Profitable growth and intrapreneurship

Pablo Martín de Holan. Professor. IE Business School

10 January 2011

Most firms either don´t see business opportunities, or see them and don´t act on them because they lack resources or don’t give their people the right incentives.

Growing a business is a good way of achieving its strategic objectives and maintaining its competitive advantage. Growth can, however, be expensive and very uncertain. The dilemma facing the manager is straightforward: find new opportunities that are not too risky, and therefore not so interesting, or move away from the familiar area of competition with the investment and risk such a move involves.

There is also a third alternative: growing on the back of opportunities created by intrapreneurship. This form of growth allows businesses to leverage opportunities that are usually missed. These opportunities can be many in number and range from minor innovations to radical market changes. Their common denominator is that they can appear anywhere in the business; one common situation in a company is that those who know how can´t, and those who can don´t know how. This short article will offer the basic ideas behind this method.

Experience shows that most businesses either do not detect, or detect and fail to take advantage of a large number of business opportunities that are presented to them. Although there are many different reasons for this, there are two general causes: the lack of resources to develop them, and insufficient incentives given to people. Of course, if resources are scarce, people will invest them in activities considered more important or at least more urgent. It is therefore not surprising that the things we do today hold priority over the things we could do. From a more perverse viewpoint, incentives in many businesses reward immediate, low-risk behaviour. What happens, for example, when a new opportunity defined as innovative and uncertain cannot be developed in the periods given for the rendering of accounts? The natural course of affairs is that people react to the incentives they are given and stop doing what they do not receive incentives for (even though the concept of innovation and change as absolutely necessary is repeated untiringly).

Innovation basically fits into one of two large categories: innovating is doing something nobody has ever done; or it is doing something you have never done yourself. Although accounts of innovation usually refer to the former, most businesses only practice the latter, and they do right, because innovating is only useful on a strategic level if it increases the value of what I do for my customer and for myself.

But innovation does not always fit in with what we do and many of the new opportunities that are uncovered in a business do not have anything to do with its field. That´s why the first step is to create a "space" where opportunities can be developed at their own rate without hindering normal tasks. To do that, we need to free up the necessary resources so that people can experiment with these new ideas. Senior management also needs to get involved in the process, providing help during the different stages and the possibility of really adopting the opportunities that are found.

From a management point of view, it is important to understand that all innovation is uncertain and that the best we can do is look for a positive average return, since the idea of every innovation being a success is an impossibility: new opportunities must be managed like a portfolio. This method is inspired by the venture capitalists of Silicon Valley and is complemented by the second: taking advantage of opportunities in small steps (or "options") that make it possible to reduce the uncertainty of each opportunity as it is detected, while keeping costs down. One frequent mistake is to think that new opportunities are taken in binary fashion (yes/no) when we know that they can be developed on a step-by-step basis.

Hence, three steps will allow many organisations like yours to take advantage of new business opportunities and I suggest you should also put them into practice. Consider the resources and incentives for taking advantage of new opportunities. Consider the company´s growth as a result of a portfolio of opportunities developed across the company. Finally, let your people develop the opportunity step-by-step, with low-level spending, and let each step come as an option you can accept or reject depending on the information you have available. If you do, innovation and growth in the mid-term won´t cost a penny.

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