Corporate Entrepreneurship in Large Firms

Introduction

Corporate entrepreneurship (CE) is loosely defined as the efforts and initiatives of corporations
to generate new business. However, for large organizations radical efforts and initiatives that tend to
deviate from the equilibrium of systems of management are harder to implement. Miller (1996)
asserted that traditional organizational structures are mechanistic. These traditional structures prioritize
stability over growth, efficiency over creativity, and uniformity over diversity--designs that are least
conducive to entrepreneurship and growth (Burns, 2013).

Aside from this, as large corporations become more fragmented as they internationalize,
traditional means of measuring the scale of a corporation and imposing hierarchy within it also becomes
more convoluted. Corporations can escape the deadlock of mechanistic structures and strategize
management methods by adapting entrepreneurial disciplines and integrating them either in parts or
holistically into the organization structure. Because of this, there is a need for the structure of
corporations to be malleable and flexible enough to suit various forms of CE (Zahra et al., 2001).

In this essay, aspects of an organization structure in corporate entrepreneurship are reviewed.

To further construe the design of organization structure in CE in the context of large and established
organizations, this essay shall analyze the entrepreneurial strategies of Tesla Inc—a company led by one
of the most controversial entrepreneurs of our time.

A Literature Review of Organization Structure in Corporate Entrepreneurship

Corporate entrepreneurship most commonly manifests in literature as corporate ventures1

(Burgelman, 1983; Altman and Zacharakis, 2003; Morris et al, 2007), corporate or strategic renewals
(Guth and Ginsberg, 1990; Stopford & Baden-Fuller, 1994) 2, and innovation or entrepreneurial
orientation (Drucker, 1985)3. These various forms of CE, according to Covin and Miles (2019), are not
mutually exclusive and can manifest as entrepreneurial ventures within a single company. Whether
different forms of CE should be isolated in certain units of a firm or adapted holistically in the blueprint
of a corporation’s organization structure is widely discussed in literature.

Organization structure in CE is characterized by Noordhaven (1995) as the virtual network of

communication, information flow, and people's hierarchical relationships within a corporation. Its
primary purpose is to ensure that order is maintained in the company's networks and processes (Morris
et al., 2007). Generally, the organization structure can be scaled by the following aspects: specialization,

1
Morris and others (2007) refers to corporate ventures refer to the creation of new businesses within a
corporation.
2
As defined by Stopford & Baden-Fuller (1994), organizational renewal refers to changes in the way resources are
procured, processed, and distributed in order to achieve sustainability and overall performance.
3
Innovation means behavior and discipline that transform the organization and its competitive environment; in
ways big or small.
formalization, centralization, departmentalization, and control (Robbins & Judge 2009; Morris et al.,
2007; Buchanan & Huczynski, 2004). Fundamentally, an organization structure can be focused,
dispersed, or an amalgamation of both (Birkenshaw, 1997).

According to Drucker (1985), creating separate organizations (e.g. corporate venture funds) can
protect entrepreneurial activities from the negative impact of the bureaucratic parent company or the
core organization. This theory, also known as focused CE, is concerned with how large companies and
MNEs can compete with smaller firms by creating a separate unit that focuses on innovation, finding
new opportunities, developing ideas, and research. Birkenshaw (1997) differentiated between focused
CE and dispersed CE. In dispersed CE, it is assumed that corporate entrepreneurship is realized
throughout the organization structure of a firm. The dispersion of CE in all levels of the structure is
supported by empirical studies. Most notable of these is Covin and Slevin’s (1988) quantitative study on
organizational antecedents of CE in MNEs from various industries. Zahra, Gavin, and Zahra (1998) recast
the same approach and found that most organization structure in CE has a low focus on control (power),
formalization and centralization; a strong emphasis on professionalism and participation; and a
moderate emphasis on internalization and departmentalization.

