Intrapreneurship & Innovation in Construction: How to Foster & Control

What is Intrapreneurship?

Intrapreneurship describes the process of entrepreneurship within an organisation. When employees are able to leverage the strengths of the existing organisation to implement innovations to create value for the business.

Why do you want Intrapreneurs in your Business?

The Construction industry is the second least innovative industry in Australia. Second only to the hunting industry. This is largely due to our risk aversion and risk management practices. While these risk management practices serve us well when building a bridge, they are not suited to innovation, and they stifle intrapreneurship. As an industry facing the rapid pace of change in technology, we need to approach innovation as a MUST. Otherwise, the companies of today will not be the companies of the future.

Within Business, there exist a concept called strategic drift, where organizations can become complacent and lose alignment with their strategic goals. The pace of environmental change outpaces the organisations ability to adapt. Often leading to the organisation reaching a cris point requiring a risky dramatic and sudden shift in strategy or failure.

Successful companies that maintain longevity understand the concept of strategic drift and implement strategic change before it becomes necessary. This concept is known as the Sigmoid Curve. Organizations experience a life cycle similar to the sigmoid curve. Initially, there’s growth, followed by maturity, and eventually decline. Intrapreneurs recognize the need for reinvention and drive innovation to stay ahead.

The secret of constant growth is to start the next growth curve (“second curve”) business at Point A, where:

• There is time

• Resources are available

• The organisation has the energy to get the second curve business started

The paradox at Point A is that the business is pressured with messages saying: “we are going well”; “don’t rock the boat”!

How to make your Organisation Innovative & Intrapreneurial

Mazzarol and Reboud in their 2020 academic book, Entrepreneurship and Innovation: A Managerial Perspective, put forth the four key elements of an innovative organisation.

• Innovative Leadership: Highlights the role of senior managers in fostering an innovative culture and supporting cross-functional teams1.

• Non-linear Strategic Planning: Describes a dynamic planning process that adapts quickly to changes and focuses on core competencies.

• Ambidextrous Structure: Suggests a flexible organizational structure that balances the stability of the parent company with the autonomy of innovative teams.

• Innovative Culture: Remember Culture eats Strategy for Breakfast. Writing a strategic plan document is nothing unless the organisational culture is behind it.

Innovative Leadership

Innovation transcends being merely a destination; it is a comprehensive journey that engages every participant in a firm’s value and supply chain, from customers to suppliers. The pivotal role of management, especially senior leaders, is undeniable in steering the innovation process. Effective innovation management within an organization demands strategic leadership that not only sets the vision but also inspires and empowers employees to align their efforts towards innovative objectives.

Identified by VanDenVen in 1986, there are at least four critical management challenges in the innovation management process:

1. Human Capital: The primary challenge lies in capturing the collective focus of the workforce on innovation. Naturally inclined to preserve the status quo, individuals often resist abandoning proven strategies and technologies in favor of novel approaches. Moreover, the paradox of success breeds complacency, making the drive for innovation even more challenging in well-established organizations.

2. Process: Transforming innovative thoughts into tangible actions is the second hurdle. To address this, some prominent European service firms have instituted dedicated innovation departments tasked solely with harvesting promising ideas and assessing their practicality.

3. Organizational Structure: Managers are tasked with the complex duty of amalgamating diverse functional responsibilities and intellectual disciplines to foster optimal innovative outcomes. This integration exerts significant pressure on the firm’s structural and cultural framework.

4. Strategy: Innovation inherently induces dynamic shifts within firms and industries at large. Given the inherent risks and difficulties associated with change, robust institutional leadership is essential to navigate these transformations and reshape the firm’s structure and culture, as noted by Stringer in 2000.

Research focusing on the determinants of innovative behaviour among employees underscores the criticality of leadership and the exemplary role played by senior managers. The perceived expectations of managers regarding innovation significantly influence employee behavior. When employees recognize that their leaders anticipate innovative conduct, they are more inclined to exhibit such behavior. Complementing this is the quality of the relationship between managers and employees, which reinforces the leaders’ commitment to fostering an innovative ethos within the organization. As Scott and Bruce highlighted in 1994, the essence of leadership is paramount for organizations aspiring to enhance their innovative capabilities. It is the leaders’ role modelling and clear communication of their vision for innovation that galvanizes employees to engage in robust innovative practices.

