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The entrepreneurial audit: innovation efficiency in the 21st century.
Subject:
Businesspeople (Management)
Entrepreneurship (Management)
Technological innovations (Analysis)
Authors:
Peterson, Robert M.
Johnson, Kevin D.
Pub Date:
01/01/2004
Publication:
Name: Entrepreneurial Executive Publisher: The DreamCatchers Group, LLC Audience: Academic Format: Magazine/Journal Subject: Business, general Copyright: COPYRIGHT 2004 The DreamCatchers Group, LLC ISSN: 1087-8955
Issue:
Date: Annual, 2004 Source Volume: 9
Topic:
Event Code: 200 Management dynamics Computer Subject: Company business management
Geographic:
Geographic Scope: United States Geographic Code: 1USA United States

Accession Number:
166751829
Full Text:
ABSTRACT

An entrepreneurial audit is a comprehensive examination of a firm's entrepreneurial and innovation characteristics. It evaluates the ability to identify and respond to opportunities, create and maintain an "entrepreneurial" environment, analyze the utilization of resources, and understand organizational efficiency to maximize time-to-profits. This corporate entrepreneurial behavior has been shown in repeated studies to improve financial performance.

This entrepreneurial audit uses a qualitative managerial analysis approach to allow for the diversity of executive perspectives and organizational behaviors to be fully encompassed. The audit begins with assessing the fundamental mission, vision, and competence of the corporation. Then, six component areas of an audit are scrutinized: 1) Internal Environment, 2) Entrepreneurial Culture, 3) Starting Points of Innovation, 4) Innovation Process, 5) Team Dynamics, and 6) Resource Allocation. Appendix A contains a summary of the questions that an executive may use to assess a firm's entrepreneurial environment and support for innovative behaviors.

The conclusions of the entrepreneurial audit are an indication of a firm's entrepreneurial momentum and innovation efficiency. This momentum is a framework for the firm's ability to respond to environmental opportunities and threats in the 21st century. The audit summary offers an organization a baseline of innovation efficiency and a strategic tool in which to begin entrepreneurial renewal.

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.

Niccolo Machiavelli

ENTREPRENEURIAL AUDIT INTRODUCTION

In the global markets of the 21st century, businesses in pursuit of sustained competitive advantage are finding that lower costs, higher quality, and improved customer service are not enough to maintain their competitive edge. As the pace of product, service, and process innovation increases, companies must be better tuned to compete in their own fiercely competitive industry. They must be faster and more flexible, aggressive and more innovative in order to maintain their competitive edge ... they must be more entrepreneurial.

One of the more bewildering business outcomes is why certain companies continue to produce new products and process innovations as a matter of practice-3M, General Electric, Disney, Intel, Sony for example, while others struggle to produce even a glimmer of originality. Most corporate executives would acknowledge that their business has untapped potential in the new competitive environment, and yet, few seem to excel at planning for innovation and using the entrepreneurial process as a key strategic business asset. While several notable books have been authored on this topic, including Fifth Discipline (Senge), Innovator's Dilemma (Christensen), Leading the Revolution (Hamel), and Innovation (Kanter) to aid top management, most corporate environments remain geared to preserve the status quo. (1)

If Post-It[R] Notes, Pentium[R] 4 Microprocessors, or Playstation[R] innovations are perceived to be valuable product offerings to customers and the income statements of the firms that create them, then understanding entrepreneurial environments should be a priority. An Entrepreneurial Audit assists in assessing a firm's environment for innovation efficiency and time-to-profit within new ventures. Crucial to sustaining competitive advantages is a method for inspecting the entrepreneurial-ness of an organization. In the end, management must understand the environment the firm has created for itself as it regards fostering innovation and new ventures; an environment that generally allows for a short window of opportunity and wealth generation.

