 1978). The operational logic of the organization is embedded in the choice of what to sample, how to encapsulate and communicate the information through language and channels, how to analyze what has been observed, how the triggers for action are activated and how to collate and organize the learning.

    Given the focus of the organizations, there is an overall orientation in the construction and maintenance of this operational logic that ensures a continuous orientation toward opportunity. People seem to external testing or benchmarking of the relevance of the logic. As a consequence of implicitly understanding this cycle, management of ECs seems very conscious of the choice of language and symbols in the organization and the "lore" that develops and is conveyed. The organizations also seek to evolve what is sampled through constant testing of the internal perceptions. There appears to be a continuing testing of the rules of thumb employed within the organization.

    Proposition 8: In transformed ECs, people should keep their operational logic effective, evaluating and updating the organizations' information sampling, communication, analysis and reflection.

    Diversity of Perspectives and Team Discipline

    While most companies would express themselves in wanting "achievers" or the "top of the class", the ECs we have observed are careful to recruit individuals who are "doers", who have shown special initiative outside of the classroom as well as within. Tapping the diversity in the company is a key issue. While there is a recognition that diversity in knowledge, analytical frame, culture, etc. is somewhat expensive in organizational terms, there is also an understanding that without maintaining inherent diversity in the organization, adaptation is not possible.

    The transformation process is also enhanced by the use of teams. In the transformation process, teams support people who are fearful of change, bring disparate points of view to bear on new and challenging problems, and involve people in making the decisions they will have to support (Moss Kanter, 1989). Further, the use of teams is an excellent training device for their effective use after the transformation process is ended since high-performance teams are a mainstay of ECs (Katzenbach, 1993). ECs depend on coordination and integration of knowledge and action, and this is best achieved by teams. The teams form and reform around opportunities and products, and their effectiveness depends on the team work skills people within the transforming EC develop.

    Proposition 9: In regenerative transformation, corporations should value and encourage the differences of opinion of diverse people in the organization to create solutions.

    Proposition 10: Entrepreneurial transformations utilize teams extensively.

    Improved Participation Through Low Turnover

    Transforming ECs seem to have a new focus on acculturation, sensitization and retention. This appears to have several purposes. First, structured rules and systems may be minimized if individuals can accept and practice a few informal or semi-formal guidelines (e.g., Johnson and Johnson's credo). It takes time and effort to instill these behaviors and this behavioral understanding and high turnover is thus expensive. Second, significant operational knowledge and network architecture are embedded in the people within the organization. Without this informal knowledge and communication, opportunity identification and capture are severely hampered (i.e., the organization would find it difficult to map technologies and capabilities onto customer needs). Third, responsibility is not instilled in an organization where individuals find it easy and/or preferable to exit upon encountering difficulties, rather than working through the issues or admitting failure. Finally, the ECs studied appeared to desire the maintenance of the corporate organization not just as an economic entity but also as a social entity which in turn influenced profit-producing behavior. The social entity may not be easily nor well maintained or valued with high turnover. As a result of the need to acculturate and retain individuals, issues such as the maintenance of trust, loyalty and voice are a key focus of management (cf. Hirschman, 1970). Thus, while we expect initial high turnover as the change process begins, largely due to discomfort about the changes, we expect people to have longer tenure in the company as the new way of operating is established. The transforming EC must take a 'long-view' on people, since the majority of ideas fail. Failure cannot be a cause for punishment, but rather it is the individual's total track record that counts.

    Proposition 11: In the medium and long-term, people in transformed ECs should stay with the company longer.

    Improved Motivation Through Rewards

    The rewards system of the organization seems to be an important indication of how people are motivated (stretched and disciplined in Ghoshal & Bartlett's terms, 1993, 1994). We looked at not only through financial means, but rewards on multiple dimensions. Obviously, requisite rewards are required in order to retain people and maintain the organization. Rewards, as noted, are interpreted multi-dimensionally. First, EC management appears to create value in organizational "membership". They work to maintain the value of membership as an on-going reward. Second, management also ensures "competitive", though not excessive, remuneration. Third, EC organizations appear to religiously attempt to provide appropriate recognition. Management's role is not to capture the spotlight, but to ensure that those who really accomplished a value added task are identified and recognized for their accomplishments. Fourth, given the entrepreneurial or opportunity bias of the organizations, there is also recognized value or reward in the existence of mechanisms for individuals to "self-actualize" through identifying and capturing an idea or opportunity they perceive valuable -- even if others, including their bosses do not agree.

