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The Benefits and Issues Associated with Corporate Entrepreneurship

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics

Introduction

Sharma and Chrisman (1999) define corporate entrepreneurship as the process whereby; a group of people or an individual (employee) in collaboration with an extant firm creates a new organization or initiative innovation or renewal within that organization. In essence, the focus of corporate entrepreneurship is to establish novel commercial activities so as to meet the emerging market needs. It instigates the process of creating value within a firm that already exists and in operation. However, the new business conceived or started is actually different from the parent organization. Those who have the capability of turning ideas into new businesses are identified as corporate entrepreneurs. In this respect, the new activities and operations work by helping the company improve its market position as well as in enlarging its resources and capabilities. This paper evaluates the benefits and issues related with corporate entrepreneurship.

Benefits Associated with Corporate Entrepreneurship

Over the years, corporate entrepreneurship has been identified as a potential way of maintaining and enhancing organizational performance, corporate competitiveness and renewal. In essence, the new ideas and business created by the entrepreneur generate revenue and profits for the company. This is irrespective of who came up with the new idea. This owes to the fact that the idea generated could be a new product with high market demand, or a technology to improve efficiency, cost cutting approaches among others (Price, 2004). The entrepreneurial activities help an organization in developing new lines of business which will eventually provide new revenue sources. Furthermore, by promoting process and product innovations, a company’s culture then improves. Corporate entrepreneurship activities entail progressive and proactive product innovations can not only lead to profitability, but also the general growth of an organization, subsequently leading to success. In general perspective, corporate investments in entrepreneurship projects have a potential of generating disproportionally large ROI if they become successful (Kuratko, 2017).

Depending on an entity’s competitive environment, their impact of these activities will increase over time. A company’s performance rises through corporate entrepreneurship by instigating the creation of new products/processes or services willingness to bear risks, being proactive and in the process upgrade the competitiveness (Krueger, 2000). This discussion is consistent with the domain redefinition theory which argues that an entrepreneur is mandated to create new market-product arena in areas that has not been exploited or identified by the competitors. This way, it will be able to reap from the market niche identified through the unique products created and marketed (Covin and Miles, 1999). According to opportunistic model of corporate enterpreneurship, all businesses commence as opportunists. This is because they have to incur risks or lack of resources while endeavoring to establish new businesses in the market. In doing this, they purpose to evolve and expand out of the extra profits and earnings generated (Cressy, 1997).

Another benefit associated with corporate entrepreneurship is that it enables entrepreneurs to access the target markets and also the required resources. In some industries and business fields, there could be monopolies that bar any new entrants from succeeding in the business environment. Therefore, through corporate entrepreneurship, small and medium level enterprises could have a shot that will make them be great contributors to the industry through the ideas initiated and became successful (Kuratko, 2017).

A part from corporate entrepreneurship being beneficial to the company, it can also be of great benefit to employees. There are two types of employees who can be found in any given company; the regular workers and those specifically paid just to come up with viable ideas which could be potentially be turned into a reality (Chrisman et al, 2010). Regular employees can be given an opportunity to voice their ideas after which they are given a promotion or bonus if these ideas become fruitful. The desire to be promoted to higher paying positions could instigate competition among employees who will end up coming up with great innovative ideas that could boost earnings. Eventually, employee’s morale will improve and they will end up working harder and thus be more productive. Indeed, inculcating a competitive spirit within an organization stimulates the employees to work hard owing to the anticipated reward associated with it. Furthermore, the reward aspect may also be appealing not only to the existing employees but also to the potential/outside ones who will see the company as a potentially attractive employer, thus easing the company’s recruitment efforts (Kuratko, 2008). According to the Enabler Model, employees across a company are ready to come up with new concept when accorded sufficient support. Committing resources and or processes enables teams and individuals to follow opportunities on their own as long as they align with the company’s strategic frame. In many situations, companies are expected to stipulate the criteria for choosing the opportunities that can be pursued, funding guidelines, transparency, decision-making and even support from the management. In this regard, it is the prerogative of companies to ensure that employees are encouraged to come up with new ideas and supported accordingly in their implementations. Google Inc. is actually the product of the enabler Model. At Google, workers are allowed to use 20% of their time in exploring concepts, promoting ideas to their colleagues, assembling teams and building prototypes. Desai Keval, Google’s program manager describes Google this way; “our company is actually an internal ecosystem of entrepreneurs typifying the Silicon Valley ecosystem but within one company” (Wolcott and Lippitz, 2007).

