THE PRACTICE OF ENTREPRENEURSHIP
Innovation cannot happen without the practice of entrepreneurial management. However, this system of management is not enough to support successful innovation of any kind, thus Drucker sets out to explain what executives must do in their businesses, service institutions, or other new ventures to foster and support innovation from and by their teams.
The Entrepreneurial Business
Normal businesses are set up to allocate their resources to business as usual. That is, their staff members are focused on putting out daily fires and getting more out of what is already proven to be successful. Indeed, most personnel subscribe to the idea that most innovations are spontaneous and will hit at just the right moments, so they can continue laboring away at what is already in place. However, entrepreneurship is not natural; it must be worked toward and thought about constantly. Specifically, entrepreneurial-minded managers must implement policies and practices in four major areas to support innovation. They must:
- Be receptive to innovation.
- Regard change as a welcomed opportunity and not a threat.
- Do mandatory, systematic appraisals of their companies’ performances.
- Require specific practices to encourage and reward innovation. This means there must be a clear understanding throughout their businesses that innovation is the best means to preserve and uplift their success.
A strategy that Drucker insists must be abandoned is the existing reports managers receive about their businesses. Normally these focus on profits and shortcomings, but they do not create full pictures. People only see what is presented to them, and most managers are presented with problems rather than opportunities. Even if businesses have cultures that are entrepreneurial, managers are not given the facts they need to exploit those opportunities. Therefore, fixing existing procedures is of the utmost importance.
After the policies and procedures have been identified and amended to foster innovation and entrepreneurship, businesses’ structures must be addressed. Indeed, whole new business structures must be created for those skills to blossom. This means that the new entrepreneurial sectors of existing businesses must be separated completely from the old, outdated sectors. These sectors should not be held to the same standards of resource allocation, success rates, or time needed, and indeed cannot if they are to succeed. Also important is the specific assignment of top managers to work on innovation and entrepreneurship. Finally, new sectors must be held acutely accountable in ways that make sense. Although new sectors cannot be held to the same standards as existing ones, they do need standards to ensure progress and effective leadership. Brewing new entrepreneurial cultures in existing businesses is the best investment in the future existing businesses can make.
Entrepreneurship in the Service Institution
Unfortunately, service institutes (including government agencies, schools, labor unions, etc.) are those most in need of entrepreneurial spirit, and also those that are most inherently opposed to it. There are three major problems entrepreneurs face in service institutions:
- Public service institutions are based on budgets rather than being paid from their results. More to the point, getting larger budgets rather than obtaining better results defines success.
- Service institutions are at the mercy of multiple constituents that all hold veto power. Where businesses only need to satisfy their particular customers, service institutions must appease everyone, and therefore cannot be very specific.
- Most detrimental to the entrepreneurial spirit is that service institutions look to “do good,” which means that they tend to see their missions, rather than their economic standings, as their main objectives.
Drucker insists that these problems can be overcome with the following entrepreneurial policies:
*Public service institutions need clear definitions of their missions.
*They must employ realistic goal statements that are genuinely attainable. Eventually they must be able to say that their missions are complete.
*Failure to achieve objectives must be considered an indication that they were incorrectly defined and should be adjusted accordingly.
*Innovative opportunities must not be seen as threats.
The New Venture
When existing businesses lack a sense of entrepreneurial spirit, Drucker cautions that they must work on their managerial skills before undertaking any new ventures. Unless new ventures include effective management strategies, they will not survive in the long term no matter how brilliant the entrepreneurial ideas are. There are four basic requirements for the management of new ventures:
- A focus on the market. Market research cannot be done on brand new innovations, so new ventures must be flexible and open to the markets utilizing their innovations in ways that were not planned for previously.
- Financial foresight and planning for cash flow and capital needs ahead of time. Financing is particularly troublesome for new ventures because teams are typically most concerned with making back their investments. As companies grow, they will need further investments and cash flow management.
- Building top management teams long before the need for them exists. Best management practices do not develop overnight–new ventures must be planned ahead so they do not fall apart when introduced to the market.
- Founding entrepreneurs must respect their own roles, areas of work, and relationships. Founders’ roles will change and evolve, and they must be ready to accept these changes and not squander opportunities for growth.
Naturally, each separate industry and business requires a unique set of skills and concerns, but the thread that holds each together is the intention to constantly analyze and study trends. It is up to entrepreneurs to stay ahead of the demands by constantly strategizing and self-monitoring. Without these habits, failure is imminent.