Entrepreneurs Wanted : Big Firms’ New Motto: Think Small

Having risen from bread kneader to chief executive of Campbell Soup Co., Gordon McGovern in 1980 inherited a company truly in the soup.

Sales volume was stagnant, earnings were coasting along behind the competition’s, it was losing fully half of its marketing team every year and new products--a food company’s bread and butter--were scarce.

What’s more, Campbell was slow to respond to consumers’ shifting preference for higher-quality, even exotic, convenience food packed for quick heating in a microwave oven. McGovern was not even “sure we were an efficient company,” a damning comment for a company that prided itself on squeezing every penny out of production costs.

If Campbell was to survive in the increasingly aggressive food industry and beat back competition from a new entrant, the Japanese, McGovern knew he had to untangle the red tape that was slowing decision-making to a crawl and get the nation’s biggest soup company quickly back in shape.

“There was only one way to respond, in an entrepreneurial way,” McGovern says. “We had to get the company fractured up into small businesses, put people in charge and tell them to get busy.”

Like Campbell, hundreds of America’s large corporations have been forced by external pressures into an urgent reassessment of how they do business. And in large numbers they are concluding, as did Campbell’s McGovern, that the very organizational structure that served them so well in mature, stable markets was inhibiting their ability to adapt and compete in today’s environment of fast-changing technology, intense foreign competition and slow growth.

“You can’t do business these days,” asserts General Motors Chairman Roger B. Smith, “the way you were organized before.”

Business Revolution

Behind the giant doors that house some of this country’s most staid and powerful businesses, a revolution is in the making. The anatomy of the big American corporation is being redesigned.

Urgently trying to foster the same spirit that has animated small businesses in America, such disparate giants as GM, AT&T;, General Electric, Atlantic Richfield, Equitable, Kodak and DuPont are restructuring themselves to be more like their smaller, quicker and more aggressive competitors. In the process, they are demanding more creative, venturesome, entrepreneurial behavior from their workers.

Monolithic Kodak reorganized its core photo business into 17 entrepreneurial units to better charge into new businesses. DuPont is tightening its belt, pushing responsibility down the line and consciously adopting a more freewheeling style of management to restore its competitive edge. NCR, to rekindle innovation, broke its unwieldy organization for introducing new products into a series of stand-alone units that compete among themselves for their parent’s business.

And Campbell split itself into 52 autonomous units and inspired managers to introduce new products with all the passion of a big league ballplayer going after a record.

‘Historic Transformation’

Much more than an impulsive and misguided attempt at turning a few creative hotshots into corporate entrepreneurs, “what we’re seeing here is a historical transformation,” asserts management consultant and Yale University professor Rosabeth Moss Kanter. “Companies have always been interested in the new venture. But what makes the romance so much more serious this time is that all the pieces--entrepreneuring, decentralizing, venturing, restructuring--are finally coming together.”

“You can’t just have a rigid, policy-oriented, controlled, top-down organization and expect people to behave in an entrepreneurial way,” says Atlantic Richfield chief executive Lodwrick Cook, who is overseeing the difficult task of redesigning the big oil company’s internal organization--dividing it into small profit centers in order to inspire leadership, profit-accountability and score-keeping--even as the organization goes through the painful process of shrinking overall.

To inspire creative thinking and motivate and keep their workers, big companies are letting their offspring play by rules of their own choosing and urging entrepreneurs to chase their dreams inside the big company instead of off on their own.

“The duty of an organization that wants to help people successfully operate a small business inside a large one,” says James P. Baughman, General Electric’s manager of corporation organization, “is to get the organization out of their way and see what happens.”

Less Risky Approach

Some firms, like AT&T;, IBM, Allied-Signal, McDonnell Douglas, Price Waterhouse and Security Pacific Bank, have taken a less risky and more conventional road to innovation and entrepreneurship: forming new-venture incubators for the care and breeding of innovative ideas or confining their experiments with entrepreneurship to a group of renegades kept separate from the more genteel mainstream of the company.

