The Entrepreneur and the Organization

CONTENTS INTRODUCTION

DEFINITION AND CONCEPT

ENTREPRENEURSHIP AND ORGANIZATION

PROFIT ORGANIZATIONS

NON-PROFIT ORGANIZATIONS

CONCLUSION

REFERENCES

1

INTRODUCTION Austrian economist, Joseph Schumpeter presented a vision of the entrepreneur as someone motivated by the ‘dream and the will to found a private kingdom’, the ‘will to conquer: the impulse to fight, to prove oneself superior to others’, and the ‘joy of creating. ’ (Schumpeter, J., 1975). Theoretically, the entrepreneur is inspired to alter an undesirable state of events and starts to think creatively (usually in an out-of-the-box way) on a solution, takes action in a courageous way, despite the risks, and persists until the solution is generally accepted. Many examples of such people exist; Jack Welch, The Wright Brothers, Philip Condit, Arthur Fry and a host of many others. Although it can be argued that a lot of entrepreneurial ideas fail for many reasons, one of which is ‘tunnel vision’ by the entrepreneur who thinks his ideas are God sent, more often than not, entrepreneurs add value to businesses, create new markets and new services that improve the lives of others and also earn, in some cases, huge profits for their organizations. Theorists in support of this concept see entrepreneurs as being indispensable to market economies. Michael Porter presented the three business-level generic strategies: Cost Leadership, Differentiation and Focus and postulated that a firm cannot achieve competitive advantage without utilizing one or a combination of these strategies. (Porter, M., 1980) The components of a firm’s strategy should comprise its objectives, scope and advantage. Entrepreneurs exist in different forms of organizations which will be examined in two main forms: Profits and the Notfor Profits. Both types utilize strategies to be able to exist and compete in their particular industries and if these strategies encourage entrepreneurship, the entrepreneurs will blossom. Entrepreneurs are indispensable to implementing a firm’s strategy – providing that this strategy seeks to ensure that the firm evolves to meet the needs of an ever-changing market. The Profits will be subdivided into Start-ups/New Ventures (which will be examined in relation to Small Businesses), and Large businesses. The Not-For-Profits will be examined in the context of social entrepreneurship. The social entrepreneur targets a usually disadvantaged population that lacks the financial means or political clout to help itself.

2

DEFINITION AND CONCEPT Definitions Joseph Schumpeter's definition of entrepreneurship placed emphasis on ‘innovation to create new products, new production markets, new forms of organization, new sources of supply and new markets’. Wealth is created when such innovation results in new demand. Schumpeter sees the entrepreneur as an agent of change within the larger economy. (Schumpeter, J., 1975) Peter Drucker, on the other hand, does not see entrepreneurs as necessarily agents of change themselves, but rather as exploiters of change. According to Drucker, ‘the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.’(Drucker, P., 1975) (Lumpkin and Dess, 1996) defined entrepreneurship as ‘new entry’ that enters ‘new or established markets with new or existing goods or services’. For (Frank Knight, 1967), entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture. In circumstances that are inconvenient, uncomfortable and below par, where others may see an inconvenience to be tolerated, an entrepreneur sees this condition as an opportunity to create something new, using the characteristics of inspiration, creativity, action, courage, and persistence. This new state at first struggles to survive and then later, generally stabilizes. It may then be usually adopted en-masse across the market and could even give rise to imitators.

Concept The entrepreneur is inspired to alter the unpleasant equilibrium. That was what happened to Arthur Fry of 3M. He got the idea, in church, of using the reusable adhesive developed by his colleague, Spencer Silver, to provide his bookmarks in the hymnal with the temporary anchoring they needed. (3M, 2008) The entrepreneur thinks creatively and develops a new solution that dramatically breaks with the existing one. Orville and Wilbur Wright were the first to invent an airplane controlled to move in 3 dimensions as opposed to just going straight. (The Wright Brothers, 2008) Once inspired by the opportunity and in possession of a creative solution, the entrepreneur takes direct action. Jack Welch, legendary CEO of General Electric (GE) took action to restructure GE’s bureaucratic, ‘command-and-control’ structure and reduce the many hierarchical layers of management. (Welch, J., 2001)

3

Entrepreneurs demonstrate courage throughout the process of innovation, bearing the burden of risk and staring failure squarely if not repeatedly in the face. The Wright Brothers kept testing their airplanes, risking life and limb to do so. Finally, entrepreneurs possess the fortitude to drive their creative solutions through to fruition and market adoption. When Arthur Fry persisted in his dream of the ‘Post-it® Note’, a revolutionary new product which could be used as a bookmark as well as an office organizer, 3M finally sat up and took notice and then began to invest in it, designing and building special machines for its production.

