Gifford Pinchot III and Elizabeth S. Pinchot
(Some Thoughts Stirred Up by Attending
Robert Schwartz's School for Entrepreneurs)
Today's large corporations are suffering from size. They are so large that the managers making decisions are often isolated from a personal knowledge of the problems to be solved. The traditional answer for this situation is decentralization.
Unfortunately, decentralization alone is not enough. In a hierarchical organization, promotions can be won by social graces, loyalty to one's boss, and in general, political skills. Courage, original thought, and ability to observe the obvious but overlooked fact., do not necessarily lead to success.
If we are to get really good problem-solving in our decentralized corporation,- we must introduce a system that gives the decision to those who get successful results., not to the inoffensive ' Such people will be willing to take moderate risks and will be more concerned with achieving results than with gaining influence. These are among the characteristics of the successful entrepreneur.
What is needed in the large corporation is not more semi-independent departments run by hard-driving yes men'. but something akin to free market entrepreneurship within the corporate organization. Such a new way of doing business would be a social invention of considerable importance, both for the individuals in it, and for the productivity and responsivity of the corporation.
The effect of freeing individuals from excessive control and allowing them to work on their own initiative can be seen by a study of the history of business. In Europe, for example, the growth of the cities in which merchants had some independence from the feudal lords brought about a climate of experimentation and then the Renaissance. The result of this social invention (or perhaps rediscovery) was a vast increase in wealth, knowledge, and a flowering of all areas of human endeavor.
Today we live in an industrial society. This society is being created by-the great social invention of our age, the large decentralized industrial corporation. Without this new social form., our technology would fail, as it does in countries not equipped by their cultures to practice corporate life.
The corporations, however successful they have been in organizing complex problems of production and distribution, are conspicuously failing on the ideological level. They are out of touch,, more responsive to their own needs to justify their activities than to the changing times. The reason for this is the dominance of politics in any hierarchical organization. The corporate manager at every level including the top must subscribe to the idea that what the corporation is doing is right. The results are moral inertia and blindness.
The entrepreneur, on the other hand, must please no one but himself and the select public to whom he sells. He is freer to see the world in new ways, and may choose to pursue only those types of business which align with his philosophy. Rather than being a limitation, this personal approach leads to new businesses and new ways of doing business that an organization dominated by politics would miss.
The corporations, by their very successes as well as by their failures, have created a world in which a new social invention allowing greater individual enterprise and responsibility in corporate society is desperately needed. Making a place for entrepreneurs within the corporation is the next step in solving the problems of large-scale organizations.
There are at least three obvious areas for entrepreneurial activity within the large corporate on:
contracting out the sales of company products;
performance-contracting within the corporation routine tasks, i.e., forming a group to sell a service to the corporation that the corporation would normally provide to itself;
introducing a more entrepreneurial approach to the creation of new technology, new products, and new services.
Contracting-out of sales functions is an established custom. Salesmen often are,, in effect., independent businessmen working for commissions. Contracting-out the development of marketing programs and advertising is also common. Franchising, now a growth industry, extends this concept.
Performance contracting carries decentralization one step further, and could be extended to be a very exciting organizational advance. Between businesses, performance contracting is done on a large scale. Consider the subcontracting of parts and sub-assemblies. Companies can apply these principles within, by allowing employees to form groups which "sell" services such as typing, routine computer services, fleet maintenance, or janitorial service. Small entrepreneurial sub-units set up as profit centers could be very effective in both increasing efficiency and offsetting the alienation the routine worker can feel in a large corporation.
The third area., research and development, directly faces on the problems of creatively handling large amounts of information in an atmosphere of uncertainty. This situation requires individual initiative, on-the-spot intuitive decisions, and clear-cut self-discipline as opposed to rigid outside control. It is an area in which the future effects of different decisions must be compared and in the end require important financial, technological, And moral choices.
