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June 16, 2004
Its up to "us"
A report on innovation in large companies issued earlier this year by Deloitte and Touche underscores that entrepreneurs are now in charge of our economic future. I have written and consulted about entrepreneurship in larger companies since the 1980's. The longer I look at organizational entrepreneurship, the more I become convinced that its impact is, at best, incremental. This report seems to back up my observations.
"The latest findings, based on research gathered from nearly 650 leading manufacturers worldwide, reveal that:
* Manufacturers cite launching new products and services as the No. 1 driver of revenue growth, yet also view supporting product innovation as one of the least important priorities.
* 50 to 70 percent of all new product introductions fail.
* New product revenue will jump to 35 percent in 2006, up from just 21 percent in 1998.
* By 2010, products representing more than 70 percent of today?s sales will be obsolete due to changing customer demands and competitive offerings.
"'Our research clearly shows that a significant profit barrier exists in the manufacturing industry and this barrier is directly related to the failure of most new products and services, as well as the lack of priority placed on successful innovation practices,' says Doug Engel, director of Deloitte's U.S. Manufacturing Industry practice."
New research is showing that with education, independent entrepreneurs have success rates of almost 80 percent. Even with their miniscule budgets, they do a much better job of understanding their customers and perceiving the subtle, but dynamic forces of growing markets.
Why are larger companies so weak as entrepreneurial engines? My experience is that they cannot or will not make the changes it really takes to foster entrepreneurship in their companies. It takes fundamental changes in culture, structure, reward systems, and basic strategies to even have a chance at the transformations necessary to become entrepreneurial organizations.
When I have consulted with large companies in this area, they want me to "fix" the line managers. I am to make them more entrepreneurial. It is, after all, their fault that the company is not adapting to change. Most of these managers want to become more entrepreneurial, but it is the corporation itself that oppresses or undermines their efforts. When I have tried to get top management to look at the changes they would need to make to break down the organizational barriers impeding entrepreneurship, they have always balked.
The good news it that at the macro level this is not really a problem. We have had strong growth in new ventures over the past twenty years, now over 3.5 million new businesses a year. This is where innovation will blossom and how our economy will continue to expand.
Thanks to Bill Hobbs for passing this report along.
Posted June 16, 2004 07:11 AM
Comments
Jeff,
Please elaborate on the effect of education on entrepreneur's success rate. Where is that research and what sort of education is effective?
On this topic, our anecdotal experience with large companies is that they evaluate projects and opportunities on cost/benefit basis and they are risk adverse - which leads them to undervalue the benefits. The other problem many larger organizations have is with estimation of risk and reward. They see the uncertainty as high and the pay-off from innovation small relative to their revenues. Therefore it is not an attractive use of capital. This is prudent, not a defect that needs to be cured.
Posted by: John Dmohowski at June 16, 2004 12:58 PM
The research on the impact on education is coming from several universities that have tracked their alumni who start businesses. For example, when I was at the University of St. Thomas we had ten years worth of data that showed our under-grad alumni with about 78% ongoing success and our grad students with about 85% success. Both groups included dozens of entrepreneurs. I will try to track down additional specific studies and post them here. What has been shown is that failure rates have been dramatically overstated for years. They are less than 50%:
http://www.sba.gov/advo/stats/bh_sbe03.pdf
This failure rate is much lower than the failure rates reported by D&T among "prudent" large corporations...
Posted by: Jeff at June 16, 2004 02:15 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