The fact that an entrepreneurial posture produces superior financial results has been illustrated repeatedly (MacMillan & Day 1987; Miller & Camp 1986; Morris & Sexton 1996; Wiklund 1999, Zahra and Covin 1995). While the goal is obtainable for some, understanding where you are today in the process of becoming more entrepreneurial is the purpose of this article. This entrepreneurial audit offers a qualitative approach to discern a firm's entrepreneurial and innovation characteristics. While there are quantitative instruments available to access entrepreneurial posture or intensity (Hornsby, Kuratko, and Zahra 2002; Morris and Sexton 1996), some executives may find it futile to attempt to distill a firm's entrepreneurial assessment into a quotient. In fact, using a questionnaire, or a few metrics already gathered as a matter of business practice, may not be truly taking the pulse of a firm's ability or inability to change itself and respond to market shifts and opportunities.

Thus, this article will offer one method for comprehending an organization's entrepreneurial norms and it begins with assessing the fundamental mission, vision, and competence of the corporation, then six components of an audit are scrutinized: 1) Internal Environment, 2) Entrepreneurial Culture, 3) Starting Points of Innovation, 4) Innovation Process, 5) Team Dynamics, and 6) Resource Allocation. The Entrepreneurial Audit will pose questions for each component section. Appendix A contains a summary of these questions. Figure 1 outlines each of the inputs that must be cohesive in order to excel at innovation efficiency.

[FIGURE 1 OMITTED]

ENTREPRENEURIAL FUNDAMENTALS: VISION, ASSETS, AND MOMENTUM

The entrepreneurial audit begins with assessing the fundamentals of the corporation, its mission and vision, strategic assets, and strategic momentum. For an organization to succeed in today's ultra-competitive global environment, it is essential to understand the strategic capabilities and areas of strengths. Companies continually have a multitude of innovation ideas for management to evaluate. The entrepreneurial potential of the company is closely aligned with the fundamentals of the company. Understanding these fundamentals is the first step in the entrepreneurial audit process.

The company's mission and vision set a direction for your organization that is a central point for all strategic decisions, both for current business and new innovation. What is the five-year vision of your organization? Can your organization articulate the role innovation plays in that vision? Does it match? The mission defines where the company is headed, while vision describes what it looks like when you arrive. When potential new innovations are aligned to the company mission and vision, the organization is in a better position to support the project to make it successful. Corporate antibodies and barriers to success are lessened or removed altogether.

Strategic assets are those resources the organization relies on to create current revenue flow. They are also the assets the organization relies on to engage a new opportunity and are the genesis for sustainable competitive advantage. Can you quickly list three of your corporate strategic assets? How does this list of new opportunities map to the strategic asset list?

As an example, Coca-Cola's strategic asset list would include their secret cola formula, their brand, diverse beverage and food lines, and worldwide distribution network. At Disney Imagineering Studios ideas are strategic assets. There are several fully developed, but dormant, concepts on the Disney Imagineering Studio shelves regarded as valued assets. In fact, they are stored on the lower shelves so they can be easily uncovered time and again for inspiration (Jones 1996).

Momentum is a force that can assist overcoming many uphill battles in the realm of innovation. Offering impetus and direction, momentum carries customers and discovery to new heights. Intel Corporation's 34-year history of strategic momentum in silicon innovations has led to eight significant market moving microprocessor cycles, from the 8086 through the Pentium[R] 4 microprocessor. Intel is rewarded with 75% of the global market share and is accepted as the standard of today's personal computer industry. Can you easily identify the top two areas of your business that have market or technology momentum?

INTERNAL ENVIRONMENT: CAPABILITIES, STRUCTURE, AND COMPETENCIES

The Entrepreneurial Audit facilitates the process to identify the capabilities, structure, and competence of a company as they relate to entrepreneurial potential. These elements provide the internal foundation for entrepreneurial and new innovation effectiveness of a company. The key is to understand how engineering, marketing, and operations interact to create and deliver new opportunities.

