How Can Big Companies Act More Entrepreneurially? Install A New Value Engine.
Austrian economics recognizes the function of entrepreneurship as the driver of the market economy. It’s the process that recognizes consumer dissatisfaction – the experience they always have of knowing that something better than today’s status quo is possible but not knowing how to create it for themselves – and, with insight and brilliance and flair and a lot of experimentation, translates that expression of dissatisfaction into a design for a new offering, a product or service that will deliver the better experience the consumer craves. Entrepreneurship economic alchemy.
We tend to associate entrepreneurship with small, new, and fast-growing businesses. Disruptors. Gazelles. They’re on the fringe but aiming for incursion.
Yet this perception can’t be right. Entrepreneurship is the generation of new economic value, the improvement of lives in all kinds of ways all over the planet. Innovation and improvement are abundant and ubiquitous. Entrepreneurship is much more broadly distributed than just startups and small businesses.
In fact, many big companies deliver innovations and improvements to customers. Apple and Amazon, to pick a couple at random from the beginning of the alphabet, have consistently delivered both fundamental and incremental innovation in products, services, interconnections, and infrastructure. They have generated genuine customer value – improved lives through enabling greater productivity, resourcefulness, knowledge-sharing, convenience, low cost and new capacities for work, leisure and interconnection and collaboration.
But those same companies are burdened with the edifices of bureaucracy: the middle management layers that strangle the creativity of front line producers; the internal rules and regulations that crush creativity and flexibility and adaptiveness; the compliance functions of HR and finance that prevent exploration; the fixed allocation of resources that mandates against experimentation. In a modern dynamically complex economic system, bureaucracy can be destructive of future potential and sometimes fatal to it.
The entrepreneurial large company sustains innovation and destroys bureaucracy. We can highlight a few ways in which this can be brought about, although, of course, a complete cultural reversal will be required to bring about the end of bureaucracy entirely.
Bring customer value inside the firm.
The purpose of a firm is to facilitate customer value. For leading innovators, the concept of customer value is not simply an external outcome to be targeted, it’s an internal standard to be measured.
For example, the Vision and Mission for Microsoft under Satya Nadella’s leadership are:
- VISION: to empower every person and every organization on the planet to achieve more.
- MISSION: to help people and businesses throughout the world realize their full potential.”
Steve Denning at forbes.com writes:
Nadella gave operational substance to the abstract concept of empowering customers. Nadella embraced the idea of empathy and understanding customers and anticipating their unexpressed needs. He lived the mission and insisted on measurement to ensure that it was real.
As Brad Anderson, Corporate Vice President of Enterprise Client and Mobility at Microsoft said, staff found that if they were having a meeting with Nadella, they had to begin with the numbers of customer usage, not technology, schedules, sales or profits. This underlined the principle that customers were truly number one. It turned Nadella’s concept of empathy into something tangible and measurable.
“When you go in to talk to Satya,” said Anderson, “you start with the customer. ‘What’s the customer’s problem? What are they trying to solve? How are we making their life better?’ And so, this concept of customer obsession and being really close to customers has been incredibly important.”https://www.forbes.com/sites/stevedenning/2022/03/13/how-measurement-makes-deep-purpose-work/?sh=5f154094514c
Make Marketing the primary capability.
Marketing has been trivialized in business schools and in business thinking as communication of a company’s promise to the customer in persuasive terms. But its original role was to better understand markets, and how they generate value by aligning the value creation wants of the customer with the value facilitating capacities of the producer. As Fernando Monteiro D’Andrea and Fernando Bins Luce write, Marketing deals with everything that is relevant for the imagination, production, communication, and distribution of goods or services that might be valued by a group of customers.
This is a broad mandate. Marketing as a capability – spread through the firm and not just located in the Marketing Department – is charged with listening to the customer and deducing unaddressed wants from conversations about dissatisfaction, spreading this understanding throughout the firm to enable innovative responses, organizing all the responses into an offering to take back to the customer, and monitoring experience with the new offering, thereby opening the next feedback loop. Marketing is the dynamic integration of customer value and the productive capacity of the firm. It’s a core competency, not a department.
Establish a marketing-orchestrated co-creation process.
Value is co-created. Only the customer can identify value gaps from their own subjective perspective, even though they can’t articulate what will fill the gap for them, since it hasn’t been invented yet, and they are not the inventor. Only the producer has the resources to invent the new solution, recombining resources in new ways, experimenting with R&D, testing and perfecting. The integration of these two perspectives on value is co-creation. It’s ongoing dialogue, a mutual exploration of value potential and a shared development of value realization.
To follow the Microsoft example of empowering customers requires customers to imagine what they’d like to achieve and to illuminate what’s missing in current products and applications, and it requires listening and attentive producers who can creatively translate this information into innovation ideas. The orchestrator for this shared responsibility is Marketing – the capability, not the department.
Integrate Operations, Finance and HR into the co-creation flow.
In order to leverage the entire productive capacity of the firm in innovation, the orchestration process must engage all the parts. In addition to marketing, these are usually identified under the broad headings of Operations, Finance, and People, the latter usually being called the HR function. All of these functions need to be integrated into the flow of co-creation of value. As Cabrera Research Lab reveals from their study of firms as complex systems, this integration is achieved by getting all members of the firm in every function and every role aligned around the same customer-first mental model. Alignment confirms the vision and mission of value creation. That’s what Satya Nadella has done at Microsoft.
With these four organizational steps accomplished, corporations of all sizes can drive value creation with a new engine.