Paper 1 Innovation in Organization

DRU 502: Innovation and Entrepreneurship Lesson 3

Intrapreneurship vs. Entrepreneurship, the Dangers of Innovation, and Drucker’s 5 Principles of Systematic Entrepreneurship

J. Richard Johnson, PhD

• “Intrapreneurship” versus “Entrepreneurship”

• The Dangers of Innovation: Why It’s Hard for Large Organizations to Innovate

• But if they do want to innovate, how should they proceed?

• Big organizations have disadvantages that entrepreneurs can exploit

• Big organizations can avoid being “invaded from below” by using Drucker’s 5 Principles of Systematic Entrepreurship.

Objectives of this Presentation

Intrapreneurs and Entrepreneurs

• “Intrapreneur” came into popular use during the 1980s.

• By 1992, it was common enough to show up in the American Heritage Dictionary. Here is the definition:

“A person within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking and innovation"

Intrapreneurs and Entrepreneurs

• As you can might suspect, “intrapreneurs” differ from “entrepreneurs” in that they work for someone else, whereas entrepreneurs work for themselves.

• Entrepreneurs personally bear the risks of enterprise

• Intrapreneurs do not—their efforts are paid for by someone else

• That does not mean, however, that they do not bear other kinds of risk…

The Dangers of Innovation

• Consider the matrix of possible outcomes for an innovation and for the innovator shown below:

Consequences for Innovation

Consequences for

Innovator

+ + + -

- + - -

+ -

+

- Healthy Organization

Bureaucracy

The Dangers of Innovation

Some things to consider:

• When the innovator is an insider, i.e., an intrapreneur, what are his or her objectives?

• Why will insiders who aren’t part of the intrapreneurial team often resist innovation?*

The Dangers of Innovation

Anatomy of a Box 3 Scenario—Type I:

• Line managers “don’t understand” the proposal

• Innovator goes back to the drawing board, reconfigures presentation, then presents again

• Process iterates

• One day, the innovator comes back and the line says, “We’re already doing it”*

Why might the outcomes in the first and fourth bullets be damaging to the innovator?

The Dangers of Innovation

Anatomy of a Box 3 Scenario—Type II:

• The line organization doesn’t reach the “we’re already doing it” stage, instead the plug is pulled on the project by a higher up.

• The innovator is given another assignment.

• Six months later a “hot shot” with “pull” at the officer level comes in and revives the innovation.

• Some “i”s are dotted, some “t”s are crossed, and the presentation is re- published—with the “hot shot’s” name on the front page.

The Dangers of Innovation

Here is a revealing quote from Robert Jackall, who conducted a deep study of the “moral mazes” of corporate life:

“Credit flows up in this structure and is usually appropriated by the highest ranking officer involved in a successful decision or resolution of a problem…[A]uthority provides a license to steal ideas, even in front of those who originated them…Not to balk at so being used is one attribute of the good team player” (Jackall 1988 21; my italics).

And the surest way to wind up in a Box 3 Scenario is to claim credit, as opposed to being granted credit, by the “highest ranking officer.”*

Why It’s Hard for Big Organizations to Innovate

• Internal politics of “credit”

• Snarled in methods and procedures

• Consequences:

• People avoid standing out from the “rest”; reduction of diversity of perspectives

• People who are victims of “Box 3 Scenarios” stop contributing

• Big organizations have the advantage of economies of scale

• …But in time, when they pass their “primes,” their bigness becomes an impediment

Consequences

Summing all this up, Joseph Schumpeter, the great economist, wrote:

“The bureaucratic method of transacting business and the moral atmosphere it spreads doubtless often exert a depressing influence on the most active minds. Mainly, this is due to the difficulty, inherent in the bureaucratic machine, of reconciling individual initiative with the mechanics of its working. Often the machine gives little scope for initiative, and much scope for vicious attempts at smothering it. From this a sense of frustration and futility may result which in turn induces a habit of thought that revels in blighting criticism of the efforts of others.” (Schumpeter 1950 [1942] 207).

Consequences

• It is possible for large organizations to systematically innovate, as Drucker, and subsequently Christensen argued.

• But to do this, much investment in organizational capability is required.

• The challenges of bureaucratic careerism and self-protectionism must be addressed through company principles that foster open dialogue, make failures into “learning opportunities,” and teamwork (“Box 2” Scenarios).*

• If top management does not actively and consistently support these principles, bureaucratic careerism will be the dominant force.

• In time, the company will be vulnerable to “disruptive innovations” from new competitors, who may enter the market “from below.”

Consequences

But if these conditions are met, a large organization could follow Drucker’s 5 Principles of systematic innovation

So, supposing that an innovative idea were generated from one or another of the 7 Sources of Innovation, the next steps would be…

Consequences

The 5 Principles of Systematic Entrepreneurship:

• Begin with an analysis of the opportunity

• See if people will be interested in using the innovation

• Make it simple, and focused on a specific need (presumably identified in the second bullet)

• Start small and be parsimonious; refine as you gain market experience

• Aim at market leadership (Why? Consider this…)

End of Lesson 3

References

Christensen, Clayton M. (1997). The innovator’s dilemma. Boston: Harvard Business School Press

Drucker, Peter F. (1985). Innovation and entrepreneurship. New York: Harper and Row Publishers, Inc.

Jackall, Robert. (1988). Moral mazes: The world of corporate managers. New York: Oxford University Press

Schumpeter, Joseph A. (1950 [1942]). Capitalism, socialism, and democracy. New York: Harper Torchbooks