Model of corporate entrepreneurship: intrapreneurship and exopreneurship.
This article extends the model of corporate entrepreneurship designed by Covin and Slevin (1991) into intrapreneurship and exopreneurship. Intrapreneurship is closely related to corporate entrepreneurship which is the creation of new products within the large organization using existing employees. On the other hand exopreneurship is the generation of innovation outside the boundary of the organization using external agents known as exopreneurs. The modes to intrapreneurship have been in the dispersed and focused forms (Birkinshaw, 1996). The exopreneurship process can be attained through franchising, external venture capital, subcontracting and strategic alliance (Siti Maimon & Chang, 1995). This article reviews the different conditions that trigger intrapreneurship and exopreneurship and established propositions to identify the dissimilarity of both processes that build up corporate entrepreneurship in large organizations.
There is a number of leading research journals and published articles that present the exploratory work on corporate entrepreneurship. The research has developed a number of models of corporate entrepreneurship that focused on internally generated innovations within the organizations also known as intrapreneurship. The models are domain models of corporate entrepreneurship (Guth & Ginsberg, 1990), a conceptual model of firm behavior (Covin & Slevin, 1991), an organizational model for internally developed ventures (Brazeal, 1993) and an interactive model of corporate entrepreneuring (Hornsby, Naffziger, Kuratko & Montagno, 1993). These models are centered on innovations that are generated within the organizations to revitalize largely established and bureaucratized organizations into strategically entrepreneurial performers.
Siti-Maimon (1993) coined "exopreneurship" as part of the process of corporate entrepreneurship to revitalize large organization by acquiring ideas or innovation from external sources. The term, exopreneurship, is viewed as acquiring innovations that are outside the organization into the firm. The external innovation can be acquired through franchising, strategic alliance, external capital venture, and subcontracting (Siti-Maimon & Chang, 1995). This paper proposes to differentiate the domain of corporate entrepreneurship into intrapreneurship and exopreneurship. The proposed model (figure 1) intends to identify the differences in the antecedent factors that trigger intrapreneurship and exopreneurship.
This paper starts with an explanation of the development of sourcing innovation internally (intrapreneurship) then moves to the divergence in sourcing innovations externally (exopreneurship). Based on the model of corporate entrepreneurship designed by Covin and Slevin (1990) with the several propositions made, the later section of the article discusses the differences in the antecedents that trigger intrapreneurship and exopreneurship
INTERNALLY SOURCED INNOVATIONS: INTRAPRENEURSHIP
Corporate entrepreneurship universally known as intrapreneurship employs internally generated innovations from employees. Corporate venture groups such as 3M and DuPont were sources of innovations chronicled with business renewal in the early 1960s despite Pinchot (1985) who made intrapreneurship popular in the mid 1980s. Scientific research by Burgelman (1983a, 1983b, 1984) revealed how corporate entrepreneurship should be synergized into the overall corporate strategy of any organizations that desire to diversify their innovations. He showed how traditional research and development should be transformed into new business through internal corporate venturing that grew in stages from the conceptual, pre-venture, entrepreneurial and organizational. Kanter and Richardson (1991) identified four approaches to the process of corporate entrepreneurship that include pure venture capital, the new venture development incubator, the idea creation centre and employee project model. They discovered that the internal employee program yielded a higher frequency of innovations
Kanter (1984) discovered that large organizations involved in internal venturing began to sponsor or became equity partners to innovative employees in the formations of new venture creations. These became the new venture companies. Burgelman (1985) suggested that new venture divisions exploit employees' expertise to achieve corporate growth through acquisition. This became another popular strategy for corporate growth but this approach considered entrepreneurship to be controversial. The study of corporate entrepreneurship as internally sourced innovations became popular among strategic management researchers throughout the 1980s and early 1990s (Hubbard, 1986; Kanter, Ingols, Morgan & Seggerman, 1987; Wood, 1988; Morris, Davis & Ewing; 1988; Sathe, 1988; Jennings & Lumpkin, 1989; Morris & Trotter, 1990; Fulop, 1991; Carlisle & Gravelle, 1992; Hornsby et. al 1993). Morris, Davis and Allen (1994), Ginsberg and Hay (1994) and Bryon (1994) studies also supported the same idea.
Byron (1994) found that product innovation depends on the type of internal ventures. His research revealed that the innovative ideas conceived from research and development departments have the fewest successful ventures, even though they represented the greatest degree of technical diversification. Byron's work inferred that those sources of ideas for innovation affect the success of new ventures. Studies by Farrel and Doutriaux (1994) showed that corporate growth did not have to depend on internal development. However, external strategy such as collaboration strategies based on franchising, external venture capital, subcontracting and strategic alliance can diversify product innovation. Their findings found that external agreements had a positive impact on sales and technology competency.
DIVERGENCE IN SOURCING INNOVATION: EXOPRENEURSHIP
Aldrich and Auster (1986) recommended strategies for large and aged organizations such as subcontracting and franchising to smaller companies as corporate entrepreneurs to make them young and viable. Starr and MacMillan (1990) examined social contracting as an approach to resource acquisition. External strategies adopted by organizations to gain competitive advantage, exploited the weaknesses of the other organizations. Therefore, corporate entrepreneurship should envelop both intrapreneurship and exopreneurship which is externally sourced ideas as proposed by Siti-. Maimon and Chang (1995).
