by: Gifford and Elizabeth Pinchot
One characteristic of the entrepreneurial organization
is that it successfully implements enough creative ideas to make a surplus of fruitful
opportunities for all its people. For example, one of the US's most successful furniture
companies, Herman Miller, which is full of innovating teams, has grown and avoided
almost all downsizing despite frequently changing market conditions.
The need to get rid of good employees is almost
always a symptom of an earlier failure to nurture the entrepreneurial teamwork within
the organization. In this day and age it takes a pretty steady stream
of innovation and continuous improvement for any organization just to stay in place.
To get ahead, both individuals and organizations need to anticipate and direct change,
and learn from it. This requires that the people doing the work take responsibility
for improving it, using all the information and experience they can muster.
Many organizations big and small are still
able to generate enough new products and services to create new jobs -- at least
as fast as the old ones are destroyed through automation and obsolescence. 3M's internal
entrepreneurs or "intrapreneurs" generate so many new products that 30%
of their sales are new within the last five years. 3M now has 60,000 products and
they keep growing.
Innovation isn't just a matter of creativity,
because in any company people know far more about how to make things better than
we see implemented. Innovation depends on people who approach their work like an
owner/entrepreneur, even if employed in a big organizations, to turn more of the
good ideas into realities. Without a wide distribution of entrepreneurial energy,
without many people in many different teams figuring out a piece of the larger dream
and making it happen, corporations get stuck in old ways, age and die.
Oticon, the highly successful Danish hearing
aid manufacturer, was aging and dying when the company was turned upside down, and
the employee choices became the new management structure. Now employees volunteer
for tasks and projects all over the company, sometimes working from several teams
and learning many skills that add up to whole-business effectiveness. They have dissolved
bureaucracy by establishing a voluntary network within the organization based on
the internal market choices of people and teams. And since becoming more entrepreneurial
the company's profits have grown sixfold in two years.
An entrepreneurial organization is organized
around teams that function as small businesses nested and networked together. These
small businesses teams choose and work out exchanges between themselves and with
others outside, whether as customers or collaborators, and greatly speed up the process
of innovation. It normally takes a North American automobile company five or more
years to develop a new car. The Chrysler Neon team did it in just 31 months. The
secret was a highly entrepreneurial new product team, comprised of people from all
the different functional areas of the organization, empowered to make most of the
However, the bulk of the teams in any large
organization are not directly creating a new product for customers; they are providing
services to others within the organization who use those service to provide what
the final customer wants. Teams provide accounting, market analysis, product design,
information technology, maintenance, telephones, components, transportation, raw
materials and so forth. The effectiveness of these services determines the overall
effectiveness of the organization. How do you keep teams with internal customers
from wasting the organization's resources? Hierarchical control isn't subtle enough.
A strongly free internal market can discipline a network of teams without relying
on hierarchical control.
At AT&T, PR functions were traditionally
delivered either by a dedicated PR staff within a division or provided by the corporate
PR group. Then Jerry Santos experimented with user choice. A small group called PR
Creative Services was set up an allowed to sell its service in competition with the
main corporate PR function. Their internal customers only pay when they use the service.
The pressure of having to sell their services rapidly lead to a "can do"
attitude and the group motto, "What the customer wants when they want it."
In setting themselves up as an internal business rather than a traditional staff
group has so sharpened their ideas of service that the group is growing at a time
when many staff activities in AT&T are downsizing. Marilyn Laurie, AT&T senior
vice president of public relations says:
Despite unrelenting cost cutting throughout
our business, Creative Services has kept a healthy balance sheet and has grown to
meet demand. We're applying the lessons we learned through Creative Services to the
way we manage and evaluate work throughout AT&T public relations.
When your customer has the choice whether to
use your services or not they get even more attention than the boss, because in the
long run what the boss thinks will be determined by whether or not your customers
use your services. The key to making an organization externally focused is to provide
internal choice so those groups serving customers can get what they need to do it
Bureaucratic management evolved so the few
could direct the work of many, with rules and practices to reduce rather than increase
the initiative and creativity of the majority. A tale we have heard in a seemingly
well-managed corporations that is not unusual:
When I come to work in the morning, I take
off my brain, hang it on that hook over there and put on my hard hat. When I leave
at night my brain goes back on and my hard hat hangs on the hook. At night I am running
an entrepreneurial garbage collection business. I'm already making more at night
in four hours than I do during the day in eight. My boss will be so surprised when
I tell him why I am quitting, because he hasn't even noticed that I have a brain.
In fact he wouldn't know a good idea or employee initiative if it walked up and bit
The most powerful single tool for replacing
bureaucracy with entrepreneurship is the discipline of a free market system. Markets
tend to coordinate work more effectively and distribute responsibility more widely.
