Enron Incident Scared the Boss promoted Corporate Enterpreneurship?

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.

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.

(Source: http://www.strategy-business.com/press/16635507/8276)