How to promote entrepreneurship within established companies? Human Resource Management and Corporate Entrepreneurship

Text Sample: Chapter 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 pro-activeness, 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 resultsoriented 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).