“Innovative intrapreneurship” by Antonette C. Tionko (December 6, 2010)

SUITS THE C-SUITE By Antonette C. Tionko
Business World (12/06/2010)

Entrepreneurs are often seen as today’s economic heroes.

They embody many virtues like discipline, leadership, perseverance and passion.

A common thread that runs through most successful entrepreneurs is that, through the effective application of innovation, they have turned their dreams into reality.

But what happens to innovation when these fledgling enterprises have grown into highly successful operations that span countries or continents? How does creativity factor into big business operations?

These were some of the questions posed in a survey conducted among the world’s top entrepreneurs, who are winners and finalists of the Ernst & Young Entrepreneur Of The Year award.

Through their insights, these entrepreneurs shared their real-world understanding of the need to connect innovation with profit.

Innovation and success

As a business grows, it is easy to suppress the creative spark with stifling layers of processes and bureaucracy.

Particularly for fast-growth companies, maintaining a culture of innovation is the key to market leadership. Innovation needs to be an integral part of the overall business strategy.

However, many of these entrepreneurs attest to the fact that most large organizations devote very little time or resources to nurturing innovation. Survey results indicated that while 82% of entrepreneurs agree that innovation is critical to business growth, 50% of them admitted that innovation played no role in their strategic planning process.

This is in stark contrast to the initial phase of entrepreneurship, when a new product, process or idea would spark continuous changes and improvements.

For large companies, innovation must become a board-level commitment.

It is up to company leadership to ensure that a creative culture remains strong in the organization, to avoid stagnation as the company grows in size and complexity. Companies need to find ways to stimulate innovation, whether through compensation, budgeted thinking time, or a robust, structured pipeline of good ideas.

Innovation is not a department; it is a mindset that should permeate the organization from the top down.

Linking innovation and profit

The ultimate objective of innovation is to increase profitability.

Often, this is perceived to apply in the area of product and service development. One entrepreneur was quoted as saying, “We assume that 50% of revenue in five years time will come from sources that do not exist today.”

A fast-growth business needs to strike the right balance between creative thinking and making money.

But many of the entrepreneurs in the survey were not sure they had this balance.

We should remember that creativity also plays a part in streamlining a company’s internal processes. Most of the entrepreneurs interviewed admit that their companies had gotten satisfied and grown complacent with current procedures.

For example, less than one in 10 entrepreneurs in Asia and the Pacific mentioned applying innovation to their finance functions.

The majority of these entrepreneurs also did not look for innovative approaches to recruitment, human resources and customer management.

Yet, arguably, these areas are vital to long-term profitability and cost efficiency.

There can be several roadblocks to sustaining innovation in the organization. The entrepreneurs surveyed noted that the biggest roadblock is the lack of time and resources. Other issues include internal politics, lack of a formal process, and lack of capital. Some also mentioned that government support was essential in developing innovation within companies.

The principle of intrapreneurship

One way to keep the flame of innovation alive in companies is to foster a strong intrapreneurial philosophy, where people are encouraged to think like entrepreneurs rather than just employees. The common belief is that innovation is a core management function — not something that flows throughout the organization.

However, as proven repeatedly by the world’s most dynamic companies, firm-wide innovation often leads to market leadership, driving market change, finding efficiencies and avoiding commoditization.

Intrapreneurship means encouraging people to explore high-risk, high-reward ideas within the safety and support of a larger, well-established corporate structure.

Take Google, for example. As a company built on out-of-the-box thinking, Google allows employees to allocate 20% of their time to independent projects, and these have resulted in nearly half of the company’s new products.

Moreover, intrapreneurship needs the support of senior management and the freedom to fail without fear of punishment.

This may be a considerable leap for some organizations, where direct accountability has become the norm.

One way to address this is to ensure that the organization does not suppress creativity.

At the same time, however, risk limits must be set. Companies need to define their willingness to accept risk from the start, so they do not arbitrarily stomp out intrapreneurship when something goes wrong.

They should also provide incentives for intrapreneurs to stay with them, including a well-defined career path. When innovative employees don’t see a future within the company, they often leave, taking their creative ideas and colleagues with them.

For more than 20 years now, the Ernst & Young Entrepreneur Of The Year program has been recognizing the world’s best entrepreneurs. These entrepreneurs have provided us with a better understanding of how slim the margin can be between success and failure, and how innovation can help growth companies successfully ascend to become market leaders.

(As of publication, Atty. Antonette C. Tionko is a tax principal of SGV & Co. and Program Director of the Entrepreneur Of The Year Philippines.)

This article was originally published in the BusinessWorld newspaper. It is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.