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 / Spring 2003 / Issue 30(originally published by Booz & Company)


The Paradox of Corporate Entrepreneurship

Post-Enron principles for encouraging creativity without crossing the line.

Illustration by John Kachik
The collapse of the Enron Corporation has had enormous ramifications, not just for its shareholders, suppliers, and other creditors, but also for management theory. The company was widely celebrated for its ambitious, innovative, and seemingly successful management model — the balance of loose and tight management, the use of stretch goals, the system for attracting and retaining aggressive and creative people, and, in the center, the encouragement of internal entrepreneurship as the engine of growth and change.

Now that Enron has collapsed, are we required to write off the idea that companies should encourage entrepreneurship, stretch goals, and risk taking, on the grounds that they will ultimately lead to disaster? Must we accept the logic of journalist Malcolm Gladwell, who, assaying Enron’s demise, asked rhetorically in The New Yorker magazine, “What if Enron failed not in spite of its talent mind-set but because of it? What if smart people are overrated?”

No, we do not have to reverse our thinking. As with any corporate failure, the challenge is to separate the actions that led to the problems from those that continued to work well despite them. Or, stated more positively, we need to understand the enormous benefits of internal entrepreneurship and how it can drive corporate innovation and growth, while not neglecting the costs and risks that are associated with it.

This article provides a framework for thinking through the paradox of entrepreneurship: Every company needs to embrace it, while understanding that, if taken too far, entrepreneurship has the ability to undermine its own power. Building on extensive research in more than a dozen multinational companies (see “About the Research,” at the end of this article), this article describes a model of corporate entrepreneurship and the four typical problems that may arise if it is carelessly implemented. It also suggests ways to avoid each of those problems. Additionally, the research illuminates the promise and the pitfalls of some of today’s celebrated organizational concepts, in particular the challenges of encouraging an unconstrained free-market environment for managing people and ideas inside companies.

An Entrepreneurial Framework
The concept of corporate entrepreneurship has been around for at least 20 years. Broadly speaking, it refers to the development of new business ideas and opportunities within large and established corporations. Within this broad definition, there are at least four schools of thought, each with its own assumptions and objectives. The four basic schools are corporate venturing, intrapreneurship, entrepreneurial transformation, and “bringing the market inside.” (See “The Four Schools of Thought on Corporate Entrepreneurship,” at the end of this article.)

This article centers on the entrepreneurial transformation school of thought. According to this view of corporate organization, entrepreneurship is an individual behavior that is shaped by the systems and culture of the firm. To bring about lasting change in an established company, the job of senior executives is to develop a set of corporate systems and processes that promote such entrepreneurship throughout the organization.

Our approach is to take the model of entrepreneurial transformation that BP PLC has developed and add our own conceptual twist to it, to show that when it is taken too far, entrepreneurialism can be detrimental to the enterprise. BP is a rare example of a giant company that has radically, and beneficially, transformed itself from within. Close to collapse at the end of the 1980s, BP is now recognized as a leader in the restructuring of the global oil and gas industry and a highly innovative, forward-looking company that, in its pursuit of sustainable energy solutions, is effectively managing the difficult task of balancing growth, profitability, and social responsibility.

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  1. Julian M. Birkinshaw, “Entrepreneurship in Multinational Corporations: The Characteristics of Subsidiary Initiative,” Strategic Management Journal, Volume 18, Issue 2, 1997; Click here. 
  2. Robert A. Burgelman, “A Process Model of Internal Corporate Venturing in the Diversified Major Firm,” Administrative Science Quarterly, Volume 28, 1983; Click here. 
  3. Henry W. Chesbrough, “Making Sense of Corporate Venture Capital,” Harvard Business Review, March 2002; Click here. 
  4. Jay Galbraith, “Designing the Innovating Organization,” Organizational Dynamics, Winter 1982
  5. Gary Hamel, “Bringing Silicon Valley Inside,” Harvard Business Review, September 1999; Click here. 
  6. Rosabeth Moss Kanter, “The Middle Manager as Innovator,” Harvard Business Review, July 1982; Click here. 
  7. Michael L. Tushman and Charles A. O’Reilly, “Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change,” California Management Review, Volume 38, Number 4, 1996; Click here. 
  8. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997)
  9. Peter Drucker, Innovation and Entrepreneurship: Practice and Principles (Harper & Row, 1985)
  10. Richard N. Foster and Sarah Kaplan, Creative Destruction: Why Companies That Are Built to Last Underperform the Market — and How to Successfully Transform Them (Currency Doubleday, 2001)
  11. Sumantra Ghoshal and Christopher A. Bartlett, The Individualized Corporation: A Fundamentally New Approach to Management (HarperBusiness, 1997)
  12. Rosabeth Moss Kanter, When Giants Learn to Dance: Mastering the Challenge of Strategy, Management, and Careers in the 1990s (Simon & Schuster, 1989)
  13. Tom Peters and Robert Waterman, In Search of Excellence: Lessons from America’s Best-Run Companies (Harper & Row, 1982)
  14. Gifford Pinchot III, Intrapreneuring: Why You Don’t Have to Leave the Company to Become an Entrepreneur (Harper & Row, 1985)
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