Internally sourced innovations may take a long time to develop and involves higher risk of failure as invented by Lengnick-Hall (1991). She suggested that other modes toward the process of corporate entrepreneurship such as joint venture and acquisition involves externally sourced relationship. This pushes the idea of internally sourced idea of corporate entrepreneurship to vie for an external relationship. Perhaps factors such as the speed of innovations to meet market demands and the leverage of failure has caused corporate strategists to look into other designs for the process of corporate entrepreneurship.
Recent research has recommended the use of externally sourced innovations of products or services (Jones & Butler, 1992). Cowan (1993) indicated that the mode of corporate entrepreneuring would depend on the result of market research. This implies that not all intrapreneurship programs would provide the diversity for organizations on which to build their competitive edge. Schumann, Prestwood, Tong and Vanston (1994) emphatically stressed that the creation of innovative organizations must include the elemental infrastructure containing both internally and externally sourced innovations. However, they did not specifically define this idea as corporate entrepreneurship.
Rice, Wilkinson and Wickham (1994) tried to link the performance of the incubator program (a form of exopreneurship to new product development) with companies that sponsored the research. The survival rate is higher than start up programs with the success rate for breakout at about nine years. This suggests that exopreneurship can speed up diversity in large established organizations into the market and provide a higher success rate. The study by Daniels and Hofer (1994) revealed that the success rate of university-based new venture development has an 80 per cent success rate of survival.
Exopreneurship as strategic alliance plays a very important linkage to the Asian market. Western multinationals are finding it difficult to move into Asian markets because the host country makes more demands. The demands include types of technology transfer, local content and are getting less accommodating in selling natural resources at cheap prices. Consequently, many opportunities were closed to Western companies. Therefore, large multinationals must be smart to use business relationships to achieve superior growth when dealing with strategic alliances.
In short, compared with intrapreneurship, exopreneurship creates diversity in large companies in a speedier route to corporate entrepreneurship. For instance, DuPont found that intrapreneurship may take up to 15 years to commercialize certain products. Schumann et al (1994) have suggested some form of exopreneurship such as the use of contract research and development; universities; consultants or government supported centers. The external venture center focuses on the product or business that includes acquisition and establishment of joint ventures. They (Schumann et al., 1994) specified licensing as a form of subcontracting because it shortens the time to market and maintains technical dynamism of an industry. Gee (1994) coined the term, corporate entrepreneurial activities, which are both internally and externally sourced as corporate business renewal which includes strategic alliances. However, Siti-Maimon and Chang (1995) have proposed the creation of new ventures in large organizations through franchising, subcontracting, strategic alliances and venture capital. Table 1 gives a summary of the differences in the intrapreneurship and exopreneurship.
MODEL BUILDING FOR EXOPRENEURSHIP AND INTRAPRENEURSHIP
This section outlines a conceptual model of corporate entrepreneurship as a result of exopreneurship or intrapreneurship or both phenomena. The model intends to depict the differences in the antecedents for exopreneurship and intrapreneurship at the organizational level. The proposed models delineate the antecedents and the types of venture creation of a corporate entrepreneurial posture and firm performance. The proposed model is based on the model conceived by Covin and Slevin (1991) which consists of the original component. However certain components are altered for the purpose of this paper.
COMPONENTS OF THE MODEL AND THEIR INTERRELATIONSHIPS
Figure 1 depicts the proposed model of corporate entrepreneurship based on organizational behavior depending on the use of internally sourced (intrapreneurship) or externally sourced (exopreneurship) innovations. The model shows the antecedents to intrapreneurship and its consequential intrapreneurial posture and the antecedents to exopreneurial posture. The three main variables comprising external variables, strategic variables and internal variables in the model and their interrelationship are discussed below.
CORPORATE ENTREPRENEURIAL POSTURE AND ACTIVITIES.
The entrepreneurial posture reflected by Covin and Slevin (1991) are risk taking, product innovation and proactiveness with similar descriptions upheld by Miller and Friesen (1982); Jennings and Lumpkin (1989) and Guth and Ginsberg (1990). Yeoh and Jeong (1995) argued that innovativeness involves seeking creative or unusual solutions to problems and needs. This includes product innovation, development of new markets, and new processes and technologies for performing organizational functions. Risk taking refers to the willingness of management to commit significant resources to opportunities in the face of uncertainty. Proactivenes is defined as the firm's propensity to know the what their competitive rivals are doing.
However, Kao (1991) and Churchill and Muzyka (1994) believed entrepreneurial organizations are opportunity seeking with a built-in imperative to continually renew their businesses. In the opinion of the author, it is the opportunity seeking that pushes an organization to be risk-taking, innovative and proactive. Yeoh and Jeong (1995) argued that the opportunistic capability of entrepreneurial organizations which is an element of proactiveness drives a firm to take advantage of the hostile environment. This opportunistic outlook of entrepreneurial organizations drives them to seek innovation outside the corporations. In short, the corporate entrepreneurial posture stems from the opportunity seeking capability which is manifested in two forms which involves intrapreneurial and exopreneurial behaviors.
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Intrapreneurial activities which are focused include internal corporate venturing also known as new venture division and formal research and development group. The dispersed intrapreneurial activities include an idea creation centre and an employee project model (Kanter & Richardson, 1991). Exopreneurship typifies the use of outside entrepreneurs for new venture creation such as franchisees, subcontractors, strategic alliance partners and external corporate venturing.