Wolcott and Lippitz (2007) identified four models of CE, two of which are implicitly dispersed
throughout the organization structure. The so-called enabler model and advocate model, encourages
innovation and risk-taking at all levels of the organization. Meanwhile the producer model has the
framework of a focused CE where a separate organization is created. Structurally differentiated from the
core organization, the sole purpose of the separate unit is to generate new business and accelerate
growth through finding new markets, studying competition, and developing new products. The fourth
model, the opportunist, does not have a formal structure and usually occurs when an idea or innovation
is supported and realized without prior strategizing from the core organization.

Another issue that pervades literature stems from the liberated nature of organization structure
in CE and the fragmented structure of large corporations. Keeping formal control over autonomous units
becomes more complicated for companies that want to foster a culture of entrepreneurship and
initiative. A study by Chung and Gibbons (1997) argued that corporate culture can be both a major
indicator and a prime antecedent to entrepreneurship. Their study indicated that CE is not necessarily
hampered by spatial fragmentation of units, but is effectively influenced and developed by corporate
culture. An organization’s cultural structure is said to be divided into two—the superstructure and social
structure. The former refers to ideologies, leadership, collective vision, competitive advantage, and
corporate branding; the latter pertains to internal diversity, flow of knowledge, trust, organizational
learning, and norms that encourage entrepreneurial actions and social capital. Both dimensions of
corporate culture are integrated into organization structures in CE without the imposition of formal
control.

On the other hand, Antonic and Hinrich’s (2003) study on environmental and organizational
antecedents to corporate entrepreneurship confirmed that new organizational wealth and growth stem
from a more focused level of CE. Their study also suggested that autonomy, organizational support or
alliance, and limited formal/managerial controls are antecedents to CE in differentiated units but do not
necessarily reflect a corporation’s overall performance. Meanwhile, environmental antecedents (e.g.
consumer demand for new products) also act as antecedents to corporate entrepreneurship in various
subunits of the organization structure.

The importance of autonomy in structurally separate units is reiterated in a quantitative study

by Burgers and others (2009). Their study reasoned that a certain amount of synchronization between
core organization and differentiated units is possible with limited formal control. Informal methods of
control and integration can pertain to mutual organizational vision, culture, and branding. Burgers also
noted that formal integration methods can be used to ensure that structurally differentiated units will
pass on knowledge to other units in the structure. This follows that organizational antecedents to
corporate entrepreneurship such as rewards, management/organizational support, and autonomy (de
Villiers-Scheepers, 2012)4 can be used as methods in managing and controlling separate units.

Centralized Corporate Entrepreneurship: an Overview of Tesla’s Organization Structure

What marks Tesla Inc. as an entrepreneurial corporation is its commitment to innovation and
growth. For a company with such incredible market value 5 yet produces very little profit (Mackenzie,
2020), one can only infer that Tesla has its sights on the future. Tesla’s founders Martin Eberhard and
Marc Tarpenning founded the company, what was then Tesla Motors, as a niche differentiation
business. Elon Musk, however, thought that transforming the business into broad differentiation is the
way to go. Investing millions to start up, Musk became cofounder of Tesla Motors and later took over
chairmanship. The erratic entrepreneur revealed that his strategy was to appeal to high end clients by
producing premium cars and later use profits to produce a higher volume of units that are more
affordable. Musk claimed that his goal has always been to usher in a global shift towards renewable
energy. This means that Tesla Inc. never intended to be restricted within the traditional bounds of the
automobile industry. This is demonstrated by vertically integrating SolarCity, Maxwell Technologies Inc.,
Grohmann Engineering GmbH, Perbix Machine Co. Inc., and Hibar Systems Ltd.

