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The professor wants companies to encourage change.

Question: Does company structure stifle innovation?

Saras Sarasvathy:  This is a tougher question for me to answer because I’m not really an expert in this area but there are lots of examples of people being entrepreneurial within a company and there are a lot of companies that actively try to encourage people to be entrepreneurial within a company.  One of my colleagues and a co-author of mine also who had three or four people from Darden involved: Jeanne M. Liedtka and Robert E. Wiltbank and Sean Carr, and a couple of other people who actually looked at organic growth leaders, people who had created top line growth within companies, and they found that at least to some substantial extent they think like expert entrepreneurs.  So, there’s a lot of overlap between how expert entrepreneurs think and/or how organic growth leaders inside larger corporation thinks.  They also have to incorporate other kinds of mechanisms, for example, they have to know how to navigate the system within the corporation.  So it’s not one-on-one match but there is some evidence, some recent evidence that shows that.  There’s lot of other kinds of stories of entrepreneurs within companies.  So I’m not sure that it cannot be done but it would be interesting to see what are some of the barriers to entrepreneurial thinking whether within a large corporation or in a country for example.  So that would be a topic I think that would be really interesting to look at what comes in the way of people trying to be entrepreneurial in companies and then other people who study that too.

But, I am not quite an expert on that but given what I have actually looked at in terms of some people trying to be entrepreneurs within a company.  One of the reasons is almost every decision on that what to do next question inside a company involves some kind of a trade-off that an independent entrepreneur may not have.  For example, if I decide as an entrepreneur within a company, I want to develop a new kind of technology or a new product which might put my current product out of business, right?  So now I had to think about when to develop it.   Should I cannibalize my own product?  So that’s this opportunity cost in a large corporation, I think, that makes the decision fundamentally different than for an independent entrepreneur.  So that’s at least one thing I would point to as a difference, not necessarily as a bad thing, but it’s a difference.  So when you make the decision on what to do next you have to take into account what you already have accomplished and interestingly enough this is a problem not only for large corporations, it’s a problem for very successful entrepreneurs too.  So if you if you’re like Pierre Omidyar who started a company, who built it up and it’s growing, now when you want to do the next thing whatever that next thing is, you have to worry about this baby that you have grown into something and expert entrepreneurs have interesting ways to deal with that.  Not all of them actually are good at solving that problem so what they do is sometimes they say, “You know what, it is time for me to sell this company,” or “It’s time for me to bring someone else to run this company while I become CTO or develop a whole bunch of other products that have nothing to do with the current one.” Or, you know, “I just resign, become chairman of the board and start other companies.”  So the expert entrepreneurs solve the problem by doing other things for the most part but the problem remains.  I think it is a fundamental problem.  It’s not a problem that you can just get rid of in a large company. But given that you have that problem, I’m sure there are lots of things that you can do to allow people to be entrepreneurial within a large corporation and some companies have tried things like creating a venture capital wing where people actually come up with ideas and build it along a little bit and they can present it to the venture capital wing and the company can decide.  So people have done this but it’s not really my area of expertise because I haven’t really studied that. 

Recorded on: May 19, 2009