URL: http://www.entrepreneur.com/magazine/entrepreneur/2001/july/41420.html

We've reached another era in which everything--business, technology, science--is moving at light speed. For the past couple of years, innovative entrepreneurs got all the buzz. Now it's the entrepreneurial spirit that fuels the innovation everyone's after. It's what huge corporations call in consultants to get and what established small businesses need if they want to survive. And because it's pretty hard for one mind--even the great mind of an entrepreneur--to be on target all the time, many management experts suggest that higher-ups should lose the ego and give employees the opportunity to exercise their own creativity.

Now, empowering employees with the freedom to innovate sounds great in theory, but as many management consultants know, and as many large corporations have found out, adopting a new way of thinking--one that goes against the ingrained corporate hierarchy--is scary and not typically welcomed with open arms. It's only when a lucrative business idea or a more cost-effective way of operating emerges from a company's lower ranks that senior management wakes up and sees the potential in allowing employees to escape their hawk-like eye, sit in a basement office and create something unique.

It was back in 1976 in a business trends piece for The Economist that Norman Macrae said corporations should engage in "alternative ways of doing things in competition with themselves." By 1983, author Rosabeth Moss Kanter was suggesting innovation pioneers could be found at all levels of the organization in The Change Masters: Innovations for Productivity in the American Corporation (Simon & Schuster).

Then a model to create a "self-organizing" and "less rigidly hierarchical" workplace emerged: Coining the word "intrapreneur," or intra-corporate entrepreneur, Elizabeth and Gifford Pinchot published their book Intrapreneuring in 1985 and made it their mission to teach large corporations how to make innovation more cost-effective by using the talents and productivity of their employees. And they have: Their Bainbridge Island, Washington-based innovation services firm has helped everyone from 3M and Campbell Soup to AT&T realize the potential of their employees.

Now everyone, from consulting firms like Pinchot & Co. to professors from the top B schools, is encouraging businesses to adopt some form of corporate entrepreneurship, and they're at their beck and call to help implement those programs. With Texas Instruments' Speak & Spell, Apple's Macintosh, Sony's PlayStation and Microsoft's much-anticipated Xbox as examples of corporate entrepreneurship successes, you can understand why.

However, letting employees set up shop under your umbrella may not be the best move for your business. Employees may know their products and services inside and out and have ideas on how to expand them or cut costs, but you may think it's too risky to change the focus of your company. That doesn't mean you can't learn from the intrapreneurship model.

"It would be too disruptive for small businesses to nurture things outside the current scope of activities," says Richard Leifer, associate professor of management and the project manager for the Radical Innovation Project at Rensselaer Polytechnic Institute's Lally School of Management and Technology in Troy, New York. "Focusing on breakthrough improvements within their current lines of business would be less disruptive."

Another concern is that too many entrepreneurs running around within one small business could harm ongoing operations. 3M lets all employees work on developing their own ideas as much as 15 percent of their workday, but Leifer suggests no more than 3 percent of a small company's population should be "out-of-the-box thinkers."

That leaves us with just one riddle to be solved: How entrepreneurial can you make your company without giving it a shock to its system?

"I call this the schizophrenic approach to management," explains Leifer. "We have to do our current activities well and continuously improve those activities. At the same time, we have to think of new ways of creating value and growth. And unless we find new areas for growth, companies--especially small ones--will fade away."

Leifer likes the intrapreneurial model in place at 3M ("a big company that acts small"): If you come up with a good idea, develop it and get support for it, you can eventually build that business and manage it. Companies like Lucent and 3M also let employees share in the profits of their corporate entrepreneurship. "This may be a little far afield for many small-business owners," he says, "but look at the upside and the downside. The upside is, everybody wins: The value of the company goes up, and you attract interesting people. The downside is, the traditional entrepreneur loses some direct control."

Giving up control--oh, dear. "Control is elusory anyway," says Ken Perry, senior consultant at Pinchot & Co. "What you really want is order. And we believe order appears more effectively when you allow for self-organization."

Sound tempting? If you're a small business, assuming a 3M-like form of corporate entrepreneurship wouldn't cause much of a culture clash. For well-established companies, however, it can be riskier. But one thing's for sure: Showing employees they can help create something groundbreaking lifts spirits, boosts productivity and can create loyalty where most businesses have little. And that prospect is hard to ignore for entrepreneurs fighting to stay innovative.

There's no better reason to have more than a few minds working overtime than your business being in a fast-moving market. New York City-based Warp Solutions Inc., which uses its proprietary technology to aid in the distribution of content on the Web, expects $6 million in 2001 revenue. Because demand for this relatively new technology is high, innovation is a must.

"The demand for increased functionality is quite high--functionality that doesn't even exist," says Karl Douglas, 38, co-founder with John Gnip, 32, and Lenny Primak, 26. "So you have to have an environment that's very entrepreneurial, down to the developers that create the technology itself." Since its start in December 1999, Warp has paid engineers $10,000 for successful patent applications. And depending on the technology's revenue potential, stock options may be offered.

