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


The Paradox of Corporate Entrepreneurship

Too Much Space. Another problem that can arise with the entrepreneurial approach is that if employees are given too much space and time to pursue their entrepreneurial ideas, they can easily lose focus on the day-to-day details of their existing job. This can have a number of negative consequences.

At Enron, individuals were given enormous latitude to pursue new opportunities. “We need a thousand ideas a day boiling up through the organization,” one executive told us. To fuel the incessant need for new ideas, the company gave individuals a very high degree of freedom. For example, Louise Kitchin, a gas trader in Europe, took the initiative in early 1999 to start an online trading business (EnronOnline) while continuing to work in her existing role. By summer of that year, she had some 250 people working with her on an ad hoc basis — before then-president Mr. Skilling was even aware of the unit’s existence.

The space afforded to individual employees was reinforced by a laissez-faire philosophy among top management. Of EnronOnline, Mr. Skilling has been quoted as observing, “I was never asked for any capital, or any people. They had already purchased the servers and started legal reviews in 22 countries by the time I heard about it.” He quickly became a strong supporter of the project, in part because of Ms. Kitchin’s entrepreneurial zeal. This is “exactly the kind of behavior that will continue to drive this company forward,” he said. Mr. Skilling and Mr. Lay were often approached by journalists who asked them about new Enron business ventures about which they knew little or nothing. These leaders saw this as a good thing, not as a problem.

It is easy to see the benefits of giving employees a lot of space in which to act: Many highly innovative companies, including Johnson & Johnson, 3M, and Ericsson SpA, have succeeded at least in part by giving operating units and individuals a great deal of autonomy. But when too much space is given, as it was at Enron, the approach has nasty side effects. By encouraging employees to continually flock to new opportunities, executives take attention away from existing businesses. At Enron, the best people gravitated quickly toward the high-growth opportunities and away from the traditional businesses. Not a bad way to go, one might argue, except that the traditional businesses were the ones with secure franchises and positive cash flows.

The second problem with an overabundance of entrepreneurial space is that, when combined with an aggressive risk–reward mentality, it creates a vicious cycle in which the highest rewards go to people who jump continually from one initiative to the next. Fast-track executives at Enron got few plaudits for managing and sticking with the businesses they created, whereas they would at 3M, for example, a company that is known for balancing its creativity with relatively conservative checks on funding and project management responsibility. In contrast, some people at Enron were encouraged to take on new challenges and leave the day-to-day management to others.

Too much space can present another, completely different problem: waste. In the case of a university or research institute, it is an article of faith that research should not be rushed to accommodate short-term commercial interests. These researchers have enormous freedom, but because their objective is to advance knowledge, rather than to make money, university researchers typically fritter away valuable time and money on pet projects, most of which never deliver results. Understanding the potential for lack of productivity, most business organizations are increasingly applying R&D investments to particular projects that have specific deliverables. GlaxoSmithKline PLC, for example, recently split its R&D organization into six “Centres of Excellence for Drug Discovery” to encourage a more commercial and responsive mind-set among its scientists.

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