The Evolution of Employees into Entrepreneurs
by Dr. Annika Steiber
The transformation of employees into entrepreneurs is a multifaceted process that has garnered significant attention from scholars and practitioners alike. Intrapreneurship, where employees develop entrepreneurial initiatives within an existing organization, could be viewed as a stepping stone to full-fledged entrepreneurship, and intrapreneurial experiences can therefore foster a spirit of innovation and risk-taking among employees. The focus of this blog is on the need for an evolution of employees into intrapreneurs or entrepreneurs. In addition, a case will be presented, as well as some insights into the mechanisms that facilitate this transition.
The evolution of employees into intrapreneurs or entrepreneurs has become an important topic due to its impact on economic growth, innovation, and job creation. As economies around the world continue to evolve, understanding the factors that both drive employers to invest in this transformation, as well as the drivers for employees to pursue intrapreneurship or entrepreneurship, is crucial for policymakers and organizations seeking to foster more entrepreneurial companies and ecosystems.
Entrepreneurship versus Intrapreneurship
Before delving into the literature on the development of employees into intrapreneurs or entrepreneurs, it is, however essential to establish a clear understanding of these key terms. In this blog, entrepreneurship will be defined as “people who create and exploit business opportunities. They create value by serving customers (or the company itself) in new ways, and by generating new revenue streams” (Steiber and Alänge, 2016). The entrepreneur is the individual who with novel ideas and risk-taking will lead and manage this process. Intrapreneurship could then simply be defined as “entrepreneurship in an existing organization”. Intrapreneurship within an existing organization is critical as it is needed to revitalize the organization for its long-term survival. The intrapreneur is the individual who with novel ideas and some risk-taking will lead and manage this process.
The differences between those two concepts are, among other things, the level of risk-taking, the way how to organize the development and execution of the new business opportunity, and the level of equity (the entrepreneur’s/ intrapreneur’s ownership) in the incorporated company.
While the new business opportunity commonly becomes an incorporated company in the case of entrepreneurship and the entrepreneur commonly has a larger equity share in her/his company, a business opportunity identified within a company a) doesn’t have to end up as an incorporated company but could be delivered by using the existing organization, and b) the intrapreneur’s equity in the company might be zero to a minority share of the company (e.g., 10%). Finally, employees are individuals working under a contract of employment, typically in an established organization.
The case of Haier
As was mentioned in previous blogs, one of today’s most disruptive management models is the RenDanHeYi model, developed by the Chinese company Haier. The model operates based on six core principles:
- Ecosystem as the strategy
- Networked and decentralized organization with microenterprises
- Employees as entrepreneurs
- Zero distance to users
- Pay-by-user compensation
- Non-linear management
In previous blogs, I have focused on ecosystems, zero distance to users, and networked, decentralized organizations with microenterprises.
An important part of implementing a decentralized, networked enterprise is that the company supports and encourages people to transform from employees, who execute specified roles and duties, into intrapreneurs and entrepreneurs. In this new type of organization, people working in the company can no longer sit and wait for clear goals and instructions from the top on what to achieve and to do, they need to become self-driven and self-organized for this organization to benefit from its decentralized and flexible structure. Each person, therefore, needs to act like a ‘founder’ of a company and take accountability, together with her/his team, for how to best create user value and survive long-term on the market. Self-organization in turn requires that each person is clear about what is to be done, plan and execute tasks as needed, decide what is important and urgent, coordinate the work and communicate effectively with its team members and other stakeholders, and stay on top of things.
In the case of Haier, each individual working for the company is expected to transform and evolve over time, first from employee to intrapreneur, and then from intrapreneur to entrepreneur by starting their own venture that most commonly is co-owned with Haier. The latter means that employees becoming entrepreneurs are not limited by the enterprise. They become independent individuals on a platform where ‘the world is their HR department’ (Steiber, 2022).
To create a support system that encourages intrapreneurship and entrepreneurship, the Haier people sign up for and are organized around a microenterprise that each has an annual ‘leading goal’, which acts as a stretch goal by default, set by the team. In contrast, in a traditional company, people are instead assigned targets from the top, commonly based on historical performance.