Capabilities of the firm are the means by which the objectives of the organization get accomplished; it is a matter of matching an organization's strength to environmental opportunity. Capabilities can be the skills or professional attributes of the various departments, the size or capacity of the various functional departments (e.g., marketing, engineering, etc.), and the experiences and track record of the departments. To launch the 2002 Envoy at General Motors, an entirely new SUV vehicle, required not just the standard new product development steps. The intelligent engineering design, the manufacturing ability, and factory capacity allowed GMC to produce a refreshing and innovative SUV with such excellence that it won Motor Trend's 2002 Sport/Utility of the Year.

Organizational structure is a mechanism that can either help or derail entrepreneurial endeavors. People, communication, and ideas are built to support innovation, yet they can also interfere. The devastating effect of corporate silos stifles breakthroughs. Intel Corporation uses a multi-discipline Product Life Cycle (PLC) team approach. One such example is the Communication and Internet Server Division (1999-2000) that used the multi-discipline PLC team structure to create a market-leading 1U rack server for the Internet data center market. The functional departments, marketing, engineering, operations, and manufacturing, have specific roles within the PLC process for new product development. Those roles are defined within the PLC structure for the objectives of the project to be accomplished. The specific objectives for this project were: 1) robust product features, 2) flexible configurations, 3) low material cost, and 4) gain time-to-market advantage. The PLC cross-discipline team applied the PLC process and utilized the mechanisms to organize the project and meet the milestones throughout the development process to launch the new product successfully in the spring of 2000.

The core competence of your organization is regarded as the cornerstone of entrepreneurial strategy. It is the combination of capability and structure of the company. A firm that desires to continually maximize its use of resources for new innovation opportunity must understand how core competency relates to entrepreneurial efficiency. It is this efficiency that indicates where it can excel, and conversely, where the firm cannot and should enter. Many firms fail to create lasting entrepreneurial value simply because they venture outside their core area of competence (Zook and Allen 2001). What is your company's core competencies? Does everyone in the company understand the firm's core competence as it relates to innovation?

Toys-R-Us understands their competency as toy merchandising in the children's retail market. The successful expansion into children's clothing allowed them to use their expertise to organize this new venture, select styles and trends for the stores, and to market effectively to the target audience--parents (Block and Macmillan 1993).

ENTREPRENEURIAL CULTURE: INNOVATIVENESS, RISK TAKING, PROACTIVENESS

An entrepreneurial culture often starts at the top. When former 3M CEO and scotch tape inventor William McKnight broke his leg, he found plaster casts to be heavy and tiring. 3M scientists acquired a technology for synthetic materials that were lighter and stronger than plaster. Instead of accepting six weeks of drudgery, this action-oriented culture resulted in a fiberglass-reinforced synthetic casting tape that is widely used today.

Within the firm, innovativeness, risk taking posture, and proactiveness will directly affect the capacity to be creative and entrepreneurial. Do the underlying beliefs and assumptions that employees have regarding their conduct and expectations (i.e., culture), support original thought, calculated risk, and action? These are the firm behaviors that foster change and produce new opportunities. Corporate entrepreneurship is not determined by desire, but by organizational culture and action.

Innovation emphasizes research and development that leads to new products or new processes. An innovative culture seeks unusual or novel solutions to problems, supports technical leadership, and covets brainstorming as much as cost savings. While most organizations claim to be innovation-oriented, few actually use measures to gauge innovation; rather, they concentrate on optimization. What metrics does your organization use to measure entrepreneurial innovation?

Risk taking is a willingness to pursue opportunities boldly and aggressively, but not recklessly. The individual willing to move forward when others are doubtful or unable to see the potential are those supporting an entrepreneurial culture. These people, or even committees, are willing to explore risky growth opportunities, make necessary decisions despite uncertainties, and be aggressive in responding to competitors. This posture is sometimes in short supply because few managers are fired for neglecting to pursue an opportunity when compared to those who do not meet this quarter's numbers.

Proactiveness is concerned with implementation and taking determined action to bring an entrepreneurial opportunity to realization. An idea can gain support from 10 people and then get derailed by just one individual. But action, especially early wins with regard to an opportunity, is more difficult to scuttle. Thinking and being innovative is necessary, but hardly sufficient. Champions move quickly past the identification of opportunity to the implementation of their innovative concept. A proactive culture creates an internal strategy, drafts resources, and outlines milestones while others are still at the drawing board. How many unsolicited business plans does your CEO receive from managers each year? Do you consider your culture proactive, reactive, or unresponsive?