Tesla has a separate R&D department with a sole focus on improving car battery performance
and others dedicated solely to software and automotive engineering. No other automobile company has
invested as much on software and automation 6 before Tesla. The purchase of Solar City (then at the
brink of bankruptcy) is both a corporate venture and a strategy renewal. Tesla wants to dominate the
renewable energy sector and is slowly doing so by integrating companies in the sector and internalizing
their knowledge. After multiple failures in making lithium ion batteries with high enough storage
capacity, Tesla purchased Maxwell Technologies Inc. By doing so, Tesla was able to purchase Maxwell
technologies’ information and patents on improving energy storage; speeding up the production process
of Tesla’s car batteries. However, both Solar City and Maxwell Technologies Inc. remain autonomous
firms. Their research, projects, and initiatives were minimally affected by the integration.

4
de Villiers-Scheepers’ study was isolated to corporations in South Africa. Findings can be loosely applicable to
organization in emerging economies.
5
One stock of Tesla is currently worth USD 650±.
6
Tesla is still in the process of perfecting the first ever fully self-driving car.
 The need to make charging stations more accessible for Tesla clients became an environmental
antecedent that prompted one of the company’s most ambitious ventures. The company invested in
supercharging stations and planned to place them all over the world (About Tesla, 20016). Tesla also
introduced a new marketing and distribution strategy in the automobile industry. Clients may pre-order
a unit online and expect a wait time of one or two months. This part of the company’s strategy is
designed to have a tighter grip on production rates and save inventory costs—money that is then fed
into its massive R&D funds. Tesla advertizes their units in showrooms; selling directly to clients. Getting
rid of retailers in the equation allows clients to save money. Aside from gaining clients’ trust and
confidence, this strategy also benefits Tesla as the customization options the company offers lends more
time to complete production processes.

The organization structure of Tesla allows sufficient room for innovation and unobstructed flow
of knowledge and information. In an email to employees, Musk describes how ineffective and
detrimental hierarchies can be to problem solving. Rather, Musk tasked employees to speak freely and
communicate with whomever they want; keeping communication networks open across the
organization. Tesla’s corporate culture requires quick thinking and the pursuit of new initiatives from all
departments. Its human resource is largely trained in operating new technology, especially in software
and automation. The core organization expects all units to practice reasoning with “first principles”—a
method of problem-solving that starts with identifying fundamental factors around global problems.
This culture of thinking big is encouraged in the human resource of the company and coupled with the
management fiat of “thinking like owners”. Employees tend to feel a sense of purpose when they are
reminded that their jobs have a bigger impact in the world; that is exactly how Tesla motivates its
workforce. Tesla rallies both clients and its human resource by acting as a champion towards
sustainability and cleaner energy.

With the near completion of its gigafactory in Las Vegas, Tesla is set to amplify its production
numbers. However, the company maintains emphasis on research and innovation, most especially in its
product design, software engineering, energy storage, and automation (Furr and Dyer, 2020). As a small
car company, its leaders put emphasis on fluid communication and information flow. Tesla also
maintains its comparative advantage from larger automobile companies by constantly proving its
commitment to innovation, sustainability, and environmentally ethical processes. The company’s bold
move of opening all of its patents to everybody in 2014 served as an act of good faith that cemented
customers’ trust to its commitments.

Overall, one can infer that Tesla’s corporate entrepreneurship most apparently manifests in its
entrepreneurial orientation. The company shares certain elements with both the enabler and producer
model of CE (Wolcott & Lippitz, 2007). Its executives encourage information to flow freely while
encouraging participation and initiatives from its employees. The company also boldly branches out to
other products (solar panels, chargers, etc.). Tesla’s organization structure is moderately centralized but
allows a certain level of independence to its structurally differentiated units. It is also responsive to
environmental antecedents. Client approval and trust as well as new competition in the electric vehicle
industry—some coming from new companies in China while some from established enterprises like
Ford, GM, VW—inadvertently act as environmental antecedents for Tesla’s corporate entrepreneurship.
Meanwhile, Tesla’s corporate vision, long-term strategies, strong leadership, and corporate culture act
as organizational antecedents which propagate entrepreneurial initiatives within the company.