DIFFERENCES IN ANTECEDENTS TO INTRAPRENEURSHIP AND EXOPRENEURSHIP
Numerous research explored the antecedents that trigger intrapreneurship. However, this list does not differentiate the different conditions that cause intrapreneurship or exopreneurship. This section attempts to distinguish the differences in the antecedents that trigger intrapreneurship and exopreneurship. The proposed model is to dispute the differences in the antecedents of both seemingly entrepreneurial behaviors based on the Covin and Slevin model (1991). The antecedents are categorized into three areas known as external environment, strategic, and internal variables.
The external variables include the external environment, the industry's life cycle and government intervention. The strategic variables include mission strategy, the firm's business practices and its competitive tactics. The antecedents that comprise the internal variables are organizational size; age; competency, structure, and management philosophies. Having argued the differences in antecedents between exopreneurship and intrapreneurship, a set of propositions are postulated for the creation of a model for both entrepreneurial behaviors. The antecedents to exopreneurship and intrapreneurship are shown in Table 1.
The dimensions of external variables incorporate external environment, the industry's life cycle and the type of government intervention. These dimensions include environmental technology sophistication, the state of the industry life cycle and the type of government intervention.
Cowan (1983) stressed that corporations must understand the external environment through market research to find the "nugget" in the environment. Understanding the environment will result in entrepreneurial ideas. Indeed, environmental characteristics elicit entrepreneurial behaviour on the part of organizations. High tech industries are composed of disproportionate numbers of entrepreneurial firms (Maidique & Hayes, 1984). Firms operating in uncertain environment show higher levels of innovation (Karagoszoglu & Brown, 1988; Walters & Samiee, 1990). A dynamic environment challenges organizations to take risks, be innovative and exhibit proactive behaviors (Johnston & Czinkota, 1985; Reid, 1987; Miller, Droge & Toulouse, 1988).
Hostile and Benign Environment and Industry Life cycle
The dynamism of the environment includes escalating cost of technology, globalization, information revolution, product life contraction, greenism which have shifted the organization into an entrepreneurial paradigm of seizing opportunities from the enveloped surrounding. The level of hostility, heterogeneity and dynamism (Miller & Friesen, 1982, 1983; Miller, 1983), turbulence (Davis, Morris & Allen, 1991) or volatility (McKee, Varadarajan & Pride, 1989) influence the external environment. The scale on the external environment ranges from hostile to benign (Covin & Slevin, 1989; Covin, 1990). Precarious industry setting, intense and fierce competition, harsh and overwhelming business climate and the relative lack of exploitable opportunities represent hostile environments. Benign environments provide a safe setting for business operations due to the richness in investments and marketing opportunities.
Several studies indicate that the relationship between entrepreneurial posture and firm performance is moderated by environmental conditions. Firms operating in a hostile environment are entrepreneurially inclined and promote a higher level of firm performance (Covin & Slevin, 1989, 1994; Dean et. al, 1993; Jansen & VanWee, 1994; Stopford & Fuller, 1994; Zahra, 1991, 1993; Zahra & Covin, 1995). Empirical studies by Dean et. al (1993) and Zahra and Covin (1995) revealed that firms operating in a hostile environment yielded higher performance levels. However, there is no empirical evidence as to the level of hostility to internal or external mechanisms of corporate entrepreneurship.
Baden- Fuller and Volberda (1997) discovered that strategic renewals depend on the technology of the organizations. They suggested that firms operating in a benign competitive environment adopt to technology variations through internal corporate venturing. This mechanism supports the firm in diffusing knowledge and technology throughout the firm which reorders the organizations' core competencies, thus increasing the survival rate (Fast, 1979; Block, 1982; Block & MacMillan, 1993). Organizations faced with a resource rich environment undertake core competence renewal projects at lower risks by organizing change in specialized parts of the firm such as new business developments. This implies that intrapreneurship prevails in organizations operating in benign environments. Fuller-Baden and Volberda (1997) viewed that both corporate venturing and specialized innovations are slow to promote strategic renewal and are at the expense of speed. For instance, the intrapreneurship project in DuPont took up to 15 years to commercialize certain products. 3M searches for innovative approaches to reduce the time frame of commercializing products in its intrapreneurship projects (Strategic Direction, 1996). This suggests that internally generated innovations are sluggish to react in environments with high levels of hostility where speed is required as a competitive edge over a firms' rivals. Therefore, intrapreneurship is not an appropriate mechanism to corporate entrepreneurship under this hostile environment.
Firms functioning within high levels of competition and emerging industries faced with instability and uncertainty require speed as a weapon to surpass their rivals. Firms operating in intense competition, market saturation and new emerging industries tend to use franchising, strategic alliance, external corporate venturing and subcontracting to enhance their competitive position. Studies on franchising (Anonymous, 1982, 1984, 1995; Sanghavi, 1991; Sadi, 1994; Kedia, Ackerman & Bush, 1994) used this strategic means to enhance competitive position. Similarly subcontracting (Florida & Kenny, 1990; Goe, 1991; Scott, 1991) becomes a popular strategy under hostile conditions to improve efficiency and the quality of the product in the shorter time spent as a tool to a competitive edge. Strategic alliance in the form of equity and non equity partnerships (Vyas, Shelburn & Roger, 1995; Glaister & Buckley, 1996) and external corporate venturing (Roberts, 1991; Hurry, Miller & Bowman, 1992; Thayer, 1993; Gersick, 1994; McNally, 1995; Rotman, 1996) are popular means of product or service innovation for firms of converging technology in new emerging industries. Under these conditions, exopreneurship becomes a prevalent mechanism to corporate entrepreneurship to outwit the competitive rivals in terms of speed to deliver products or services to the target market.