STARTING POINT OF INNOVATION: INFORMAL, FORMAL, AND CUSTOMER

The genesis of new innovation is of vital interest to an audit, and an organization's health. Domains that can be identified as breeding grounds for worthy ideas must be nurtured and cultivated. Where is the birthplace of your organization's new business ideas? Areas of particular interest to an audit include informal, formal and customer mechanisms to foster innovation.

Many organizations have informal methods for introducing ideas for products or new processes. Everyday, people get together at lunch and discuss various topics, but often wind up talking about potential inventions that challenge their wisdom and invigorate them personally. How often do you see sales, marketing, engineering, or manufacturing people sitting together at lunch sharing the brown bag experience? The outcome is the exploration of thoughts that, coupled with ingenuity, create new products. Another informal method to disperse valuable ideas is the use of a suggestion box (most currently suggestion e-mail). The utility of this approach varies widely depending on the perception of what is actually done with the input.

Some of the more entrepreneurial companies obtain opportunities by offering a more formal approach, while still inviting everyone's participation. Are all your employees offered a forum where they feel invited, if not obligated, to submit innovative ideas? Some firms have processes already in place; Disney has the Gong Show, Texas Instruments it is the IDEA program, and Royal Dutch/Shell offers the "Game Changer" program.

Shell allocated $20 million to invest in employee-generated ideas. During a three-day innovation lab, the ideas were coached, financial plans developed, and crisp 10-minute presentations assembled. Funding ranged from $100,000 to $600,000 in 1999 and of Shell's five largest growth initiatives, four had their genesis in the Game Changer process (Kanter 1983). The IDEA (Identify, Develop, Expand, and Action) initiative at Texas Instruments opens the door for proposals submitted to one of forty worldwide IDEA representatives with an immediate $25,000 with a stroke of the pen. Approximately $500,000 to $1 million is spent on this program annually to fund innovativeness.

The 'Gong Show' at Disney occurs three times each year and invites employees to pitch film ideas to senior executives. Colleagues are used to first critique the business concept and presentation, and then they unleash their idea upon management. Approximately 40 ideas are shared each session and feedback, positive and negative, is shared immediately (McGowan 1989). Again, the purpose for uncovering innovation starting points is to identify potential areas or programs that cultivate discovery and warrant investment.

The customer is an integral starting point of innovation. Customers often instigate innovation, set market timing, and confirm the "customer value proposition" of your product's success or failure. What mechanisms does your firm have to direct customer feedback to the appropriate product group?

The Customer Value Proposition: Customer Value = Customer Benefit - Customer Cost

Expectations of your company by the customer also set a pace for innovation in products, services, and processes. The customer dynamics in the marketplace determine modifications to your organization's strategy and structure. For example, a rapidly expanding product line, such as consumer electronics DVD players, will require Sony to plan for appropriate product cycling, staffing, and service infrastructure. Customer's expectations, perceptions, and reactions to your new innovations are crucial to the next generation of products or services.

A good example of customer based innovation is "Build-Your-Own" PC offered by many of the leading personal computer companies (e.g., Dell, Hewlett-Packard, etc). The customer is provided a kiosk at a retail store or a "configure to order" web site for them to work through selections and create a tailored order for their exact needs, peripherals, performance, colors, etc. Ultimately the customer determines if you are innovative and what financial success you will have in the market place.

INNOVATION PROCESS EVALUATED: EFFICIENCY, SUCCESS, AND FAILURE

New innovation revenue is the life-blood of any healthy organization--especially in highly competitive industries. At 3M for example, the corporate financial planning strategy is to have 30% of all revenue over the past four years be new innovation revenue. If a new venture within the organization can shave one-third off the development cycle, how much is that worth to your organization? There should be no reasonable argument against better time-to-money and time-to-profit efficiency, except for when quality or safety is compromised. What is your average time-to-profit?

