Balanced management control systems as a mechanism for achieving corporate entrepreneurship.

Over twenty years ago, Peters and Waterman posited that the best-run companies had simultaneous "loose-tight" properties, where the organization is "rigidly controlled, yet at the same time autonomy, entrepreneurship and innovation from the rank and file is encouraged" (1982: 318). More recently, Collins (2001) has suggested that what he terms "great" companies have a "culture of discipline," where rigor and discipline enable creativity and entrepreneurship. This creative duality is expressed in terms of "freedom within a framework" and "opportunistic flexibility." The inference of these widely-read examinations of corporate excellence is that corporate control systems play an instrumental role in companies that demonstrate high levels of entrepreneurship. Yet the nature of that role remains unclear.

Control systems evolve in companies. The implementation of measures, procedures, systems, and documentation requirements initially brings order, coordination, accountability and efficiency to an otherwise chaotic situation. Without them, quality is inconsistent, schedules are missed, customers are improperly billed, money is wasted, and employees take shortcuts. Simple in the beginning, controls become more sophisticated and complex over time, to the point that they encourage bureaucracy and micro-management (Shih and Yong, 2001). Control measures can become ends in themselves, while conveying a lack of employee trust (Morrow et al., 2004). Concerns for strategic effectiveness are replaced by a preoccupation with operational efficiency (Simons, 1995). Thus, Pinchot observes that "many centralized companies with highly sophisticated control systems are, in fact, out of control" (2000: 125), while Govindarajan (1988) has proposed that U.S. firms are not so much over-controlled as they are mis-controlled.

A critical question concerns the relationship between the design and operation of the control system and the level of entrepreneurship exhibited within the organization. On the one hand, control systems provide strategic direction to the innovative efforts of firms, and the efficiencies they produce can free up resources for innovation (Marginson, 2002). Further, they exert discipline over innovative projects in terms of performance benchmarks, schedules, and competition among ideas. On the other hand, it would seem control systems that tightly monitor behavior and resource utilization can serve to undermine employee creativity and the motivation to experiment and take risks (Morris and Kuratko, 2002; Shih and Yong, 2001). Elaborate controls can discourage the kind of bootleg projects, resource bootstrapping, and informal arrangements between departments and units that are frequently associated with corporate entrepreneurship (Pinchot, 2000). They can result in slower decision making, harming the ability of the firm to exploit new opportunities.

The purpose of this research is to empirically assess the relationship between control and entrepreneurship in established organizations. Insights from the literature on the nature of control are reviewed, and underlying dimensions of a control system are identified. A series of hypotheses concerning relationships between the components of control and the level of entrepreneurship in a company are proposed. The hypotheses are tested via two surveys directed at cross-sections of corporate managers. Implications are drawn for theory and practice.

ENTREPRENEURSHIP IN AN ORGANIZATIONAL CONTEXT

Stevenson and Jarillo-Mossi indicate that "entrepreneurship is a process by which individuals--either on their own or inside organizations--pursue opportunities without regard to the resources they currently control" (1990: 23). Sathe (2003) defines corporate entrepreneurship as a process of organizational renewal and new business creation. Others have noted that, in a corporate context, entrepreneurial activities revolve around organizational sanctions and resource commitments for the purpose of innovative results (Naman and Slevin, 1993; Zahra and Covin, 1995). Zahra et al. (1999) provide an integrative perspective in stressing the formal and informal activities in established companies aimed at creating new business through product and process innovations and market developments, as well as strategic renewal. They further note that these activities may take place on the corporate, division, functional, or project levels, with the unifying objective of improving a company's competitive position and financial performance.

Entrepreneurship within established companies can take a variety of forms. Vesper (1990) discusses (a) new strategic directions, (b) initiatives from below, and (c) autonomous business creation. In a similar vein, Guth and Ginsberg (1990) distinguish between new venture creation within existing organizations and the transformation of organizations through strategic renewal (see also Sharma, 1999). Schollhammer (1982) characterizes five types of corporate entrepreneurship: administrative (traditional research-based innovation), opportunistic (exploitation of newly identified opportunities by a champion), acquisitive (acquiring other companies), incubative (creation of semi-autonomous units), and imitative (replication of achievements of some other firm).

Companies can also be expected to vary in terms of their entrepreneurial orientation (EO). Entrepreneurial orientation has been conceptualized as having three underlying components: innovativeness, risk-taking, and proactiveness (Covin and Slevin, 1989; Ginsberg, 1985; Kreiser et al., 2002; Miles and Arnold, 1991; Miller, 1983; Wiklund and Shepherd, 2005). Innovativeness refers to the seeking of creative, unusual or novel solutions to problems and needs. These solutions take the form of new technologies and processes, as well as new products and services. Risk-taking involves the willingness to commit significant resources to opportunities having a reasonable chance of costly failure. These risks are typically manageable and calculated. Proactiveness is concerned with implementation, with doing what is necessary to anticipate and act upon an entrepreneurial opportunity. Such pioneering behavior usually entails considerable perseverance, adaptability, and tolerance of failure. An entrepreneurial event (i.e., a new product, service, process, technology) will vary in terms of how innovative, risky and proactive it is, and any number of these events are possible in a given organization. Accordingly, entrepreneurship can be said to occur in varying degrees and amounts (Covin and Slevin, 1991; Kreiser et al., 2002; Morris and Sexton, 1996). Lumpkin and Dess (1996) have suggested the conceptual domain of EO may have two additional components, competitive aggressiveness and autonomy. However, as competitive aggressiveness conceptually overlaps with the proactiveness component, and autonomy is arguably a contextual variable that enables entrepreneurial behavior, the current study concentrates on the three components emphasized in the large majority of conceptual and empirical research studies.

There is also some debate regarding whether EO is best approached as a unidimensional construct comprised of innovativeness, risk-taking, and proactiveness components, or a multidimensional construct where the underlying components vary independently of one another. The research has consistently demonstrated significant correlations among innovativeness, risk-taking and proactiveness, but empirical evidence of significant independent variance has also been produced (e.g., Kreiser et al., 2002). It would seem, however, that the fundamental question is conceptual, as opposed to empirical. Entrepreneurial orientation is a formative construct where some level of all three components is necessary in order for an organization to be considered entrepreneurial (Coon and Slevin, 1991; Miller, 1983). That is, each component is necessary, and, while each can operate independently, each is not sufficient without the other two components. To be entrepreneurial is to simultaneously demonstrate innovativeness, risk-taking and proactiveness.

An alternative perspective is provided by Brown, Davidsson and Wiklund (2001), who distinguish entrepreneurial behavior from administrative behavior. The differences between these behavioral orientations involve the ways in which managers approach opportunity, resource commitments, resource control, company structure, and design of reward systems.