Table of Contents
List of Abbreviations
List of Figures
List of Tables
2 Theoretical Fundamentals
2.1 Corporate Entrepreneurship
2.2 Human Resource Management
3 Human Resource Management and Corporate Entrepreneurship
3.1 Beneficial Employee Characteristics and Behaviors
3.2 Compatible Human Resource Management Practices
3.3 Organizational Culture and Leadership as Mediators
4 Expert Interviews
A. Effectiveness of HRM Practices for Corporate Entrepreneurship
B. Key Findings of the Expert Interviews
C. Transcription of the Expert Interviews
List of Abbreviations
illustration not visible in this excerpt
List of Figures
Figure 1: Classification of Corporate Entrepreneurship
Figure 2: The Human Resource Cycle of the Michigan Model
Figure 3: Relevant Employee Characteristics for Corporate Entrepreneurship
List of Tables
Table 1: The Competency-Based Framework for Corporate Entrepreneurship
Table 2: HRM Practices Promoting Corporate Entrepreneurship
Table 3: Effectiveness of HRM Practices for Corporate Entrepreneurship
Table 4: Key Findings of the Expert Interviews
“The question for corporations is not whether they should or should not engage in entrepreneurial activity, but rather what can be done to encourage establishment of entrepreneurship.” (Schuler, 1986, p. 624)
As suggested by the introductory quotation, there is a growing consensus that companies should promote entrepreneurship within their organizational boundaries. This way, established companies are in a position to preserve and reinforce the innovativeness and flexibility from which many young enterprises benefit. The business strategy pursued by organizations which intentionally engage in various entrepreneurial activities is referred to as a corporate entrepreneurship (CE) strategy. Whereas entrepreneurship in general includes the discovery of previously unnoticed market opportunities and the new combination of resources to exploit these opportunities (Kirzner, 1973, p. 39; Schumpeter, 1934, p. 68), CE refers to the “birth of new businesses within existing organizations” and to the “transformation of organizations through renewal of the key ideas on which they are built” (Guth & Ginsberg, 1990, p. 5). That is, the CE strategy implies the continuous development of new products and technologies as well as the flexible adjustment of internal organizational structures and processes. Thus, the pursuance of a CE strategy generally helps those organizations acting in dynamic business environments to enhance their competitiveness and economic viability. Given that today’s business environments are increasingly characterized by “rapid technological evolution, globalization, and progressively sophisticated competitors” (Schmelter et al., 2010, p. 716), the CE strategy is recommendable for more and more companies. Nonetheless, although researchers paid increased attention to the field of CE over the last three decades, still little is known about how organizations can consciously stimulate and promote their entrepreneurial activities. Assuming that the activities conducted by organizations are substantially determined by their individual members, the more concrete question arises of how an organization can strengthen the entrepreneurial mindset and behavior of its employees. Therefore, the final aim of this thesis is to examine how human resource management (HRM) can effectively support the implementation of a CE strategy. In the course of this, the beneficial employee characteristics and behaviors for CE will be identified, the compatible HRM practices will be determined, and the mediating roles of both organizational culture and leadership between HRM and an effective realization of a CE strategy will be analyzed. The research question will be answered with the help of a theoretical approach and the results from expert interviews.
In the first part of this thesis, the underlying theoretical fundamentals will be presented. These include the definitions of both CE and HRM, the detailed classification of the various CE activities, and the particular practices available for HRM. In the second part, the link between CE and HRM will be established. After identifying the beneficial employee characteristics and behaviors for CE, a comprehensive analysis of those HRM practices stimulating and reinforcing these characteristic and behaviors will be conducted. Subsequently, the influences of organizational culture and leadership behavior are in the focus of interest. The last part of this thesis provides the results of expert interviews which were held to give additional insights into how organizations promote the application of a CE strategy in practice. Ultimately, this thesis concludes with a summary of the most important results inferred from both theory and practice. At the same time, suggestions for future research in this field of study will be made.
2 Theoretical Fundamentals
This chapter is to give preliminary theoretical insights into the definitional and taxonomical issues of both corporate entrepreneurship (CE) and human resource management (HRM). These lay the foundation for answering the research question of this paper.
2.1 Corporate Entrepreneurship
In consideration of wide differences in the terminology used in the academic field of CE, creating a uniform definitional understanding is indispensable within the framework of this thesis. In general, CE stands for a corporate strategy and is the generic term for various types of entrepreneurial activities that can be found within existing organizations.