ENTREPRENEURSHIP AND THE ORGANISATION From (Lumpkin and Dess’s, 1996) definition of entrepreneurship, it can be inferred that the entrepreneur turns a business idea into a new business or injects vitality into an old business. He/she is creative and innovative. He/she is usually a change agent. He/she spots and seizes opportunities despite the risks. Gartner, W., 1988 defines entrepreneurship as the creation of new ventures, and entrepreneurs as the creators of new ventures. A new venture is the ‘end result of the process of creating and organizing a new business that develops, produces, and markets products or services to satisfy unmet market needs for the purposes of profit and growth’. For the large organizations, corporate entrepreneurs are needed to infuse newness into their systems and help them adapt to changes in the environment. Miller, D., 1983 stated that there was a continual ‘need for innovation, constructive risk-taking, and pursuit of new opportunities.’

Profits: Large Businesses Theorists agree that top management is responsible for making strategic decisions, and, therefore, is responsible for the performance of a business. Therefore top managers (mostly CEOs) and/or external consultants can act as corporate entrepreneurs or ‘change agents’.

Strategy and the Entrepreneur Philip Condit and Boeing Co. When Boeing shifted its corporate strategy from being one of the largest players in the aircraft industry to being the most profitable, it had to restructure the entire organization. Philip Condit of Boeing was the force behind that objective and thus he is regarded as an entrepreneur. He was the executive vice president and general manager of the 777 Division and

4

was in charge of the team that launched the Boeing 777 airplane. Boeing, an 80 year old company, had become a rigid, bureaucratic corporation with highly centralized layers of decision makers. Communication within the functional departments was nearly non-existent, and this created costly production delays. Boeing was in need of major restructuring, especially because the delivery times for the new airplane, the 777 was slow – about 18 months. (Lubove, S., 1996) Philip Condit destroyed the old bureaucratic walls within the company and organized hundreds of cross-functional teams called ‘design/build’ teams involving customers, suppliers and employees to improve coordination across functional areas and work together in producing the 777. These ‘design/build’ teams have received many awards. Apart from the teams, he reduced the hierarchies by outsourcing most operations and removing most of its middle managers and staff. This restructuring helped to further reduce delivery times for the 777 to 10 months and every year, Boeing saves about $600 million (Boeing, 1995-2008). Large firms normally have many layers of management, bureaucratic structures and unproductive workers. To maintain their competitiveness, they need to re-engineer some portion or the entirety of the organization. A ‘change agent’ is someone who comes into an organization to initiate a much-needed change in the organization’s systems, processes and structure. A ‘change agent’ can be a management consultant from an external consulting firm or someone from within (usually top management). For an external ‘change agent’, the support and total commitment of top management is crucial for success. The main problem ‘change agents’ may encounter is trying to change a resistant corporate culture.

Jack Welch and General Electric When Jack Welch became CEO, he swept into General Electric on a wind of change and met with some opposition. He implemented the ‘Fix, Sell or Close’ strategy and people seemed to accept it, in theory. Jack’s strategy was that any business outside his ‘3-circle’ of core businesses must be fixed, sold or closed. Before this, GE was a complicated bureaucratic organization with 42 SBUs (Strategic Business Units), some of which were low-margin, low-growth businesses. He sold off the Air-Conditioning business, a Utah-based energy company and a business dealing in Houseware products because these did not suit his strategy. These businesses did not fit into the 3-circle of core businesses and had to be sold. When he took over GE in 1981, it was a 25 billion corporation earning 1.5 billion a year with 404,000 employees, ruled by more than 25,000 managers. In 5 years, he initiated major downsizing and 118,000 people left (including 37,000 employees in businesses that were sold). He brought in the right people to do the key jobs and five years after he took over, stock options jumped from 6 million in 1981 to 52 million.

