Neither Entrepreneurship nor Intrapreneurship Can Exist in a Bureaucratic Organization - Essay Example

"Neither Entrepreneurship nor Intrapreneurship Can Exist in a Bureaucratic Organization Vertical vs. Horizontal Large-scale organizations are most commonly characterized as bureaucracies. However, bureaucratic organization structure is rapidly becoming dysfunctional, and new structures are evolving right within a number of large-scale organizations, as well as within many other small and medium scale enterprises. Today there is a growing recognition that hierarchical bureaucracies do not work in the new knowledge society. The authoritarian organization has a stultifying effect on the processes of initiative and innovation, which are key to organizational survival in a highly competitive world. They can only thrive in an environment of relative freedom. Under industrialization, bureaucracy was the dominant form of organization. The factory was designed to produce standardized products; the bureaucracy was designed to produce standardized decisions. Many major corporations of today developed in an industrial society, based on a bureaucratic model of machine-like division of function, routine activity, regularity, seeming permanence, and a long vertical hierarchy. It was a world of mass markets uniform goods and services, and long production lines. During the 1990's, however, the top-down authoritarian management style began yielding to a networking style of management. Horizontal communication in a networked environment is freer and more fluid, with few bureaucratic barriers. In the new style of management, people learn from one another peer to peer, everyone is a resource for everyone else, and each person gets support and assistance from many different directions. In any bureaucratic structure, people tend to feel they cannot change their environment and thus may never seek the information that might change it. In sharp contrast, the new emerging form of organizations supports change, innovation, and individual initiative to an optimal degree. Intrapreneurship simply represents an organizational culture that allows employees flexibility and authority in pursuing and developing new ideas. Intrapreneurship is nothing but entrepreneurship practiced within the context of a large established organization. An intrapreneur is involved in the "venturing" process, that is, in developing a new business inside a corporation from its initial idea until it becomes a viable business. Often an intrapreneur must lead a project with an entrepreneurial vision , willingness of using power , leadership, motivation and ability to overcome resistance and barriers (Johansen, 2002). Joseph Schumpeter (1883-1950) was a pioneering researcher in the field of entrepreneurship, he studied the role of the entrepreneur as an innovator, i.e., the person who develops a new product, a new market, or new means of production. Schumpeter distinguished between dependent and independent entrepreneurs, the former being those who are connected to an existing company, and the latter being those who start their own companies. Although coined and popularized by Gifford Pinchot in 1985, the term 'intrapreneur' (short for intra-corporate entrepreneur) essentially means what Schumpeter called a dependent entrepreneur. Several factors in organizations can have an influence on intrapreneurship/entrepreneurship. Usually, there are any number of barriers to innovation that can occur in organizations. Among all these factors and barriers, the degree of bureaucratic-style management within an organization can have the most adverse impact on the levels of individual initiative. 2. The Paradigm Shift Bureaucratic-style management is fading from the scene, albeit gradually. Mega corporations may be thriving, nonetheless their internal structures are becoming more geared towards innovation. Once considered a contradiction in terms, corporate intrapreneurship has become widely accepted in successful companies, such as 3M, Intel, and Coca-Cola.Also, in the fiercely competitive world of high tech, many of today's technology giants remain significant market forces because of their internal entrepreneurial efforts (Hellriegel et al, 2005). Within a largely bureaucratic structure are developing pockets of freedom and institutions analogous to free enterprise - a system of organization that can be called the free intraprise network. Free intraprise empowers ordinary employees to start a business (or intraprise) within the organization if they can find the customers and the capital to do so, besides the support of senior management to the degree required. When employees create an intraprise, eventually the nature of control considerably changes from dependence on the hierarchy to interdependence with customers and suppliers. Rather than having a bureaucrat decide everything , free choices by buyers and sellers throughout the network greatly determine what is needed. Customers, not bureaucrats, are likely to be the basic controllers of the free intraprise systems just like they are in free enterprise systems. This is not to say the role of superiors and higher-cadre managers would be absent, but would be diminished to a healthy level. With the flourishing trend of mergers and consolidations, large bureaucratic organizations seem to be very much alive. To achieve economies of scale and financial leverage, there is actually a real need for large organizations. Today, as ever, growth means going big. At the same time, a parallel trend is also gaining momentum; this takes the form of entrepreneurship and intrapreneuship. The surge in both entrepreneurship and intrapreneurship that we are witnessing in our day is the herald of a new paradigm shift. While corporations may only seem to be getting bigger, many structural changes are taking place from within, favoring innovation and checking the influence of bureaucratic rigidity. 