Any large company understands that their greatest challenge is to keep creating new businesses and opportunities. That’s where corporate entrepreneurship plays a huge role.
We are moving away from the mindset that success can be achieved by downsizing or cutting costs. We are also beginning to understand that the path to company growth is not just through ‘repackaging’ old products and offers, blindly overtaking the competition, or expanding into newer markets.
Entrepreneurship is way more than that.
Technologies are rapidly changing and developing, which is why we need to have a new focus. Companies should start creating and developing new businesses through constant innovation. We should learn from past successes and failures and look forward to new cutting edge solutions for potential customers. This is in the essence of corporate entrepreneurship.
However, corporate entrepreneurship has its risks. Although they are started by an established company, there are many challenges that arise due to differences in processes and working cultures.
The key to maintaining a balance between the old and the new is to merge them subtly and give equal importance to both.
In this blog post, we are going to talk about the challenges that companies pursuing corporate entrepreneurship face, and how they can be effectively handled.
New Business, New Culture
When you are part of an established business, it can be tough to start something completely new. Although you still belong to the company, the thoughts and ideas that drive your new business may be entirely different from the way your company presently works.
It can be a delicate situation when you’re trying to balance your main established business – the one that currently brings in almost all of your revenue – with a new venture or business idea. The existing culture, processes, technologies, and support systems of your company have probably been built over the course of years, and are predictable, stable, and efficient.
And now enters the new business. It has a whole new approach to working with customers, a different perspective, and a culture that is quite different from what has been the norm all these years. Most often, the way they work, including their financial operations, and other functions.
When a new business begins, its objectives and goals are not always clear at the very beginning. It takes a lot of trial and error, updated technologies, newer marketing techniques, and a whole different organizational structure for a new business to work.
As the business begins to find footing and grow, its objectives become a little clearer, and it may require a shift in how the company functions. These constant changes in the initial phases of a new business may not sit well with the rest of the company that is more firm and stable in its operations. This gives rise to certain differences between the old and the new businesses within the same company.
The Challenges Associated With Corporate Entrepreneurship
New businesses are always full of risks, which is why it is important to have a flexible and easily adaptable work environment in order to succeed. It is only through an attitude of change that new businesses do well, but unfortunately, this may not sit well with the organization as a whole.
These characteristics of new businesses have a number of challenges. We will be discussing three of those challenges for the purposes of this article.
1. Lack of Strong Data
New businesses seldom have hard data to back their products or technologies. This is especially the case if your business is dealing with some high-end product or technology that isn’t yet being widely used in the market.
The challenge here is to gather information and gain insights on a market that doesn’t yet exist. It is not enough to depend upon financial forecasts, as that can lead to huge errors in calculations.
This is one of the biggest challenges when you plan to start up a new business in some cutting edge field or industry.
2. High Risks
No matter what kind of business you may be wanting to start, you will be faced with a huge amount of risk – even if you are backed up by a strongly established organization.
Starting a new business requires constant innovation and development of ideas. Although this may seem exciting, innovation or anything new and unconventional, for that matter, comes with a huge amount of risk.
On the other hand, being too rigid in your thoughts and not wanting to try out new ideas may cause your business to fail too. So both ways, there is risk involved.
3. Balancing New And Old Systems
The last challenge we are going to talk about in this post is the balance between the old and new systems. Corporate entrepreneurship involves starting a new business as an already established organization. This means there are already fixed standards and systems in place, and trying out new things (which is imperative in any new business) will most definitely cause you to ruffle a few feathers.
Finding your footing between the old and the new is a delicate affair, and needs to be done carefully. Being too inconsiderate about your company’s policies and systems may cause you some important relationships within the organization. It may also lead to confusion in both the running of the original business as well as the new one.
At the same time, if you continue being too conventional and sticking to all the old processes and systems of your company, you may miss out on new innovative methods of doing business. This could cost you in terms of business.
This mismatch in ideas and systems can be especially prevalent in the case of human resource departments and the overall budgeting of the business.
The Need For Better Responses To These Challenges
When faced with these challenges, corporates can respond in either of two ways:
- Use existing resources to handle the new business dedicatedly, or
- Centralize the task of creating the new business
Each approach has variable results, so let’s take a look at them briefly.
When a company makes use of existing human resources to take over new businesses, they expect them to be as committed to the new business creation as they are to their existing work. The truth of the matter is that it is not entirely possible.
Companies try to incentivize results for the new business so that employees are more motivated to achieve targets for them. The issue with this approach is that most employees, especially those who have been with the organization for many years, ignore the incentives and continue with their old systems and usual tasks. This is especially true of those businesses which require new skills and a lot of learning.
Now, on the other hand, if the pressure to create new businesses becomes too much to bear, it overwhelms the employees in the company. It could lead to employees coming up with quicker new ideas for business that may not be well thought out. This would result in a lot of failed businesses within the company and thus weaken the morale of everyone involved.
Now the second approach is the centralized business approach. This means the company separates the new ventures form the old so that they are handled by completely different teams. This approach has its own set of issues, especially when it comes to deciding which section of the company requires funding and other resources.
New businesses within the company that are just starting may not have the revenue required to justify more funding, so most of it will go to the main business.
Although both approaches have their own set of flaws, it is up to you to decide which one is better suited for your company and business. Both approaches are focused on building a solid foundation for the company’s new businesses and grow them. The challenges, however, arise later on, when it is time to merge the old and the new systems when the new business has grown enough.
This could inevitably lead to friction within the company, as managers of different divisions start working together and trying to find common ground with each other. If things start to get worse and threaten the very foundations of the company, owners have to make important decisions about whether they should spin off the new business or close it down altogether.
Finding The Right Balance
The best way to deal with these challenges of corporate entrepreneurship is to find the right balance between the company and its new businesses. It is not a question of “Who is going to handle what and how?”, but rather “How can we integrate this business into the way we work?”
There is a need for a new approach – one that holds fast to the ideals and vision of the company while making room for new processes and innovations. It is only with mutual respect in the culture of the company that people can start recognizing their own talents while respecting the talents and skills of those around them.
It is crucial to avoid any kind of extremity so that the equilibrium is not disturbed. Corporate entrepreneurship can only flourish when you get this delicate balance right.