But what is making the business world stand up and take notice are the much bolder entrepreneurial experiments under way at such giants as GM, Equitable, Campbell and NCR.

“We keep learning,” explains Alex Mair, vice president of the GM Technical Staffs Group, “that relatively small groups that have not been endowed with as much attention or money or facilities seem to be coming forth with lots of inventions.”

In their quest for innovation and entrepreneurial spirit, a growing number of Goliaths are even reaching out to the Davids of the business world. To avoid smothering smaller companies, as many giants have in the past, they are buying minority interests in small innovators at an unprecedented pace. Through these alliances, the small company feeds its insatiable appetite for funds, and the big company gets a quick technological fix--all while keeping the small company independent and running at full steam.

Outdated Methods

Companies came to this behavior reluctantly. For years, they routinely ignored warnings by academicians and some corporate visionaries that the conventional ways of managing were outdated and largely responsible for Big Business’s blunders.

“Even as it became widely apparent to everybody that the Japanese were taking over autos and semiconductors, that textiles were in trouble and the Koreans were coming, the response of American industry was to do exactly what they were accustomed to doing but harder, faster and longer,” says UCLA management professor William Ouchi, who since the late 1970s has been urging companies to dismantle the paramilitary style of management that U.S. companies adopted en masse after World War II.

Under that model, decisions are made at the top by no-nonsense managers, often in secret, and handed down, often in writing, through a clear chain of command to the rank and file, who do not dare fail in carrying out the orders.

Why the change of heart? A skeptical crowd of academics, business consultants and venture capitalists dismiss this as just the latest evidence that Americans are a faddish bunch.

Just a Fad?

ITT builder Harold Geneen contended in his 1984 book, “Managing,” that “entrepreneurism is the very antithesis of large corporations” and that if this love affair with entrepreneuring were anything more than rhetoric, shareholders would be up in arms over the risks involved.

Like every fad, notes Mel Perel, manager of the corporate ventures program at SRI International in Menlo Park, this one has its converts, academics and best-sellers arguing its merits and even a new word invented to capture the spirit of the phenomenon--intrapreneuring, short for entrepreneurship in the big corporation, which consultant Gifford Pinchot III takes credit for coining.

“When you start inventing words,” grouses Perel, “you reduce a substantial management practice to a fad, and it becomes hard for people to take it seriously.”

But some of America’s most visionary thinkers insist that the big-company stampede to entrepreneurship has its roots in something much more serious than a ride on the latest management bandwagon: survival.

If the big companies and big institutions do not innovate, change and “acquire entrepreneurial competence,” the social costs of their obsolescence and eventual failure may be unbearable to society, warns management guru Peter Drucker in his new book, “Innovation and Entrepreneurship.”

In some combination, companies redesigning their organizations are motivated by these woes: earnings were sliding or nonexistent, sales were no longer artificially boosted by inflation and had become sluggish, market share was being robbed by foreign competitors or more agile small companies at home, and the pipeline for creating new products and developing creative managers had run dry.

Dismal Record

Moreover, their record of innovation--stifled largely by the complacency that comes with an age of plenty, as was the case for America in the decades following World War II--had become so dismal that they missed one big technological shift after another and expended all of their creative juices playing catch-up. The birth of the home computer in an entrepreneur’s garage instead of in a big corporate laboratory is only the most visible example.

Big companies were losing droves of people to small, start-up operations--where the promise of riches seemed too good to pass up--and were coming under sharp attack for inadequate shareholder returns and the poor quality of their products and services.

Faced with such problems, says IBM chief executive John F. Akers, “it is not only possible for a large company to be entrepreneurial, it is essential.”

Although this management liberation movement is still in its youth, with many hurdles yet to jump, some payoffs are already apparent.

An AT&T; venture took a product from idea to market in just four months, shaving 14 months off the usual AT&T; time. Soup maker Campbell, which had virtually no new-product introductions for a dozen years, has introduced 392 new products over the past five years. Bankers Trust, which checked in with miserly earnings in 1978, now has the best profitability of any large bank in the country.