From the preceding arguments, it can be concluded that the organizations operating in benign environments with rich resources with ample opportunities of investments have the propensity to use intrapreneurship because speed does not play a crucial role in the competitive advantage. On the other hand, organizations performing in hostile environments require speed to compete with their rivals; thus, they choose a faster route to innovation by acquiring it externally. Organizations with knowledge about their competition (Chaharbaghi & Nugent, 1996) and the level of hostility can create and exploit opportunities either through intrapreneurship or exopreneurship. The author speculates the following propositions:
Proposition 1: Intrapreneurship is prevalent in benign environments while exopreneurship is prevalent in hostile environments. Proposition 2: Intrapreneurship is prevalent in growth and mature industries while exopreneurship is prevalent in the early stage of an industry.
Studies revealed that governmental, fiscal and regulatory environments have an impact on entrepreneurial activity (Kilby, 1971; Kent, 1984). The regulatory environment depends on the macroeconomic objective of government which has indirectly favoured exopreneurial activities. In developed countries, there is a growing application of government regulation to all facets of business activities which increase the demand for service functions such as accounting, legal services and insurance (Stanback, 1979; Daniels, 1985; Orchel & Wegner, 1987). These requirements caused organizations to externalize these functions. The developing countries and former Soviet block insist foreign investment must contain a local market partner (Beamish, 1988; Ghazali, 1994). For instance, the Malaysian government induced the business environment into an exopreneurial one. The various new form of foreign investment include joint ventures (equity strategic alliance), technology, know-how and management agreements and licensing and patent agreement (non-equity strategic alliance), franchising and subcontracting. The regulatory policy in Malaysia forces multinationals to exopreneurialize (externalize). In doing so, the locals have opportunities to gain access to modern technology and export markets. The author speculates that government policy plays a vital role in exopreneurial activities.
Proposition 3: Exopreneurship is prevalent in government policy that encourages agency theory while intrapreneurship is prevalent in corporate innovation policy.
The strategic variables in the Covin-Slevin model include mission strategy and the firm's business practices and competitive tactics.
The development of mission strategy has evolved with the progress of strategic management. The Covin-Slevin model is based upon the strategies of build, hold, harvest and divest. Scholarly research such as Gupta and Govindarajan (1982), Burgelman (1985); Hubbard (1986); Morris and Trotter (1990), Zahra (1991, 1993); Dean (1993) has affirmed the Covin-Slevin model in that entrepreneurial postures are manifested in the build and hold strategies for growth; however, they did not specify which kind of entrepreneurial posture.
To delineate the types of mission strategy as antecedents to exopreneurial and intrapreneurial activities, four strategies are classified. Integration strategies allow firms to gain control over distributors, suppliers and competitors. Intensive strategies require intensive efforts to improve a firm's competitive position with existing new products and diversification strategies to diversify a portfolio of products. Finally, defensive strategies include joint venture, retrenchments, divestiture or liquidation.
Integration strategies include forward integration, backward integration and horizontal integration. Forward integration involves gaining ownership or increased control over distributors or retailers. An effective means of implementing forward integration for growth is franchising (Caves & Murphy, 1976; Brickley & Dark, 1987; Martin, 1988; Carney & Gedajlovic, 1991; Hoffman & Preble, 1991; Sanghavi, 1991; Huszagh, Huszagh & McIntyre, 1992) because businesses can expand rapidly as costs and opportunities are spread among many external participants.
Backward integration is a strategy for seeking ownership or increased control of a firm's suppliers. Horizontal integration is seeking to gain control over the firm's competitors. Vertical integration consisting of forward, backward, and horizontal integration is reducing the competition. The cooperation with suppliers, customers and competitors in the form of subcontracting, outsourcing and strategic alliances is gaining popularity in order to improve the competitive position of the organization (Carney & Gedajlovic, 1991; Goe, 1991; Scott, 1991; Fearne, 1994; Harrison, 1994; Mattysesens & Van den Bulte, 1994; Brown & Butler, 1995; Varamaki, 1996; Stearns, 1996).
Defensive strategies in the form of joint ventures are part of the strategic alliance in terms of equity sharing. Studies on mission strategy connected to joint ventures have been numerous (Harrigan & Newman, 1990; Butler & Sohod, 1995; Das & Bing, 1996; Glaister & Buckley, 1996; Stearns, 1996). The nature of this strategy requires external partnerships to achieve the corporate objectives of growth.
Integration strategies and defensive strategies in the form of joint ventures have the propensity to use external agencies to achieve its mission strategy. The preceding dialectic suggests that the higher propensity of a firm's mission strategy to integration and joint venture, the more exopreneurial the firm's strategic posture is to facilitate the achievement of growth goals. This expectation is supported by Carney and Gejadlovic's studies (1991) in franchising; Goe (1991) and Scott's (1991) in subcontracting; Fearne's (1994) in strategic alliance and Brown and Butler's (1995) in competitive strategic alliance.
