Rediscovering entrepreneurship in all organizations
Sept. 23, 2011 at 4:23 a.m.
Everyone agrees that entrepreneurship is a good thing. But what exactly is entrepreneurship?
People often assume that an entrepreneur is someone who owns his own business. But this definition is both too broad and too narrow.
The definition is too broad because owning a business is no guarantee that someone will do anything we want. I once called a sprinkler company, for example, to send someone who could find and repair a break in my sprinkler line.
The owner and his employees arrived and proceeded to dig holes in my front yard. Five big holes and one poorly sealed repair later, the owner presented me with a bill for their time spent tearing up my lawn. In his mind, he was entitled to a big check. In my mind, if this is all entrepreneurship is, I don't know if politicians need to keep wringing their hands over how to get more of it.
Entrepreneurship is the practice of profitably delivering what customers need, often before they even know they need it. It's solving problems quickly, responding to changing market demands, and always remembering that what matters is not how hard you work, but how much value you provide to your customers.
Equating entrepreneurship with business ownership is too narrow, as well, because it excludes the great many people laboring inside larger organizations they don't own but who nevertheless drive innovation and creativity as they serve customers.
Entrepreneurs are the drivers of a process economist Joseph Schumpeter called "creative destruction" - the constant replacement of goods, services and practices with superior ones. Think about how the eight track was replaced by the cassette tape, which in turn was replaced by the CD, which is now being replaced by digital music.
Any business owner or employee, nonprofit volunteer or elected official can devote his or her efforts to discovering better ways to serve their customers. Anyone, in other words, can discover how to stop being an eight track, and start being an MP3 and, in the process, embody the definition of entrepreneur.
So how can we get more entrepreneurial behavior in society?
Market Based Management® is a term describing the management philosophy of the Koch Industries family of companies, including a company many people in Victoria know well: INVISTA. The chairman and CEO of Koch Industries, Charles Koch, credits MBM® for the tremendous success his companies have achieved during the past 40 years. MBM® is a management philosophy that encourages entrepreneurship among employees by applying the principles that allow prosperity in free societies.
We know that prosperous societies have very different rules than failed societies, and that the rules in prosperous societies allow for entrepreneurial innovation that fosters prosperity, health and happiness. MBM® draws on these rules to yield five key concepts: vision, virtue and talents, decision rights, incentives and knowledge processes.
In order to succeed, an organization needs to know what it wants to achieve based on what it does well. It must be able to trust people to pursue this vision, which means carefully interviewing potential employees to ensure they not only have the requisite skills and knowledge, but values and beliefs consistent with an entrepreneurial culture, like integrity and humility.
Once an organization has hired the right people, it should give employees authority based on their past performance. Just as a market gives or takes away resources based on an organization's track record of creating value for others, an MBM® organization apportions decision rights based on an employee's proven ability to create long-term value.
Hiring entrepreneurial people to pursue a vision, however, won't work unless employees think that by sacrificing their time, energy and innovative ideas for the organization, they have the potential to be rewarded. An MBM® organization connects employee compensation not to years of service or job titles, but to evidence of value created.
Finally, just as the market has signals in the form of prices, profits and losses that illuminate what practices are creating and destroying value, a company needs similar knowledge about employees. MBM® organizations rely on knowledge processes and performance reviews to discover how its employees and practices can improve and to reward those who contribute to success.
The goal of INVISTA and all other Koch companies is to cultivate entrepreneurship, so that employees create superior value for customers. They understand that anyone can be - and therefore should strive to be - an entrepreneur.
Dr. Tony Woodlief is president of the Bill of Rights Institute, an organization dedicated to teaching young people the words and ideas of America's founders. Woodlief previously was president of the Market-Based Management® Institute, a research and teaching center focused on advancing the understanding and practice of MBM®.