According to the definitional framework developed by Sharma and Chrisman (1999), it is reasonable to start with clarifying of what is meant by the term ‘entrepreneurship’. The authors define entrepreneurship as the “acts of organizational creation, renewal, or innovation that occur within or outside an existing organization” (p. 17). This definition is useful for deriving a definition of ‘corporate entrepreneurship’ as well as it allows for a distinction between entrepreneurial activities taking place independently and those taking place in a corporate environment. In this way, Sharma and Chrisman (1999) determine CE as “the process whereby an individual or a group of individuals, in association with an existing organization, creates a new organization or instigates renewal or innovation within that organization” (p. 18). This definition is relatively broad, but as a result, it complies with the very heterogeneous nature of CE. Likewise, other researchers also define CE in a fairly wide manner in order to allow for a further break down of the concept. Zahra (1991) determines that CE encompasses “formal or informal activities aimed at creating new businesses in established companies through product and process innovations and market developments” and that CE “also entails the strategic renewal of an existing business” (p. 262). A similar conceptualization is presented by Guth and Ginsberg (1999, p. 5) who state that CE comprises two major types of phenomena: internal innovation or the creation of new ventures within existing organizations and the reshaping of organizations through strategic renewal. Combining these definitions, it can be inferred that CE typically refers to new business creation within established corporations as well as to the innovation and strategic renewal processes taking place within existing organizations (Ginsberg, 1999; Sharma & Chrisman, 1999; Zahra, 1991).
Conforming with the definitions given, a general distinction of CE activities can be made between those leading inevitably to the start of a new business and those that do not necessarily involve new business creation. The former are referred to as corporate venturing (CV) activities which include the numerous steps and processes related to new business creation and the integration of new businesses into the firm’s overall business portfolio (Narayanan, Yang, & Zahra, 2009, p. 59). Depending on the degree of integration into the organizational structure, CV activities further subdivide into three different types: internal CV refers to the creation of new businesses that are owned by the corporation and bound to the existing corporate structure. In contrast, external CV relates to the investment in promising businesses started by external parties outside the corporate structure. Entrepreneurial activity in which a company creates a new business and owns this new company together with external development partners is referred to as cooperative CV (Morris, Kuratko & Covin, 2008, p. 81; Sharma and Chrisman, 1999, p. 19). Depending on the particular nature of the venturing activities, CV can occur with or without innovation (Sharma & Chrisman, 1999, p. 18).
However, new business creation is not a necessary condition for CE. Activities that “enhance a corporations' ability to compete and take risks” (Phan et al., 2009, p. 199) but not implicitly involve the creation of new businesses may also be corporate entrepreneurial. Morris et al. (2008, p. 81) subsume this second category of approaches to CE under strategic entrepreneurship. Generally speaking, strategic entrepreneurship involves the innovative identification and exploitation of opportunities by which a competitive advantage is created and maintained (Ireland, Hitt, & Sirmon, 2003, p. 965). Morris et al. (2008) more precisely define strategic entrepreneurship as consisting of strategic renewal, sustained regeneration, domain redefinition, organizational rejuvenation, and business model reconstruction (p. 81). Most of these forms are based on fundamental innovations. These innovations represent a transformation of the organization through a change of “strategies, products, markets, organization structures, processes, capabilities, or business models” (Kuratko & Audretsch, 2009, p. 8). These changes refer either to the industry conventions and standards or to the organization’s own starting point (ibid.). To pave the way for the later classification of the particular CE activities of the organizations involved in the conducted expert interviews, a precise explanation of the several forms of strategic entrepreneurship will be given in the following.
As reported by Sharma and Chrisman (1999, p. 19), strategic renewal comprises the transformation of existing corporations through the drastic modification of predominant strategic or structural patterns. It strives for a strategic redefinition of the corporation’s relationship with its markets or industry competitors and hence, for a repositioning of the company within its competitive environment (Covin & Miles, 1999, p. 52).
Unlike strategic renewal, sustained regeneration is not a one-time event but rather the constant attempt to take advantage of entrepreneurial opportunities by the steady introduction of new products and services or the entry into new markets (Covin & Miles, 1999, p. 51). This type is recognized as the most common form of strategic entrepreneurship and can particularly be found in fast moving industries such as the high-tech industry or the telecommunications industry where short product-life cycles and the technological progress force companies to be innovative in order to keep up with their rivals (Morris, Kuratko & Covin, 2008, p. 90).
The focus of domain redefinition is rather on exploring new opportunities than on exploiting current resources and includes the proactive search for a new product market position (Dess et al., 2003, p. 355). As reported by Dess et al. (2003, p. 358), this type of strategic entrepreneurship is the most challenging due to both the definition and deployment of new competences; but at the same time, it puts companies in the comfortable position to establish first-mover advantages by the creation of new product categories in product-market arenas where no business rivalry is prevailing. This creation of a new market space without competitors is also referred to as the pursuance of a “Blue Ocean Strategy” (Kim & Mauborgne, 2005, p. 106).