Intrapreneurial behavior is expected in firms that use strategies related to the internal strength of organizations. Intensive and diversification strategies require a high input of resources to improve the firm's existing competitive position. Market penetration demands higher levels of marketing activities to increase market share especially in intrapreneurially-behaved organizations (Nielsen, Peters & Hisrich, 1985; Dougherty, 1990, 1992, 1995; Foxall & Minkes, 1996).
The existence of internal corporate venturing and new venture division within large corporations aim to diversify the existing product portfolios (Burgelman, 1983a, 1983b; Gee, 1994; Holt, 1995). According to Gee (1994) most related diversifications cost less and are more efficient because necessary resources are available within the corporation and are easily understood by top management (Mandell, 1971; Fast, 1978; Sykes, 1986). For instance, according to Holt (1995) horizontal diversification does not disrupt other operations by setting up a divisionalized structure. In short, the intrapreneurial and exopreneurial activities may be contingent upon the mission strategy exercised by organizations. The following proposition postulates how corporate entrepreneurial activities may respond to the types of mission strategy variables.
Proposition 4: Intrapreneurship is prevalent in organizations exercising an intensive diversification strategy while exopreneurship is prevalent in organizations exercising integration and defensive strategies.
Business Practices and Competitive Tactics
The primary element of business strategy is always to make the organization entrepreneurially and competitively effective in the market place (Thompson & Strickland, 1987). The business strategy is the managerial action plan for directing and running a particular business unit. It is defined in terms of a collection of business practices and competitive tactics. These decisions include reduction of risk, reduction of transaction cost and increasing the speed of sales to market. These expected strategies keep the organizations abreast with innovations.
Profiles of business practices and competitive tactics associated with entrepreneurial posture have been cited in Miller and Camp (1985), MacMillan and Day (1987) and Robinson and Pearce (1988). Organizations that are market (Nielsen, Peters & Hisrich, 1985; Jennings & Lumpkin, 1989; Cram, 1996) and technologically (Zahra, 1993; Zahra & Ellor, 1993; Zahra, Nash & Bickford, 1995; Zahra, 1996) driven have shown an entrepreneurial posture by producing high quality products. These studies confirmed Covin and Slevin's (1991) propositions.
Competitive strategy such as risk reduction, increase in the speed of sales and reduced transaction costs are domains leading to exopreneurial activities in franchising, subcontracting, strategic alliance and external corporate venture capital.
The most common antecedent factor which leads organizations to externalization is cost minimization. Organizations often franchise their businesses to reduce the cost of capital. Studies by Martin (1988) Carney and Gedajlovic (1991),Thompson (1994) Birkland (1995), Michael (1996), Elango and Fried (1997) confirm this. Birkland (1995) found that organizations capitalize on the ideology of entrepreneurship (agency) while Michael (1996) stressed that franchising is a form of minimization in conditions of low levels of human capital and business.
Generally, subcontracting lowers production costs and increases producers' profit (Kamien & Li, 1990; Rao & Young, 1994; Shenas & Derakshan, 1994; Downey, 1995; New & Payne, 1995). Large established organizations move into externalization to focus on reduction of production costs and to increase their core competencies to get closer to their customer (Belotti, 1995). Subcontracting becomes a popular strategy to reduce administrative burden and escape from the restriction of industrial disputes (Friedman, 1977). Sharing costs with partners is the prime motivator of strategic alliances in the form of joint ventures (Bijlani, 1994; Glaister & Buckley, 1994; Cauley, 1995). On the other hand, the external corporate venturing by large organizations does not depend on this factor.
Another latent factor that drives large organizations to obtain outside innovation is risk reduction. Capital and business risks are transferred to the exopreneurs and, therefore, the large organization and the exopreneurs share lower risks. Numerous studies (Shelton, 1967; Walsh, 1983; Castrogiovanni, Justis & Julian, 1993) on franchising revealed higher rate of success than independent business start ups. Franchising provides large corporation the nimbleness to react because of its stability and low failure rate. It has the ability to achieve an individual's desire to become an entrepreneur (Mathewson & Winter, 1985; Brickley & Dark, 1987). Thus, franchising reduces risk (Combs & Castrogiovanni, 1994) as the capital cost is spread among the franchisor and franchisees. For instance, the Quizno Franchise encouraged its general manager to invest in its franchise after working four to six years tapping the entrepreneurial spirit of middle managers (Ruggles, 1995).
Similarly subcontracting is a popular form of exopreneurial activity of transferring risk to exopreneurs. Studies of the Japanese industrial systems (Sako, 1991; Smitka, 1992; Easton & Aroujo, 1994) provide examples of secondary investments in technological capabilities of Japanese subcontractors. The kereitsu system lowers the risk of business integrated systems. Rao and Young's (1994) research affirmed that risk transference and high quality products are part of the driving force to subcontract physical distribution in a risk reduction exercise. Campbell (1995) noted that large organizations reduce risk by subcontracting their specialized projects or risky maintenance projects not within the capability of the organization. At the same time, liability can be avoided through subcontracts (Downey, 1995; Baker, 1995).
