A health audit for corporate entrepreneurship:
innovation at all levels: part I
R. Duane Ireland, Donald F. Kuratko and Michael H. Morris
R. Duane Ireland holds the
Foreman R. and Ruby S. Bennett
Chair in Business in the Mays
Business School, Texas A&M
University. He also serves as
Department Head of the school’s
management department. He is
a Fellow of the Academy of
Management and has received
numerous awards for his
research and teaching. Donald
F. Kuratko is the Jack M. Gill
Chair of Entrepreneurship;
Professor of Entrepreneurship
and Executive Director of the
Johnson Center for
Entrepreneurship and
Innovation; The Kelley School of
Business, Indiana University –
Bloomington. He has authored
over 150 articles and 22 books
on entrepreneurship and
corporate entrepreneurship.
Michael Morris holds the Witting
Chair in Entrepreneurship at
Syracuse University and serves
as Chairman of the Department
of Entrepreneurship. Dr Morris
has published four books and
over 100 articles in academic
journals. He received the Appel
Prize for contributions to
entrepreneurship and is a former
Fulbright Scholar.
PAGE 10 j JOURNAL OF BUSINESS STRATEGY
Introduction
In the twenty-first century, knowledge and the ideas flowing from it are a more important
source of competitive advantage than a firm’s physical assets are. Knowledge is information
that is laden with experience, judgment, intuition, and value. Most organizational knowledge
is embedded within individuals. Given knowledge’s importance to competitive success, we
believe that business leaders must act to help their firms develop knowledge as well as
procedures through which it can be effectively shared among employees and across
business units. ‘‘Knowledge enabling’’ describes activities through which knowledge is
formed and shared throughout a company.
If organizational knowledge is important, a fair question to ask is, ‘‘for what purposes should
firms develop and share knowledge?’’ Innovation, or bringing something new into being, is,
we argue, one of the most vital uses of shared organizational knowledge. Innovation takes
place in organizations in the form of new products, new processes to use to create products,
and new administrative structures and routines to use to help the firm operate efficiently and
effectively.
But innovation does not surface in an organizational vacuum. Indeed, employees throughout
a firm who are engaging in entrepreneurial behavior are the foundation for organizational
innovation. To simultaneously develop and nurture today’s and tomorrow’s competitive
advantages, advantages that are grounded in innovation, firms increasingly rely on
‘‘corporate entrepreneurship’’ (CE). Corporate entrepreneurship is a process through which
individuals in an established firm pursue entrepreneurial opportunities to innovate without
regard to the level and nature of currently available resources. Entrepreneurial opportunities
are situations in which new products (goods or services) can be sold at a price exceeding
their cost of development, distribution and support.
Leading edge companies see the effective use of CE as a source of competitive advantage
and as a path to higher levels of financial and non-financial performance. CE can be a
source of competitive advantage at both the corporate and business unit levels. At the
corporate level, CE helps diversified firms determine the mix to include in their portfolio of
businesses and how to manage those businesses. At the business unit level, CE helps
individual businesses develop and use one or more competitive advantages as a key means
of implementing chosen strategies such as cost leadership or product differentiation. These
positive outcomes show that CE is a set of processes and activities with real, tangible
benefits. Moreover, organizations’ experiences suggest that when firms operate in markets
characterized by dynamism, complexity, and hostility, the effective use of CE seems to have
a very strong link to positive firm performance.
In our view, a corporate entrepreneurship strategy is an important path firms can take to
make it possible for employees to engage in entrepreneurial behaviors, using knowledge as
a foundation for continuous and successful innovations as they do so. More formally, a
j VOL. 27 NO. 1 2006, pp. 10-17, Q Emerald Group Publishing Limited, ISSN 0275-6668 DOI 10.1108/02756660610640137
‘‘ In spite of its potential to create value by contributing to
improved organizational performance, many established
companies do not encourage entrepreneurial behavior and
often have structural impediments in place that stifle or
prevent it from occurring. ’’

corporate entrepreneurship strategy (CES) is a vision-directed, organization-wide reliance