Organizational rejuvenation refers to a form of strategic entrepreneurship that enables the corporation to be entrepreneurial without the need for strategic change. Covin and Miles (1999, p. 52) emphasize that the targets of innovation are “the internal processes, structures, and/or capabilities”. This means, the focus of the entrepreneurial efforts is on the organization itself. These efforts are to improve the implementation of pre-existing business strategies with the help of a superior “organizational vehicle” (Morris, Kuratko & Covin, 2008, p. 91).
The last element, business model reconstruction, is not included in all approaches for strategic entrepreneurship. Whilst some authors explicitly consider this element (Kuratko & Audretsch, 2009, p. 9; Morris et al., 2008, p. 92), others mention only four elements of strategic entrepreneurship (Covin & Miles, 1999, p. 50), leaving out business model reconstruction. This phenomenon is not explained by literature but it might be the result of the frequent mixing-up of the two terms strategy and business model. Assigning the same meaning to both terms would make the elements strategic renewal and business model reconstruction redundant. However, Teece (2010, p. 180) points out that “a business model is more generic than a business strategy”. Whereas the business model explains how the company works, the business strategy defines the concrete implementation of that business model and is decisive for its success (ibid.). As a part of strategic entrepreneurship, business model reconstruction means the design or redesign of the core business model to make operations more efficient (Morris, Kuratko & Covin, 2008, p. 92). Examples of business model reconstruction include outsourcing activities and vertical integration (Kuratko & Audretsch, 2009, p. 10).
As mentioned earlier, most of the forms of strategic entrepreneurship are based on fundamental innovations. Likewise, corporate venturing activities may come along with or without innovations. The extent of innovation is related to the degree of newness of a venture in the market. More precisely, it depends on whether the venture is more an imitative entry or completely new to the market (Sharma & Chrisman, 1999, p. 22). However, CE assigns a special role to innovations: According to Sharma and Chrisman (1999, p. 18), the presence of innovations is a sufficient condition for entrepreneurship. Yet, it is not a necessary one for CE because both corporate venturing and strategic entrepreneurship may also occur in the absence of innovations.
In spite of the fact that CE can be divided in the three categories corporate venturing, strategic entrepreneurship and innovation, these elements cannot be seen as fully independent from each other. For instance, there is a close link between corporate venturing activities and both strategic entrepreneurship and innovation (Narayanan, Yang, & Zahra, 2009, p. 59). The strength of the link mainly depends on the objective of a CV initiative: some CV activities may serve as a vehicle to introduce innovations or new products to the market, but other initiatives may lead to strategic renewal due to “significant changes in a company’s business, strategy or competitive profile” (Narayanan, Yang, & Zahra, 2009, p. 59).
An overview of the aforementioned classification of CE and its elements is given in Figure 1. Yet, for some examinations, it might be helpful to rather consider CE as a holistic approach to avoid overlooking the interconnections of its components.
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Figure 1. Classification of Corporate Entrepreneurship and its Components; Source: Compiled by the author, adapted to Morris, Kuratko & Covin, 2008, p. 81; Sharma & Chrisman, 1999, p.20.
2.2 Human Resource Management
Since the aim of this thesis is to work out the linkage between effective engagement in CE and supportive HRM practices, the important theoretical fundamentals of HRM will be exposed in this section. A brief insight will be given into what is meant by the term ‘human resource management’ and, in particular, the specific HRM practices will be presented that enable organizations to better accomplish their goals and pursue their corporate strategies.
A general definition of HRM is given by Boxall et al. (2007) who simply define it as “the management of work and people towards desired ends” (p. 2). They highlight that HRM “happens in some form or other” (ibid.) in every organization as it is the “inevitable consequence of starting and growing an organization” (ibid.). This statement emphasizes the importance of managing that kind of resources which can be found in every organization: the human resources. This matter of fact is included by definition in the term ‘organization’ since an organization always represents “a social unit of people, systematically structured and managed to meet a need or to pursue collective goals on a continuing basis” (BusinessDictionary.com, n. d.).
However, it is important to regard HRM not merely as a modern term for personnel management. HRM is rather a holistic approach for firms to gain a competitive advantage through the “strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques” (Storey, 2007, p. 7). The strategic integration, which is the alignment of human resource policies with strategic business planning, not only serves as the crucial point for the linkage of HRM and CE in this paper, but it is also one of the most significant features of HRM (Armstrong, 2009, p. 9).
Following this key assumption, this paper builds on the Michigan Model which probably most strongly emphasizes the link between HRM and business strategy (Price, 2011, p. 29). According to its originators Fombrun, Tichy and Devanna (1984, p. 23), the Michigan Model primarily focuses on the integration of HRM in the strategic management process. That means that HR systems should be congruent with organizational strategy. Derived from that objective, this approach is also known as the ‘matching model’ of HRM (Armstrong, 2008, p. 6). The human resource cycle represents the core element of the Michigan Model and is illustrated in Figure 2.
