Saturday, October 5, 2013

Guest Post: Chirantan Chatterjee on "Where will the next big idea come from?"

[Professor Chirantan Chatterjee (IIT Roorkee/IIMC/CMU) is our colleague in the Strategy area at IIM Bangalore and focuses his research on the Economics of Innovation.]

I recently finished an executive class teaching principles of valuation and corporate entrepreneurship to employees from a large multinational company. Participants in the class had aspirations to go entrepreneurial with their business ideas and it was curious to gauge their reactions in the presence of the sponsor of the program, their employer. These are the quips I over-heard in coffee and lunch time conversations.

‘The government is wasting money on entrepreneurship competitions around the country’.

‘Has there been any metric designed to measure their performance’?

‘The focus should be on breeding Corporate Intrapreneurs’.

‘This is where the resources and most hungry souls with ideas are’.

Where will India’s Next Big Idea come from?

That experience got me thinking on where will India’s next big idea come from. Will it come from its entrepreneurs or its intrapreneurs? But before we get there, let’s take a quick detour on corporate intrapreneurship (or one can also term entrepreneurship, for convenience let’s condense it as CI/E) as it has evolved over the last 4 decades. The essential model for this phenomenon can be captured as shown in this figure:

This framework comes from a 2009 book by Kellogg School academics Robert Wolcott and Michael Lippitz titled ‘Grow from Within: Mastering Corporate Entrepreneurship and Innovation’. The authors point out that firms decide on ideas generated by employees, and take stock of the amount of ‘Resource Authority’ to be allocated (from ad-hoc to dedicated) and also on the quantum of ‘Organizational Ownership’ to be assigned (from diffused to focused ownership). They further argue that the models of CI/E could either be that of The Opportunist, The Enabler, The Producer or The Advocate. The authors point out thereafter how Zimmer is an example of The Opportunist model, Google’s Product Council is an example of The Enabler model, Du Pont’s Market-Driven Initiative is a case of The Advocate Approach while Cargill’s Emerging Business Accelerator is an example of The Producer approach.

The intriguing point to note was, when goaded, my class, a pool of technology professionals from India’s software industry, slowly started thinking about what might be the relevant models in the organizations that they have worked for in the past. Thus, students conjectured on bucketing how an Infosys, Wipro, Cognizant, TCS, Reliance Group or even an I2 Technologies could come under these four buckets. For the more discerning reader, I will leave it as an exercise to mull more on how these models could be retrofitted into your experience of corporate intrapreneurship at your respective organization.

The Challenges of Corporate Entrepreneurship

But moving on, the bigger question lies somewhere else. Basically, is corporate entrepreneurship easy? Not really. Ideas and ideators come with their own discoveries, and information asymmetries about its value, could result in the firm-level sponsor disagreeing about the potential for the idea with the intrapreneurs, the inevitable consequence of which could be spin-off formation. CMU professor Steven Klepper who recently passed away, documented in a series of work ranging across various sectors how disagreements are a key source of spin-off formation, and how spin-off formation could explain the growth of technology clusters like the Silicon Valley. 

Thus sustaining CI/E is not an easy task, since it always keeps open the possibility of new firm formation. After all reduction in transaction and coordination costs are a key explanation indeed for why firms exist, as Nobel Laureate economist Ronald Coase argued in his seminal work on the ‘The Nature of the Firm’.

What should the Government do?

But is it a more difficult a task than sustaining external entrepreneurship? What could governments do to create a market for ‘corporate intrapreneurs’ for example in lieu of ‘external entrepreneurs’? Especially in resource constrained settings like that in India, where a rupee spent here might mean a rupee lost from being spent somewhere else? This is largely an open question worth pondering about with careful measurement providing better evidence. Outcomes from such an exercise could actually be used to get a hang of this question, especially by tracking performance of a rupee spent on external entrepreneurship and equivalently on corporate intrapreneurship, controlling for all else that could confound causal understanding of the question at hand. Perhaps this is something worthy of a doctoral dissertation work in managerial economics and decision sciences. Irrespective, the need to evaluate this is now more than ever before, especially in a world under recessionary pressure contemplating ways to jumpstart its flagging economies, especially the emerging ones.  

Talking about external entrepreneurship, over the last decade in India, across engineering and management colleges of the country, including in the IIMs and the IITs as much in other institutions, entrepreneurship has been experimented with as the latest fashionable professional choice. Spurred on by sponsorship from key governmental institutions like the Department of Science of Technology, ‘Entrepreneurship Competitions/Contests’ are now dime a dozen and one wonders how much these have enhanced the welfare of society with all the money being spent. Are there metrics to measure the performance of these entrepreneurship competitions? How many of the oceans of ideas prospected have really taken off in the last decade? How many have generated useful employment? Have some of these ideas really disrupted competitive dynamics of certain markets, bringing down prices of products and/or offered better choices to consumers? Like many other issues right now in the country, the answers to these questions remain unknown.

But with the National Association of Software & Services Companies along with Confederation of Indian Industries betting on the 10000 Start-Ups Program one hopes this will promote more useful resource and thought-leadership allocation on this issue. Perhaps one can also conjecture that the raison d'ĂȘtre of the 10000 Start-Ups Program is in itself the fact that corporate India (domestic or multinationals) are not doing enough to spur the creative juices of its employees. Till then, one can only be optimistic.

As my spirited students in the class debated, the answer to the starting question of this article might not be an either/or issue, potentially the panacea lies in stimulating both, entrepreneurs and intrapreneurs.

And maybe there in will lie the source of India’s next big ideas?

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