3. Bureaucratic Organizations and Innovation The German sociologist Max Weber did the foundational work on the development of the mechanistic industrial organization form, the bureaucracy. Weber observed parallels between the mechanization of industry and the proliferation of machinelike bureaucratic form of organization. He noted that the bureaucratic form routinizes the process of administration exactly as the machine routinizes production. This was a logical outgrowth of the thinking of the time; an industrial revolution, with mechanized productive apparatus (one form), would naturally inspire a mechanized organization (another form) to complement it. In Weber's work we find the first comprehensive description of the bureaucratic form as one that emphasizes speed, efficiency, clarity, regularity, reliability and precision. As the Industrial Revolution got underway in the United States this form was ideally suited to the situational constraints of the era (Banner 1995). These organizations are by their very nature structured towards efficiency, but increasingly they will now need to also master creativity in order to survive. There is a dilemma here. Firms will not survive in the long run unless they are proficient at exploring new technologies, and they will not survive in the short run unless they are proficient at exploiting existing technologies. Herein lies a great dichotomy at the heart of modern business organization. A dynamic balance has to be struck between a host of conflicting factors. However, in their constant quest for managing the balance between centralization and decentralization, between interdependence and diversity, between integration and flexibility, and between control and creativity, large organizations still manifest a strong tendency to favor efficiency and productivity gains over and above creativity and innovation. Bureaucracy is past-oriented in many ways, and innovation is thoroughly future-oriented. At its very root, the entrepreneurial process of innovation and change is at odds with the administrative process of ensuring repetitions of the past. Structures and practices that may work well for the perpetuation of the known are not generally conducive to the process of innovation. In many large organizations, which happen to be inherently bureaucratic, one would find a plethora of ideas and potential ideas that go unnoticed because there are some structural impediments to their realization, or little or no incentive for employees to bring such ideas forth. For instance, incentive structures in large firms are designed to minimize surprises, yet innovation is inherently full of the unexpected. From a managerial point of view too, the reward system for general managers is typically based upon annual profits or ROI of corporate resources managed. They are therefore rewarded for achieving short- rather than long-term profit. Moreover, apart from the greater inherent risks involved, the rewards associated with the profits from any longer-term, more radical innovations are unlikely to accrue to the manager originally involved in initiating a novel project, since he or she is likely to have moved on to other responsibilities before they are achieved. As such, innovative efforts often fall through the cracks inherent in most large organizations. In fact, in these organizations there could usually be strong "disincentives" for innovative activities (Martin 1994). 4. Entrepreneurial Climate On the other hand, non-bureaucratic organizations that foster individual enterprise and intraprise are based on the concept of employee empowerment. Empowerment means giving power and is the natural extension of employee participation concepts such as quality circles and task teams. However it is more than employee participation. It represents a high degree of involvement in which employees make decisions themselves and are responsible for their outcomes. The objective of empowerment is to tap the creative and intellectual energy of everybody in the company and to provide everyone with the responsibility and resources to display real leadership within his/her sphere of competence. The ultimate goal of empowerment is self-management in which employees exercise complete responsibility and initiative, monitor their own work and use managers and staff as teachers and facilitators. If hierarchy was central to traditional organization, the lack of hierarchy is central to innovative organization. The innovative organization is much flatter , with fewer levels of managers. Most work will be horizontal knowledge work performed by multidisciplinary teams. Rather than satisfying their immediate supervisor (vertical relationship), team members concentrate on satisfying he needs of the next person in the process (horizontal relationship). Teams will be given considerable autonomy and will be expected to carry out the intent of the company's mission and vision. Project managers and network managers will replace most of the middle managers and functional staff in the traditional bureaucratic-style organization. Companies can only succeed by tapping the talent and dedication of their people and by combining that talent and dedication in a team effort. The building of trust is emphasized in innovative enterprises. Politics, infighting, and departmental jealousies that are common features of bureaucracies are to be minimized. Leaders work hard to earn their team mates' trust and vice versa, thus creating conditions in which trust can flourish. In such dynamic companies, there is widespread enthusiasm a spirit of doing whatever it takes to achieve organizational success. The challenge for many modern organizations is to revitalize themselves so that they can successfully and continuously develop new products and new businesses. It is important that they not only improve their procedures for new products and new businesses, but also improve their culture as such. It is good if a company has an effective innovation process in place, but it is not enough. What is needed is a change in culture - the sum of values, beliefs and assumptions that is the core of any organization. There is a need for an innovative culture, which cannot be actualized unless there are appropriate changes in organizational behavior and structure, i.e., away from