Non-Linear Strategic Planning

For organizations aiming to elevate their innovation capabilities, adopting a non-linear strategic planning process is essential. This approach, characterized by its flexibility and entrepreneurial spirit, allows for contributions from all functional areas of a business, fostering a collaborative environment conducive to innovation.

Innovation management should be approached as a strategic endeavour. Senior management must craft a formal strategic innovation plan that clearly articulates the organization’s innovation objectives, particularly in terms of new product or venture creation. Setting precise innovation goals and assessing the firm’s current innovative capacity, such as core competencies, are critical initial steps. Subsequently, managers can outline the necessary actions to implement the desired changes.

Innovation should be leveraged to boost return on investment, broaden new product development avenues, or reduce costs. Managers can expedite the integration of new technologies to enhance products and processes, shorten development cycles, and foster a culture of innovation. Identifying and overcoming barriers to innovation within the firm, such as risk-averse cultures or insufficient rewards for new ideas, is also a vital part of this process.

Strategic planning often takes a logical, systematic, and prescriptive form, whereas strategic thinking is inherently more intuitive, fluid, and divergent. Strategy is akin to a ‘double-loop’ process—iterative and continuous—contrasting with the ‘single-loop’ process of planning. Entrepreneurs typically employ a dynamic strategic approach that involves continuously scanning for opportunities, filtering out less promising ones, and swiftly capitalizing on them, often with minimal analysis. In contrast, large firms tend to deliberate carefully and commit resources based on well-defined financial benchmarks.

Non-linear strategic planning integrates opportunity identification, screening, resource allocation, and implementation in a simultaneous and expedited manner. To establish such processes, it’s imperative to combine the previously mentioned elements: close collaboration with leading customers, innovative leadership, a supportive culture, and an ambidextrous structure. These components enable organizations to quickly develop and market new products and services, confident in their acceptance and subsequent diffusion. Effective strategies must remain customer-focused and adaptable, ready to be fine-tuned in response to external changes.

Ambidextrous Organisation

Large organizations striving to foster a high degree of innovation often encounter a significant obstacle: their own organizational structure. Innovation, by its very nature, demands the fusion of new skills, resources, and technologies. When innovation is at its most groundbreaking, it inherently carries above-average risks. Such ventures are frequently bolstered by entrusting the development of new products or processes to cross-functional teams empowered to oversee the project from inception to completion. This approach can strain traditional organizational structures where resources are typically aligned with maintaining existing operations, potentially leading to resistance to change or a loss of focus on innovation initiatives.

Organizations better equipped for radical innovation tend to feature leaner management hierarchies and cross-functional teams that enjoy a higher degree of autonomy than what is found in larger, more traditional structures. Yet, these teams remain integrally connected to the parent organization, drawing on its robust resource base and established capabilities in areas like marketing and production.

As O’Reilly and Tushman (2004) articulated, the concept of the ‘ambidextrous organization’ is essential for balancing innovation and growth with efficiency and profitability. Such organizations develop two distinct operational modes:

1. Exploratory Units: These are agile and entrepreneurial sub-units focused on innovation and growth. They operate under looser regulations, allowing for greater risk-taking and the pursuit of new entrepreneurial opportunities.

2. Exploitative Units: In contrast, these units concentrate on cost control and profit maximization. They excel in operational efficiency and cost reduction through streamlined systems and routine processes. However, they tend to be more culturally rigid and less receptive to creative and risky endeavours.

The ‘ambidextrous structure’ reflects the necessity for large, efficiency-driven organizations to cultivate smaller, innovation-oriented sub-units. These sub-units, or Internal Corporate Ventures (ICVs), are often established as distinct business entities to penetrate new markets and expedite the development of innovative products or processes with minimal bureaucratic hindrance. ICVs typically maintain autonomy in marketing and R&D, and their venture managers usually foster strong connections with senior management, often supported by a venture sponsor or mentor from the parent company. This structure enables organizations to remain competitive and responsive in rapidly evolving markets.

Innovative Culture

In small firms, the entrepreneurial orientation typically falls on the entrepreneur who sets the strategic direction and leads innovation. However, in larger organizations, the challenge is to cultivate an entrepreneurial spirit among employees. This can be achieved through internal corporate venturing, which promotes innovation by empowering middle management or forming innovation management task forces to motivate employees and implement strategies.

