Entrepreneurship from within

March 23, 2009 by
Filed under: Business 

Economic crises have game-changing effects in all walks of life but mostly on businesses. At the risk of sounding cliché, some businesses go into a downward spiral and never recover while others transform themselves, forced by the humbling macro-economic effects, to emerge stronger. Few remain unchanged to continue success until the next turn around. Management is at the center of the change (or lack thereof). Most international finance is going through a radical change as well as most governments. Businesses of all sizes must be looking deeply and planning for the change way beyond leaner budgets and job cuts. So how do we pamper our high-performance employees?

Businessweek published a special issue about management (Managing Smarter, March 23 & 30, 2009). It explored multiple topics ranging from innovation to market research. Staff management is mentioned and analyzed several times and in different ways. The notion of treating employees with inequality (The Case for Unequal Perks, by Michelle Conlin) caught my eye in particular. Not that it is a radically new concept, on the contrary companies have been applying sophisticated performance management metrics and systems to accomplish just that. But in general, extremely over achieving employees are rare and get slightly better rewards (a path to promotion, 5% pay increase instead of 3%, maybe 10% extra bonus, etc.). Employees in the center of the curve or even the lower side of it get “good enough” rewards with “good enough” contributions to the company. This practice, although perceived as fair, is only so for that middle-of-the-curve employees. These employees are absolutely necessary for the success of any company, don’t get me wrong, the same way the middle class is absolutely necessary for a capitalist economy to function. But the least-effort laws and reversion to the mean will tend to turn every employee into a “good enough” employee eventually since the incremental effort does not warrant the reward. Adding insult to injury this method does not reward risk, candid opinions across ranks, or employees to drive change. I know what you are thinking: how are we going to measure? The answer is simple: you don’t. Let your markets and customers measure it.

After discussing this at work one of my colleagues came up with a simple idea:  Why not let people be a part of the risk-reward equation of a new high-risk project?  So I came up with a lame name: Entrepreneurship from within as a way of treating in such a way that the reward can be significant if a certain venture succeeds.  Imagine high-performance employees working as internal CEOs (with perks and all) and strategic teams as mini-startups. IBM and other companies have been experimenting for quite some time with the a variation of the EBO concept or Emerging Business Office or Opportunities as a way to drive strategic long term investments to generate growth.  EBO’s are treated like VC’s will treat a new venture.  Associates present projects with technology innovations along with investment and business plans to request funding.

This process works well for long term opportunities, but can it be adapted to the day to day business?

If you think about it, the company as a whole is treated that way. Stockholders research the company’s investment and business plans and provide funding (by buying shares or bonds).  The problem is that the big risk and reward stops with a few top executives. Of course almost everybody in the company gets a few shares or options so they all “feel” invested. Middle-of-the-road employees are happy because the risk is very low and there is a good upside potential.  But for high-potential, change-agent, or entrepreneurial employees that is not good enough.  So they learn the ropes and leave to work for a smaller company or start their own venture.

Why not create the venture in house?  What if a bigger portion of their income was based on the success of the venture?   I know what you’r e thinking: more shares, options, or so.  Well that will be even lamer.  No, this is how it can work: When a new project or venture is approved to be kicked off the project managers become COOs, product managers CEOs, project leaders CTOs, well, you get the gist.  Of course, fake titles are not going to do the trick.  What if you fund the project with a portion of the teams’ salaries?  The project investment gets split into shares that the company issues to fund it.  The company buys certain number of shares and so does every member of the team. Both company and developers are invested in the success of the project proportionally to their “ownership”.  The core team then “hires” complementary employees either from the firm or outsourced for all remaining tasks.  They plan an exit strategy, let’s say 5 years down the road the company will buy back the shares at market value, spin it off, or sell it.

This model is of course a rough idea and a lot of things will have to be defined. But I believe it will foster a balance of tactical execution with long term focus. Managers can reward risk, entrepreneurship, and team building while market success becomes the ultimate metric. As an added perk, it gets managers away from the tedious and low value-add tasks of performance management of high-potential employees.  Both can now free up their time to do what they do best. It is not as risky as quitting to start up your own business (not as rewarding either) but it fosters high performance and very fast conflict resolution, market focus, measured risk, and team building.

By the way, I have a feeling that when your own money is involved, schedule, additional investments, resources, and other discussions will have a way to resolve themselves.