The personnel of the R&D departments are often difficult to handle because they are part of a new class of information and idea handlers whose needs are not fully met by the current system. Their achievement needs are not primarily for money, but for having their ideas acknowledged and used. They are often idealistic about the effects their work creates. In fact, idealistic positions drive many of the best potential employees from the corporation before they apply. In their purest form, members of the new class of idea workers have very strong needs for freedom to pursue whatever research they believe best, without having to justify it to anyone in advance. They need to feel sure they can avoid creating effects in the environment or in society that they consider wrong.
This may drive them to leave the corporation and to become entrepreneurs, which may not in the end serve their idealistic purposes after all, even when the new venture is a success. The demands of being a manager may force them to leave the kinds of work they love best to others. Their departure is often a disaster for the corporation they leave, especially when they go on to compete successfully with their former employers. The loss to the, corporation and the several risks of going off on ones own could often be avoided if the independence sought by idea people could be provided within the corporation.
Thus we have two problems which are really one. The first is how to grant idea people the independence they desire without making them unresponsive to the needs of the corporation. The second is how to make the corporation more capable of responding rapidly and sensitively to our rapidly changing society. These problems can be resolved by setting up a system allowing selected employees a status within the corporation akin to that of the entrepreneur within the larger society. This new status must provide them with the independence of the entrepreneur while still holding over them the technological, financial, and perhaps most significant, the informational umbrella of the corporation.
Here are some principles I predict will prove useful in establishing employee entrepreneurs who work Within the corporation. I will call this new class of intra-corporate entrepreneurs, "intrapreneurs".
(1) To become an intrapreneur, an individual must risk something of value to himself. It may be just the time needed to complete the business plan and preliminary research while carrying out his normal duties. It may in some cases involve financial sacrifices such as having no salary increases until the new business becomes a success, or even a 20% salary decrease until project bonuses arrive. What is risked should be negotiated for each project.
The risk serves several functions. It tests and later increases intrapreneurial conviction and drive. It binds the corporation in an implied contract not to stop the intrapreneur for any reason other than poor performance. Finally, it helps other employees to rationalize the intrapreneur's extraordinary rewards.
(2) The rewards of success in an intrapreneurial project must be shared between the corporation and the intrapreneur in a well-defined and equitable way. This cannot always be pre-negotiated, as the researcher may not know in advance where his research leads. Therefore, there must be a trusted committee to "buy" completed research from its intrapreneurs for some pre-established fraction of its value to the company as determined by an established accounting system. The integrity and impartiality of this committee must be above suspicion.
(3) The intrapreneur should have the opportunity to build up something akin to capital. The successful intrapreneur would earn in addition to his cash bonus, complete control of a definite amount of R&D funds, funds which he would have a completely free hand in investing on behalf of the corporation in his future R&D projects. We will call these funds, "intra-capital". This might work as follows.
Let us say the corporation makes a million dollars on a new product. By the committee's analysis and pre-established accounting rules, the intrapreneurial venture's share of this is, let us say, $100,000. Of this amount, $10,000 might be given as a cash bonus. The remaining $90,000 would be placed at the disposal of the successful intrapreneur to be invested on the corporation-Is behalf in future R&D projects of his own choice. If he is successful again, the $90,000 will lead to increasing "intra-capital" and bonuses.
This system has several benefits for the company. It motivates creative staff to think practically and frees their individual initiative. It minimizes politics and maximizes performance as a criterion for advancement. It rapidly puts a portion of the company's R&D budget in the hands of proven winners. Finally, this system gives the successful research staffer a very strong reason for remaining with the company since leaving would mean giving up control of all his accumulated intra-capital. ,
(4) The corporation must let the employee entrepreneur who has earned his independence, have it. No pressure should be brought on an employee who appears to be investing his intra-capital foolishly as long as he is not blatantly spending it on personal luxury,. No punishment other than the loss of his intra-capital should be meted out to those whose projects fail. The very successful intrapreneur should be almost untouchable by corporate discipline, thereby allowing the independence of spirit the system was designed to create, to flourish.