Innovation cycles can vary widely from industry to industry. Pharmaceutical companies research and test drugs for years and General Motors may take five years to develop a new car. Contrast that by Sony's rapid prototyping processes that can test a new product concept within weeks and have it to market within months. Clearly, the type and pace of successful innovation varies by industry, and changes by new market dynamics as well, e.g., the Internet. However, if a relative and significant percentage can be shaved off your development cycle, the payback is clear. The Entrepreneurial Audit endeavors to find the bottlenecks for time-to-profit efficiency. Do you have a mechanism to gauge the profit timeline and adjust the performance of your organization given specific profit goals? What are the best practices and benchmarks in your industry to align your organization to compete?

Efficiency is one element; continued learning from mistakes is also paramount. A vital element to future new venture success is recognizing what has worked and that has not from a historical innovation perspective. Successes can be modeled as BKM's (Best Known Methods) for future ventures. Seasoned members of the successful team can participate in future ventures to strengthen the new organization and improve the learning curve. How does your firm cross-pollinate experienced employees for future success of new ventures? Beyond success and failure is the documentation of the venture's key discoveries so organizational learning can occur. Is the management of a current successful or failed venture required to document experiences for the corporate knowledge bank?

Failures are readily and quickly ignored or buried in obscurity sometimes due to politics and the embarrassment of the failed endeavor. Not so, at General Electric. Failure is a key learning tool for the organization. "Intelligent failures" are supported by the organization as key learning experiences to be recognized. The Halarc, an innovative new light bulb intended to last ten times longer than a standard bulb using a fraction of the energy, was a large gamble at $50 million development investment. However GE quickly learned consumers were not ready to pay $10.95 for a "revolutionary" new light bulb in the late 1970's. The project failed. But, instead of "punishing" the Halarc team, GE celebrated a great try by handing out cash awards and promoting several Halarc team members into new jobs. GE wanted everyone to know that it was okay to take an intelligent "big swing" at a new innovative product, and miss. Does your organization offer "get out of jail cards" for those who risk and fail at a venture?

TEAM DYNAMICS: CHAMPION, SPONSOR, REWARDS

Venture capitalists understand that ideas are a dime a dozen, that only execution counts. So how does an organization execute? It is usually through a team of motivated individuals with a leader at the helm and a senior advocate eliminating obstacles. Effective entrepreneurial teams generally have a champion, a sponsor, and rewards to rouse the innovative spirit.

Champions are people who encourage projects during critical stages, keep decision-makers and sponsors informed, lead team members, and enthusiastically promote the project at all levels of the company. These champions excel at forgoing alliances with others, internal and external to the firm. One report noted that 90% of raw ideas actually never advanced beyond the idea generator's desktop (Howell and Shea 2001). Thus, understanding the market opportunity, envisioning the resources and steps required to produce outcomes, and building support via communication are the coveted people who move ideas from a desktop to a marketplace. Do you recruit and retain future champions when hiring? What percentage of your organization is filled with potential champions?

To succeed, champions need someone to provide cover on occasion. This person, called a sponsor, provides clout, occasional protection, marshals resources, and offers coaching in an effort to nurture an idea until it gains momentum. Sponsors offer advice and imitate knowledge on how to be effective within the broader organization. Without this advocate, success can be elusive. In short, a lack of internal direction and support is highly detrimental to success. Art Fry, of Post It Notes[R] fame, and Ken Kutaragi, the inventor of Sony's Playstation[R], both had sponsors to support their successes. From an audit perspective, look at your senior managers and see who specifically has the interest and the talent to mentor an innovation-minded team. Currently, whose people are the most entrepreneurial on an ongoing basis?

The final part of the team dynamics is remuneration for risk taking, extra work, and intellectual creativity. Many people seek financial rewards; some seek power, status, or the freedom that innovation brings to them personally, thus remuneration is as varied as the individuals involved. While most accept that personal financial wealth cannot match that of the outside entrepreneur, offering something for fomenting improved firm performance is essential. One must review the firm reward system to understand if the compensation offered is motivating people beyond their wildest dreams. How does your organization reward innovative people?

