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The Innovation Imperative

How to flush out the entrepreneur in the cube next door.

Entrepreneurship and innovation are key to kick-starting our economic recovery, but too often we associate these characteristics only with smaller, startup companies, without recognizing that large companies will only succeed in the long-term by harnessing the same spirit of entrepreneurship. Globally, all of the lists of leading companies, such as the U.S. Russell 3000, the German HDAX, the FTSE 350, the South Korean KOSPI 200 and the Indian Bombay 200, turn over by 50 percent or more every five years. That means companies that are stuck in their bureaucracies will be replaced by those with a thriving culture of innovation.

Companies of all sizes need to focus on creating a culture that embraces “intrapreneurship”—that is, encouraging people within the company to explore high-risk, high-reward ideas, protected by the safety and support of a well-established corporate structure. Two factors are crucial—encouragement and support from senior management for fresh thinking, and reassurance that even if new ideas fail, the intrapreneur will not be penalized.

Innovations such as 3M’s Post-it Note, Sony’s PlayStation and Google’s Gmail flourished under these conditions. At Ernst & Young, we work every day with a wide variety of clients who rely on intrapreneurship to get the most innovative products and services to the market. We also know, however, that intrapreneurship can be difficult to nurture in a large organization. In a recent survey, half of our Entrepreneur of the Year award winners said that innovation had become more difficult as their organization grew in size and complexity.

Through our research and surveys, we’ve found six strategies that will allow internally driven innovation to flourish in your company. Outlined below, these strategies are most likely to succeed if they are implemented within an organizational framework that views intrapreneurship as an endto- end process. That means supporting it with staff, resources and formal development procedures, from the very beginnings of the idea right through to the market debut of the product or service. To do that, however, companies of all sizes need to set in motion behavioral changes that challenge conventional organizational thinking. These include:

1. Institutionalize intrapreneurship.

Give people enough time away from their day jobs to work on creative ideas, but set up formal processes to make sure those ideas go somewhere. In our recent survey of Entrepreneur Of The Year winners, 40 percent said that they came up with many good ideas but couldn’t get enough of them to the commercialization stage. Research shows that structured and formal processes for innovation are more likely to result in viable new products and services that actually make it to market.

2. Engage employees in the cause.

Encourage everyone from all ranks and functions to contribute to the innovative process. Consider setting up an intrapreneurship unit within the company to establish an idea bank to draw from at any time. Engaging your employees in this manner has been shown to lead to highly creative ideas and practical suggestions for their implementation—and has the side benefit of ensuring a highly motivated and engaged workforce.

3. Assemble and unleash diversity.

Statistical research has established that diverse viewpoints result in better ideas and better products.Still, the larger workforces of big companies provide an opportunity to ensure a wider diversity of talent—across gender, ethnicity, sexual orientation, nationality, religion, physical ability and generation. This is a huge potential advantage to creativity and innovation.

4. Design a career path for intrapreneurs.

They tend to dislike conventional administrative jobs, so look for nontraditional ways to advance their careers. Some companies have created technical ladders, or career paths that allow R&D-minded scientists to explore new passions and ideas, while enabling other scientists with managerial ambitions to take on roles that have an administrative component. It’s important that your intrapreneurs feel they have an established place and future growth potential within the company.

5. Explore government incentives for innovation.

Don’t ignore the growing number of state-sponsored programs that support entrepreneurial ventures. Step up your efforts to obtain government funds for innovation. Governments all over the world are offering new tax breaks and other incentives for research and development.

6. Prepare for the pitfalls of intrapreneurship.

The movie Apollo 13 immortalized the line, “Failure is not an option.” While astronauts have no leeway for failure, companies must—backing bold ideas can backfire. Be prepared to deal with failed ventures, internal conflicts, financial risks and intellectual property battles. Companies must set the price for failure upfront: how much are they willing to risk before pulling the plug? How many failures are too many? Companies need to define their willingness to accept risk from the start so they don’t arbitrarily stomp out intrapreneurship the moment something goes wrong.

Many entrepreneurial successes have happened because someone found new uses for an old product, chanced upon a discovery or ventured into new industries or geographies. It’s hard to keep thinking about The Next Big Thing, especially if your company is already the industry leader, but it’s a surefire way to rekindle the entrepreneurial spirit. Remember, that’s what propelled your company to the top, and it’s what’s going to keep it there.

James S. Turley is chairman and chief executive of Ernst & Young, a leading global professional services organization providing assurance, tax, transaction and advisory services..

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