Strategic alliance in the form of equity or non-equity collaboration aims to reduce risk and to leverage uncertainties and reduction of escalated costs (Carnavale, 1996). A study by Glaister and Buckley (1996) showed that strategic alliance is an attractive mechanism for hedging risk because neither partner bears the full risk or the cost of the alliance (Mariti & Smiley, 1983; Porter & Fuller, 1986; Contractor & Lorange, 1988). Risk reduction includes spreading the risk of a large project over more than one firm; enabling product diversification reducing market risk; enabling quicker sales to market and lower investment costs.
The common antecedent that leads organizations to exopreneurial activity is to expedite the sales to market. Franchising is one of the fastest mechanisms for global expansion (Hoffman & Preble, 1991) characterized by intense competition and rapidly changing customer taste. Subcontracting is a popular alternative to hasten products or services to market (Blois, 1994; Baker, 1995; New & Payne, 1995). Similarly strategic alliances decrease time to market and access to international markets at a greater pace of time (Takac & Singh, 1992; Cauley, 1995; Glaister & Buckley, 1996; Carnavale, 1996) while external corporate ventures speed up the sales through the expertise of technology of the exopreneur (Shrader & Simon, 1997).
In short, the types of competitive business tactics have a contingent influence over the type of corporate entrepreneurial activities. Propositions 5 and 6 are speculated as follows:
Proposition 5: Organizations which pursue externalization (exopreneurship) reduce risk through transfer of risk to partners, an increase in speed of sales, and work on economies of scale. Proposition 6: Organizations which pursue internalization (intrapreneurship) reduce risk by diversification of related products/ customers, an increase in the speed of technology/product into market through teamwork, and reduce costs by increasing productivity through internal creativity.
Following the Covin-Slevin (1991) entrepreneurial model, only three out of four internal variables are included as antecedents to entrepreneurial behavior. They are top management values and philosophies, organizational resources and competencies, and organizational structure. Corporate culture is excluded because it is seen as similar to top management values.
Organizational Resources and Competence
Organizational resources and competencies variables are defined in the broadest sense which include resources, capabilities and culture (Collis, 1991; Leonard-Barton, 1992). The organizational resources refer to the specific knowledge and the specialized assets (Lippman & Rumelt, 1982; Wernerfelt, 1984; Barney, 1991; Grant, 1991; Tvorik & McGivern, 1996). Resources range from patents, brand names to knowledge of particular processes. Capabilities relate to the ability of making use of resources (Bartlett & Ghoshal, 1990; Amit & Schoemaker, 1993; Whitney, 1996). Dougherty (1995) argued that culture is the cognitive decision which connects resources and capabilities.
Entrepreneurially inclined organizations are resource-consuming in nature (Romanelli, 1987). Intrapreneurial activities such as internal corporate venturing and specialized innovation to a certain extent depend on the resource capacity of organizations (Covin & Slevin, 1991; Baden-Fuller & Volberda, 1997). A majority of organizations involved in intrapreneurial activities are large and established which reflect their high level of resources and competencies. Though organizations with abundant resources and competencies engaged in entrepreneurial activities, this does not prevent lower resources and competent firms from being innovative. The latter externalizes via restructuring to improve its resources and competencies thus strengthening its competitive position.
In delineating the antecedents of the exopreneurial and intrapreneurial behavior of the firm, the operational definitions included in the organizational resources and competencies are organizational size, organizational age, technology driven, market driven and the level of corporate governance.
Organizational size is a liability to innovation (Aldrich & Auster, 1986; Jones & Butler, 1992). Growing in size in terms of employees, expansion of buildings and equity would cause organizations to be less flexible to respond to opportunities (Abernathy, Clark, & Kantrow, 1983; Ettlie, 1983; Dougherty, 1990). This scenario was seen in the United States during the early 1980s where there were huge numbers of innovative employees who left large organizations to start their ventures (Hisrich & Peters, 1995). The operational definitions of organizational size are numbers of employee, sales turnover, and equity.
Evidently research (Romanelli, 1987; Laforge & Miller, 1987; Zahra, 1993) revealed that entrepreneurial strategies are influenced by company size. Therefore, an organizational aptness for corporate entrepreneurial posture is to some extent limited by its resource base. Bloodgood, Sapienza and Almeida (1995) found that organizations with more employees tend to innovate through internationalization than smaller firms. Harrison (1994) and Gertz (1997) viewed that no company is too big to grow as a correlation between company size and its growth is weak. This implies that organizations which are rich in size are abundant in resources, thus have the propensity to use intrapreneurship to produce new creations.
Conversely, smaller organizations which are low in resources tend to externalize for appropriate alliances in search of opportunities. This is one of the driving forces to exopreneurship. Empirical studies revealed firms franchise their businesses as a result of resource scarcity (Oxenfelt & Kelly, 1968,1969; Hunt, 1973; Carney & Gedajlovic, 1991). The notion of resource constraints is evidenced by studies completed by Thompson (1992) whereby company ownership is less likely to occur when units require high capital investment. Charging high royalties by franchisors at an early stage of business also shows the low resources (Sen, 1993). Other motives that drive organizations to seek exopreneurs related to resource constraints are transfer of complementary technology and access to specialized knowledge which firms do not possess (Contractor & Lorange, 1988, Coffey & Bailey, 1990). This exopreneuring is due to the organization's lack of financial resources necessary to produce innovations internally at the time they are needed or at the level of efficiency or quality which is required.