on entrepreneurial behavior that purposefully and continuously rejuvenates the organization
and shapes the scope of its operations by recognizing and exploiting entrepreneurial
opportunities that are oriented to innovation. Creating a work environment where all
employees are encouraged and are willing to ‘‘step up to the plate’’ to innovate on their jobs
is a centerpiece of an effective CES.
In spite of its potential to create value by contributing to improved organizational
performance, many established companies do not encourage entrepreneurial behavior and
often have structural impediments in place that stifle or prevent it from occurring. Commonly,
these structural impediments are the product of bureaucratic routines that have outlived their
usefulness. Developing an internal work environment capable of cultivating employees’
interest in and commitment to creativity and the innovation that can result from it is the
product of effective efforts by managers at all levels.
Our purposes in this paper are to:
1. describe corporate entrepreneurship and its importance for firms’ innovation efforts;
2. identify the issues considered when designing a corporate entrepreneurship strategy;
3. discuss the triggers or causes of CE; and
4. describe an internal work environment that supports CE.
Concluding our analysis of these points is a brief introduction to an entrepreneurial mindset,
which is essentially the frame of reference organizational actors need to hold and support in
order to successfully use a corporate entrepreneurship strategy as part of a commitment to
corporate entrepreneurship.
In the second part of our work, which will appear in the next issue of Journal of Business
Strategy, we describe the Entrepreneurial Health Audit. This audit is a tool used to determine
the extent to which a firm is capable of fostering entrepreneurial behavior as the foundation
for improvements in organizational performance. As a diagnostic tool, the audit is used
across time to continuously assess a firm’s readiness to engage in corporate
entrepreneurship.

Why is corporate entrepreneurship important?

CE is a process used in established firms seeking to use innovation as the means to pursue
entrepreneurial opportunities. CE helps a firm create new businesses through product and
process innovations and market developments and foster the strategic renewal of existing
operations. CE can take place on the corporate, business unit, functional, or project levels,
with the unifying objective of improving a company’s competitive position and financial
performance.
Observations of firms in different settings as well as academic research suggest that
organizations differ with respect to how entrepreneurial they are. Extending this thought, we
can say that organizations have different levels of entrepreneurial intensity. Entrepreneurial
intensity (EI) is concerned with two basic questions:

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 1. How many entrepreneurial initiatives is the company pursuing (frequency of
entrepreneurship)?
2. To what extent do those initiatives represent incremental or modest steps versus bold
breakthroughs (degree of entrepreneurship).
The degree of entrepreneurship indicates the extent to which an organization’s efforts are
innovative, risky, and proactive.
To assess an organization’s EI, we consider frequency and degree of entrepreneurship jointly.
As continuous aspects of organizational life, any number of combinations of frequency and
degree are possible. Thus, a firm may be engaging in many entrepreneurial initiatives (high on
frequency), but none of them may be especially innovative, risky or proactive (low on degree).
Another company may pursue a path that emphasizes breakthrough developments (high
degree) that are initiated every four or five years (low frequency). Yet another firm might
achieve a balance in terms of moderately high levels of both degree and frequency.
Importantly, it is possible to measure a firm’s level of EI. We will say more about this in part two
of our work when we discuss the Entrepreneurial Health Audit.

What issues are evaluated when designing a corporate entrepreneurship strategy?

Earlier, we defined a corporate entrepreneurship strategy. As the definition shows, this
strategy provides the context within which CE takes place in an established firm. Many
factors contribute to defining a corporate entrepreneurship strategy. Among the most
important are:
1. Where does the firm want to be in terms of its level of entrepreneurial intensity? Does the
firm seek a condition of:
B high frequency and low degree;
B high degree and low frequency; or
B some other combination?
2. To what extent are the firm’s entrepreneurial efforts oriented towards growing new
businesses and starting new ventures outside the current portfolio of businesses versus
transforming the existing businesses with the objective of developing new products
and/or serving markets that are new to the firm?
3. In what areas does the firm want to be an innovation leader versus being an innovation
follower vis-à-vis the industry? In what market spaces does the firm seek to be a first
mover? In what market spaces does the firm want to be a fast second mover?
4. In what areas of the firm are managers seeking higher versus lower levels of
entrepreneurial behaviors? Which business units or product areas are expected to be the
most innovative and to serve as a model for the remainder of the firm?
5. What is the relative importance over the next three or so years of product innovation
(introducing new goods or services in the marketplace) versus process innovation
(developing more efficient and effective ways to produce the firm’s goods and services)?
What is the relative importance of new versus existing markets?
6. To what extent are innovation stimuli expected to come from top, middle, or first-level
managers? Are all managers clear about what the firm expects from them in terms of
stimulating entrepreneurial behavior as the path to create product, process, and/or
administrative innovations?