5

At the initial stage of this restructuring, tempers flared and employees were upset but gradually, as they saw that this change had come to stay and was for the long-term benefit of all, the culture of the organization began to adapt and fit into a structure resembling what had been envisioned by its ‘change agent’ – Jack Welch. Another strategy he conceived for GE was called ‘Boundaryless’ which meant a company that would break the dividing walls between customers, staff and suppliers and make them a part of a seamless process. He communicated this goal company-wide: ‘Finding a Better Way Each Day’. In line with this ‘Boundaryless’ vision, he laid off 4 corporate officers because they did not follow GE’s core values, even though they made their numbers. (Welch, J., 2001, 234). A good vision challenges, creates a sense of urgency, ‘speaks’ to a wide audience. Success occurs when the vision becomes embedded in the daily decisions and actions taken by those who are led.

Arthur Fry and 3M Even though Arthur Fry invented the ‘Post-it’ note, his colleague, Spencer Silver developed the adhesive, by mistake, based on a new group of polymers which resulted in a slightly sticky product that was significantly weaker than the adhesives that 3M had already manufactured. This new adhesive was made of ‘tiny, indestructible acrylic spheres with a diameter of a single sheet of paper. This almost magical property of this material was strong enough to allow the adhesive backed notepaper to stick to other papers, but it was weak enough to allow the papers to be pulled apart without being torn. In addition, it could be recycled and used many times’. On further testing, Fry also discovered that the samples also stuck to mirrors, wood, metal and other common surfaces. 3M prides itself on a culture of ‘continuous learning and knowledge sharing’ where ‘individual initiative is rewarded’ and ‘innovation is a way of life’ (3M, 2008). In the spirit of this strategy of differentiation, Spencer Silver created this new and different adhesive and kept it, even though he did not yet have a use for it. For five years, he presented the merits of this adhesive at the frequent seminars and presentations held in-house. One day, Arthur Fry was at one of those presentations. He got the idea, in church, of using this reusable adhesive to keep his bookmarks in place in his hymnal. The scraps of paper he normally used to keep his place in the hymnal kept falling out. (Wikipedia, 2008) And despite the fact that management could not initially foresee that people would want to buy sticky paper, Arthur Fry persisted. And then finally they caved in; to not do so would deny their culture of innovation. It took about five more years for the special machines to be designed and manufactured to produce the product. And in 1977, the product was almost killed as test-markets failed to show much consumer interest in the product. But through persistence, the product was

6

re-released in 1980 and now today, more than 1,000 Post-it brand products are sold in more than 100 countries. Sales of Post-it® Notes products are in the billions of dollars per year. Fortune Magazine called these notes the ‘most important office product developed since the invention of the paperclip’.

The Wright Brothers Orville and Wilbur Wright were raised in a home where curiosity and an inventive spirit was encouraged. They possessed the entrepreneurial spirit, the spirit to achieve the dream, despite the risk. This strategy started to become evident as they ventured into printing and bicycle manufacturing. It became full-blown when they veered into the airplane business. The Wright Brothers were the first to design and build a flying craft that could be controlled while in the air and that could roll the wings right or left, pitch the nose up or down, and yaw the nose from side to side. The Wright Brothers revolutionarized the entire aerospace business. And even when they tested their invention and it did not perform as well as they hoped, they made flight after flight for two years, fine tuning their invention, risking injury and even death. The brothers also designed the first true airplane propellers and built a new, powered aircraft. On December 17, 1903, Wilbur and Orville Wright made the ‘first sustained, controlled flights in a powered aircraft’ (The Wright Brothers, 2008).