    Proposition 12: In regenerative transformation, corporations establish a wide(r) range of financial and social rewards for excellent performance.

    PROCESSES FOR OPPORTUNITY FOCUS

    An EC "wanna-be" must understand clearly the types of mechanisms or processes that must be implanted. These processes should identify and capture opportunities, and should not be designed to steward resources. For example, information networks should help identify new opportunities, helping people map technology onto customer needs, and should not be structured simply to control their actions. ECs recognize that the most constraining resource is not cash or facilities, but potentially profitable opportunities. Thus, the processes which identify and develop opportunities into viable businesses are the most important for the firm.

    Proposition 13: Transformed ECs build the processes to identify and capture opportunity, not to steward their resources.

    Only by recognizing the specific characteristics required can management influence the development of appropriate skills, experiences and processes needed for the now-and-future company. We observed three types of processes which are the core processes for opportunity identification and capture: multiple resource allocation and reallocation processes; pervasive information transfer and democracy, and knowledge management; and guided, decentralized decision making.

    Multiple Resource Allocation and Reallocation Processes

    Within these organizations, there is opportunity capture "in depth"; there are multiple paths for opportunity to be created or identified, and possibly developed into a business. Resources (money, people, knowledge, or whatever) are readily available, albeit in measured quantities. Slack resources are explicitly planned for: Early stage project resources can be obtained in reasonable quantities (Bourgeois 1981). If any person or group perceives an idea worth pursuing, there is immediate access to the knowledge and resources of the organization. The effect of this slack in 3M is legendary (Art Fry and the Post-Its are only one tale), and we also observed an almost spontaneous combustion of new projects in the transforming ECs as resource allocation process changed. This built-in slack allows people to frame projects, perhaps even develop them extensively if costs are relatively low. As more resources are needed, a 'venture capital' approach is used, with more and more management scrutiny as the bets get bigger and bigger. If better opportunities appear (i.e. more potential value added), resources are simply reallocated, without 'failing' the people involved. And if all else fails, determined people may simply take their projects underground.

    We have observed in ECs a long-term investment in new technologies to develop and capture new product-market opportunity. This more traditional development cycle is usually supported through extensive access to end users and markets. Once a technological position is established, these companies, through flexible allocation of resources and other mechanisms, act to exploit available market opportunity. In addition, they are able to evolve into related opportunities. In a Swiss company, a wide product range was developed, wider than the market appeared to need, to create or anticipate new customer needs.

    In addition to traditional methods of opportunity capture, the entrepreneurial corporation also is able to capture the "random" opportunity. These opportunities are identified and captured by a motivated work force with flexible access to appropriate knowledge and assets. In essence, while these organizations plan for opportunity capture, they also recognize what one successful entrepreneur once stated: "You can't make an opportunity, but you can put yourself in the way of them and be sensitive to them." As part of entrepreneurial transformations, our initial perspective is that these organizations appear to expend energy and time on explicitly ensuring that the organization is ready and able to actively promote opportunities being identified and pursued by individuals within the organization. The individuals need not be in a formal group or function dealing explicitly with new product development. Rather, the organization appears to be attempting to enact a "safety valve" to ensure that new opportunities are not lost. This is particularly important in the early stages of transformation when the organization and individuals within it are encouraged to propose opportunities that have been impacted due to past organizational practice. The early and successful exploitation of new opportunities, which is enhanced by aligning organizational elements and processes properly and providing slack resources, can only serve to further enhance changes in both behavior and the reasoning patterns of individuals within the organization.

    Proposition 14: In entrepreneurial transformations, corporations establish a new approach to resource allocation, replacing a centralized and simple process with decentralized, multi-level, multi-type processes.

    Proposition 15: Transformed ECs build more slack into the organization for opportunity capture.

    Proposition 16: Transformed ECs create more sources to fund opportunities at many level and through many processes in the organization.

    Pervasive Information Sharing Processes

    The need for an extensive sharing of information / knowledge should trigger an evaluation of existing systems and creation of new formal and informal processes. A German company first made information totally democratic - everyone had access to everything - and then followed by learning how to ask each other questions, pushing for intelligent evaluation of the information available. 3M traditionally has used a wide range mechanisms, including conferences, personnel transfers and key customer-technology-linking positions, to encourage active and latent networks for information transfer. They also placed the coffee facilities in the laboratories just across the walkways from the sales and administration building to encourage informal interactions and placed small conference rooms with windows and floor to ceiling "white boards to facilitate informal conferences. These efforts continually attempt to map customer needs onto technological capabilities, and the capabilities onto needs. In a similar manner, the president of a Swiss company, installed 'living rooms' on the factory floor and encouraged casual conversation whenever employees wanted, arguing that people would discuss work problems and ask for suggestions from their peers only if they already had a non-threatening and friendly relationship.