To start a new venture, the would-be intrapreneur who has not
built up "capital" must approach an internal venture
capital coming. He will have to present and defend a business
plan, and agree on a method of sharing the venture's profit
with the "investors". The committee should work willingly
as advisors even on projects for which funding is not needed.
(6) After a number of players have built up sizable intra-capital, some may become "venture capitalists" within the corporation, investing in the projects of other employees who cannot get corporate backing on agreeable terms and who lack adequate intra-capital. Large or very risky projects will be backed by employee intra-capital syndicates.
The effect of all these freedoms of opportunity would be a vast increase in the quantity and quality of R&D, and a tangible excitement in the R&D community at large, attracting many key staff from other companies to the new system.
(7) If a new product or service developed by an intrapreneur cannot be sold advantageously to another division of the company, he should have the option of raising intra-capital from the venture capital committee and/or from other successful intrapreneurs, to manufacture and market the new product. The new venture could be organized as a new corporate division, or even as a new corporation largely owned by the parent corporation.
(8) As the intrapreneurship system matures, intrapreneurs will be found throughout the company enthusiastically performing many services that are now performed in a less efficient and inspired manner by corporate employees. The new uncontrolled energy of the intrapreneurs may cause some problems for the central management, requiring new policies and ways of organizing, but the benefits will outweigh the disadvantages, and managers can be found that welcome the challenge.
Because companies are set in another way of doing business, the easiest way for them to establish a semi-entrepreneurial system within the corporation is to hire a consulting firm skilled in setting up such a system tailored to a company's needs, and educating the company's employees about using the system. 'The consulting firm's program might be as follows:
(a) A group from the company attend the School for Entrepreneurs, including a special section on Intrapreneurship.
(b) The consultants work with the corporate management setting up the rules within which the intrapreneurs will function. They set up rules for the cost sharing of overhead and rules for sharing profits on a new product or technique between the corporation's other divisions (such as manufacturing or sales) and the intrapreneur. Outside consultants have the advantage of being able to set up rules crossing established departmental lines and prerogatives with less political upset than if the work were being done by someone within the corporation who may be seen as jockeying for personal advantage...
c) Consultants serve with corporate management as members of the initial venture intra-capital group, the group charged with choosing among the project's and potential intrapreneurs those in which the company will invest.
(d) The consultants work with potential intrapreneurs to help them develop fundable proposals for the committee. In this work, they reinforce the virtues they will need to succeed as intrapreneurs.
(e) The consultants serve on the committee which buys completed research and development projects for the corporation. This group must liaise with many of the other divisions of the corporation. The independence and integrity of this committee is essential for the program to succeed.
(f) Keeping track of a number of intrapreneurs within the corporation and their interactions with it will require additional computer software. The consulting firm should have a systems division and flexible proprietary software for controlling intrapreneurial projects.
(g) When enough intra-capital has developed, the company could, if it wished " cease in its role as venture intra-capitalist and let the system run purely out of the part of its earnings retained in the form of "equity" stored by successful intrapreneurs.
Thus, the company could give the Venture Intra-Capital Board a fixed sum to invest in employee plans, and expect to have a permanent self-financing and self-perpetuating entrepreneurial system grow up within the company.
Once this system is working within the company's R&D department, it will naturally extend to many other types of entrepreneurial activity within the corporation. As intra-capital increases, the company will find itself being approached with increasing numbers of clear-headed proposals for cost saving and added profit in all areas of operation.
The greatest opportunity in the world today is the opportunity to help form the social inventions which will allow people to lead lives which more fully express their potential. People have enormous potential for goodness, for insight, for creativity, for intimacy, and for work. Much of this potential is trapped within the constraints of todays huge hierarchical organizations. The development of the entrepreneur is a step toward freeing individuals, our organizations, and our society to use our potential for building fuller, more meaningful, richer and more productive lives for us all. The signs of imminent change surround us. Intrapreneurship is an idea whose time has come.