IBM named its first eight Fellows in 1963 in recognition for prominent technical accomplishments. This status entitled the recipient to five years of support to pursue novel or innovative opportunities. Other reward avenues to motivate might include on-the-spot awards, paid vacations, innovator of the month awards, bonuses tied to revenue generation, or outright shares of stock. Not all risks to the company are the same. Are your rewards the same? It is important to note that the creativity and passion that drive the team is often internal to the individual and thus difficult to finesse. The bottom line is to understand what truly motivates your people to pursue their ideas and passions.

RESOURCE ALLOCATION: STRATEGIC, TRADITIONAL, SKUNK WORKS

For entrepreneurial activities and innovation to occur within the firm, resources must be made available in some manner. How does your firm earmark or attract resources as it regards supporting new products? There are generally three approaches to appropriating resources to new endeavors: strategic speculation, traditional new product development, and skunk works projects.

Strategic speculation is investment in products and innovations believed to hold great promise for the company during the next year or two. Thus, these projects warrant special attention and are offered unparalleled access to equipment, people, and financial resources. Budgets for these endeavors are often set at the highest reaches of the organization through a special disbursement or perhaps part of a new venture budget. Pioneering firms digging at the frontiers of their respective business sectors are constantly looking for new innovations to secure their future. Banking on new significant innovation is key to this strategy.

Traditional new product development is a mixture of marketing, engineering, and management working together to craft new goods, services, or processes. Lines of responsibility are usually clearly drawn and boundaries are inferred from historical norms. This approach for resource allocation generally is more structured, having been the traditional method for some new products brought to market. Budgets are set during the annual process and widespread communication regarding the product is generally the custom in this approach.

Skunk works projects start as small enterprises and individuals are often left to their own devices to procure the resources required. 3M's Post-It Note[R] is often considered the pinnacle of skunk works success. Under this system, individuals scrimp, scrounge, or "borrow" people, assets, or facilities to create a new product for the organization. Often, this approach has zero financial resources earmarked at the start. Thus, individuals may toil with their ideas during regular business hours, but nights and weekends are when progress is achieved since they are not working on officially sanctioned projects. The counterculture mentality of skunk works initiatives often put them at odds with others in the organization, but to these people, another's contrary opinion should not prevent progress. What are skunk works projects within your firm right now?

In short, there is no hierarchy of resource disbursement; no one approach is necessarily better than the others. But if multiple methods are available for stimulating innovation efficiency and entrepreneurism, the more likely desired results will be obtained. From an audit perspective, the bottom line is which, if any, of the three resource methods does your firm offer to support entrepreneurial enthusiasm?

CHALLENGES OF AN ENTREPRENEURIAL AUDIT

The obstacles to conducting an Entrepreneurial Audit are the same as those faced by firms attempting to be innovative by developing new products and services. Most stumbling blocks are not linked to environmental conditions or even technological challenges related to the product itself. Most impediments are internal to the firm with people frequently at the top of the list (Morris, Davis, and Ewing 1988).

Table 1 offers a list of factors that have been found to constrain the entrepreneurial spirit in organizations. Resistance to change, lack of motivation, fear of failure, resource constraint, and corporate structure were the main constraints to entrepreneurial behavior. Moreover, the mere act of asking questions or seeking opinions in an audit is enough to make many employees nervous or outright fearful, especially those who covet the status quo. Thus, confidentiality must be guaranteed and perhaps independent auditors should be used. Employees often perceive an audit as an opportunity to unload negative feelings about the organization or specific individuals. The auditor can learn a great deal from this information but must protect everyone's interests while remaining highly determined to grasp the reality of the climate.