The level of research and development and market specialization moderated the influence of the entrepreneurial posture (Covin & Slevin, 1991). The extent of these variables also depends on the financial status of organizations. Studies by Shrader and Simon (1997) confirmed that the success of intrapreneurship depends on internal capital resources, proprietary knowledge and marketing knowledge compared to independent ventures which require external capital resources. Undoubtedly, large entrepreneurial organizations exhibited higher levels of R & D and marketing expenditure on internal corporate ventures (Zahra, 1996) because of their posture of innovations, risk taking and proactiveness. However, this does not imply that the low levels of R &D and market specialization are less entrepreneurial. Smaller resource organizations have a lower capacity for research expenditure; therefore, they adopt externalization as an outlook for product development.
The life cycle of the organization is another yardstick by which to measure corporate entrepreneurial activities. Large sized aging organizations become less innovative at the later stages of their evolution (Chandler, 1962, 1977; Mintzberg & Waters, 1982; Adizes, 1988). Mature businesses show signs of aging (Goold, 1996) with slow growth, more stable technologies, resource self sufficiency and tend not to anticipate changes (Kanter, 1983). Zahra (1993) defined established companies as being a minimum of eight years old. The resource of self sufficiency becomes an added advantage to large corporations to introduce intrapreneurial activities to achieve variations of technologies upon the existing ones. There has been numerous intrapreneurial studies (Burgelman, 1984; Harrel & Murray, 1986; Schaffhouser, 1986; Grove, 1987; Kiley, 1987; Rutigliano, 1987; Kapp, 1988; Pla, 1989; Shatzer & Schwartz, 1991; Denton, 1993; Weaver & Henderson, 1995; Birkinshaw, 1995, 1997) on large, mature and established organizations.
On the other hand, young independent organizations that are resource deficient synergize their internal competencies to complement external sources for growth strategies. This combination leads to exopreneurship among young entrepreneurial organizations with large organizations with scarce technology (Contractor & Lorange, 1988). Empirical research (Ettington & Bentel, 1994) found that organizations less than ten years old are involved in strategic alliances. However, mature industries (Davis, 1976; Harrigan, 1983; Killing, 1983; Morone, 1993) are moving into joint venture activities to reduce the opportunities of merger or acquisitions because of fear of losing talented employees as a result of acquisition.
The Availability of the Corporate Entrepreneurs
Brazeal's findings (1993b; 1996) show that organizations may have potential intrapreneurs even if they do not display any overt intentions to start a corporate venture. Large established organizations have the managerial, technical specialization and financial economies of scale to nurture the employees' entrepreneurial talents into commercialized products. An example of dispersed intrapreneurship is "Enterprize programme at Ohio Bells (Kanter, 1991). Other methods of acquiring new innovations internally are through research and development (administrative entrepreneurship) and the set up of new venture development units (incubative entrepreneurship). Both methods are known as focused corporate entrepreneurship.
Organizations involved in exopreneurship lack talented or specialized personnel to build their competencies. It is evident that the franchise system capitalizes on the agency theory of using external entrepreneurs as agents for expanding businesses (Combs & Castrogiovanni, 1994). Studies found that strategic alliances (Bijlani, 1994; Ingham & Thompson, 1994; Vyas et. al, 1995), external corporate venture and subcontracting (Goe, 1991) are means to increase skills without having to develop competencies in house. The complementary role synergized through the combination of subcontracting, strategic alliance and external corporate venture between two or more organizations suggest that exopreneurship is a mechanism to seek talented expertise for new innovations.
One point worth noting is that exopreneurs can only be identified by innovative and established intrapreneurs before moving into exopreneurship. The availability of corporate entrepreneurs is also determined by the level of education. White (1995) found that intrapreneurs have higher levels of education compared to independent entrepreneurs. Studies by Burenitz and Barney (1997) found that independent entrepreneurs who could be exopreneurs are bad managers because the latter has a higher level of overconfidence.
Having argued in the preceding paragraph the extent to which organizational size, age and human resources may have contingent influence over the entrepreneurial activities of an organization, the following proposition summarizes the argument presented earlier.
Preposition 7: Exopreneurship is prevalent in organizations which are young, small and lack human and financial resources while intrapreneurship is prevalent in large, mature organizations with sufficient resources.
Increase in growth, inadvertently, increases complexity (Butler & Jones, 1992). Complex organizational structure makes the flow of communication difficult which consequently brings death to an organization (Adizes, 1988). Studies found that organizational structure and form have an impact on strategy through its impact on the strategic decision making process on the growth and survival of firms (Frederickson, 1986; Priem, 1994; Rowlinson, 1995; Shane, 1996). It was shown that structure and form have domain over corporate entrepreneurship (Russell & Russell, 1992; Gielser, 1993; Mueller, 1994; Jennings & Seaman, 1994; Chesbrough & Teece, 1996). This implies that structure moderates the entrepreneurial postures of firm behavior.
Scholars found that entrepreneurial activities are positively related to firm performance with appropriate organizational structure. Burgelman and Sayles (1986) stressed the importance of fit between an organization's strategic orientations and its organizational structure. The organic structure encourages entrepreneurial activities (Khandwalla, 1977; Miller & Friesen, 1982; Miller, 1983) which was empirically supported by Slevin and Covin (1990). Further empirical evidence show that attributes of organicity outperform mechanistic structures in terms of team participation and shared decision making (Nasi, Nasi, Banks & Ensley, 1994).