GE’s Experience

Even General Electric, one of the first U.S. companies to decentralize and divvy itself up into small, self-contained strategic business units with a high degree of autonomy from headquarters, is beginning to see some rewards from chief executive Welch’s four-year focus on reshaping GE further still into a streamlined, entrepreneurial bank of small businesses. Not only is GE leaner (it has cut several layers of management and reduced its headquarters staff by 15%), its earnings from the company’s technology group, where Welch has committed a 42% increase in research and development investment since 1982, have grown 53% in the same period.

Not that embracing entrepreneurial management is a guaranteed ticket to prosperity. Academics and consultants who have studied corporations’ earlier experiments with venturing and culture overhauls say the vast majority of the efforts failed--and on as grand a scale as have most corporate acquisitions.

Mighty Exxon killed its new office-equipment business earlier this year after the entrepreneurial instincts the venture was designed to foster were instead suffocated with too much money and its own bureaucracy, the very thing it was set up to escape.

Firm ‘Went Overboard’

Even Campbell, whose transformation from a corporate Rip Van Winkle to a nimble, astute marketing wizard set industry tongues wagging, has somewhat reined in its managers’ new-found entrepreneurial instincts. The once-plodding food company concedes that it went overboard in the other direction and made some multimillion-dollar blunders that stalled its growth in fiscal 1985.

As the Exxon and Campbell examples point out, companies new to the entrepreneuring game “tend to either overcontrol or undercontrol,” says William P. Stritzler, an AT&T; vice president who studied dozens of venturing cases after he was tapped to run AT&T;’s new incubator for new-venture ideas. “Some give people $30 million and tell them to come back in five years and tell me how you did. Others give you $50 million but ask you questions every single day about how you’re doing . . . We’re trying to find the middle ground.”

To Digital Equipment Chairman Kenneth H. Olsen, the answer is obvious: discipline. “I love to canoe in Northern Canada,” Olsen relates, “because I love the feeling of complete freedom you get when you’re shooting the rapids with absolute abandon. But doing it well is no accident. Behind it is great preparation, enormous discipline and some 20 years of notes on what to do and not do. To do this entrepreneurial thing right requires unbelievable discipline.”

Even those who do find the middle ground quickly learn why Big Business shunned entrepreneurial tendencies for so long.

“One big problem with this type of philosophy,” says NCR executive vice president William F. Buster, “is that a big company can’t lose big gobs of money--and entrepreneurs spend great gobs of money.”

Difficult to Control

Entrepreneurs also can be undisciplined and difficult to manage. “They’re rabble rousers,” Control Data manager Claire Kolmodin tells clients who seek her advice in becoming more entrepreneurial. “You won’t like them.”

Once a manager gets a crack at running his own company, “you can spot him when he walks through the door,” says NCR’s Buster. “He is more confident of his ideas and less receptive to advice and any kind of direction.”

To William B. Gartner’s way of thinking, Buster is too kind. “Gifted con artists” in disguise, the director of the Center for Entrepreneurial Studies at Georgetown University calls them in an entertaining article written for the University of Southern California’s management magazine, New Management.

Gartner likens corporate entrepreneurs to the conniving and spellbinding “Professor” Harold Hill, the Music Man who rolls into fictitious River City with a promise to save the town’s youth with a boys band he never intends to start. Entrepreneurs are full of good ideas, Gartner argues, but not always the ideas big companies need.

Coping with the culture shock that companies say always accompanies a switch to entrepreneurial behavior also tests a company’s commitment to the small-is-beautiful theory.

“If you tackle this,” asserts George Vojta, executive vice president for strategic planning at Bankers Trust, which is at the tail end of a radical transformation from a mediocre commercial bank to an agile merchant banking house, “I’ll guarantee you there will be no tranquility. You’ll subject yourself to bitching, moaning, people quitting and throwing tantrums. The organization is constantly riled up, which is why the odds against it working are so great.”