Issues Associated with Corporate Entrepreneurship

The actual challenge about innovation is turning it into a wide and systematic capability. Bannock (2005) argues that the realities of innovation are that approximately 80% of innovation projects never succeed into reaching the market. In other words, most of these ideas fail to materialize into viable ventures after execution, leading to losses and resource wastage for the entrepreneur. Sharma, Chrisman and Chua (1997) attest that the whole innovation process right from idea generation to market access presents lots of inefficiencies and challenges. Robert Cooper, who is the founder of Stage-Gate, reveals that for every seven ideas on new products, near four reach development stage, 1-5 reach launching stage and only one may reach the success levels. A study done by Burley and Stevens (1997) found out that it may take around 3000 raw ideas to create just one successful product. The research went on to note that the reasons for much of these failures is attributed to lack of effective model, lack of strategy and practical notion and the know-how in driving innovation. This generally confirms that corporate entrepreneurship is particularly a risk process and one which if not well managed may lead to failure.

Implementation of a new idea in a company may also have a potential to instigate a two-culture problem (Chrisman et al, 2010). While an organization with effective systems will be able to support technologies, and make use of incremental growth, new business ventures, may require a change or disruption of the existing company culture (Karl, 2017). In particular, the new businesses may require use of operating and financial models that are different with those of the existing business. Accordingly, these may lead to cultural challenges that could amount to insubordination, resistance, retraining and induction of employees, and poor fit between the old and new systems. These will also present challenges in human resource management and budgeting issues. For instance, most companies’ HR systems are designed to develop executives with operational knowledge and skills which align the requirements of mature and businesses, rather than the conceptual, strategic and entrepreneurial traits needed by start-up ventures (Karl, 2017). Wolcott and Lippitz (2007) advise that this challenge can be leveraged by implementing the Enabler Framework within the organization. According to the author, enable programs can effectively support an organization’s efforts to improve and harmonize its culture. This is because it stipulates the channels to be taken into consideration and funding when implementing a new idea. Furthermore, it aids in cultural transformations through staff developments, hiring criteria, subsequently helping employees to become effective change agents in the specific organization. In essence, the enable model is suitable for environments where experimentations and concept developments are pursued for economic gains.

Conclusion

This paper has looked into the benefits associated with corporate entrepreneurship as well as the associated challenges. Accordingly, it is identified through corporate entrepreneurship; a company will be able to expand its earnings/profit margin as well as the market base. Ultimately, the new lines of businesses created through corporate entrepreneurship represent new streams of revenue for the company. In addition, there is a possibility for a breakthrough if a unique idea succeeds in the market eventually enabling a company to achieve a competitive edge. However, a firm pursuing corporate entrepreneurship has to grapple with a number of challenges in the process. Some of these include uncertainty of the outcome, funding and budget challenges, issues to do with human resource management and potential cultural disruptions. There is also a possibility that the new ventures may not always be successful, culminating into loss and resource wastage.


References

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Chrisman, J., Kellermanns, F., Chan,K., Liano (2010) Intellectual Foundations of Current Research in Family Business: An Identification and Review of 25 Influential Articles, Family Business Review 23(1) pp. 9–26

Cressy, R (1997) The Theory of the Opportunistic Entrepreneur. Small Business Economics

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Wolcott, R., and Lippitz, M (2007) The Four Models of Corporate Entrepreneurship.MIT Sloan Management Review, 49 (1),75-90.

Comments

Silas Nyamweya (author) from Nairobi, Kenya on December 25, 2020:

If you need such articles, customized to your needs from scratch, email me at silasnyamweya@gmail.com or wattsup +254704171568 for a chat.

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