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Figure 2. The Human Resource Cycle of the Michigan Model; Source: Compiled by the author, adapted to Armstrong, 2008, p. 6; Schmelter, 2008, p.71; Fombrun, Tichy and Devanna, 1984, p. 23.
In order to deploy the human resources in line with the strategic focus of the organization, HRM uses a coordinated set of HRM practices. These HRM practices include planning and staffing, performance appraisal, rewards, and training and development, each of them influencing the performance of the employees (Tichy, Fombrun, & Devanna, 1982, p. 50).
Planning and staffing constitutes the starting point for HRM and refers to personnel requirement planning, recruiting, and the employment of staff (Schmelter, 2008, p. 71). However, the very selection of those people who are best able to perform the jobs is insufficient to guarantee a desired performance. Therefore, according to Schmelter (2008, p. 71), particular importance is to be attached to performance appraisal. Appraising practices directly influence the behavior of the employees and provide the basis for determining the level of rewards and the extent of training and development methods (Fombrun, Tichy & Devanna, 1984, p. 41). Rewards, including both compensation and fringe benefits, not only serve as the corresponding return for current work performance but also set the incentives for future high level performance (Schmelter, 2008, p. 72). In order to further enhance the work performance and to prepare employees for potential future positions, training and development measurers are employed (Fombrun, Tichy & Devanna, 1984, p. 41). In summary, the human resource programs associated with planning and staffing and training and development are to “ensure that employees possess the characteristics required for effective organizational performance” (Morris and Jones, 1993, p. 876) whereas appraisal and rewards are to “provide the appropriate behavioral cues and reinforcements to guide and motivate desired behaviors” (ibid.).
In order that HRM practices foster and facilitate the business strategy of an organization, Schuler (1986, p. 619) reports two prerequisites: on the one hand, there has to be a menu of different choices for each HRM practice, and on the other hand, these choices have to be capable enough to promote or strengthen different employee characteristics. Therefore, bipolar dimensions form the basis for several decision options in planning and staffing, appraisal, training and development, and rewards. These dimensions describe the extent of the orientation reflected by a certain practice. For instance, a practice could reflect an orientation which is more open or more closed, more or less structured, or either short-term or long-term (Schmelter et al., 2010, p. 720). From a resource-based view, a particular set of HRM practices itself represents a strategic resource for a company as such a set constitutes a dynamic capability and may lead to a sustainable competitive advantage (Schmelter et al., 2010, p. 717). However, Schuler (1986, p. 619) considers the right set of HRM practice choices to be important for the effective facilitation of a certain business strategy.
3 Human Resource Management and Corporate Entrepreneurship
The business strategy in focus of this thesis is the CE strategy. Therefore, in this chapter, it will be derived theoretically how HRM can support the implementation of a CE strategy. In the course of this, the employee characteristics and behaviors beneficial for the pursuance of that business strategy will be specified at first. Thereafter, the HRM practices which stimulate and reinforce these employee behaviors and characteristics will be examined. Further attention will then be paid to the mediating roles of both organizational culture and leadership between individual HRM practices and their impact on CE.
3.1 Beneficial Employee Characteristics and Behaviors
With a view to determine those characteristics and behaviors of an employee which facilitate the realization of a CE strategy, it is helpful to start with examining what constitutes an entrepreneur on the individual level. Afterwards, a transfer can be made to the corporate context and conclusions about the desired characteristics and behaviors of the individual employees can be drawn.
Who is an entrepreneur and who is a non-entrepreneur? What does an entrepreneur do what a non-entrepreneur does not? Or in other words, does an individual be or become an entrepreneur? For a long time researchers have tried to find answers to these questions. Those attempts have led to the emergence of two different schools of thought: the trait approach and the behavioral approach. Whilst the trait approach assumes that an entrepreneur can be defined by a particular personality type, the behavioral approach focuses on what an entrepreneur really does (Gartner, 1989, p. 47). Based on the assumption that an entrepreneur differs from a non-entrepreneur solely in terms of personality, demographic and educational variables, such as achievement motivation, risk taking propensity, creativity, age, social attitudes, and prior work experience (McClelland, 1961; Brockhaus, 1980; Hornaday and Bunker, 1970; Collins and More, 1970), the trait approach has become subject to criticism. Researchers did not find considerable empirical relations between traits and particular behavior (Ajzen, 1991, p. 180). Therefore, science more concentrated on examining the behavioral factors related with the entrepreneurial process. Hence, in the behavioral approach, to be an entrepreneur means that an individual is behaving as an entrepreneur. Gartner (1989, p. 58) illustrates this viewpoint with the help of a baseball metaphor, highlighting that the simple analysis of certain characteristics of a baseball player such as his education and experience is not sufficient to draw conclusions on his performance in a game. Rather a set of various behaviors is decisive for the delivery of a good performance – running, catching, throwing, etc.. Consequently, establishing a quite clear difference between the trait approach and the behavioral approach is possible in theory, but the boundaries between both approaches are blurred in empirical research when researchers merge theses approaches and draw unclear conclusions (ibid.).
