Corporate Entrepreneurship: "The Other Side of Innovation"

Currently, I am reading "The Other Side of Innovation" by Vijay Govindarajan and Chris Trimble. The book is packed with theory, practice, examples, recommendations and strategy on how established companies can innovate. Being inspired by the book, I decided to write a blog post on the topic. In my post, I will refer to the book and also other resources that I have referred to understand more on this topic of Corporate Entrepreneurship. 

What is Corporate Entrepreneurship? I found an interesting definition while reading MIT Sloan Management Review -  "(corporate entrepreneurship is) the process by which teams within an established company conceive, foster, launch and manage a new business that is distinct from the parent company but leverages the parent’s assets, market position, capabilities or other resources". It is different from corporate venture capital that primarily aims at investing in external companies and spin-offs, which are created as an entity independent from the parent company. I will separately cover both the topics, corporate venture capital and spin-offs, in future blogs.

How can business organizations encourage entrepreneurship and innovate? To answer this question, Vijay Govindarajan and Chris Trimble bring about an interesting conflict that established businesses face while innovating - "Business organizations are not built for innovation; they are built for efficiency". Thus, the question is how can a business organization balance efficiency and innovation? As an answer to this question, the authors quote Ray Stata (founder and chairman of Analog Devices) who said (paraphrasing) innovation in business organizations has nothing to do with creativity or technology but management capability to convert ideas to impact (emphasis mine). However, as you might agree, questioning the managerial competence that has successfully delivered innovative products, is rather provocative. But, based on the authors' research, it indeed seems to be the case. In The Other Side of Innovation, the authors address this provocative question and give a blue print on how big organizations can simultaneously deliver efficiency and innovation.

In "The Other Side of Innovation", the authors explain that a Performance Engine of a business takes care of ongoing operations. This engine has to be routine, repeatable and risk-free. In other words, it has to be reliable. Thus, it is the mechanism that ensures delivering reliable profits every quarter. In contrast, innovation is non-routine and uncertain hence non-repeatable. But is it possible to repeatably deliver innovation without compromising efficiency? Indeed yes, but for this, the performance engine and innovation initiatives have to be organized and planned differently. The essential components of the organization and planning of an innovation initiative are:

innovation = idea + leader + team + plan

Importantly, because each idea is unique, it implies that each idea requires unique leader, team and plan. In these components, the most critical is the team because the challenge is not dearth of ideas but execution of ideas. So, how will you build the innovation team that efficiently executes the ideas? The authors propose that such a winning team is built on a partnership (highlighted as + below) between members dedicated for leading innovation and members from the performance engine. Thus:

Winning Innovation Team = Members shared from Performance Engine (routine tasks) + Members dedicated for the innovation (non-routine tasks)

Some of you may be curious to know why does one need members from the Performance Engine for an innovation initiative? Isn't the Performance Engine designed for routine tasks? Will it not compromise the efficiency of the Performance Engine if their members have to divert their attention to an "additional task" (= innovation initiative)? Will it not be more efficient for an organization to have team independently dedicated only for innovation? To know answer to these (and many more) questions and how to build a winning innovation team, I encourage the readers to read "The Other Side of Innovation". It is a must-have book for any entrepreneur and innovator.

Purpose of Business

Leader is a servant

100,000 Startups: Are we there yet?

In my previous blog, I discussed that entrepreneurship is not an option but a necessity for India. I also tried to quantify this necessity, which is 100,000 startups that in turn can generate ~50 million jobs, the current unemployed population of India. Thus, the next question is how ready are we to facilitate starting 100,000 startups? In this blog, I will share my views on this question.

I remember reading two years ago that Indian middle class does not encourage entrepreneurship. The reasons for this reluctance to entrepreneurship are not purely economic. So what are the factors that repel general Indians from entrepreneurship? Sanjay Anandram from seedfund has described the situation succinctly: The three reasons why Indians like to stay away from entrepreneurship are: (i) fear/rejection from family and friends, (ii) lack of seed capital and (iii) lack of awareness.

In my opinion, the biggest of the three reasons is lack of awareness about the entrepreneurial process. For instance, entrepreneurship is a subject in the curriculum of only business related courses. Entrepreneurship is not taught in pure sciences, engineering, medicine, pharmaceutical, agriculture, law etc. and all the non-business majors. In contrast, the focus is always on getting a good job in a good company or a government job. Hence, students usually plan their time in studying for competitive exams like GRE, GMAT, CAT, IAS or are busy with interview preparation, resume writing etc. It is not a surprise that recruitment agencies and soft skill training is a thriving business! Thus, the whole educational and social system “conditions” us to think like and be an “employeE” rather than to think like or be an “employeR”!