Also crucial to Warp's success is the "raw material"--sales and marketing data on customer demand--employees receive. "One of the classic mistakes tech companies make is, they isolate their marketing and technology [people] from each other. We set out to do the exact opposite," says Douglas.

With 70 employees who interact regularly, Warp doesn't need to host innovation fairs. Ideas are voiced freely and heard. Good thing, too, because, says Douglas, "it's the only way to survive."

The key is, you and your managers must wholeheartedly accept that employees should be allowed to create. Neal Thornberry, faculty director of the School of Executive Education at Babson College in Wellesley, Massachusetts, has dealt with companies that entered Babson's corporate entrepreneurship program but never really seemed to be on board. "We run into those barriers every time," he says. "Let's [take] equity [compensation]. We ask senior management, 'Are you willing to change the way you pay people?' And if they say no, we say, 'OK, don't do this program anymore, because you're not serious.'" An additional sign that the program might not work, says Thornberry, is if the CFO--not the most willing to invest in anything risky--is overseeing the program's finances. Thornberry suggests appointing outsiders, like venture capitalists, to your board to review your innovation efforts.

What corporate entrepreneurship consultants stress are the benefits of discovering new talent and the likelihood that if innovative employees are rewarded properly, they'll stay with the company rather than resign to start their own businesses. "Most of the people with the ideas prefer to stay inside because you have a heck of a brand," says Thornberry. "[These people] probably already have a pool of talent across the organization if they can get access to it--and a paycheck every week. Not everybody's cut out for the start-up entrepreneurship role."

The thing is, it's hard to tell who has the ability to come up with fresh ideas, and the dedication to follow through, without giving everyone a go. When Thornberry taught corporate entrepreneurship at electrical engineering and electronics company Siemens eight years ago, he was taken aback when the same fiftysomething engineer who demanded he be told exactly how to give a presentation (flip chart or overhead--weighty stuff) went on to develop a successful business within the company, while two Stanford MBAs were the first to quit the program for fear it would throw them off their career paths. Working with food company Mott's, which found innovators via a competitive application, Thornberry saw a secretary beat out a senior vice president. "You never know who could be entrepreneurial unless they're put in a situation where it might bud," he says.

The first step in building an innovation program, says Leifer, is understanding that entrepreneurial minds are valuable--even vital--to your company's success. Then you need to designate a person (or group) to whom employees can turn with new ideas. "If you identify people tasked with seeking out new ideas," says Leifer, "there's a greater chance of those ideas emerging and being supported and nurtured."

If you sense a lack of entrepreneurial thought within your company, Leifer suggests looking outside. "Particularly with the fall of the dotcoms, there are a lot of folks with entrepreneurial tendencies who are now in the marketplace," he says.

You'll be surprised by not only how re-energized your employees are once they're granted entrepreneurial responsibilites, but also the skills they'll learn. "All of a sudden the five- or 10-person team [of] programmers or technical engineers has to do sales and marketing [to get their ideas funded internally], deal with finances and do human resources work," says Perry. "They're no longer just individual contributors, but with new management and business skills, they become candidates for leadership roles outside their specialty area."

So how do you know whether you need an innovation program? Here are a few signs to note, says Leifer: Sales start to erode, customers start asking whether you're doing anything new, or good employees start to leave the company. "There's no cookbook approach," says Leifer. "It depends on the personalities of the company leaders, the culture of the company and the industry. But most companies we've seen have to think about reinventing themselves and [their products] . . . to stay competitive and successful. It's a big challenge."

Now There's an Idea!

If Bill Ernstrom has his way, lots of ideas will be born from his corporate entrepreneurship program.

Voyant Technologies Inc. is four years old, but the company, a provider of audio-conferencing technology, only started promoting innovation in the most cost-effective way in February--via its intranet.

Using that network, Westminster, Colorado-based Voyant's 200 employees learn about the company's history as well as the "Product Implementation Process"--rules for launching entrepreneurial ideas. "That's a really important part, because if you don't know the ground rules, then it's impossible to do it--even if you have a great idea," says CEO Bill Ernstrom, 37.

Further fueling innovation is the Bright Ideas program, which rewards both entrepreneurial successes and failures. The Best Overall Company Mind Share Contribution goes to ideas that captured the company's imagination, and the Elisha Gray Award (Elisha Gray filed for a patent for the telephone a few hours after Alexander Graham Bell did) goes to near-successes. The reward: a nice plaque and stock options. "We steer away from [money awards]," says Ernstrom. "Everyone has stock options, so we try to steer toward, 'Hey, we're all pulling the same way, and we all win if it's pulled together.'"

Mimicking the VC process, Voyant executives review new ideas--which tend to stay in the market space, although the company doesn't limit itself in that way--and supply the high-potential innovations with funding.

Ernstrom says most ideas come from tech employees, but there's no rule saying ideas can't come from anywhere in the company. New projects are still germinating, so it's too early to tell whether Bright Ideas is working, but Ernstrom says Voyant's sticking with the program for now. "We try to find things that are inexpensive but really innovative," he says. "And that's clearly what an entrepreneur does."