The innovative business

As existing businesses look to innovation and the creation of entrepreneurial ventures as a means to grow profits and gain a competitive advantage over their rivals, the risk of integrating these entrepreneurial teams with existing management can not be understated. In an essay titled The Entrepreneurial Business, Peter Drucker highlights this same point when he talks about mixing innovation with existing managerial units.

The most important caveat is not to mix managerial units and entrepreneurial ones. Do not ever put the entrepreneurial into the existing managerial component. Do not make innovation an objective for people charged with running, exploiting, optimizing what already exists. It is also inadvisable--in fact, almost a guarantee of failure--for a business to try to become entrepreneurial without changing its basic policies and practices. To be an entrepreneur on the side rarely works.

And when traditional companies enter into joint ventures with smaller entrepreneurial ones, the leaders of these smaller companies quite often find themselves stymied by policies and rules that are created for the efficient running of existing businesses; rules that are explicitly designed to maintain the status quo, and not create something new. Rules that make it virtually impossible for the entrepreneur to do what he (or she) does best--improvise, pivot and anticipate (rather than react).

Drucker goes on to say this about how the determinants of entrepreneurial success for larger companies:

By and large, big companies have been successful as entrepreneurs only if they use their own people to build the venture. They have been successful only when they use people whom they understand and who understand them, people whom they trust and who in turn know how to get things done in the existing business; people, in other words, with whom one can work as partners. But this presupposes that the entire company is imbued with the entrepreneurial spirit, that it wants innovation and is reaching out for it, considering it both a necessity and an opportunity. It presupposes that the entire organization has been made “greedy for new things.

Here’s the takeaway: Businesses that really want to innovate need to find a way to effectively build their entrepreneurial teams from within, all the while separating these innovation teams from existing management units.