‘‘ Are all managers clear about what the firm expects from them
in terms of stimulating entrepreneurial behavior as the path to
create product, process, and/or administrative innovations? ’’

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Dealing with these issues is important because entrepreneurial behaviors are more likely to
become the norm in firms using a corporate entrepreneurship strategy that is a product of
developing answers to the issues listed above. Moreover, firms with a carefully designed
corporate entrepreneurship strategy tend to elicit entrepreneurial behaviors that are more
tightly integrated, which leads to better operational efficiency. Absent such a strategy,
managers and employees can waste significant resources on exciting initiatives that make
little sense for the firm or that have little likelihood of long-term success. Another benefit of a
carefully designed and executed corporate entrepreneurship strategy is that regularly using
such a strategy encourages organizational knowledge to be shared across the firm. This is
important in that as we noted earlier, creatively developing and using organizational
knowledge is a critical source of competitive advantage for today’s firms. Finally, when
formulating a corporate entrepreneurship strategy becomes a regular managerial task, the
firm is able to generate and apply more organizational knowledge regarding how
entrepreneurship works and how it can be sustained.

What are the triggers of corporate entrepreneurship?

Based on our experiences with organizations, we believe that interactions among
organizational characteristics, individual characteristics and some kind of precipitating
event in the firm’s internal work environment and external environment are the precursors of
corporate entrepreneurship in organizations. We label these conditions and events
‘‘triggers.’’
Triggers originate from either inside or outside an organization. Arguably, the greatest
pressure for entrepreneurial behavior that brings entrepreneurship to life comes from
developments in the external environment. Diminishing opportunity streams, rapid changes
in technologies, labor shortages, aggressive competitor moves, changes in industry or
market structure, and regulatory threats are examples of external triggers. External triggers
such as these yield a host of opportunities for firms to explore for new competitive
advantages and market spaces as well as challenges to successfully exploit current
competitive advantages.
Factors inside the firm also trigger entrepreneurship and entrepreneurial behavior.
Directives from top-level managers, employee rewards, slack resources, abrasion or
tension between two competing sets of interests, or a major problem with quality or cost
control are examples of internal triggers. Some companies, Procter & Gamble, 3M, and Intel
among them, seem to have the skills needed to recognize these types of triggers as they
surface. Quick recognition of triggers helps a firm rapidly understand the need for and value
of a corporate entrepreneurship strategy as well as the shape it should take relative to the six
factors presented above.
Regardless of their origin, though, triggers offer several potential implications regarding a
corporate entrepreneurship strategy. Compared to internal triggers, triggers from outside
the company, such as rapid technological changes, may tend to produce entrepreneurial
projects that are more innovative or that represent major departures from the status quo.
Triggers associated with competitors’ actions might lead to more imitation while those
related to a threat from a substitute product might produce more innovative solutions.
Depending on their tolerance of risk, managers may be more supportive of entrepreneurial
behaviors triggered by external threats (e.g. an impending government regulation) as
opposed to entrepreneurial behaviors triggered to pursue an external opportunity (e.g. an
untapped market niche).
The important point is that triggers have differential effects in terms of stimulating
entrepreneurship and entrepreneurial behavior. Characteristics of a firm’s internal
environment are a strong determinant of these differential effects.

Characteristics of an internal work environment that supports corporate

entrepreneurship
A company’s ability to recognize and act on triggers may depend on how managers answer
the question, ‘‘who is the corporate entrepreneur’’? While some argue that certain people are