The lack of entrepreneurial awareness leads to entrepreneurial fear. This fear is primarily the fear of failure and financial loss that leads to risk aversion. Given that > 90% of startups fail, this risk aversion is not totally unwarranted. However, it is important to distinguish the “actual” versus the “perceived” risk. The actual risk is inherent in the entrepreneurial career and is impossible to avoid. However, it is possible to manage the perceived risk through entrepreneurial education. Also, such education will help understand the difference between the actual and perceived entrepreneurial risk. I propose that including entrepreneurial education in the curriculum is a must to manage the perceived risk and encourage entrepreneurship in India. The entrepreneurial pedagogy can be classroom based lectures and case studies as well as hands on experience through internships in startups (early, mid and/or late stage). Thus, a combination of theory and practical training in a startup atmosphere will expose students to the actual risk and its management rather than fearing the perceived risk.

Despite lack of entrepreneurial courses in Indian educational curriculum, we do see a few good examples for entrepreneurial encouragement. For instance, some of the Indian Institutes of Technology of India have started entrepreneurship cells, 10000 Startups by NASSCOM and changes in government policies. Prime Minister Narendra Modi has already given a mega boost for entrepreneurship by reducing the bureaucracy and red tape and starting the Skill India Mission. Such measures are creating a very favorable environment for entrepreneurship. Thus, India is witnessing a meteoric rise in startups. For instance, $5 billion were invested across 300 startups in the year 2014. And, it seems that 2015 will beat 2014 in attracting investment! The Q1 of 2015 has already witnessed ~$2.4 billion, which is 3x the funding that was seen in Q1 of 2014! No wonder Indian startups have been reviewed as the fastest Asian fundraisers! This momentum is due to only a handful (remember we are 1.2 billion!) of Indians who dared to take a different path. I am tempted to speculate how many more startups will we see if entrepreneurship is encouraged in Indian educational curriculum?

Finally, how close are we in starting 100,000 startups? Well, in my opinion, we are just warming up!

Entrepreneurship: A necessity for India

Indian population stands strong at 1.2 billion people. Thus, India is ~1/7^th of current world population. By 2030, India will surpass China to reach 1.5 billion people. Thomas Friedman, in his book The World is Flat, mentions that by 2030 India will produce the maximum number of technical graduates in the world. How is India poised to handle this quantum of educated population? In this blog, I share my views on this topic. I encourage the readers to post their views below.

Food security of the billions of Indians has often been highlighted as one of the most important issues facing the country. However, herein, I propose that the economic empowerment of the billions of people is more important than food security. You might wonder why wonder, how economic empowerment can be more important than food security? To understand this, we should look what is the meaning of economic empowerment. One good definition that I read is “economic empowerment is the capacity to bring about economic change for oneself, including a fair income and a raised standard of living,which are crucial for diminishing inequality and poverty.” Thus, economic empowerment will allow people an equitable access to food as well as other necessities of life. The burning question for me is: Is India equipped to economically empower the billions of educated (and uneducated) people? In the following paragraphs, I discuss this question.

An average size of Indian family is of 4 persons. Thus, for a population of 1.2 billion, ~300 million families dwell in India. Usually, 1-2 members/family are working in India. Thus, India employs 300-600 million people/year. On the other hand, the unemployment rate in India averages to ~ 4% for past 10 years. Thus, ~50 million people of Indian population are still unemployed. To put things in perspective, 50 million is the population of Burma and South Korea respectively or the combined population of Hungary, Tunisia, Czech Republic, Belarus and Belgium!!

                                                           (Unemployment Rate in India: Data from World Bank)

Enrico Moretti in his book, The Geography of Jobs, has shown that each job in the US creates 5 jobs by the multiplier effect (this effect is clustered in areas where new ventures are concentrated). The magnitude of multiplier effect varies with country e.g. 5 for US, 3 for Sweden and negative for Italy. For India, NASSCOM in 2007, calculated the multiplier effect to be 4. With improvement in Indian economy in past few years, we could assume 5 as the multiplier effect for 2015. With a multiplier effect of 5 and a requirement of ~50 million jobs, we can back calculate the number of jobs required to zero the ~4% unemployment rate. A quick math will tell us that ~100,000 jobs could create 50 million jobs by multiplier effect (e.g. 100,000*5 = 500,000 more jobs*5 =…..=50 million jobs).

So the big question is how can we create 100,000 jobs? The only answer is Entrepreneurship. Let us analyze this further. If we assume, each startup employs ~10 people, thus 10,000 startups are required to create the 100,000 jobs that in turn are necessary to trigger the ~50 million employment generation by the multiplier effect. But it is known that <10% of startups succeed, thus 100K startups need to be started, out of which 10K or (~10%) will survive. 

But is India ready to launch 100,00 startups? Not yet. In my next blog, I will discuss some of the challenges faced by Indian startups.