When the stage of the entrepreneurial action moves to the area of established organizations, researchers alter their analysis from an individual to an organizational level. For CE, that implies the perception that the organization itself has to show entrepreneurial characteristics or entrepreneurial behavior in its organizational processes. One of those concepts dealing with entrepreneurship in the corporate context is presented by Morris and Jones (1993, p. 875). They work out that an organization has to be endowed with three key attributes to be considered as entrepreneurial: innovativeness, risk taking and proactiveness. Innovativeness refers to the ability to search for creative and new solutions in the form of new processes, products, and services (Covin and Slevin, 1989, p. 77; Miles and Arnold, 1991, p. 51). As already stated in the theoretical fundamentals, innovations constitute for probably the most crucial element of entrepreneurship. Risk taking includes the willingness to make significant investments in business opportunities which bring along a chance of substantial failure (Miller, 1983, p. 780; Morris and Paul, 1987, p. 243). In this connection, it is worth mentioning, that “the corporate individual is not risking his/her own resources, but those belonging to the company. While personal risk is involved, it is more career-related.” (Morris and Jones, 1993, 876). Stated as the third key element, proactiveness is referred to the attributes requisite for realizing an entrepreneurial concept. Those generally are “considerable perseverance, adaptability and a willingness to assume some responsibility for failure” (ibid.). At this point, it is important to reiterate that innovativeness, risk taking and proactiveness in this approach are rather attributed to the (entrepreneurial) organization as a whole than to its individual members. What this implies for the individual employees will be analyzed later.
A further approach for characterizing entrepreneurship in the organizational context is provided by the seminal work of Schuler (1986). His approach focuses on the idea, that innovation is central to entrepreneurship, and that ‘entrepreneurship’ can be differentiated from its opposite ‘administrativeship’ mainly by the presence or absence of innovation processes (p. 608). Therefore, an entrepreneurial organization is an organization that is able to deal with the challenges associated with innovation processes. These include: uncertainty, knowledge-intensity, competition with alternatives, and boundary crossing (p. 609). In this context, uncertainty refers to the unpredictable success of an innovation, knowledge-intensity emphasizes the essential contribution of individual human intelligence and creativity to the process of innovation, competition with alternatives stands for possible conflicts resulting from a potential displacement of existing technologies and products through the innovation, and boundary crossing means the combination of ideas and thoughts from various domains necessary for spurring innovations (ibid.).
If one tries to classify these two approaches as trait or behavioral approaches, it is again difficult to make a clear distinction. Since an organization is primarily marked by its processes and activities, it is not unreasonable to assume that, in the end, an organization has to show entrepreneurial behavior. According to the aforementioned approaches, this behavior has to be innovative, venturesome, and proactive. Furthermore, the organization must be in a position to deal with the challenges of an innovation process. However, the transfer from individual entrepreneurship to CE generally includes a further special condition: the exclusive realization of an entrepreneurial strategy is unlikely to be successful in most firms (Schuler, 1986, p. 609). Instead, the essential challenge of pursuing such a strategy is to find an effective “balanced loose-tight mix” (ibid.) between administrativeship and entrepreneurship in the same organization. That is because maintaining preexisting products and processes as well as managing the new ones can be decisive for business success. If the level of entrepreneurship is too high, the organization is likely to lose its balance in that mainstream businesses are neglected or overall risk becomes unsoundly high (Morris and Jones, 1993, p. 891). Therefore, it is necessary for managers to identify the desired levels of entrepreneurship and then to deduce the required measures to promote CE.
Nevertheless, the question remains of how an organization itself can show entrepreneurial behavior. As already mentioned in the theoretical fundamentals of HRM, an organization is defined as the unification of people who pursue collective goals. Therefore, the behavior of an organization is substantially determined by its individual members.
In his comprehensive review of literature, Schuler (1986) identifies a number of those individual attitudes, characteristics, and behaviors that promote the entrepreneurial behavior of the entire organization. These can be illustrated on a bipolar scale. Depending on the desired level of CE, an appropriate expression of each attitude, characteristic or behavior is required. This relationship can be illustrated as follows in Figure 3.
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Figure 3. Relevant Employee Characteristics For Corporate Entrepreneurship; Source: Compiled by the author, adapted to Schuler, 1986, p. 618.