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 born to be entrepreneurial and that these individuals are to be anointed as entrepreneurs in
organizations, we believe that virtually all employees have innate potential to behave
entrepreneurially. These two perspectives suggest different implications about how a
company can foster entrepreneurial behaviors. With the first perspective, top level
managers must ‘‘pick the winners’’ much as a venture capitalist does. They must somehow
identify innately entrepreneurial employees and then provide resources to them in the
expectation that they will produce innovations.
The second perspective suggests that top level managers’ job is to create a work
environment that is highly conducive to entrepreneurship and entrepreneurial behaviors. In
this instance, each employee has an opportunity to ‘‘step up to the plate.’’ The willingness
and ability to act upon one’s innate entrepreneurial potential is based on a calculated
assessment. Conditions in the internal work environment dictate the perceived costs and
benefits associated with taking personal risks, challenging current practices, devoting time
to unproven approaches, persevering in the face of organizational resistance, and enduring
the ambiguity and stress that entrepreneurial behavior can create.
We argue that sustainable corporate entrepreneurship is more likely in companies where all
individuals’ entrepreneurial potential is sought and nurtured and where organizational
knowledge is widely shared. The managerial challenge becomes that of using workplace
design elements to develop an ‘‘entrepreneurially friendly’’ internal environment. Corporate
entrepreneurship strategy requires four critical design elements – structure, controls,
human resource management systems, and culture (see Figure 1).

Structure
Corporate entrepreneurship flourishes when an organization’s structure has a relatively small
number of layers. A key reason for this is that a restricted number of layers results in a
broader span of control which in turn creates opportunities for employees to act
entrepreneurially. With fewer managerial layers, authority and responsibility are
decentralized and horizontal or lateral interactions among employees are encouraged.
These structural characteristics facilitate the surfacing of ideas and innovations at lower
organizational levels and foster unique and creative managerial styles. Decentralized
authority and responsibility also increases the likelihood that employees throughout the
organization will communicate frequently and effectively, which allows knowledge to be

Figure 1 Framework for sustainable corporate entrepreneurship

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shared in ways that promote innovation, risk taking, and proactive behavior. An
entrepreneurially friendly organizational structure does not have highly structured job
roles and is receptive to continuous changes in the nature of employees’ work. The need to
change job roles commonly results as employees become successful with efforts to
innovate.

Controls
Organizational controls create value when they simultaneously provide the stability firms
need to exploit current competitive advantages and the flexibility required for employees to
behave entrepreneurially for the purpose of beginning to form the competitive advantages
the firm will require to succeed in the future as it innovates. Controls stifling or preventing
these desirable outcomes have a strong negative effect on employees’ entrepreneurial
efforts. When encountering dysfunctional controls, corporate entrepreneurs commonly try to
work around them. Using their knowledge as the basis for their formation, informal
relationships often are the path employees take to avoid the negative effects of stifling
organizational controls.
There is more to say about effective organizational controls and entrepreneurship.
Experience shows that positive controls are linked to performance measures, allow
significant discretion, and are focused on generating and sharing knowledge that allows
employees (including managers) to identify problems before they surface. Controls promote
and nurture entrepreneurial behavior when they balance loose and tight properties. In this
regard, controls are designed to strike a balance between encouraging individual action
through flexible control and ensuring coordination, consistency, and accountability through
tight control. Budgetary flexibility and slack resources are built into the firm’s control system,
providing room for experimentation with unsanctioned initiatives. In addition, strategic
controls (which are concerned primarily with verifying that the firm is doing the right thing)
are emphasized over financial controls (which are concerned primarily with verifying that the
firm is doing things right). Emphasizing strategic controls encourages employees to accept
risk that is associated with effective entrepreneurial behavior.

Human resource management systems

With corporate entrepreneurship, the goals of an effective human resource management
system are for employees to learn how to:
B embrace creative and innovative behavior;
B take reasonable levels of risk;
B use a long-term orientation to evaluate innovation-based possibilities;
B focus on results;
B work cooperatively with others;
B tolerate ambiguity; and
B assume responsibility for change.
A firm’s human resource management system is a potent tool to encourage and reinforce
entrepreneurial behavior. Indeed, successful corporate entrepreneurship is promoted by
entrepreneurially-friendly processes related to recruiting, selecting, training and developing,
and rewarding.
To promote entrepreneurship and the sharing of knowledge that is critical to its successful
use, firms recruit individuals who are flexible, willing to take risks, and strongly committed to
constant innovation and the changes it can surface. In established firms, an internal labor
market permitting individuals to become a part of projects where their skills and knowledge
are needed supports efforts to have the ‘‘right people in the right places at the right time.’’
Career paths (which are part of a firm’s training and development programs) for individuals
selected because they have these characteristics should be designed around different
types of opportunities and should include as many different job assignments as is feasible.