Conclusion

Organization structure can take on many forms in corporate entrepreneurship. In the case of
Tesla, a centralized organization structure with a more focused corporate entrepreneurship works
because it is a young and relatively small company in comparison to its biggest competitors. Its
integration of separate organizations without imposing a critical amount of control, clear vision, and
propagation of an ideal corporate culture create an environment that is conducive to entrepreneurial
activities. Innovation, being its strongest entrepreneurial trait, is constantly being practiced on various
levels of the organization and is made easy by an open network of information and knowledge.
 References

Antonic, B. & Hisrich, D. (2004). Corporate entrepreneurship contingencies and organizational wealth
creation. Journal of Management Development 23, 518-550 Burns, P. (2013). Corporate
Entrepreneurship. Palgrave Macmillan: New York, London

Buchanan, D., & Huczynski, A. (2004). Organizational Behaviour: An Introductory Text. Harlow: Pearson
Education Limited.

Burgelman, R.A. (1985), Managing the new venture division: Research findings and implications for
strategic management. Strategic Management Journal 6, 39-
54. https://doi.org/10.1002/smj.4250060104

Burns, P. (2013). Corporate Entrepreneurship. Palgrave Macmillan: New York, London.

Burgers, J., Jansen, J., Van den Bosch, F. & Volberda, H. (2009). Structural differentiation and corporate
venturing: The moderating role of formal and informal integration mechanisms. Journal of
Business Venturing, 24, 206–220.Drucker, P. (1985). Innovation and Entrepreneurship.
Butterworth-Heinemann: London

Covin, J. G., & Miles, M. P. (1999). Corporate entrepreneurship and the pursuit of competitive
advantage. Entrepreneurship: Theory and Practice, 23(3), 47-63.

Chung, L. & Gibbons, P. (1997). Corporate Entrepreneurship: The Roles of Ideology and Social Capital.
Group and Organization Management, 22, 10-30.

de Villiers-Scheepers, M. (2012). Antecedents of strategic corporate entrepreneurship. European

Business Review 24, 400-424.

Furr, N. & Dyer, J. (2020, February 12). Lessons from Tesla’s Approach to Innovation. Harvard Business
Review. Retrieved from https://hbr.org/

Guth, W., & Ginsberg, A. (1990). Guest editors’ Introduction: Corporate entrepreneurship. Strategic
Management Journal, 11, 5–15.

Hitt, M., Ireland, R., Sirmon, D. & Trahms, S. (2011). Strategic Entrepreneurship: Creating Value for
Individuals, Organizations and Society. Academy of Management Perspectives, 25, 57-75.

Mackenzie, W. (2020, January 20). When Will Tesla Make A Profit? Forbes. Retrieved from
https://www.forbes.com/?sh=31a3a8f52254

Morris, M., Kuratko, D., & Covin, J. G. (2007). Corporate Entrepreneurship & Innovation. Mason, OH:
South-Western CENGAGE Learning.

N.A. (2018, April 23). Elon Musk and the Control of Tesla. Harvard Law School Forum on Corporate
Governance. Retrieved from https://corpgov.law.harvard.edu/

Noorderhaven, N.G. (1995). Strategic Decision Making. Wokingham: Addison-Wesley.

Robbins, S.P., & Judge, A.T. (2009). Organizational Behavior. San Diego, CA: Prentice Hall.

Slevin, D.P., & Covin, J.G. (1990). Juggling Entrepreneurial Style and Organizational Structure-How to get
Your Act Together. MIT Sloan Management Review, 31(2), 43-53.

Stopford, M., & Baden-Fuller, W. (1994). Creating corporate entrepreneurship. Strategic Management
Journal,15(7), 521-536.

Wolcott, R. & Lippitz, M. (2007). The Four Models of Corporate Entrepreneurship. MIT Sloan
Management Review, 49, 74-82.

Zahra, S., Hayron, J., Marcel, J., & O’Neil, H. (2001). Fostering Entrepreneurship during International
Expansion: Managing Key Challenges. European Management Journal, 19, 359-369.