It can be taken from the chart that, for a high level of corporate entrepreneurial activity, the following individual factors are beneficial: a highly creative and innovative behavior, a very long term focus, a highly cooperative and interdependent behavior, high risk taking, a high concern for results, a high preference to assume responsibility, a high flexibility to change, a tolerance of ambiguity, a high task orientation, and a focus on effectiveness (Schuler, 1986, p. 618). The higher the desired level of entrepreneurial activity, the more have the stated characteristics to be pronounced. As a consequence, the organization itself is more likely to show innovativeness, risk taking and proactiveness in its behavior and is more likely to be able to deal with the challenges of an innovation process.
A slightly different approach to determine what is needed from the individual employees for promoting CE is adopted by Hayton and Kelley (2006) who develop a competency-based framework. Instead of considering individual characteristics independently, they derive certain competencies which an organization needs to hold in its employees in order to act entrepreneurial. These competencies can be seen as “sets or combinations of individual characteristics, specifically knowledge, skills, and personality characteristics” which are aimed at specific activities, processes, or outcomes (Hayton & Kelley, 2006, p. 410).
Hayton and Kelly (2006, p. 413) state that there are four key roles which all have to be performed by one or more individuals in the organization in order to promote CE: innovating, brokering, championing, and sponsoring. Each of these key roles is characterized by different kinds of knowledge, skills, and personality characteristics. The innovator is endowed with entrepreneurial alertness, “the ability to notice without search opportunities that have hitherto been overlooked” (Kirzner, 1979, p. 48). That ability allows him to recognize business opportunities and to exploit underutilized challenges in the economic environment. The broker is in charge of collecting new information and knowledge, connecting existing and new information, and delivering his knowledge to the innovator (Hayton and Kelley, 2006, p. 416). Hargadon (2002, p. 44) describes this process more precisely as knowledge brokering. The champion primarily performs the role of a contagious visionary who is able to identify promising projects, to inspire and convince others and to receive the necessary support for a project (Howell and Higgins, 1990, p. 320). Finally, the sponsor is the one who ensures that those projects identified by the champion as deserving support actually get the needed resources (Day, 1994, p. 153).
The four key roles of the competency-based approach are summarized in Table 1. The table also provides further information about the respective individual characteristics needed for each role. These will not be regarded in more detail at this point but they are illustrated to provide a more comprehensive understanding of that approach.
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Table 1. The Competency-Based Framework For Corporate Entrepreneurship; Source: Compiled by the author, content adapted to Hayton and Kelley, 2006.
From these seminal approaches by Schuler (1986) and Hayton and Kelley (2006) it can be drawn that, in order to promote CE with the help of the right workforce, not every employee needs to bring along the same knowledge, skills, and personality characteristics. At first, this sounds like a facilitated requirement, but when taking a closer look, it becomes obvious that finding and determining the right mix of human resources represents a serious challenge for the management of a company. The selection of the appropriate HRM practices, that are intended to stimulate and reinforce the desired employee characteristics and behaviors in line with the targeted business strategy, is one of the most important decisions in this context. Therefore, the detailed analysis of appropriate HRM practices that promote the pursuance of the CE strategy will be the subject of the next section.
3.2 Compatible Human Resource Management Practices
The measures which are available to the corporate management in order to promote CE generally include the selection of appropriate structural arrangements, suitable policies and procedures, and compatible HRM practices (Schuler, 1986). As the focus of this thesis is on the link between HRM and CE, the structural practices will be treated only briefly here. However, a short excursion at this point is essential for the general comprehension that HRM practices are not alone sufficient to promote CE.
It is to say that a higher level of entrepreneurial activity requires both more complete structural arrangements and more flexible policies and procedures. A high level of CE with various entrepreneurial activities demands for more structural autonomy in order to grant “some degrees of freedom and support to an individual or group of individuals in the organization” (Schuler, 1986, p. 610). Likewise, entrepreneurial and innovative activities will more likely come to fruition when policies and procedures are flexible. That is to say, a strengthening of innovative thinking can be achieved by means of less bureaucracy and segmentalism, and more flexible financial processes (ibid.). From this it can be assumed that HRM practices must accord to the overall organizational structure and processes in order to be effective.