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 ‘‘ . . . that top level managers’ job is to create a work
environment that is highly conducive to entrepreneurship and
entrepreneurial behaviors. In this instance, each employee
has an opportunity to ‘step up to the plate.’ ’’

In these cases, training should be continuous, less structured or standardized and focused
on individualized knowledge requirements. In these programs, employees should be
exposed to opportunities to develop their tolerance for risk, embrace change as a source of
individual and organizational growth, and learn the realities of organizational politics so they
will be able to obtain sponsors for their innovation-based projects,
An entrepreneurially-friendly human resource management system evaluates outcomes as
well as processes. Product and process innovations are examples of valued outcomes. In
addition, though, entrepreneurs build valuable social capital when they use inclusive and
supportive processes to innovate. Reward systems for corporate entrepreneurs should
emphasize financial gains as well as formal recognition for their achievements. However, it is
important for organizations seeking to become more entrepreneurially intense to balance
incentives for individuals with recognitions for effective team work. The reason for this is that
long-term success is a function of individuals’ efforts and the work of people collaborating to
synergistically use their knowledge to produce value-creating innovations.

Culture
Organizational culture, which is the social energy that drives or fails to drive a firm, is a
complex phenomenon and it can be difficult to describe. In fact, most organizational cultures
are felt or experienced rather than described with words. We do know that in a firm with a
high degree of entrepreneurial intensity, great value is placed on viewing change and the
uncertainty it often creates as the foundation for opportunities to innovate and improve an
organization’s performance. Thus, in an entrepreneurial culture, the focus is on the future
rather than the past and the ability to develop and transfer knowledge is greatly valued.
Entrepreneurially-intense cultures also place high importance on being able to empower
people in ways that allow them to act creatively and to fulfill their potential. Authority and
responsibility are decentralized to employees who are ‘‘closest to the action’’ so they can
make decisions that are in the firm’s best interests. Associated with authority and
responsibility are expectations that employees will strive for excellence in all they do and that
they will be willing to be held accountable for the outcomes of their efforts. Frequent debates
are held in entrepreneurially-intense cultures as everyone seeks to find the best paths to take
to innovate and to help the firm reach its full commercial potential while employees try to find
ways to increase their knowledge.

Conclusion: creating an entrepreneurial mindset

Based on our work with organizations and in light of results of academic research, we can
conclude our observations about successful corporate entrepreneurship strategies by
suggesting that these positive outcomes are more commonly achieved in firms with an
entrepreneurial mindset. For us, an entrepreneurial mindset is a way of thinking about
opportunities that surface in the firm’s external environment and the commitments,
decisions, and actions necessary to pursue them, especially under conditions of uncertainty
that commonly accompany rapid and significant environmental changes. When adopting an
entrepreneurial mindset, organizational actors increase their ability to sense opportunities
and mobilize the resources and knowledge required to exploit them. The process of
combining entrepreneurial behaviors (opportunity-seeking ones) with strategic actions
(opportunity seeking within the context of a specific strategy) is vital to designing and

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 successfully using a corporate entrepreneurship strategy. The ability for a firm to do these
things results in a competitive advantage. This is because most organizations are not
committed to developing an entrepreneurial mindset as the context through which corporate
entrepreneurship and subsequently, a corporate entrepreneurship strategy, are surfaced
and supported.
But there is more to be said about the actions firms take when seeking to learn how to
successfully engage in corporate entrepreneurship and effectively implement or use a
corporate entrepreneurship strategy. Indeed, knowing the characteristics associated with
the point from which efforts are to be launched is critical. As we noted earlier, some firms are
more entrepreneurially intense than others. Identically, a firm’s culture can influence the
number of organizational actors who have developed or who are informally and even
unintentionally forming an entrepreneurial mindset (as demonstrated by their initiative and its
nature).
As we discuss in part two of our work, firms use an Entrepreneurial Health Audit to assess the
Keywords: degree to which it is prepared to engage in corporate entrepreneurship and to use a
Entrepreneurialism, corporate entrepreneurship strategy. We present and discuss the audit as a valuable
Strategic management organizational tool in the next issue of Journal of Business Strategy.

Corresponding author
R. Duane Ireland is the corresponding author and can be contacted at
direland@mays.tamu.edu

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