Eric Schmidt and Google Google’s overwhelming mission is ‘to organize the world’s information and make it universally accessible and useful.’ As an Internet-based business, its strategy is completely interwoven with its technology. In line with its broad and adventurous mission, its core business of search and advertising has expanded into services like blogging, and radio and TV advertising. CEO, Eric Schmidt promotes a culture of fostering innovation and possessing a patient, long-term view of new innovations. Eric Schmidt and Google don’t just ‘talk the talk’; innovation is tied into every aspect of work. For example, technical employees must spend 80% of their time on the search and advertising core business and 20% on innovative, technical projects. Schmidt encourages failure and has stated ‘Please fail quickly – so you can try again.’ This willingness to take risks has paid off many times, birthing services like Google news and Gmail. Eric Schmidt inspires his employees and builds a strong, positive culture through regularly providing means of ‘intellectually stimulating the minds of the employees’. An example is the ‘Tech Talk’ given regularly to Google staff by the best researchers worldwide on a wide range of topics. (Iyer, B. and Davenport, H., 2008)

7

Profits: Start-ups and Small Businesses The entrepreneur decides on the type of venture that is started, the competitive strategies used to enter an industry, the identification and collation of needed resources, and the type of organization that is able to implement the chosen strategy. Since a business’s strategy deals with the way the firm competes in a given industry, a new venture's initial strategy must focus on the resources needed. According to (Stephenson & Jarillo, 1990), a new venture must pursue opportunity without regard to resources currently controlled because the only resources available are those the entrepreneur possesses or can raise from capitalists willing to accept the risk. Funding is also an essential requirement for start-ups. Initial funding for these new ventures could come from Venture Capitalists who are convinced of the financial rewards of this new venture, or from personal funds or even from wealthy investors called ‘Angels’ who invest seed capital. Most start-ups are small businesses owned by ordinary, every day people. Wikipedia defines small business as ‘a business with a small number of employees’. (Wikipedia, 2008) In the US, this number is under 100 but under 50 employees in the EU. These businesses provide a necessary service to the community and fill the gap left by large companies. They usually provide services to a particular niche. Businesses like photographers, seamstresses, internet cafes, hairdressers and family business-owners can and do generate a lot of income for its owners.

Not-For-Profits The aim of these organizations is more to provide a lasting transformational benefit for greater good of the society than to make profit, although some of these organizations do make some profit. Social Entrepreneur must identify a segment of humanity undergoing marginalization or suffering that lacks the means to achieve any transformative benefit on its own and must also utilize the entrepreneurial characteristics to change the situation for the benefit of these disadvantaged ones. Theoretically, in comparison to the social activist who creates change by influencing others, the social entrepreneur takes direct action. But in reality, most entrepreneurs in Not-for-Profit organizations use a mix of social entrepreneurship and social activism at the same time. Sometimes these new ventures translate into huge companies, providing a new and exciting answer to a difficult problem or a necessary service supplied to consumers located around the world.

8

Strategy and the Entrepreneur ‘Coach’ The basketball coach, who leaves his Ivy-League-schooled team to coach the team in a community high school in his town, is an oft-repeated story in Hollywood. He is a sharp-suited, smooth-talking individual who will be coaching a team of young delinquents from the gangridden streets. The school board invites him to come and help their team win the championship – that’s their objective. But his strategy is not only to coach these young men to victory but to also give them a better future than they are able to hope for. In line with this, every player must attend a certain number of classes and there is a limiting grade below which a player must not go. Those who flout his rules are sent packing from the team. He even does this on the eve of a major game. The school board, parents and students are up in arms. He does not relent and is prepared to resign rather than bow to the demands of the dissenters. He is sacked but before the day is out; the rest of his team sit out the game and refuse to play until he is reinstated. Of course they get their wish and he returns to coach them to victory both on and off the basketball court. In later years, most of his team gain degrees from reputable schools and become distinguished men of the community and the country. And they owe their thanks to a dogged basketball coach who possessed that entrepreneurial spirit.