The Entrepreneurial Audit provides any organization the opportunity to critique itself in a practical and open process. Management has an internal and an external option for conducting an Entrepreneurial Audit no matter which organizational situation they find themselves. An internal self-diagnosis approach of auditing entrepreneurial efficiency relies on three elements for success; 1) credibility, 2) an unbiased audit team, and 3) a confidential approach utilizing the Entrepreneurial Audit structure. Alternatively, a professional consultant with expertise in entrepreneurial organization process and innovation efficiency can be utilized if there is potential for significant turf protection or emotion from the organization. Employees should be encouraged to participate in a candid, active, and involved way. If anonymous feedback methods will stimulate increased participation, then offer a means to conduct the audit in confidence.

ENTREPRENEURIAL AUDIT SUMMARY

In review, the objective of the Entrepreneurial Audit is to evaluate how to create a more efficient, innovative, and competitive organization. Conducting an Entrepreneurial Audit within the six areas described is an important declaration to managers, employees, and customers that the organization values efficiency, new innovative ideas, and competitiveness. It states to the organization that its interest lies in progressing and improving opportunities for invention. It also states that efficient execution is crucial for a sustained competitive advantage. The organization will begin to understand that new innovation, when done efficiently, will have a positive impact on the bottomline, thus, creating additional opportunity. Table 2 contains a summary justification for conducting an Entrepreneurial Audit.

An Entrepreneurial Audit will allow you to clearly understand the strengths and weaknesses of your organization as it relates to innovation efficiency. The bottom line is that entrepreneurial posture and firm performance have been positively linked by several studies over the years, irrespective of past performance. Entrepreneurial firms do better overall, understanding a firm's entrepreneurial innovation efficiency begins with this entrepreneurial audit process.

The conclusions of the Entrepreneurial Audit are an indication of a firm's entrepreneurial momentum and innovation efficiency. This momentum is a framework for the firm's ability to respond to environmental opportunities and threats in the 21st century. The audit provides strategic tools in which to begin entrepreneurial revitalization.

APPENDIX A

Sample Entrepreneurial Audit Questions Summarized

I. Entrepreneurial Fundamentals: Vision, Assets, and Momentum

* How does your organization foment, analyze, and prioritize a new opportunity?

* What is the five-year vision of your organization? Can your organization articulate the role innovation plays in that vision? Does it match?

* What are three of your corporate strategic assets?

* Where in the organization are your top two areas for market or technology momentum?

II. Internal Environmental: Capabilities, Structure, and Competencies

* What resources and abilities can you immediately count on if a new business opportunity arises?

* What structures are in place for engineering, marketing, and operations to interact to create and deliver on new opportunities?

* How do you define your core competency?

* What percentage of your employees understand the firm's core competence and how it relates to innovation?

* How does your list of new opportunities map to your core competency?

III. Entrepreneurial Culture: Innovativeness, Risk Taking, Proactiveness

* How do the underlying beliefs and assumptions that employees have regarding their conduct and expectations (i.e., your culture) support original thought, calculated risk, and action?

* Does your organization use metrics to measure entrepreneurial innovation?

* How many unsolicited business plans does your CEO receive from managers each year?

* Do you consider your culture proactive, reactive, or unresponsive?

IV. Starting Point of Innovation: Informal, Formal, Customer

* How are customers invited to define the next generation of your product?

* Where is the birthplace of your organization's new business ideas?

* Who are the most creative people in your firm?

* Are all your employees offered a forum where they feel invited, if not obligated, to submit innovative ideas?

V. Innovation Process Evaluated: Efficiency, Successes, Failures

* What can the organization do to allow venture managers more time to pace their venture team for market delivery versus jumping through excessive internal hoops?

* Does your organization offer "get out of jail cards" for those who risked and failed at a venture?

* How does your firm cross-pollinate veterans of previous ventures into key roles for new ventures?

* What is the documenting process for a successful or failed venture?

VI. Team Dynamics: Champion, Sponsor, Rewards

* How do you recruit and retain future entrepreneurial champions?

* What percentage of your senior managers have the interest and talent to mentor an invigorating team?

* What mechanisms does your organization use to reward innovative people?

* To what degree are risks and rewards correlated with different ventures?