To liberate an economy we privatize inefficient
government monopolies and open the door to competition. Cost effective entrepreneurs
offer levels of service and price that force the old bureaucracies to become more
cost effective and customer focused. This lesson applies just as well inside corporations
and government agencies as it does in national economies.
In a bureaucratic corporation, if you want
something manufactured you have to go to the manufacturing function. If you want
it sold you must use the designated sales force. Bureaucratic systems are based on
the assumption that establishing monopolies of power over functions, products and
services, markets, and technologies is the most efficient way to promote innovation
and change. But when we think of what we know of monopoly and the complacency, bloat
, and stagnation it generally brings about, it seems foolish to believe that structures
based on monopolies of power will outperform systems based on freedom, choice, and
competition. Why then do most organizations act as if monopoly is best. Often it
is because they cannot see any alternative to hierarchy except when there is a crisis.
Then we see choice and internal freedom blossom.
Early in the AIDS crisis the New York Blood
Bank realized they had to keep information on each pint of blood with far greater
detail and accuracy than ever before. The consequences of a single mistake could
easily be death. They needed a computerized tracking system -- and they needed it
They asked the Medical Products Department
of DuPont for help. Medical Products went to DuPontĒs corporate Information Systems
group for help, but they couldnĒt respond in time. Then they discovered a small software
group within another part of DuPont that could build the system fast.
Part of DuPont's massive fibers operation called
IEA had learned how to use a new technology called case tools to write software much
faster. Using this new technology IEA produced what The New York Blood Bank needed
in just 90 days.
As IEA's reputation for quick practical solutions
using the new technology spread, other departments inside DuPont with their own crises
came to them for help. But the Fibers Department could not go on subsidizing the
needs of other departments. To fund the rapid growth of this new technology IEA needed
a system for collecting revenue from other divisions and bringing it to the bottom
line of the Fibers Department.
With corporate support, IEA was soon operating
in what we call the "free intraprise mode." Corporate finance helped
the group quickly develop an effective accounting system for billing customers in
other departments. Their internal and external customers had other choices for getting
software, so whenever IEA was selected it was because they offered superior cost
By 1988, IEA was generating enough revenue
to employ 120 people. They provided cost-effective software development to a number
of departments and drove the rapid spread of a new and useful technology throughout
the company. This technology would not have spread as fast had DuPont allowed only
one source of information services technology in the company. A single source would
have defended the old way they were familiar with and asked people with software
needs to wait their turn. Many transfusion patients would have died unnecessarily.
The basic principles for creating an entrepreneurial
organization are known to all of us. We live in the free enterprise system. To create
entrepreneurial organizations we only have to recreate the freedoms and institutions
of the free enterprise system inside the organization.
Ten Steps to an Entrepreneurial Organization
1) Give users of internal services a choice
of more than one internal vendor.
2) Give employees the security of something
akin to ownership rights in the internal intraprises they create, as well as the
3) Demand and engender truth and honesty, marketplace
feedback and marketplace discipline, to support widespread decision-making.
4) Give intrapreneurial teams responsibility
for their own bottom line even if they are subsidized -- as a profit center rather
than a cost center.
5) Allow many options and diversity in personnel,
in jobs, in innovation efforts, alliances, exchanges.
6) Provide extensive training and education,
and safety nets, so employees can develop and take risks as their organization develops.
7) Create an internal "bank account"
for every internal enterprise.
8) Streamline systems for registering internal
enterprises so they have standing in the corporation..
9) Establish a system for registering agreements
and contracts between internal enterprises, so that people can give their word and
trust the system.
10) Establish a justice system for adjudicating
disputes between internal enterprises and between employees and enterprises.
These are the kind of structures necessary
for a productive and ethical marketplace, just as essential to internal markets as
external national markets. Yet markets will never be enough. Markets have a logic
of their own which does not necessarily represent either human priorities or global
priorities. Widespread participation in planning and decision-making is essential,
as are guarantees of egalitarian and ethical practices. When the stakes are high
enough, and the goals worthwhile and visionary, everyone can be proud to be an owner-director
of their own small business-within-a-business. By being part of a larger network,
each group can make a big difference.
As numerous social institutions are losing
influence -- some of our families, communities and churches - it may be through the
workplace that many of us pursue higher human aims, and model some routes to a humane
and sustainable future. By applying simple principles of democratic freedoms and
market disciplines to the workplaces, we may all of us together be able to collaborate
in changing the world.
The nations most successful in approaching
the future depend on free markets, guaranteed rights, education, and limited social
supports. Oddly enough, in business organizations, which owe their existence to structured
free markets, the most controversial item in this list of democratizing principles
is free markets -- and yet we know that efficiency, prosperity, and heightened levels
of responsibility are correlated with the opportunities and demands of free markets.