Oprah Winfrey Oprah Winfrey can also be regarded as a social entrepreneur. Amongst her many accomplishments, she also created The Oprah Winfrey Foundation ‘to support the education and empowerment of women, children and families in the United States and around the world.’ The charity has awarded millions of dollars to organizations throughout the world to improve education and health care. She also founded Oprah's Angel Network to inspire people to make a difference in the lives of others. So far the group has raised $27 million almost entirely from audience donations. She has achieved her competitive edge by gaining the trust of her audience and by being a tireless social entrepreneur. In her show, she opens herself up to the public, inspires others to ‘live their best life’ and educates people on a variety of topics. Despite her success, she is humble and warm-hearted. She also keeps a close watch on her brand name; everything with her name on it is put out by her company under her direct supervision. (Oprah, 2008)

9

CONCLUSION It cannot be denied that creativity inspired the invention of the myriad products and services that improve life for all. Flying as we know it came about because of the entrepreneurial spirit of the Wright Brothers. All firms (small, large or Not-For-Profits) formulate and implement strategies to ensure a competitive edge in their industries. Entrepreneurs add value to the implementation of the firm’s strategy by bringing vitality and innovation, especially if the firm encourages innovation and their top management possesses a long-term view of an idea’s profitability. For example, Google builds innovation into the very fabric of its culture and its business has grown exponentially as a result. It can be argued that the momentum of some firms which formulate strategies that promote creativity, stall when it comes down to implementation. They become comfortable with their traditions and are reluctant to ‘shake things up’. Organizations that do not encourage entrepreneurship and feel that it hampers their strategy, in the long run, will lose their distinctive competences. If employers encourage ideas from the bottom-up, organizations will often gather fresh, money-spinning ideas that enable them compete. Organizations must build a culture of continuous innovation by being ready to invest in risky ventures, ‘celebrate’ failure and reward, not punish, entrepreneurs that fail. Bureaucratic, large firms must change to keep up with the times, becoming leaner and more productive. General Electric and Boeing were re-engineered and as a result, their profitability increased. More companies must do the same.

REFERENCES 1. Stephenson, H. and Jarillo, J. (1990) A Paradigm of Entrepreneurship: Entrepreneurial Management, Strategic Management Journal Vol. 11: p. 17-27 2. Boeing: Philip Condit, (1995 – 2008) http://www.boeing.com/history/boeing/condit.html [26th March 2008]. 3. Schumpeter, J. (1975) Capitalism, Socialism, and Democracy, New York: Harper p. 8285. 4. Lumpkin, G. & Dess, G. (1996) Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, Vol. 21 p. 135-172. 5. Strickland, A., et al (2007) Crafting and Executing Strategy, 15th Edition, Mc Graw-Hill Irwin. 6. Lubove, S. (1996) Destroying the Old Hierarchies, Forbes, p. 62 - 71.

10

7. University of Leicester, (2007) Implementing Strategies, Module 3, Edition 20, Learning Resources. 8. Drucker, P. (1995) Innovation & Entrepreneurship, New York: Harper p. 28. 9. Welch, J. and Byrne, A. J. (2001) Jack, Straight from the Gut. Warner Books Inc: New York 10. Iyer, B. and Davenport, H., (2008) Reverse Engineering Google’s Innovation Machine, Harvard Business Review, p.59 -68 11. Knight, F. (1921) Risk, Uncertainty and Profit, New York: Harper. 12. Harpo Productions, Inc (2008) Oprah www.oprah.com [23rd March 2008] 13. Wikipedia®, Wikimedia Foundation, Inc., (2008) Small Business, http://en.wikipedia.org/wiki/Small_business [22nd March 2008]. 14. De Wit, Bob and Meyer, Ron. (2004) Strategy: Process, Control and Context, 3rd Edition, 2004, Thomson Learning. 15. Miller, D. (1983). The correlates of entrepreneurship in three types of firms, Management Science, Vol. 29, p. 770-791. 16. Daft, R. (2006) The New Era of Management, , International Edition, South Western 17. Wikipedia®, Wikimedia Foundation, Inc., The Post-It note, http://en.wikipedia.org/wiki/Post-it_note [26th March 2008.] 18. The Wright House, The Wright Brothers, http://www.wright-house.com/wrightbrothers/Wrights.html [26th March 2008] 19. Gartner, W.B. (1988). Who is an entrepreneur? Is the wrong question, American Journal of Small Business, Vol. 12, p. 11-32. 20. 3M, http://solutions.3m.com/wps/portal/3M/en_US/global/sustainability/ceostatement/strategies/ [26th March 2008.]

11