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Published: February 13, 2003

 
 

The Paradox of Corporate Entrepreneurship

At the heart of BP’s transformation is a management philosophy that places responsibility for delivering results deep down in the organization. “Contracts,” as they are known within BP, are set between the top executives, Chief Executive Lord John Browne and Deputy Group Chief Executive Rodney Chase, and those running BP’s business units. Then those individuals are given free rein to deliver on their contract in whatever way they see fit, within a set of identified constraints. Call it empowerment or call it entrepreneurship, the essence of the model is that successful business performance comes from a dispersed and high level of ownership of, and commitment to, an agreed-upon objective.

According to Mr. Chase, the BP management model rests on four components that help guide and control entrepreneurial action. These are direction, space, boundaries, and support.

  • Direction essentially is the company’s strategy. It is a statement of the goals of the company, the markets in which it competes, and its overall positioning in those markets. BP sees itself as an integrated energy company, but it also defines itself in terms of its commitment to social responsibility, to act as a “force for good.”
  • Space identifies the degrees of freedom provided to business unit managers to deliver on their commitments. It manifests itself in terms of physical space — that is, freedom from constant interruption, close oversight, and supervision — and the time managers need to experiment and refine their ideas.
  • Boundaries are the legal, regulatory, and moral limits within which the company operates. These boundaries can be explicit, recorded in policy documents and codes of conduct, or they can be implicitly understood.
  • Support denotes the systems and programs provided by the company to help business unit managers do their job. These include information systems, processes for knowledge sharing, training and development activities, and work/life balance services.

The beauty of this model is that, together, these four elements create an organizational environment of controlled freedom in which senior executives do their jobs by getting out of the way of those they empower to execute strategy. The point is that for positive, strategically predicated change to occur, the company needs all four components. If any one is missing or out of balance, the model breaks down and the ability of people in the organization to act as effective entrepreneurs is compromised. (See Exhibit 1.)

Exhibit 1: Finding Balance Between Constraint and Chaos

 

Constraint Balance Chaos
Direction Corporate strategy is tightly defined by senior executives. Frontline managers have little or no input into the development of strategy. Senior executives are involved in both developing goals for businesses and working with managers on how those goals will be achieved. All new product and market ideas are reviewed by senior executives.
Corporate strategy is broadly defined by senior executives. A clear direction is set from the top, but managers have considerable scope to develop strategy for their business in line with that direction. Senior executives focus on identifying and measuring goals for the businesses, rather than on how those goals will be achieved. Corporate strategy is defined extremely broadly by senior executives, in such a way that virtually nothing is excluded. Frontline managers are encouraged to seek out new product and market opportunities wherever they arise.
Space Employee roles are clearly defined. Employees are monitored both in terms of what they achieve (output) and in terms of how they do it (behavior). Doing anything that lies beyond the formal job description requires the approval of the boss. Employee roles are defined by outcomes rather than by behaviors. Some slack is built into the system, to allow employees to spend 5 to 10 percent of their time on things that are not formally part of their job description. Employees are encouraged to take initiative.
Employee roles are defined in only the loosest terms. Employees are expected to create their own jobs Ñ to spend as much time as it takes to carve out a role for themselves. If a new opportunity comes along, it should be pursued.
Boundaries Boundaries are tightly defined, to ensure that everything the employee does conforms to legal, regulatory, financial, ethical, behavioral, and moral demands on the company. Failure to stay within these boundaries results in immediate dismissal. Boundaries are tightly defined around anything that could threaten the viability of the company. Failure to work within these boundaries results in dismissal. Other boundaries are managed in a more implicit way, by promoting compliance through the creation of shared values. Boundaries exist and are monitored, but the control systems are not well managed, and for the innovative employee there are ways of circumventing those systems. If caught, the employee may or may not be dismissed.
Support The company provides a wealth of systems and programs for supporting employees. Training, development, and career planning are all managed on a centralized basis. Top-down systems are created to promote sharing and collaboration between business units. Information systems are comprehensive and managed centrally.
Training and career planning are coordinated on a top-down basis, but business units and individuals are expected to choose whether to take part or not. Systems are developed to encourage — but not require — business units to collaborate and share knowledge. Some information systems are managed on a centralized basis.
Individuals are responsible for their own careers and their own training and development. Business units are highly autonomous, and few if any attempts are made at a corporate level to encourage those units to collaborate or share knowledge. The system is run as a free market.
 
 
 
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Resources

  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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