The support system also includes a compensation model, that rewards the team and its individuals according to their user value creation, measured in incoming revenues for the microenterprise, and in individual contributions. Each microenterprise decides how to distribute the collective profit among the team members. In addition to a share of the profit made, equity in the microenterprise is also a part of the compensation model. In case the individual is the founder of the new microenterprise (thereby an entrepreneur), the equity share will be higher than if the individual wasn’t one of the founders (that is an intrapreneur). Through this transformation of employees into intrapreneurs and then into entrepreneurs, the enterprise itself transforms from a product manufacturing company to an “entrepreneurial breeding platform.”
Drivers behind the transformation
Next, let us first focus on what drives employers to invest in a transformation of their employees, and secondly, what drives employees to take on this new role and challenge.
Employers invest in developing their employees into intrapreneurs or entrepreneurs for several reasons. First, both intrapreneurs and entrepreneurs bring a fresh perspective and innovative ideas to the organization. By encouraging employees to think and act like ‘intrapreneurs’ or ‘entrepreneurs’, employers can tap into the untapped potential for creativity and problem-solving.
Second, intrapreneurial initiatives often lead to increased efficiency and cost savings. When employees are empowered to take ownership of their projects, they become more motivated, engaged, and committed to achieving organizational goals.
Third, fostering an intrapreneurial or entrepreneurial culture can enhance employee retention and attract top talent. Employees are more likely to stay with a company that values their ideas and offers opportunities for growth and development.
Fourth, intrapreneurship, as well as entrepreneurship allows organizations to stay ahead of the competition and adapt to a rapidly changing business landscape. Intrapreneurs, and even more so entrepreneurs are more willing to take calculated risks, experiment with new technologies, and explore emerging markets, giving the organization a competitive edge.
Finally, developing employees into intrapreneurs or entrepreneurs fosters a culture of continuous learning, improvement, and even continuous transformation of a company’s business model. It encourages employees to be proactive in seeking new opportunities, acquiring new skills, driving innovation, and ultimately contributing to the long-term success and sustainability of the organization.
So, what are then the motivations that lead employees to embrace intrapreneurship or entrepreneurship?
Factors that have been identified, among others, are dissatisfaction with the corporate environment, desire for autonomy, perceived opportunities, and a passion for a specific product or service, which all could be drivers for this transition. However, personality traits also play a role, and traits such as self-efficacy, risk-taking propensity, and locus of control could be linked to the likelihood of individuals considering intrapreneurship or entrepreneurship as a viable option. What seems to be accepted among researchers is that entrepreneurial skills could be trained, e.g., through intrapreneurship. In addition, the influence of social networks and support systems on the ‘employee-entrepreneur’ transition shouldn’t be understated. The role of mentors, family, peers, and professional networks in providing guidance, resources, and emotional support during the journey have all been investigated. Further, it is known that a corporation’s culture, leadership, HR processes (e.g., hiring, performance, and incentive system), design, learning mechanisms, and more (Steiber, 2014) all influence how ‘entrepreneurial’ a company and thereby its people truly could be.
In fact, the organizational context plays a vital role in shaping employees’ intrapreneurial or entrepreneurial intentions. A supportive and innovation-oriented organizational culture can inspire employees to venture into intrapreneurship or entrepreneurship, while rigid or risk-averse cultures may hinder such aspirations. Also, the availability of financial resources could be a significant barrier to both intrapreneurship and entrepreneurship and access to funding and venture capital could influence employees’ decisions to transition, specifically into entrepreneurship.
Transitioning from an employee to a full-feathered entrepreneur is however not without challenges for the individual. Obstacles could be financial risks, work-life balance, managing uncertainty, and navigating the transition process itself. This means that the individual’s private life and life phase also affect her/his willingness to go from being an employee into an intrapreneur or entrepreneur.
Conclusions
The transformation of employees into intrapreneurs or entrepreneurs is a complex process, influenced by various personal, organizational, and societal factors. Understanding the dynamics is essential for creating an enabling environment that supports aspiring intrapreneurs and entrepreneurs and thereby fosters economic growth and innovation. Policymakers and organizations can implement targeted interventions to nurture and support aspiring ‘entrepreneurial’ individuals, thereby fostering economic development and innovation in the global landscape.