bureaucratic tendencies to the extent possible (Oden,1997). Developing an innovative company will require many changes in the organizational behavior and business processes. Any attempt to introduce management practices or organizational behavior changes that are radically different from the existing culture will almost fail if these changes are incompatible with the existing culture. Without a change in the culture of the company, no new set of skills or work processes will bring about he kind of reform that is needed. Cultural change is very difficult to effect in organizations, particularly in mammoth bureaucratic-type organizations. An existing strong culture can often resist a weak change effort. However if innovation and intrapreneurship are to be successful, they must supported by an appropriate corporate culture. It is very important that to make intrapreneurship /entrepreneurship possible, the right conditions have to be present within the organization. The factors, which influence the extent of entrepreneurship, are called the entrepreneurial climate, which is a term closely related to innovative culture. Further, in order to be successful, along with a culture that supports innovation and intrapreneurship, an organization must have a far vision and a strong aggressive strategy. Strategies imply strategic plans which outline how strategic objectives, such as positioning the firm for growth through new products or new markets, global expansion, technological innovation, quality performance, or cost-price leadership, can be achieved. The interplay between the organizational culture and the organizational strategy is of great importance. Culture, and strategy support and complement each other. The organizational culture supports organizational strategy by providing a base of continuity around which an innovative company can evolve, experiment, and change. By being clear about what is core in values and beliefs, a company can more easily seek strategic change and movement in all that is not core. The strategy supports the culture, for without continual change and forward movement, the company - i.e., the carrier of the core - will fall behind in an ever-changing world and can even cease to exist. 5. The Birth of a New Enterprise Due to frequent dearth of appropriate incentive structures for innovation within the confines of traditional industrial firms, and the structural impediments imposed by these organizations' constant quest for gains in efficiency, new ideas often need avid organizational advocates. Usually venture managers fill this role. What makes venture managers effective in organizations is their ability to develop a whole set of backers and supporters for innovative activities, which helps lend the power necessary to achieve these activities. In large organizations, intrapreneurs need coalitions of support to continue their work. This support is more than putting together an intrapreneurial team. Coalition building involves finding sponsors and receiving either active support or at least passive neglect from superiors. Even though there may be a brilliant creative concept, with someone with vision pushing it, it still has to be sold to other people in the organization in order to get implemented. In this sense intrapreneurs inside a corporations are just like entrepreneurs outside: They have to find bankers, people who will provide the funds; they have to find information sources; and they have to find legitimacy and support, people who will champion the proposed project to other power-holders. Often the culture, policies and procedures of the parent firm may appear to be irrelevant, arbitrary, and a bunch of bureaucratic nonsense to those trying to get a new venture off the ground. Regardless, it must be realized that such bureaucratic adaptive mechanisms too have had their place in developing the effectiveness of the organization at one time. Every organization has to pass through several stages of development. According to Daft in Organizational Theory and Design (1992), an organization goes through four stages: from birth (nonbureaucratic) - youth (prebureaucratic) - midlife (bureaucratic) - to maturity (very bureaucratic). The intrapreneur and the team, along with the venture manager, must convince high-level management that the current practices of a large corporation at a mature stage of development are not appropriate for a small early-stage venture. Policies and procedures must be appropriate for the stage of the venture's life cycle. And it could be easier to convince the senior management if the argument is presented in terms of difference in stages of development rather than as an attack on bureaucracy and bureaucrats. It could be very difficult to fight a bureaucratic regime if it is present, but since it is in everyone's interest that the company make profits through innovation and creativity, the senior management is intrinsically liable to persuasion. Indeed entrepreneurship and intrapreneurship can and have to exist even within a bureaucratic organization, but this is possible only to the extent the senior management is willing to budge on its stance and make a little way for innovation and novelty, even at the cost of a reasonable amounts of risk. References: BANNER, David K. 1995. Designing Effective Organizations: Traditional and Transformational Views. Thousand Oaks, California: Sage Publications Inc DAFT, Richard L. 1992. Organizational Theory and Design. St. Paul, Minnesota: West Publishing. JOHANSEN, Karl-Johan. 2002. Organizational Factors and Intrapreneurship. Trondheim Business School. Sr-Trndelag University College Trondheim, Norway. Available from: www.hist.no/aft/ecms/ent/paper.pdf. [Accessed 15 Aug 2006] MARTIN, Michael J. C. 1997. Managing Innovation and Entrepreneurship in Technology-Based Firms. New York: John Wiley and Sons. ODEN, Howard W. 1994. Managing Corporate Culture, Innovation, and Intrapreneurship. Westport, CT : Quorum Books HELLRIEGEL, Don; Jackson, Susan E; Slocum, John W. 2005. Management: A Competency-Based Approach. 10th edition. Mason, Ohio: Thomson South-Western. Read More