VII. Resource Allocation: Strategic, Traditional, Skunk Works

* How does your firm earmark or attract resources as it regards supporting new product ventures?

* Which of the three methods (strategic, traditional, skunk-work) does your firm offer to support entrepreneurial enthusiasm and innovation?

* What innovation is being funded at a strategic level as to be considered your firm's future?

* Can you identify one or two skunk works projects underway somewhere in your organization?

REFERENCES

Block, Z. & I. Macmillan (1993). Corporate Venturing: Creating New Business Within the Firm. Boston, MA: Harvard School Press.

Hornsby, J. S., D. F. Kuratko, & S. A. Zahra (2002). Middle managers' perception of the internal environment for corporate entrepreneurship: Assessing a measurement scale. Journal of Business Venturing, 17(3), 253-273.

Howell, J. M. & C. M. Shea (2001). Individual differences, environmental scanning, innovation framing, and champion behavior: key predictors of project performance. The Journal of Product Innovation Management, 18, 15-27.

Johan, W. (1999). The sustainability of the entrepreneurial orientation--performance relationship. Entrepreneurship Theory and Practice, 24(1), 37-48.

Jones, C.E. (1996). Walt Disney Imagineering: A Behind the Dreams Look at Making the Magic Real. New York, NY: Hyperion.

Kanter, R. M. (1983). The Change Masters. New York, NY: Simon and Schuster.

MacMillan, I. C. & D. L. Day (1987). Corporate ventures into industrial markets: dynamic of aggressive entry. Journal of Business Venturing, 2, 29-39.

McGowan, J. (1989). How Disney Keeps Ideas Coming. Fortune, 133, 131-134.

Miller, A. & B. Camp (1986). Exploring determinants of success in corporate ventures. Journal of Business Venturing, 1(1), 87-105.

Morris, M. H., D. L. Davis, & J. Ewing (1988). The Role of Entrepreneurship in Industrial Marketing Activities. Industrial Marketing Management, 17, 337-346.

Morris, M. H. & D. L. Sexton (1996). The concept of entrepreneurial intensity. Journal of Business Research, 36(1), 5-14.

Morris, M. H. & J. D. Trotter (1990). Institutionalizing Entrepreneurship in a Large Company: A Case Study at AT&T. Industrial Marketing Management, 19(2), 131-139.

Shaker, Z. A. & J. G. Covin (1995). Contextual influences on the corporate entrepreneurship-performance relationship: A longitudinal analysis. Journal of Business Venturing, 10(1), 43-48.

Zook, C. & J. Allen (2001). Profit from the core: Growth strategy in an era of turbulence. Cambridge, MA: Harvard Business School Press.

ENDNOTES

(1) Senge, Peter. (1994). The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Currency, Doubleday; Clayton M. Christensen (1997).The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press; Gary Hamel (2000). Leading the Revolution. Boston: Harvard Business School Press; and R. M. Kanter, J. Kao, and F. Wiersema, (1997). Innovation: Break through Ideas at 3M, DuPont, Pfizer and Rubbermaid. New York: HarperCollins Publishers.

Robert M. Peterson, University of Portland

Kevin D. Johnson, Intel Corporation
Table 1: Factors that Impact Corporate Entrepreneurial Spirit

1. Absence of innovation goals

2. Resistance from others

3. Top management support

4. Resource availability

5. Firm's posture towards failure

6. Reward system does not promote such behaviors

7. Rigid formal planning systems

8. Politics and turf protection

Adapted from Morris and Trotter (1990)

Table 2: Entrepreneurial Audit Justification

1. Provides a thorough critique of your organization's competitiveness
via a high-payback (ROI) exercise.

2. Asks probing questions about the organization effectiveness to
stimulate creativeness.

3. Moves people off the status quo tendencies, which are a detriment in
today's competitive environment.

4. Generates an understanding of how much your organization is acting
like an innovative-minded team.

5. Evaluates if the competition is out-innovating you.

6. Defines the bottlenecks to improve innovation process.

7. Prepares your organization for new opportunities.
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