Employee innovation is positively correlated with the level of support for innovation within the organization’s culture, which is even more crucial than resource availability. Cultures that encourage creativity are more likely to foster innovation. Senior management must be tolerant of failure and encourage staff to be autonomous and willing to take calculated risks. This approach becomes increasingly vital in industries where product and process technologies have plateaued. In such scenarios, investing in human resources through training and skill development can provide a competitive edge.

To create an environment conducive to innovation, organizations must evaluate their strategic human resource management policies. They should ensure that their reward structures adequately recognize and incentivize innovation and risk-taking. This involves setting goals, providing feedback, assigning individual responsibility, and rewarding effort. Effective reward systems should promote innovative behaviour by offering performance-based rewards, presenting challenges, increasing responsibility, and publicizing the contributions of innovative individuals within the organization.

Middle managers and employees should be encouraged to view innovation as an integral part of their roles. The allocation of scarce resources to various projects, each with different risk and return levels, is a critical task for organizations aiming to foster innovation. It’s essential to review time and workloads to ensure teams have the capacity to explore new ideas. Organizations must also embrace risk-taking and maintain a flexible structure to adapt and change as necessary.

HR Frameworks to Foster Intrapreneurs

Savery and Mazzarol (2000) highlight essential strategies for fostering corporate intrapreneuring within large firms. These strategies are crucial for creating an environment that encourages innovation and risk-taking, which are key drivers of corporate entrepreneurship.

1. Tailored Reward Structure: Effective reward systems are pivotal. They should be designed to encourage innovative and creative behaviour by considering goal setting, feedback, individual responsibility, and effort. Rewards should be performance-based, providing challenges, increasing responsibility, and recognizing the contributions of innovative individuals within the organizational hierarchy.

2. Management Support: Both middle and senior management should be open to embracing new ideas and innovations. It’s vital for managers and employees to view innovation as an integral part of their roles within the firm. Systems should be in place to rapidly adopt new ideas and acknowledge the individuals who contribute them.

3. Resource Allocation: The allocation of resources is a critical aspect of encouraging corporate intrapreneuring. Firms must judiciously allocate scarce resources among competing projects with varying levels of risk and return. Employees should be encouraged to utilize resources efficiently and to be adaptable and resourceful.

4. Time for Incubation: Innovation requires time for ideas to incubate. Workloads should be moderated to avoid excessive time constraints and to allow individuals to collaborate on long-term problem-solving initiatives.

5. Reduced Bureaucracy: The organizational structure should aim to minimize bureaucracy to enhance the flow of resources, management support, and rewards. Employees should be encouraged to approach problems from a broad perspective, moving beyond narrow job descriptions and rigid performance standards.

6. Risk-Taking Culture: It’s essential to cultivate a culture that supports controlled risk-taking. Finding the right balance between encouraging innovative success and avoiding harmful excessive risk-taking is a significant challenge. Structures should be in place to allow managers to take calculated risks within defined boundaries.

These strategies form a comprehensive framework for corporate intrapreneuring, enabling large firms to remain agile and innovative in a competitive business landscape. By implementing these strategies, firms can foster a culture of innovation that empowers employees at all levels to contribute to the firm’s entrepreneurial endeavours.

Key Take-Aways

• We must innovate before we think we need to innovate to keep up with the environmental rate of change and disruption.

• Bureaucratic and risk controlling vertical organisational structure will stifle innovation. While these may be the perfect structure for managing construction projects, it is the exact wrong approach to fostering innovation

• To gear your business toward innovation you must;

  • show innovative leadership and support from senior management with a tolerance for failure and devolved decision making

  • create an ambidextrous organisation by separating innovative processes from the bureaucracy of standard operations

  • foster an innovative culture by challenging resistance to change and rewarding innovation

  • Use frameworks and systems to foster innovation while maintaining corporate oversight and alignment with the corporate strategy and values.

• Ultimately, create a Vision and ‘sell’ your vision to your employees. Your employees are the engine of change. Senior leadership must supply inspiration, vision, resources and encouragement to unlock the potential lying dormant in the organisation.