Taking into account that CE may appear in several forms, such as CV or strategic entrepreneurship activities, one could logically expect that the HRM practices used to promote CE demand for an adjustment to those specific forms. Nevertheless, researchers examining the influence of HRM practices on CE do not actually differentiate between those various forms of CE (Morris and Jones, 1993; Schmelter, 2008; Schmelter et al., 2010; Schuler, 1986). They rather distinguish between lower and higher levels of entrepreneurship in an organization. We already saw that simplification when examining the beneficial employee characteristics and behaviors for CE in the preceding section. Nevertheless, a connection to the specific forms of CE can be established when assuming that, on the one hand, all forms of CV generally demand for a higher level of entrepreneurship. Starting a new venture in the corporate context is very similar to the creation of a new business by an independent entrepreneur - the purest form of entrepreneurship (Block & MacMillan, 1993, p.14; Stopford & Baden-Fuller, 1994, p. 522). On the other hand, as stated in the theoretical fundamentals, strategic entrepreneurship activities are based on fundamental innovations as well and demand for entrepreneurial skills such as the identification and exploitation of opportunities. However, new business creation is not a necessary condition for strategic entrepreneurship. Therefore, it may be assumed that those forms of CE demand for a lower level of entrepreneurship.
Depending on the desired level of CE, an organization can choose a compatible set of supportive HRM practices. According to Kaya (2006, p. 2084), the level of entrepreneurship within an organization can be intensified significantly through HRM practices promoting the impacts of entrepreneurial efforts and supporting proactiveness, innovativeness, and risk taking. For this purpose, the selected HRM practices are to stimulate and reinforce those beneficial attitudes, characteristics and behaviors of employees which were derived in the preceding section of this thesis. Based on a comprehensive literature research, an analysis of these HRM practices will be presented in the following. The human resource cycle of the Michigan Model with its elements planning and staffing, performance appraisal, rewards, and training and development will serve as the basic structure for the detailed analysis.
Planning and Staffing
In pursuance of an entrepreneurial strategy, a company needs to implement planning practices that stimulate innovations, get employees to assume responsibility, facilitate calculated risk taking, and encourage the willingness to work with others (Schuler, 1986, p. 619). Based on these requirements, a concrete design of the appropriate planning practices can be derived. In order to stimulate the innovativeness among the members of an organization, Edralin (2010, p. 33) suggests the use of more results-oriented and less rigid job descriptions in connection with predefined objectives and milestones. The absence of predefined processes enables the employees to implement their own ideas and allows them a freedom to think and act in unconventional ways (Schmelter et al., 2010, p. 719). However, Sathe (1988, p. 404) emphasizes that this freedom is to be limited by proscribed behavior and well understood rules. Therefore, he logically concludes that “the zone for entrepreneurial behavior lies between prescribed and proscribed behavior” (p. 404). In order to get employees to assume more responsibility, organizations need to provide them with a long term orientation. That is, they need to offer them broad career paths and multiple career ladders (Maidique and Hayes, 1985, p. 52). Additionally, a long term orientation is facilitated through a more formal and long range human resource planning that provides employees with a certain job security. That job security is, in turn, crucial for the encouragement of an adequate risk taking behavior (Schuler, 1986, p. 619). Moreover, a policy of conscious job rotation, that is, for example, working in the same business unit but occasionally for a different geographical market, is to be considered as an effective mean to provide employees with a “benefit of contrast” and to stimulate their perception of new possibilities (Sathe, 1988, p. 406). At the same time, job rotation also encourages employees’ willingness to cooperate and work with others (Maidique and Hayes, 1985, p. 52).
The staffing practices of an organization must be carefully adjusted to the planning practices as they are to stimulate similar employee characteristics such as innovativeness, creativity and cooperativeness. (Schuler, 1986, p. 621). Furthermore, the selection of the right staff composition is essential for the successful application of a CE strategy. To this end, the staffing process provides a company with the unique possibility to selectively hire those employees with the beliefs and culture of the organization (Edralin, 2010, p. 33). For a company pursuing an entrepreneurial strategy, this is tantamount to the recruiting of people with an entrepreneurial mindset. Additionally, these people at best are “entrepreneurial talents” endowed with problem solving and teamwork skills, expert knowledge, creativity, and proactiveness (Burgelman, 1983, p. 1359; Schmelter et al., 2010, p. 719). What seems to be vital for recruiting those entrepreneurial thinking individuals is that staffing practices are based on more “implicit criteria and open procedures" (Schuler, 1986, p. 621). In this way, individuals are able to select themselves into those positions which correspond best to their own entrepreneurial aptitudes (Wanous, 1992, p. 124).
In order to measure the entrepreneurial aptitude of an applicant, Edralin (2010, p. 33) suggests a strict recruiting and customized selection process. The screening of applicants for the desired skills can be done with the help of interviews and assessment centers, but even the analysis of the application documents may include essential information about the entrepreneurial orientation. Previous experience with starting an own business or work experience in a start-up company may serve as valuable hints (Schmelter, 2008, p. 72). However, distinguishing entrepreneurial from less entrepreneurial applicants is very sophisticated due to the complexity of CE: it seems to be virtually impossible to find one individual applicant who fulfills all the criteria needed for CE. Therefore, the challenge is to compile employees endowed with various entrepreneurial competencies.
