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Entrepreneurship from within

March 22, 2009

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.

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.

What I'm advocating is also not new. Entrepreneurship from within is the concept of treating high-performance employees as internal CEOs (with perks and all) and strategic teams as mini-startups.  IBM has been experimenting for quite some time with the concept of EBO or emerging business opportunities to drive strategic long term investments to generate growth.  IBM treats EBO's as VC will treat a new venture.  Associates present R&D projects along with investment and business plans and request funding for them. 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).  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 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 change-agent and entrepreneurial employees that is not good enough.

What if a bigger portion of their income was based on the success of the venture?  Kind of like waiters and waitresses (well at least that was the intention of the gratuity system, but if you've been in a chain restaurant lately they hardly earn their base salary, let alone the tip).  This is how it can work:  When a new project will 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 the teams' salaries (at least part of it)?  The project investment gets split into shares that the company issues for the project.  The company buys certain number of shares and so does every member of the team.  Both company and developers are in on the success of the project proportional to their "ownership". The developers then "hire" complementary employees (or outsource) for all remaining tasks.  You then plan an exit strategy, let's say 3 - 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 customer 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, so both can 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 with market focus.

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

Enjoy

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