    Leveraging information, in all these companies, means assuming that potentially valuable information may exist anywhere, and therefore formal and constricted information channels are inadequate. To develop business opportunities, a crucial success factor is that individuals have access to the "knowledge network" within the organization. Understanding what the firm is doing and of what it is capable of appear to be key first steps. This appears to be closely followed by a need for more open customer access and for many, vendors as well. This openness is a key feature of most entrepreneurial corporations.

    Proposition 17: In regenerative transformations, corporations dramatically increase the number and quality of their formal and informal information processes or networks.

    Guided Decentralized Decision Making Processes

    The transforming EC must change its decision making process, moving to a more decentralized though guided system. By linking the business logic of pursuing opportunities with organizational elements, we have observed how the opportunity focus necessarily develops into specific organizational changed. Figure 4 summarizes the some phases of business and organizational process elements firms in transformation appear to be concerned with. What happens is, in a sense, a parallel development of business and organizational processes designed to promote opportunity capture. On the organizational side, it appears that a strong sense of what has popularly come to be referred to as empowerment is an initial key to exploration of opportunity. This needs to be followed and supported by more open organizational access (individuals have to be able to get to those with knowledge, assets and administrative skills), coaching and process support (including champions to aid them in the system), and, finally, procedural justice in that they are not stopped or harassed by some arbitrary, bureaucratic decision from some administrative committee or process. Each of these processes imply a new responsibility and ability to make decisions, within context of the discipline of financial results of the developing businesses and the guidance and support of others in the organization.

    In these transformations, we have observed people making more decisions more efficiently as the organizations changed. Rhone-Poulenc eliminated 75% of its head office, by simply moving out the decision makers so the decisions they made could devolve to lower level and local managers. 3M continually monitors the inevitable tendency to increase the middle-management ranks and keeps the organization flat, in a $17 billion corporation, there are only three levels in between the CEO and the product/market manager.

    Proposition 18: In entrepreneurial transformations, decision making is deliberately moved to lower level and local business managers.

    CONCLUSION

    Summary

    We have developed a set of propositions describing the key changes that occur in organizations transforming to become an entrepreneurial organization. Because we see transformation as a path-dependent process in which the future is embedded in the present, the changes we describe in the propositions begin immediately. Although the specifics of the changes deepen and evolve through the process, we would expect to see the fundamental shifts to occur from the beginning. As Tushman's work shows (1995), the major shifts or reorientation of the transforming company occurs in the first 18 months. Like him, we argue that the transformation is first of all a fundamental reorientation, and then a continuing process in which the new processes are reinforced and supported by management.

    We argue that a number of companies wish to become more entrepreneurial, to deal with their continually changing environment. Becoming an entrepreneurial corporation means becoming an opportunity-focused organization. Opportunity focus creates a more fluid organization, one which organizes and reorganizes around the opportunities being exploited. In fact, an entrepreneurial corporation can be better defined by its processes than by its structure. Those companies which are going through a transformation with the specific goal of becoming an entrepreneurial corporation undergo a different process than usually prescribed by the literature. Specifically, they are envisioning an entrepreneurial corporation with resource allocation, information transfer and decision making processes that result in an organization full of people focused on creating and developing value added opportunities. When they get there they find they also have an organization that naturally adapts to changing environments much as does a biological entity. They have a regenerative organization that only needs strategic direction.

    Limitations and Future Research

    At this point, our observations and reflections remain largely speculative. We have begun to develop a theory of how entrepreneurial corporations are different, and how companies enact entrepreneurial transformations. In this grounded theory approach, we cannot prove that we have identified generalizable propositions. As our work proceeds, we plan to make our theoretical argument more powerful, and to develop hypotheses to test our propositions at new sites. The greatest difficulty with this kind of work is that transformation by definition is best studied through longitudinal studies. This restriction affects both the size of our sample and the rigor of our hypothesis testing. Nonetheless, the issue of transformation and becoming more entrepreneurial is so important to managers today, that we believe proceeding on the research will provide valuable and important insights.

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