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Corporate America, Find Your Hidden Entrepreneurs

During challenging economic times, most companies are inclined to hunker down, cut costs, and play it safe. But the best business opportunities often arise during periods of economic stress. Think Microsoft (MSFT), FedEx (FDX), and Southwest Airlines (LUV), all founded amid economic sluggishness in the 1970s. In order to seize such opportunities, companies need to identify individuals in their own ranks who can employ new thinking to expand the company's scope and performance. Enterprises also need to recognize the importance of giving these special employees incentives to pursue innovative ideas. Enter the entrepreneur.

Some enlightened companies have understood the importance of discovering, nourishing, and rewarding entrepreneurs in their midst before these talented individuals become restless and move on to other companies—or as is often the case, begin their own independent ventures. Less enterprising companies may have already missed the boat by unnecessarily losing their entrepreneurs to competitors.

Ernst & Young has invested heavily in the development of entrepreneurship both in the U.S. and abroad for more than two decades because it fervently believes that entrepreneurial thinking and the innovation it inspires make a surefire formula for economic growth. In fact, 24 years ago, the firm initiated its Entrepreneur Of the Year awards program, which began a worldwide search of thousands of companies to find eligible nominees—owners or managers of private or public companies—whose performance, business strategy, innovation, corporate values, and leadership were judged exemplary. From this effort emerged a number of regional and national winners, many of whom became highly successful business leaders, such as Amazon's (AMZN) Jeff Bezos, Dell's (DELL) Michael Dell, Starbucks' (SBUX) Howard Schultz, Home Depot's (HD) Arthur Blank, and Blockbuster's (BBI) Wayne Huizenga.

Ernst & Young recognized the importance of entrepreneurship early on, forming a culture that inspires and rewards this attribute. The firm itself identifies and encourages associates who demonstrate entrepreneurial leadership, a fundamental characteristic necessary for advancement. Moreover, it has in recent years established a Corporate Responsibility Fellows program, which selects its most outstanding future leaders and sends them to Central and South America to assist entrepreneurs in emerging markets build their businesses, create jobs, foster innovation, and generate economic value in local communities. These leaders leverage their workplace skills to improve a range of business processes for their respective charges, including overall strategy, human resources, and financial reporting.

entrepreneurs' insatiable need to win

Additionally, Ernst & Young created another program, entitled Your World, Your Vision, which invites students to develop proposals that can make a difference in their communities in one of three areas: education, entrepreneurship, or environment. These are the areas that the company focuses on in its corporate responsibility efforts. Each team receives $10,000 from the firm to implement its program, which is specifically aimed at encouraging young people to think entrepreneurially. This not only helps them improve their communities, but equips them with the critical professional skills they need for future success.

Entrepreneurs are often overlooked by their managers because they are not typical corporate team players. They are a breed apart. They are more creative, confident, unconventional, and eager to overcome challenges. They possess a strong work ethic and are intellectually curious, restless, optimistic, and visionary. They are willing to take risks in order to chase their dreams. They also have an insatiable need to win.

Entrepreneurs can help keep companies from resting on their laurels. They are the employees most likely to develop breakthrough ideas. Such ideas are sometimes dismissed by corporate managers as off-target or wishful thinking, but they can create new lines of profitable business. Companies should not let them slip away.

Matthew Szulik is a classic example. He joined Red Hat (RHT) to pursue an unorthodox idea—building a business by giving away software. Szulik helped build the U.S.-based company into one that revolutionized the enterprise software market. (Ernst & Young honored him as Entrepreneur of the Year in 2008.)

Szulik was one of the first to recognize that in software development, the value of putting intellectual property into the public domain—moving to an open-source model—would carry significant advantages: greater customer involvement in shaping the product, building a simple distribution model, and creating a unique relationship with clients.

"People thought that this was the dumbest idea they had ever heard," says Szulik, "because no one had ever done it before. Imagine trying to build a business around 'free,' but it worked."

Companies with edge: IBM, Google, 3M

For corporations, the key is to recognize that there is enormous advantage and opportunity in having employees act like entrepreneurs. In a global, information-driven economy, a key factor in corporate competitiveness is fresh thinking about familiar problems. To that end, more companies need to create programs focused on identifying, supporting, and encouraging entrepreneurship, then use their entrepreneurs as examples to encourage others. Companies that have supported entrepreneurial energy and thinking have been generously rewarded.

3M (MMM), for example, touts its "tolerance for tinkerers" and encourages employees to pursue innovations. It supports them with funding and rewards them for accomplishments. This policy began in the 1940s, when the company's chairman decreed that technical staffers could devote up to 15% of their time to side projects. As a result, 3M has become an invention factory.

Google (GOOG) upped the ante. It permits engineers to devote up to 20% of their time to pursue their own projects. According to Daniel Pink, author of Drive, "more than half of Google's new offerings are birthed during these periods of pure autonomy." Its innovations include Google News, Gmail, and a continuous stream of new applications from its labs.

A third example is IBM (IBM). Since 2001, the company has used what it calls "jams" to engage with its more than 300,000 employees around the world. These are the loose equivalent of company-wide brainstorming sessions, which IBM says have been a signature management tool in Chief Executive Sam Palmisano's transformation of the company.

In 2004, IBM organized a company-wide jam that culminated with management's commitment to implement 35 ideas that emanated from the exercise. One was an innovation tool called ThinkPlace, which has led to the implementation of 300 proposals. IBM says they have created value worth more than $500 million.

It's no coincidence that these are world-class companies. They recognize that in a dynamic economy with global competition—whose sole constant is change—companies need to nurture their employees' innovative talents and recognize the added value such individuals contribute.

Companies need to remember the words of Sobhi Batterjee, a leading entrepreneur in the Middle East health-care sector: "Innovate or evaporate." In that concept are the seeds of the next major growth spurt for the global economy as well as a source of empowerment for individuals in companies—and for those starting companies. With the U.S. facing stubbornly high unemployment, the agents to rejuvenate our economy and spark a new era of growth and prosperity can be innovation and entrepreneurship.

Steve Howe is Ernst & Young's Americas area manager and supervises the firm's business in the U.S., Canada, and Latin America.

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