The attributes of organicity studies focused on the internally generated innovations. There may be deviation in the structure of organizations that practice exopreneurship. Baden-Fuller and Volberda (1997) speculated that organizations that externalize tend to inter-reorder their competencies across multiple industries. This involves restructuring of organizational business. Baden-Fuller and Volberda (1997) suggested that ease of restructuring is positively related to the size of organization whereby the flow of communication tends to be top down (Prahalad & Hamel, 1990). Therefore, the author speculates that organizations which externalize may have a simple structure so that the strategic intent of the organization is easily related to the entrepreneurial employees as restructuring poses a higher risk to large and complex organizations.
Proposition 8: Exopreneurship is prevalent in organization with simple centralized structures while intrapreneurship is prevalent in complex and decentralized structures. Proposition 9: Organizations that practice intrapreneurship have a higher level of organicity compared to organizations that practice exopreneurship.
Studies have shown that management philosophies moderate competitive strategy choices (Andrew, 1980). The choice of intrapreneurial or exopreneurial behavior depends on the decision of management's beliefs. The choice adopted by top management must fit with the strategic intent (Khandwalla, 1987). Top management values and philosophies that may affect this choice are identified in the following proposition:
Proposition 10: Exopreneurship is positively related to the value top management places on externalization which brings competitive advantage to the organization while intrapreneurship is positively related to internalization values.
This proposed model of corporate entrepreneurship has a number of limitations. First, is there any difference between internally generated innovations and externally generated innovations?. Looking at performance, there seems to be no difference as both strategies aimed to revitalize corporate growth in diversifying the product portfolio. Ultimately both the process of acquiring innovation converges to increase organizational performance. In theory, the origin of innovation is different, which requires a specific ambient environment to conceive the idea and commercialization of the innovation. Intrapreneurship and exopreneurship processes require different types of contextual influences to trigger them and need different modes to achieve the new venture creation.
Another limitation of this model is that organizations appear to use both processes simultaneously, thus making the differentiation of the two processes more tedious. Theoretically, intrapreneurship precedes exopreneurship to give organization the uniqueness of the competitive advantage which earns monopolistic market while exopreneurship works on comparative advantage with other organizations to achieve organizational performance.
This proposed model assumes that organizations are ready to use either intrapreneurship or exopreneurship to cope with the changes of any kind. This means that organizations have strategic intent to change by being innovative. However, this may be an erroneous assumption as there are firms that are not entrepreneurial yet still perform well. Although corporate entrepreneurship has been applicable to large firms, this model can be applied to small firms, perhaps with some different degree of contextual differences influencing intrapreneurship and exopreneurship.
Finally this model has to be empirically tested. Do the conditions for exopreneurship and intrapreneurship differ from each other? To explore this issue the data needed must cover both time series and cross sections. The data has to be pooled and regressed to recognize the differences in the conditions that trigger intrapreneurship and exopreneurship. The differences tested, hopefully would make a positive contribution to management decisions with regards to corporate entrepreneurship.
Corporate entrepreneurship has been closely linked to intrapreneurship; the creation of innovation within the organization by existing employees. Exopreneurship is a new term that extends the paradigm of corporate entrepreneurship by acquiring innovation invented beyond the boundary of the organization. The modes to achieve the process of exopreneurship are franchising, external corporate venture capital, strategic alliance and subcontracting. It is not the intent of this article to discuss whether these modes achieve the means of corporate entrepreneurship. In conclusion, the process of exopreneurship is part of corporate entrepreneurship which requires different conditions to trigger it than that of intrapreneurship.
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Table 1 A Summary of the Difference between Intrapreneurship and Exopreneurship Area Intrpareneurship 1. Origin * synergised internal creativity to create new innovations * internal employees who are willing to run the risk of commercialising new products 2. Activities Sponsoring organization source innovation from product champion, employee program, new venture team, new venture division, research and department 3. Investment Sponsoring organization gives seed money (budget) to source innovation internally until the new product is commercialize 4. Involvement Involved only internal employees from idea to commerciliazation of product. Depending on the types of intrapreneurship program. 5 Control Monitoring the success of intrapreneurial program depends on the procedure of organization. Easy to control because inside the organization 6. Culture of easy to implement change because within Organization similar organziation 7. Mission holistic mission for the whole organization. Strategy 8. Risk The risk is dependent on the success of project 9. Cost cost effectiveness in management because Reduction communication within on e organization Area Exopreneurship 1. Origin * synergised outside creativity to create new innovations detected by sponsoring companies or independent entrepreneurs or orgaanization search for opportunities from large companies. 2. Activities Sponsoring organization request or map out the right partner in sourcing new innovation then the commercialization process depend on the type of exopreneurial mechanisim. 3. Investment The investment is dependent on the types of entrepreneurial mechanism 4. Involvement Working with outside partners involvement of large organization may be minimal because it becomes a separate function of the large organization. 5 Control difficult to control because involved at least two different cultured organization of different systems in running organization 6. Culture of exopreneurship results in changes therefore Organization difficult to change the attitude of other "partner". Need to form a new culture in the process of the new venture creation 7. Mission Need to input part of the "partners" vision Strategy into own vision 8. Risk risk involves lose of goodwill besides financial risk. 9. Cost cost reduction in terms of sharing and using Reduction the comparative advantage of organizations involved.
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|Publication:||International Journal of Entrepreneurship|
|Date:||Jan 1, 2000|
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