In large companies, creating, or even maintaining the entrepreneurial culture that established the company in the first place is becoming increasingly hard to do. Large companies are built around structure and process and this is not the best environment to encourage innovation and entrepreneurship. Large companies are good at identifying and managing risk, something they have legal and moral responsibility to do. However, can developing and promoting a risk management culture result in killing the entrepreneurial culture that needs to thrive in any company to ensure that it grows and takes advantage of the constantly changing market environment in which it operates?
Businesses are no different to everything else in the universe, they obey the second law of thermodynamics; without intervention or energy going into them; they will fail. Any business, no matter how large will ultimately fail and disappear if it doesn’t respond to change and recognise the opportunities around it. 87% of companies in the Fortune 500 in 1955 had disappeared from existence by 2011. 74% of the original companies in FTSE 100 25 years ago are no longer in it. There are exceptions, companies who do seem to get it right, Proctor and Gamble formed in 1837, in 1955 P&G were number 27 in the Fortune 500, today there are around number 23. Johnson and Johnson formed in 1886, in 1955 they were no 159 in the Fortune 500; today they are at 35. Closer to home we have examples of companies that have got it right with respect to long term sustainability and growth, BP, Shell, Rolls Royce, Unilever. It is obviously not the sole reason, but one common theme that runs through all these companies is that they all have a commitment and structured mechanism to encourage innovation, new ideas and new ventures aligned to the markets they are in. Procter & Gamble has recently joined forces with a Silicon Valley crowd funding company in a hunt for promising consumer product start-ups. Johnson & Johnson Development Corporation (JJDC) has been making strategic investments in life science innovations for over 40 years and has invested and funded hundreds of emerging life science companies; many of whom have then become main stream parts of the main company. BP has established BP Ventures (www.bp.com/ventures) to focus the investments it is making in connection with oil and gas and alternative energy. In recent years Conoco Phillips, Statoil, Shell, Total and Chevron have all established corporate venturing units. Veolia, the environmental company, has established the Veolia Innovation Accelerator (www.via.veolia.com) to focus its investments in innovative new areas associated with the environmental market. Similarly Unilever has created Unilever Ventures Ltd (www.unileverventures.com) to focus its investments in corporate venturing.
However, having the mechanisms in an organisation to exploit the ideas for innovation is only part of the solution; more specifically a company must have a culture that encourages innovation and entrepreneurship. So, what does it mean to have an entrepreneurial culture? And, what can be done to create an entrepreneurial culture in a large corporation?
The issue centres on risk and a company’s approach as to how it views risk. It has to be recognised that companies now have a statutory duty to manage risks; to identify the risks to the business and then to manage or mitigate those risks. In fact, management strategy is increasingly being centred on enterprise risk management; as a result, management culture, together with reward and senior executive career progression in the corporate environment, is becoming increasingly focused on senior managements’ ability to identify a problem or risk and then eliminate said risk. The problem is, this culture is totally at odds with the encouragement of an entrepreneurial culture, which by its inherent nature is based on taking risks to create something new. In this situation, the heroes of the organisation become the trouble shooters or risk managers, rather than the risk takers; as a result you can end up with a senior management team, who preside over the orderly decline and ultimate failure of the business.
It is possible that the increasing focus on risk management, by senior executives of large corporations in the belief that they are ensuring the long term stability of their organisation, could be the very thing that is actually accelerating the demise their company.
To counteract this, senior management must ensure that the entrepreneurial culture that created the company in the first place is allowed to flourish and grow. Companies must create a culture where failure, albeit in the right areas, is acceptable, maybe even rewarded. Companies need to have a risk taking policy, not just a risk mitigation policy. In the same way a company approaches risk management, it should also have similar focus on risk taking management.