One approach to find the right staff composition is provided by the competency-based approach of Hayton and Kelley (2006, p. 420). The authors recommend that selection criteria and staffing decisions consider the employee characteristics of each competency necessary for CE (Table 1). In their opinion, particular attention in the recruiting process is to be paid to personality characteristics which are said to be relatively stable over time. The presence of certain personality characteristics is essential and a necessary condition for the further development of corporate entrepreneurial competences (innovator, broker, champion, sponsor). Hayton and Kelley (2006, p. 420) also point out a correlation between the four key roles and formal hierarchical positions. That is, the sponsor usually can be found at higher levels in the organization in positions with control over necessary resources, whereas the innovator is generally located at the lower levels of an organization, holding positions in research and development or being in direct contact with customers. The roles of the champion and the broker can rather be found at the middle levels of an organization, taken by employees acting as mediators in interdisciplinary groups such as in project teams (ibid.). From this it follows that, in their staffing processes, organizations can take advantage of that correlative relationship. They can extend the requirements for a certain job and include the needed characteristics for a certain key role. For example, an applicant for a job in the research division primarily needs to be endowed with the characteristics of an innovator: domain-specific knowledge, cognitive ability, and creativity (Table 1).
In addition to the employment of internal staff, an organization is able to increase its overall innovativeness by the selective engagement of external specialists. In this way, the organization “gains access to knowledge of new ideas, practices and technical skills” (Moch, 1977, p. 717). Furthermore, the introduction of outsiders - endowed with specialist knowledge of a technology, product, or market - provides an organization with the aforementioned “benefit of contrast” (Sathe, 1988, p. 406) and increases its potential for creativity (Amabile, 1996, p. 10). This is because external specialists are able to recognize specific problems earlier and determine needs for modifications more quickly (Schmelter et al., 2010, p. 725). At the same time, outsiders accept a higher risk as they have less to lose in terms of internal career prospects (Sathe, 1988, p. 406). However, the accurate composition of specialists is important for such a practice to be effective. A company pursuing an entrepreneurial strategy needs to employ scientists and engineers who have the technical knowledge to identify potential for improvements as well as specialists in innovation management. The former are in charge of knowledge generation whereas the latter need to analyze the economic efficiency of a new idea. In order to increase the potential for innovations, the communication and cooperation of both specialist groups has to be ensured (Schmelter, 2008, p. 73).
One of the most important elements in the human resource cycle of the Michigan Model is appraising the performance of employees. This is because performance appraisal results are used for multiple purposes and are substantial for determining both the level of compensation and the specification of further training and development. Moreover, the specific methods applied to appraise the performance have repercussions on the performance level itself (Smith and Hornsby, 1996, p. 13). An organization pursuing a CE strategy must bear in mind several further particularities when designing its performance appraisal process.
First and foremost, organizations must take into consideration that entrepreneurial efforts usually do not yield considerable profits in the short run. That implies that performance evaluations should be primarily based on long-term results (Balkin and Logan, 1988, p. 19). Moreover, performance appraisals should rather be carried out at irregular time intervals adapted to the life cycle of a project than at fixed predetermined dates (Morris and Jones, 1993, p. 880). In addition, organizations need to consider that entrepreneurial activities in general are associated with higher risk. This demands for a certain tolerance of failure in the performance appraisal process. By allowing employees to explore new paths and learn from mistakes, organizations are in a position to develop mutual trust and to pave the way for innovative behavior (Shays and de Chambeau, 1984, p. 18). At the same time, such a more tolerant practice is attended by some job security which is, as stated above, important for the encouragement of taking higher risks (Schuler, 1986, p. 619).
Another particularity which an organization has to bear in mind refers to the special nature of entrepreneurial success. Assuming that entrepreneurial success often results from the transformation of existing conditions and processes, it can be derived that performance appraisals should be based on results rather than on the methods applied to achieve those results (Kuratko et al., 1990, p. 52; Schuler, 1986, p. 22). However, Schmelter et al. (2010, p. 725) point out that the applied ideas and methods used by an employee to achieve his objectives deserve some attention as well. The authors stress that additional qualitative and subjective measures of performance are required in order to evaluate the innovativeness and risk propensity of an employee.
Finally, it is important to note that the object of the performance appraisal should not be limited to the individual employee. As already mentioned with regard to the assignment of external specialists, the creation of synergies between corporate entrepreneurs is essential. Morris et al. (1993) state that "the complexity of many new product opportunities, combined with technological constraints, the diversity of markets, governmental restrictions, uncontrollable economic developments, and the need for partnerships with suppliers and distributors suggest that a degree of teamwork and well-coordinated task integration is vital for entrepreneurial success" (p. 600). Therefore, the additional implementation of group level criteria for performance appraisal is important to provide employees with significant incentives for cooperative behavior.